DECORATOR INDUSTRIES INC
The Company designs, manufactures and sells a broad range of interior furnishings, principally draperies, curtains, valance boards, shades, blinds, bedspreads, comforters, pillows, cushions, and trailer tents. These products are sold to original equipment manufacturers of recreational vehicles and manufactured housing and to the hospitality industry (motels/hotels) either through distributors or directly to the customers.           The Company has one industry segment and one class of products. The business in which the Company is engaged is very competitive, and the Company competes with manufacturers located throughout the country. However, no reliable information is available to enable the Company to determine its relative position among its competitors. The principal methods of competition are price, design and service.           During 2005, one customer, Fleetwood Enterprises, Inc., accounted for 22.5% of the Company's total sales. In the event of the loss of this customer, there would be a material adverse effect on the Company. However, that event is unlikely because in January 2004 the Company executed an agreement to be the exclusive supplier of Fleetwood's drapery, bedspread and other decor requirements in the manufactured housing and recreational vehicle industries for a period of six years. If, at the end of three years, Fleetwood is satisfied with the performance of the Company under this agreement, it will extend the terms of this agreement an additional three years. Most of the Company's sales to Fleetwood are governed by this supply agreement. The Company believes that it has good relations with Fleetwood.           The Company's backlog of orders at any given time is not material in amount and is not significant in the business. No material portion of the Company's sales or income is derived from customers in foreign countries.                                         1            The chief raw materials used by the Company are largely fabrics made from both natural and man-made fibers. The raw materials are obtained primarily from converters and mills. The Company is not dependent upon one or a very few suppliers. Most of its suppliers are large firms with whom, in the opinion of management, the Company enjoys good relationships. The Company has never experienced any significant shortage in its supply of raw materials.           The Company has no significant patents, licenses, franchises, concessions, trademarks or copyrights. Expenditures for research and development during 2005 and 2004 were not significant.           Compliance with federal, state and local environmental protection provisions is not expected to have a material effect upon the capital expenditures, earnings or competitive position of the Company.           The Company employs approximately 731 sales, production, warehouse and administrative employees and also uses the services of independent sales representatives.
The Company faces multiple risk factors, including risks that are industry specific to the markets that the Company serves, and risks that affect the Company as a whole.  RECREATIONAL VEHICLE MARKET (RV) RISK FACTORS - ---------------------------------------------  Fuel: Higher costs or shortages of fuel could reduce demand for RV's.  Inventories: Excess inventories at the retail level could temporarily reduce          demand for new RV's.  Cyclicality: The RV market has historically experienced cyclicality. A downturn          in market conditions is possible.  Credit: The lack of available credit for retail purchasers could reduce demand          for new units.  MANUFACTURED HOUSING MARKET (MH) RISK FACTORS - ---------------------------------------------  Cyclicality: The MH market has historically experienced cyclicality. The market          has been experiencing a prolonged down cycle since 1998 when          approximately 374,000 units were produced nationally. For each of the          past three years, the industry has produced approximately 130,000 units          (excluding FEMA units).  Credit: The lack of available credit for retail purchasers could continue to          reduce the demand for new units.  Repossessions: Increases in the number of repossessed units could reduce the          demand for new units.  Regulations: Changes in zoning regulations and building codes could reduce the          demand for new units.  Geographic Concentration: The Company's sales to the MH industry are          concentrated in the southern United States. This is due to the overall          geographic concentration in the MH industry. In calendar year 2005,          industry shipments to the southern United States were 59.6% of total          industry shipments.                                         2   HOSPITALITY MARKET RISK FACTORS - -------------------------------  Competition: The market for the Company's hospitality products is highly          competitive, as its customers are provided with many sourcing choices,          including foreign sources for some products.  Occupancy: A decrease in hospitality occupancy rates could have a negative          impact on both new properties and refurbishing of existing properties.          Decreases in the levels of business and/or leisure travel could reduce          occupancy rates.  Sales Representation: The majority of the Company's hospitality business is          solicited by independent sales representatives. The loss of a few key          representatives could have a negative effect on the Company's revenues.  GENERAL CORPORATE RISK FACTORS - ------------------------------  Competition: All of the markets served by the Company are highly competitive.          Competitive pricing pressure could result in loss of customers or          decreased profit margins. Barriers to entry for new domestic          competitors are relatively small, thereby increasing the potential for          more competitors. Although the Company has not faced competition from          foreign sources to date, the possibility of such competition does          exist.  Raw Material Acquisition: The Company faces the risk of having to pay increased          prices for purchasing raw material from its suppliers. Should the          Company face price increases that it cannot pass on to its customers,          the results of operations could suffer as a result. If the Company's          suppliers were adversely affected by a disruption in the petroleum or          chemical industries, the Company's costs or ability to deliver product          may also be adversely affected.  Management: The Company is dependent on the management and guidance of William          Bassett, its chairman, CEO, and president. The loss of Mr. Bassett's          services could have a negative impact on the performance and growth of          the Company for some period of time. To a lesser extent, the Company is          dependent on the key management at each of its manufacturing          operations.  Stock Price: The Company's stock is thinly traded. Should a major shareholder          decide to liquidate its position, there could be a negative effect on          the price of the stock until this condition is resolved.  Sarbanes-Oxley: Unless the current requirement for compliance with Section 404          of the Sarbanes-Oxley Act is changed, the Company will experience          higher internal and auditing costs to comply by the end of fiscal 2007.  Significant Customer: Sales to Fleetwood Enterprises represented 22.5% of the          Company's sales in 2005. Although the Company has an agreement with          Fleetwood to be its exclusive supplier of certain products through          January 2010, Fleetwood's performance in its own markets could have a          negative impact on the Company's sales and results of operations. To a          lesser extent, the loss of other major customers could also adversely          affect the Company.  Information Systems: The Company is in the process of upgrading its          Enterprise-Resource-Planning (ERP) system. Any unforeseen difficulties          in the implementation of this system can result in increased future          consulting costs as well as increased depreciation costs for the          installed software.                                         3
The following table summarizes certain information concerning the Company's properties:                                                                                          Approx.             Location                                Principal Use                    Square Feet      Owned/Leased             --------                                -------------                    -----------      ------------     Haleyville, Alabama                Offices, manufacturing and warehouse                 54,000            Owned Red Bay, Alabama                   Offices, manufacturing and warehouse                 33,800           Leased Phoenix, Arizona                   Offices, manufacturing and warehouse                 35,000            Owned Pembroke Pines, Florida            Offices                                               3,148           Leased Douglas, Georgia                   Offices, manufacturing and warehouse                 28,000            Owned Elkhart, Indiana                   Offices, manufacturing and warehouse                 51,000            Owned Goshen, Indiana                    Offices, manufacturing and warehouse                 55,700            Owned Bossier, Louisiana                 Offices, manufacturing and warehouse                 20,000            Owned Salisbury, North Carolina          Offices, manufacturing and warehouse                 22,800           Leased Berwick, Pennsylvania              Offices, manufacturing and warehouse                 12,500           Leased Bloomsburg, Pennsylvania           Offices, manufacturing and warehouse                 56,500            Owned Abbotsford, Wisconsin              Offices, manufacturing and warehouse                 23,900           Leased                                     Total Owned                                         300,200                                    Total Leased                                         96,148            The Company considers that its offices, plants, machinery and equipment are well maintained, adequately insured and suitable for their purposes and that its plants are adequate for the presently anticipated needs of the business. The Goshen, IN, Elkhart, IN, and Bloomsburg, PA facilities are subject to mortgages as mentioned in Note 6 to the financial statements.
None.
None.                                         4                                       PART II
The Company's Common Stock is listed and traded on the American Stock Exchange, AMEX symbol DII.           Common Stock price information is set forth in the table below.                                   2005 Sales Prices         2004 Sales Prices                                  -----------------         -----------------                                 High            Low       High            Low                                 ----            ---       ----            ---          First Quarter         $ 9.85         $ 8.01     $ 8.48         $ 6.35          Second Quarter          9.80           7.97       8.72           7.45          Third Quarter           8.84           7.00       9.29           8.22          Fourth Quarter          8.85           7.60       9.25           7.76           As of March 24, 2006, the Company had 256 shareholders of record of its Common Stock.           Total cash dividend payments were $0.12 per share in 2005 and 2004. The Company expects to maintain the dividend rate of $0.12 per share in 2006.           At December 31, 2005, the Company had outstanding options under one shareholder approved option plan. Under the 1995 Incentive Stock Option Plan ("1995 Plan"), the Company has granted options to its key employees for up to 520,832 shares of Common Stock (as adjusted for stock splits). The following is a summary of the options outstanding under the 1995 Plan at December 31, 2005:                                                                                   Number of shares                                                                                  available for                   Number of shares optioned   Weighted average exercise price    future options                   -------------------------   -------------------------------   ----------------     1995 Plan                  362,728                      $6.19                           0            The Company also provides a stock grant to its non-employee directors as compensation for their services as directors. In 2005, the Company awarded four non-employee directors a total of 8,487 shares. In 2004, the Company awarded five non-employee directors a total of 9,927 shares. All non-employee directors receive their shares in a Directors Trust, for which the president of the Company is the Trustee. The shares were not registered under the Securities Act of 1933 in reliance upon Section 4(2) and other exemptions.           The Company made no Common Stock repurchases during fiscal 2005.                                         5
2005            2004             2003             2002             2001                                           -----------      -----------      -----------      -----------      -----------       FOR THE YEAR - ------------   Net Sales                               $50,525,343      $50,449,214      $41,803,224      $38,641,605      $34,782,121   Net Income                              $ 1,364,814      $ 1,394,698      $ 1,561,778      $ 1,384,379      $   861,561                                           -----------      -----------      -----------      -----------      -----------  AT YEAR END - -----------   Total Assets                            $24,294,365      $23,962,077      $21,088,322      $19,480,134      $18,365,516   Long Term Obligations                   $ 1,536,754      $ 1,752,568      $ 1,926,832      $ 1,477,973      $ 1,604,245   Long-term Debt/Total Capitalization            8.25%            9.98%           11.65%            9.97%           11.40%   Working Capital                         $ 6,092,349      $ 4,167,876      $ 8,007,862      $ 6,191,028      $ 6,074,073   Current Ratio                                2.20:1           1.73:1           3.05:1           2.49:1           2.56:1   Stockholders' Equity                    $17,088,012      $15,799,668      $14,614,621      $13,348,108      $12,463,950                                           -----------      -----------      -----------      -----------      -----------  PER SHARE - ---------   Basic                                   $      0.47      $      0.50      $      0.56      $      0.49      $      0.31   Diluted                                 $      0.46      $      0.47      $      0.55      $      0.49      $      0.31   Book Value                              $      5.84      $      5.58      $      5.22      $      4.78      $      4.43   Cash Dividends Declared                 $      0.12      $      0.12      $      0.12      $      0.12      $      0.12
2005           2004           2003                           ----------     ----------     ----------  Net Income                $1,364,814     $1,394,698     $1,561,778 Add:      Income Tax              770,000        906,000      1,028,000      Interest Expense         74,831        107,132         56,211      Depreciation and         Amortization       1,436,911      1,407,986        711,443      Loss on Disposal         of Assets            165,315         11,079         11,575                           ----------     ----------     ----------  EBITDA                    $3,811,871     $3,826,895     $3,369,007                           ==========     ==========     ==========  Contractual Obligations           The following table summarizes the Company's financial obligations as of December 31, 2005:    (in thousands)                                                                                      2011 and                                2006       2007       2008       2009       2010     thereafter  Total                               ------     ------     ------     ------     ------    ----------  ------         Employment Contracts          $  401     $  376     $  266     $  258     $  244     $  489     $2,034 Operating Leases                 303        102         73         61         31         12        582 Long Term Debt- Principal        212        206        595        120        125        490      1,748 Long Term Debt- Interest          64         56         38         25         20         32        235                               ------     ------     ------     ------     ------     ------     ------  Total                         $  980     $  740     $  972     $  464     $  420     $1,023     $4,599                               ======     ======     ======     ======     ======     ======     ======            Interest on long term debt consists of both fixed and variable interest rate obligations. Projected interest rates on variable interest rate obligations are the interest rates in effect as of December 31, 2005. See Item 7A, "Quantitative and Qualitative Disclosures about Market Risk", for further information about uncertainties from fixed and variable interest rate obligations.
The Company faces minimum potential market risk in its long-term debt. The Company had four separate long-term debt agreements outstanding as of December 31, 2005.           The Company faces the risk that if market interest rates increase, the two interest rate obligations of the Company with a variable interest rate would require higher payments of interest. As of December 31, 2005, the bond secured by the Company's Goshen, Indiana property of $1,035,000 had a variable interest rate of 3.66% per annum. Each increase of 1% could increase interest expense by approximately $10,300 in 2006 and lower amounts in successive years as principal is paid down, terminating in 2014. Also, the $145,833 bond on the Company's Bloomsburg, Pennsylvania property had a variable interest rate of 3.60% at December 31, 2005. Each increase of 1% in market rates could cause an increase in interest expense of less than $2,000 in 2005 and lower amounts in successive years as principal is paid down, terminating in 2008. Interest rates are exclusive of                                          12   letter of credit fees paid to third parties to guarantee the payment of these obligations, which fees are 1% or less, and are not subject to increase.           The Company believes the risks associated with its fixed rate obligations are minimal, as the Company believes the current rates approximate current market rates, and that the current market rates are unlikely to go significantly lower. Should market interest rates rise significantly, the Company would benefit in that it would have locked in a lower fixed rate that will remain in effect for the life of the loan.
The financial statements, financial statements schedule, and reports of independent certified public accountants listed in Item 15(a) of this report are filed under this Item 8.
None.
(a) The Company's principal executive officer and principal financial officer have reviewed the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2005 and have concluded that they were adequate and effective.  (b) During the most recent fiscal quarter, there were no changes in the Company's internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
None.                                         13                                      PART III
The information required by this item will be included in a definitive proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days after December 31, 2005. Such information is incorporated herein by reference.
The information required by this item will be included in a definitive proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days after December 31, 2005. Such information is incorporated herein by reference.
The information required by this item will be included in a definitive proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days after December 31, 2005. Such information is incorporated herein by reference.
The information required by this item will be included in a definitive proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days after December 31, 2005. Such information is incorporated herein by reference.
The information required by this item will be included in a definitive proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days after December 31, 2005. Such information is incorporated herein by reference.                                         14                                       PART IV
(a)      The following documents are filed as a part of this report:                   -----------------------------------------------------------                    Financial Statements and Schedules                   ----------------------------------                    (1)      Independent Auditors' Report                    (2)      Balance Sheets - December 31, 2005 and January 1,                            2005                    (3)      Statements of Earnings for the three fiscal years                            ended December 31, 2005                    (4)      Statements of Stockholders' Equity for the three                            fiscal years ended December 31, 2005                    (5)      Statements of Cash Flows for the three fiscal years                            ended December 31, 2005                    (6)      Notes to the Financial Statements                    (7)      Independent Auditors' Report on Financial Statement                            Schedule                    Schedule II - Valuation and Qualifying Accounts                    All other schedules are omitted because they are not required                   or are inapplicable or the information is included in the                   financial statements or notes thereto.           Exhibits          --------           3A       Articles of Incorporation as amended to date, filed as Exhibit                   3A to Form 10-K for the fiscal year ended December 28, 1985                   and incorporated herein by reference.           3B.1     By-laws as amended to date, filed as Exhibit 3B.1 to Form 10-Q                   for the Quarter ended July 2, 1988 and incorporated herein by                   reference.           10E      Lease dated February 9, 1984 between registrant, as lessee,                   and Leon and Eleanor Bradshaw covering property at 500 North                   Long Street, Salisbury, North Carolina, filed as Exhibit                   10(b)(4)(iv) to Registration Statement No. 2-92853 and                   incorporated herein by reference.           10H      Lease Agreement dated December 13, 1983 covering property at                   101 West Linden Street, Abbotsford, Wisconsin, and assignment                   thereof to the registrant, as lessee, dated October 2, 1985,                   filed as Exhibit 10H to Form 10-K for the fiscal year ended                   December 28, 1985 and incorporated herein by reference.           10H.1    Lease Modification Agreement dated May 20, 1988 regarding                   Exhibit 10H, filed as Exhibit 10H.1 to Form 10-K for the                   fiscal year ended December 31, 1988 and incorporated herein by                   reference.           10H.2    Lease Modification Agreement dated September 30, 1996                   regarding Exhibit 10H, filed as Exhibit 10H.2 to Form 10-K for                   the fiscal year ended December 28, 1996 and incorporated                   herein by reference.                                         15             10M.1    Medical and Dental Reimbursement Plan, as amended to date,                   filed as Exhibit 10M.1 to Form 10-K for the fiscal year ended                   January 3, 1987 and incorporated herein by reference.*           10T      Employment Agreement dated August 2, 1994 between the                   registrant and William Bassett, filed as Exhibit 10T to Form                   10-Q for the quarter ended July 2, 1994 and incorporated                   herein by reference.*           10T.1    Amendment dated July 29, 2003 to Employment Agreement between                   the registrant and William Bassett, filed as Exhibit 10T.1 to                   Form 10-Q for the quarter ended June 28, 2003 and incorporated                   herein by reference.*           10T.2    Amendment dated May 25, 2004 to Employment Agreement between                   the registrant and William Bassett, filed as Exhibit 10T.2 to                   Form 10-Q for the quarter ended July 3, 2004 and incorporated                   herein by reference.*           10U.3    1995 Incentive Stock Option Plan, as amended, filed as Exhibit                   10U.3 to Form 10-Q for the quarter ended July 3, 2004 and                   incorporated herein by reference.*           10W.1-   Amended and Restated Stock Plan for Non-Employee Directors and                   related Grantor Trust Agreement, as amended, effective July 1,                   2004, filed as Exhibit 10W.1 to Form 10-Q for the quarter                   ended July 3, 2004 and incorporated herein by reference.*           10Y      Revolving line of credit agreement with Washington Mutual Bank                   dated April 16, 2004, filed as Exhibit 10Y to Form 10-K for                   the fiscal year ended January 1, 2005 and incorporated herein                   by reference.           10Z      Asset Purchase Agreement dated as of January 23, 2004, between                   registrant and Fleetwood Homes of Georgia, Inc. relating to                   drapery manufacturing plant in Douglas, Georgia, filed as                   Exhibit 10Z to Form 8-K dated February 4, 2004 and                   incorporated herein by reference.           11S      Computation of diluted earnings per share, filed herewith.           14       Code of Conduct and Ethics, filed as Exhibit 14 to Form 10-K                   for the fiscal year ended January 3, 2004 and incorporated                   herein by reference.           23E      Consent of Independent Auditors, filed herewith.           31.1     Certification of President, filed herewith.           31.2     Certification of Chief Financial Officer, filed herewith.           32       Certificate required by 18 U.S.C.ss.1350, filed herewith.  - ---------- * Management contract or compensatory plan.                                         16                                     SIGNATURES           Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.                                            DECORATOR INDUSTRIES, INC.                                                  (Registrant)                                            By: /s/ Michael K. Solomon                                               -----------------------                                                   Michael K. Solomon                                                   Chief Financial Officer  Dated:   March 29, 2006           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 date indicated.   Name                                    Title                      Signature                        Date - ----                                    -----                      ---------                        ----     William A. Bassett          Chairman, President,           /s/ William A. Bassett                  March 29, 2006                             Chief Executive Officer and    ----------------------                             Director  Michael K. Solomon          Vice President, Treasurer,     /s/ Michael K. Solomon                  March 29, 2006                             Secretary, Principal           ----------------------                             Financial and Accounting                             Officer  Joseph N. Ellis             Director                       /s/ Joseph N. Ellis                     March 29, 2006                                                            ----------------------  Ellen Downey                Director                       /s/ Ellen Downey                        March 29, 2006                                                            ----------------------  Thomas Dusthimer            Director                       /s/ Thomas Dusthimer                    March 29, 2006                                                            ----------------------  William Dixon               Director                       /s/ William Dixon                       March 29, 2006                                                            ----------------------  Terrence Murphy             Director                       /s/ Terrance Murphy                     March 29, 2006                                                            ----------------------                                          17                            INDEPENDENT AUDITORS' REPORT                           ----------------------------  To the Board of Directors   and Stockholders of DECORATOR INDUSTRIES, INC.          We have audited the accompanying balance sheets of Decorator Industries, Inc. (a Pennsylvania corporation) as of December 31, 2005 and January 1, 2005 and the related statements of earnings, stockholders' equity and cash flows for each of the three fiscal years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.          We conducted our audits in accordance with the auditing 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.          In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Decorator Industries, Inc. as of December 31, 2005 and January 1, 2005, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.                                                    LOUIS PLUNG & COMPANY, LLP                                                   Certified Public Accountants Pittsburgh, Pennsylvania February 11, 2006                                        F-1                              DECORATOR INDUSTRIES, INC                                  BALANCE SHEETS                  ASSETS                                                  December 31,    January 1,                ------                                                     2005             2005                                                                        ------------    -----------    CURRENT ASSETS:      Cash and Cash Equivalents                                         $   490,377     $   730,539      Accounts Receivable, less allowance for         doubtful accounts ($131,690 and $144,077)                        4,574,415       3,464,674      Inventories                                                         5,800,553       5,113,651      Other Current Assets                                                  311,603         588,853                                                                        -----------     ----------- TOTAL CURRENT ASSETS                                                    11,176,948       9,897,717                                                                        -----------     -----------  Property and Equipment      Land, Buildings & Improvements                                      7,253,742       7,250,064      Machinery, Equipment, Furniture & Fixtures                          6,604,629       6,482,534                                                                        -----------     ----------- Total Property and Equipment                                            13,858,371      13,732,598      Less: Accumulated Depreciation and Amortization                     6,426,548       5,874,855                                                                        -----------     ----------- Net Property and Equipment                                               7,431,823       7,857,743                                                                        -----------     -----------  Goodwill, less accumulated Amortization of $1,348,569                    2,731,717       2,731,717 Identifiable intangible asset, less accumulated Amortization      of $1,259,713 and $611,713                                          2,635,278       3,283,278 Other Assets                                                               318,599         191,622                                                                        -----------     -----------  TOTAL ASSETS                                                           $24,294,365     $23,962,077                                                                        ===========     ===========          LIABILITIES & STOCKHOLDERS' EQUITY         ----------------------------------  CURRENT LIABILITIES:      Accounts Payable                                                  $ 3,075,795     $ 2,539,252      Current Maturities of Long-term Debt                                  211,800         170,709      Accrued Expenses:         Compensation                                                       944,109       1,016,262         Acquisition Liability                                                   --       1,067,472         Other                                                              852,895         936,146                                                                        -----------     ----------- TOTAL CURRENT LIABILITIES                                                5,084,599       5,729,841                                                                        -----------     -----------  Long-Term Debt                                                           1,536,754       1,752,568 Deferred Income Taxes                                                      585,000         680,000                                                                        -----------     ----------- TOTAL LIABILITIES                                                        7,206,353       8,162,409                                                                        -----------     -----------  Stockholders' Equity      Common Stock $.20 par value: Authorized shares, 10,000,000;         Issued shares, 4,574,490 and 4,489,728                             914,898         897,946      Paid-in Capital                                                     1,616,843       1,423,275      Retained Earnings                                                  22,651,391      21,633,044                                                                        -----------     -----------                                                                         25,183,132      23,954,265      Less: Treasury stock, at cost: 1,648,088 and 1,660,197 shares       8,095,120       8,154,597                                                                        -----------     ----------- TOTAL STOCKHOLDERS' EQUITY                                              17,088,012      15,799,668                                                                        -----------     ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $24,294,365     $23,962,077                                                                        ===========     ===========       The accompanying notes are an integral part of the financial statements.                                        F-2                              DECORATOR INDUSTRIES, INC                              STATEMENTS OF EARNINGS                                                                  For the Fiscal Year                                                   ------------------------------------------------                                                       2005              2004              2003                                                   ------------      ------------      ------------     Net Sales                                         $ 50,525,343      $ 50,449,214      $ 41,803,224 Cost of Products Sold                               40,258,115        40,332,649        32,679,542                                                   ------------      ------------      ------------ Gross Profit                                        10,267,228        10,116,565         9,123,682  Selling and Administrative Expenses                  8,148,485         7,798,898         6,590,362                                                   ------------      ------------      ------------ Operating Income                                     2,118,743         2,317,667         2,533,320  Other Income (Expense)        Interest, Investment and           Other Income                                  90,902            90,163           112,669        Interest Expense                                (74,831)         (107,132)          (56,211)                                                   ------------      ------------      ------------ Earnings Before Income Taxes                         2,134,814         2,300,698         2,589,778 Provision for Income Taxes                             770,000           906,000         1,028,000                                                   ------------      ------------      ------------  NET INCOME                                        $  1,364,814      $  1,394,698      $  1,561,778                                                   ============      ============      ============  EARNINGS PER SHARE        BASIC                                      $       0.47      $       0.50      $       0.56                                                   ============      ============      ============         DILUTED                                    $       0.46      $       0.47      $       0.55                                                   ============      ============      ============  Weighted Average Number of Shares Outstanding        Basic                                         2,882,196         2,816,661         2,794,286        Diluted                                       2,998,598         2,966,787         2,827,602       The accompanying notes are an integral part of the financial statements.                                        F-3                             DECORATOR INDUSTRIES, INC.                        STATEMENTS OF STOCKHOLDERS' EQUITY                                      Common            Paid-in            Retained             Treasury                                     Stock            Capital            Earnings              Stock                    Total                                    ---------       -----------         ------------         -----------            ------------       BALANCE AT DECEMBER 28, 2002                  $ 897,127       $ 1,425,826         $ 19,349,984         $(8,324,829)           $ 13,348,108  Transactions for 2003     Net profit                                                            1,561,778                                   1,561,778     Issuance of stock for        Directors compensation                              628                                   39,372                  40,000     Dividends paid                                                         (335,265)                                   (335,265)     Conversion of $.10 par        value shares to $.20        par value shares                   19               (19)                                                               0                                    ---------       -----------         ------------         -----------            ------------  BALANCE AT JANUARY 3, 2004                    $ 897,146       $ 1,426,435         $ 20,576,497         $(8,285,457)           $ 14,614,621 Transactions for 2004     Net profit                                                            1,394,698                                   1,394,698     Issuance of stock for        Exercise of options               800           (34,406)                                  82,106                  48,500     Issuance of stock for        Directors compensation                           31,246                                   48,754                  80,000     Dividends paid                                                         (338,151)                                   (338,151)                                    ---------       -----------         ------------         -----------            ------------  BALANCE AT JANUARY 1, 2005                    $ 897,946       $ 1,423,275         $ 21,633,044         $(8,154,597)           $ 15,799,668 Transactions for 2005     Net profit                                                            1,364,814                                   1,364,814     Issuance of stock for        Exercise of options            16,952           165,254                                   17,791                 199,997     Issuance of stock for        Directors compensation                           28,314                                   41,686                  70,000     Dividends paid                                                         (346,467)                                   (346,467)                                    ---------       -----------         ------------         -----------            ------------  BALANCE AT DECEMBER 31, 2005                  $ 914,898       $ 1,616,843         $ 22,651,391         $(8,095,120)           $ 17,088,012                                    =========       ===========         ============         ===========            ============       The accompanying notes are an integral part of the financial statements.                                        F-4                              DECORATOR INDUSTRIES, INC                             STATEMENTS OF CASH FLOWS                                                                        For the Fiscal Year                                                          ---------------------------------------------                                                             2005             2004             2003                                                          -----------      -----------      -----------     CASH FLOWS FROM OPERATING ACTIVITIES:    Net Income                                            $ 1,364,814      $ 1,394,698      $ 1,561,778    Adjustments to Reconcile Net Income to Net Cash    Provided by Operating Activities        Depreciation and Amortization                       1,436,911        1,407,986          711,443        Provision for Losses on Accounts Receivable            30,000               --           40,000        Deferred Taxes                                        (64,000)          51,000          148,000        Loss on Disposal of Assets                            165,315           11,079           11,575    Increase (Decrease) from Changes in:        Accounts Receivable                                (1,138,741)          54,744         (144,789)        Inventories                                          (686,902)          77,218          264,673        Prepaid Expenses                                      233,740         (331,568)         138,335        Other Assets                                         (138,017)         226,182           (6,591)        Accounts Payable                                      536,543          660,569         (181,188)        Accrued Expenses                                     (152,904)          96,473         (106,497)                                                          -----------      -----------      ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES                  1,586,759        3,648,381        2,436,739                                                          -----------      -----------      -----------  CASH FLOWS FROM INVESTING ACTIVITIES:    Net cash paid for acquisitions                         (1,067,472)      (4,269,422)              --    Capital Expenditures                                     (579,629)      (2,266,446)        (758,115)    Proceeds from Property Dispositions                        71,373            5,852            2,150                                                          -----------      -----------      ----------- NET CASH USED IN INVESTING ACTIVITIES                     (1,575,728)      (6,530,016)        (755,965)                                                          -----------      -----------      -----------  CASH FLOWS FROM FINANCING ACTIVITIES:    Long-term Debt Payments                                  (174,723)        (169,806)        (151,640)    Dividend Payments                                        (346,467)        (338,151)        (335,265)    Proceeds from Exercise of Stock Options                   199,997           48,500               --    Issuance of Stock for Directors' Trust                     70,000           80,000           40,000    Proceeds on Debt from Building                                 --               --          640,000                                                          -----------      -----------      ----------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES         (251,193)        (379,457)         193,095  Net (Decrease) Increase in Cash and Cash Equivalents        (240,162)      (3,261,092)       1,873,869 Cash and Cash Equivalents at Beginning of Year               730,539        3,991,631        2,117,762                                                          -----------      -----------      -----------  CASH AND CASH EQUIVALENTS AT END OF PERIOD               $   490,377      $   730,539      $ 3,991,631                                                          ===========      ===========      ===========  Supplemental Disclosures of Cash Flow Information:    Cash Paid for:        Interest                                          $   105,755      $    54,483      $    42,522        Income Taxes                                      $   612,172      $ 1,135,437      $   745,259       The accompanying notes are an integral part of the financial statements.                                        F-5                             DECORATOR INDUSTRIES, INC.                           NOTES TO FINANCIAL STATEMENTS  (1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES           Nature of Operations          --------------------           The Company designs, manufactures and sells a broad range of interior          furnishings, principally draperies, curtains, shades, blinds,          bedspreads, valance boards, comforters, pillows, cushions, and trailer          tents. These products are sold to original equipment manufacturers of          recreational vehicles and manufactured housing and to the hospitality          industry (motels/hotels) either through distributors or directly to the          customers.           The Company has one industry segment and one class of products. The          business in which the Company is engaged is very competitive, and the          Company competes with manufacturers located throughout the country.          However, no reliable information is available to enable the Company to          determine its relative position among its competitors. The principal          methods of competition are price, design and service.           Fiscal Year          -----------           The Company's fiscal year is a 52-53 week period ending the Saturday          nearest to December 31, which results in every sixth year containing 53          weeks. Fiscal year 2005 was a 52-week period ended December 31, 2005,          Fiscal year 2004 was a 52-week period ending January 1, 2005, and          Fiscal year 2003 was a 53-week period ending January 3, 2004.           Revenue Recognition          -------------------           The Company recognizes revenue when the sale is made, which is upon          shipment of the goods to the Company's customers.           Inventories          -----------           Inventories are stated at the lower of cost (first-in, first-out          method) or market.           Property and Depreciation          -------------------------           Buildings and equipment are stated at cost, and depreciated on          straight-line methods over estimated useful lives. Leasehold          improvements are capitalized and amortized over the assets' estimated          useful lives or remaining terms of leases, if shorter. Equipment is          depreciated over 3-10 years, buildings over 20-40 years and leasehold          improvements over 5-10 years.           Goodwill and Other Intangible Assets          ------------------------------------           The excess of investment costs over the fair value of net assets          related to the acquisitions of Haleyville Manufacturing (1973), Liberia          Manufacturing (1985) and Specialty Windows (1997) was being amortized          over a period of 40 years. In accordance with Statement of Financial          Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible          Assets" the Company no longer amortizes goodwill. Accordingly, no          goodwill was amortized in 2002 and thereafter. Starting in 2002 the          Company was required to evaluate the remaining goodwill of $2,731,717          for possible impairment. The Company tests its goodwill annually for          impairment. Management has most recently evaluated the goodwill as of          December 31, 2005 and determined that no impairment exists.                                        F-6                             DECORATOR INDUSTRIES, INC.                           NOTES TO FINANCIAL STATEMENTS  (1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)           The Company has an identifiable intangible asset of $2,635,278 arising          from the January 2004 purchase of its Douglas, Georgia facility from          Fleetwood Enterprises, Inc. and the related supply agreement. This is          due to $3,894,991 of acquisition expenses less $1,259,713 of          accumulated amortization for this intangible asset. This intangible          asset will be amortized over the life of the agreement with Fleetwood.          The agreement to expand its relationship and become Fleetwood's          exclusive supplier of selected interior furnishing products was the          primary factor in compelling the Company to make the acquisition. The          asset is currently being amortized over six years. The remaining          benefits of the agreement with Fleetwood exceed the remaining          capitalized cost of the intangible asset.           Impairment of Long Lived Assets          -------------------------------           The Company reviews long-lived assets held and used, excluding          intangible assets (see "Goodwill and Other Intangible Assets"), for          impairment when circumstances indicate that the carrying amount of          assets may not be recoverable. In accordance with SFAS No. 144,          "Accounting for the Impairment or Disposal of Long-Lived Assets", the          Company assesses the recoverability of long-lived assets by determining          whether the depreciation or amortization of an asset over its remaining          life can be recovered based upon management's best estimate of the          undiscounted future operating cash flows (excluding interest charges)          attributed to the long-lived asset and related liabilities. If the sum          of such undiscounted cash flows is less than the carrying value of the          asset, there is an indicator of impairment. The amount of impairment,          if any, represents the excess of the carrying value of the asset over          fair value. Fair value is determined by quoted market price, if          available, or an estimate of projected future operating cash flows,          discounted using a rate that reflects the related operating segment's          average cost of funds. Long-lived assets, including intangible assets,          to be disposed of are reported at the lower of carrying amount or fair          value less costs to sell.           Reclassification          ----------------           Certain prior year amounts have been reclassified to conform to the          current year presentation.           Cash and Cash Equivalents          -------------------------           For purposes of the consolidated statements of cash flows, the Company          considers all highly liquid investments with a maturity of three months          or less at the time of purchase to be cash equivalents.           All cash balances at December 31, 2005 and January 1, 2005 were in          general deposit and/or checking accounts.           Deferred Income Taxes          ---------------------           The Company accounts for income taxes in accordance with the Statement          of Financial Accounting Standards No. 109 "Accounting for Income          Taxes," which requires the recognition of deferred tax liabilities and          assets at currently enacted tax rates for the expected future tax          consequences of events that have been included in the financial          statements or tax returns                                        F-7                             DECORATOR INDUSTRIES, INC.                           NOTES TO FINANCIAL STATEMENTS  (1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)           Freight Costs          -------------           Freight costs associated with acquiring inventories are charged to cost          of goods sold when incurred. Freight costs for delivering products to          customers are included in revenues from sales at the time the goods are          shipped.           Advertising Expenses          --------------------           Advertising expenses are minimal and are expensed as incurred.           Credit Risk          -----------           The Company sells to three distinct markets, original equipment          manufacturers ("OEM's") of manufactured housing, OEM's of recreational          vehicles, and to the hospitality industry. To the extent that economic          conditions might severely impact these markets, the Company could          suffer an abnormal credit loss.           The Company sells primarily on thirty day terms. The Company's          customers are spread over a wide geographic area. As such the Company          believes, that it does not have an abnormal concentration of credit          risk within any one geographic area.           In January 2004, the Company began assigning certain account          receivables under a "Receivables Servicing and Credit Approved          Receivables Purchasing Agreement" with CIT Group/Commercial Services          Inc. Only receivables from sales to the hospitality industry may be          assigned to CIT. Under the agreement CIT provides credit checking,          credit approval, and collection responsibilities for the assigned          receivables. If CIT approves an order from a hospitality customer and          the resulting receivables are not paid or disputed by the customer          within ninety days of sale, CIT will pay the receivable to the Company          and assume ownership of the receivable. CIT begins collection efforts          for the assigned receivables (both approved and not approved) when they          are due (hospitality sales are made on Net 30 terms). Approved          receivables were approximately $678,000 at December 31, 2005.          Hospitality customers are instructed to make payments directly to CIT          and CIT then wires collected funds to the Company. The Company pays CIT          six-tenths of a percent of all assigned receivables. Management          believes this cost was mostly offset by reductions in Bad Debt expense          and collection costs in 2005. The Company entered into this arrangement          to take advantage of CIT's extensive credit checking and collection          capabilities. Management believes this arrangement has improved          liquidity.           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 certain          reported amounts and disclosures. Actual results may differ from these          estimates and assumptions.           Fair Value of Financial Instruments          -----------------------------------           Marketable securities are carried at fair value. Gains of $205 and          $4,157 are included in income for the years ended December 31, 2005 and          January 1, 2005, respectively. All other financial instruments are          carried at amounts believed to approximate fair value.                                        F-8                             DECORATOR INDUSTRIES, INC.                           NOTES TO FINANCIAL STATEMENTS  (1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)           Earnings Per Share          ------------------           Basic earnings per share is computed by dividing net income by          weighted-average number of shares outstanding. Diluted earnings per          share includes the dilutive effect of stock options. See Note 10          "Earnings Per Share" for computation of EPS.           Stock Based Compensation          ------------------------           In December 2004, the Financial Accounting Standards Board issued          Statement of Financial Accounting Standards No. 123 (revised 2004)          "Share Based Payment" ("SFAS No. 123(R))". This standard revised the          original SFAS No. 123 by requiring the expensing of stock options,          which was to take effect for the Company's third quarter of 2005.          However, on April 14, 2005, the United States Security and Exchange          Commission adopted a rule that changed the required compliance date for          the Company to the beginning of the next fiscal year. The Company will          begin recording the expense of stock options in its financial          statements effective January 1, 2006. For fiscal years 2005 and prior,          the company used the original provisions of SFAS No. 123. The Company          assumes no tax benefit under SFAS 123(R), as all of its stock options          qualify as incentive stock options, and do not qualify for a tax          deduction unless there is a disqualifying disposition.           In accordance with the previous provisions of SFAS No. 123, the Company          followed the intrinsic value based method of accounting as prescribed          by APB 25, "Accounting for Stock Issued to Employees", for its          stock-based compensation. Accordingly, no compensation cost was          recognized.           At December 31, 2005, the Company had options outstanding under a fixed          stock option plan, which is described below. The Company applied APB          Opinion 25 and related Interpretations in accounting for its plan.          Accordingly, no compensation cost has been recognized for its fixed          stock option plans. Had compensation cost for the Company's fixed stock          option plan been determined based on the fair value at the grant dates          for awards under these plans consistent with the method of SFAS No.          123(R), the Company's net income and earnings per share would have been          reduced to the pro forma amounts indicated below:       As reported:                                            2005              2004              2003                                                           ----------       ----------       ----------         Net Income                                            $1,364,814       $1,394,698       $1,561,778     Basic Earnings Per Share                                   $0.47            $0.50            $0.56     Diluted Earnings Per Share                                 $0.46            $0.47            $0.55      Stock-based employee cost                                $74,548         $163,393          $99,455      Pro Forma Net Income                                  $1,290,266       $1,231,305       $1,462,323     Pro Forma Earnings Per Share- Basic                        $0.45            $0.44            $0.52     Pro Forma Earnings Per Share- Diluted                      $0.43            $0.42            $0.52            The Company expects to expense approximately $53,000 in 2006 under          existing option grants.           During the initial phase-in period of SFAS No. 123 the pro forma          disclosure may not be representative of the impact on the net income in          future years.                                        F-9                             DECORATOR INDUSTRIES, INC.                           NOTES TO FINANCIAL STATEMENTS  (1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)           The option grants for each year were calculated using the following          assumptions:             Year of      Valuation        Dividend      Expected         Risk-free       Expected            Grant        Method           Yield       Volatility      Interest rate       Life           -------   -------------       --------     ----------      -------------    ----------                  1998     Black-Scholes         2.6%          47.7%             5.6%         5.0 years            1999     Black-Scholes         2.5%          42.8%             5.8%         5.0 years            2002     Black-Scholes         2.3%          41.2%             3.6%        10.0 years            2004     Black-Scholes         1.5%          40.1%             2.8%         5.0 years            2005     Black-Scholes         1.3%          41.0%             4.1%         5.0 years            Awards granted in 2002 and prior assumed compensation cost was          recognized on a straight-line basis over the requisite service period          for the entire award. Awards granted in 2004 and 2005 assumed          compensation cost was recognized on a straight line basis over the          requisite service period for each seperately vesting portion of the          award. The 2004 and 2005 awards vested 20% at the end of each year for          five years, and the recognition of compensation cost related to these          awards considered them to be in-substance, multiple awards.           Segment Information          -------------------           The Company has one business segment, the interior furnishings          business, and follows the requirements of SFAS No. 131, "Disclosures          about Segments of an Enterprise and Related Information".           Recent Accounting Developments          ------------------------------           The following Statements of Financial Accounting Standards (SFAS) and          Financial Interpretation (FIN) were issued by the Financial Accounting          Standards Board (FASB):           In December 2004, the FASB issued SFAS No. 123(revised 2004),          "Share-Based Payment". This Statement revises SFAS No. 123, "Accounting          for Stock-Based Compensation" and supersedes APB Opinion No. 25,          "Accounting for Stock Issued to Employees." SFAS No. 123(R) focuses          primarily on the accounting for transactions in which an entity obtains          employee services in share-based payment transactions. SFAS No. 123(R)          requires companies to recognize in the statement of operations the cost          of employee services received in exchange for awards of equity          instruments based on the grant-date fair value of those awards. This          Statement was effective as of the first reporting period that begins          after June 15, 2005. However, in April 2005, the United States Security          and Exchange Commission adopted a rule that changed the required          compliance date for the Company to the beginning of the next fiscal          year. Accordingly, the Company will adopt SFAS No. 123(R) beginning          January 1, 2006. The Company expects SFAS No. 123(R) to lead to a          charge of approximately $53,000 in 2006 from the expensing of existing          stock options. See "Stock-based Compensation" under Summary of          Significant Accounting Policies for the effect on net income and          earnings per share as if the fair value based method provided by SFAS          No. 123(R) had been applied.                                        F-10                             DECORATOR INDUSTRIES, INC.                           NOTES TO FINANCIAL STATEMENTS  (1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)           In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and          Error Corrections--a replacement of APB Opinion No. 20 and FASB          Statement No. 3". SFAS No. 154 changes the requirements for the          accounting for and reporting of a change in accounting principle. It          requires retrospective application to prior periods' financial          statements of changes in accounting principle, unless it is impractical          to determine either the period specific effects or the cumulative          effect of the change. The statement applies to all voluntary changes in          accounting principle. It also applies to changes required by an          accounting pronouncement in the unusual instance that the pronouncement          does not include specific transition provisions. SFAS No. 154 does not          currently have an effect on the Company's financial statements.           In March 2005, the FASB issued FIN 47, "Accounting for Conditional          Asset Retirement Obligations-an interpretation of FASB Statement No.          143". FIN 47 clarifies that an entity is required to recognize a          liability for the fair value of a conditional asset retirement          obligation when incurred if the liability's fair value can be          reasonably estimated. FIN 47 does not currently have an effect on the          Company's financial statements.  (2)      INVENTORIES           Inventories consisted of the following classifications:                                                   2005                 2004                                               ----------           ----------                Raw materials & supplies       $4,982,121           $4,438,916                In process & finished goods       818,432              674,735                                               ----------           ----------                                               $5,800,553           $5,113,651                                               ==========           ==========  (3)      LEASES           The Company leases certain buildings and equipment used in its          operations. Building leases generally provide that the Company bears          the cost of maintenance and repairs and other operating expenses. Rent          expense was $386,862 in 2005, $390,017 in 2004, and $397,722 in 2003.           Commitments under these leases extend through September 2011 and are as          follows:                                       2006                $303,298                                      2007                $101,871                                      2008                $ 73,368                                      2009                $ 60,711                                      2010                $ 30,984                                Thereafter                $ 11,782                                        F-11                             DECORATOR INDUSTRIES, INC.                           NOTES TO FINANCIAL STATEMENTS  (4)      COMMITMENTS           The Company has commitments under employment, consulting and          non-compete agreements entered into with two individuals. The minimum          commitments under these agreements are payable as follows:                                       2006                $400,647                                      2007                $375,647                                      2008                $265,847                                      2009                $258,218                                      2010                $244,333                                Thereafter                $488,666           The commitments are fixed as to cash compensation. One of the          commitment also includes a long term care policy for the individual.          Should premiums for this long term care policy increase, the Company's          liability for this commitment will increase accordingly.  (5)      SIGNIFICANT CUSTOMERS           Sales to Fleetwood Enterprises accounted for 22.5%, 30.6% and 26.2% of          Company sales in 2005, 2004 and 2003, respectively. Fleetwood operates          in the manufactured housing and recreational vehicle industries. Sales          to Thor Industries accounted for 9.4%, 10.8% and 8.9% of Company sales          in 2005, 2004 and 2003, respectively. Thor operates in the recreational          vehicle industry.                                        F-12                             DECORATOR INDUSTRIES, INC.                           NOTES TO FINANCIAL STATEMENTS  (6)      LONG TERM-DEBT AND CREDIT ARRANGEMENTS           Long-term debt consists of the following:                                                                   2005           2004                                                              ----------     ----------    Note payable in monthly payments of $2,088 through August 2007 at 4% interest. This note is secured by the first mortgage on the Bloomsburg, PA building.               $   37,943     $   60,832  Note payable in monthly payments of $3,556 principal plus accrued interest at 4.39% monthly through June 2008. This note is secured by the Company's Elkhart, IN building.                                                    529,778        572,445  Bond payable in monthly installments through November 2008. The interest rate is variable and is 3.60% at December 31, 2005. This bond is secured by the Company's Bloomsburg, PA property.                          145,833        175,000  Bond payable in quarterly installments through March 2014. The interest rate is variable and is  3.66% at December 31, 2005.  This bond is secured by the Company's Goshen, IN property.                                1,035,000      1,115,000                                                              ----------     ----------                                                               1,748,554      1,923,277 Less amount due within one year                                 211,800        170,709                                                              ----------     ----------                                                              $1,536,754     $1,752,568                                                              ==========     ==========            The principal payments on long-term debt for the five years subsequent          to December 31, 2005 are as follows:                             2006                  $211,800                            2007                  $206,476                            2008                  $595,278                            2009                  $120,000                            2010                  $125,000                      Thereafter                  $490,000           On April 16, 2004 the Company signed an agreement for a $5,000,000          revolving line of credit with Washington Mutual Bank. The maximum          borrowed under this line was $629,000 in 2005; however, there were no          outstanding borrowings at December 31, 2005. The Company had borrowed          on the line of credit in January 2005 to pay the final $1,067,472 (plus          accrued interest) due to Fleetwood for the January 2004 acquisition.          The Washington Mutual agreement contains certain financial covenants.          The Company was in compliance with these covenants at December 31, 2005          and January 1, 2005.                                        F-13                             DECORATOR INDUSTRIES, INC.                           NOTES TO FINANCIAL STATEMENTS  (7)      EMPLOYEE BENEFIT PLANS           On September 1, 1998 the Company began a 401(k) Retirement Savings Plan          available to all eligible employees. To be eligible for the plan, the          employee must be at least 21 years of age and have completed 1 year of          employment. Eligible employees may contribute up to 75% of their          earnings with a maximum of $14,000 for 2005 ($18,000 for employees over          50 years of age) based on the Internal Revenue Service annual          contribution limit. The Company will match 25% of the first 4% of the          employee's contributions up to 1% of each employee's earnings.          Effective January 1, 2006, the Company increased its match to 25% of          the first 6% of the employee's contributions up to 1.5% of each          employee's earnings. Contributions are invested at the direction of the          employee to one or more funds. Company contributions begin to vest          after two years, with 100% vesting after five years. Company          contributions to the plan were $49,213 in 2005, $46,230 in 2004, and          $38,052 in 2003.  (8)      STOCK OPTIONS           Under the 1995 Incentive Stock Option Plan, (the "Plan"), the Company          has granted options to its key employees for up to 520,832 (as adjusted          for stock splits) shares of Common Stock. Under this Plan, the exercise          price of the option equals the fair market price of the Company's stock          on the date of the grant and an option's maximum term is 10 years.          Pursuant to the Plan, options for 17,500 shares and 69,700 shares were          granted in 2005 and 2004, respectively. No options were granted in 2003          under the Plan. The Plan expired during fiscal 2005, and all options          available under the Plan have been issued. Options granted under the          Plan continue to be valid until their respective expiration dates.           A summary of the status of the Company's outstanding stock options as          of December 31, 2005, January 1, 2005, and January 3, 2004, and changes          during the years ending on those dates is presented below:                                                        2005                          2004                           2003                                            ------------------------      ------------------------       ------------------------                                                           Exercise                      Exercise                       Exercise                                            Shares (1)     Price (2)      Shares (1)     Price (2)       Shares (1)     Price (2)                                            ----------     ---------      ----------     ---------       ----------     ---------        Outstanding at beginning of year             506,632         $5.78         476,136         $5.37          476,136         $5.37 Granted                                       17,500          9.00          69,700          8.06               --            -- Excercised                                  (148,904)         4.89         (39,204)         5.12               --            -- Forfeited/Cancelled                          (12,500)         8.87              --            --               --            --                                             --------                       -------                        -------  Outstanding at year-end                      362,728         $6.19         506,632         $5.78          476,136         $5.37  Options excercisable at year-end             293,468                       427,932                        429,886 Weighted average fair value of   options granted during the year              $3.35                         $2.71                             --                                         F-14                             DECORATOR INDUSTRIES, INC.                           NOTES TO FINANCIAL STATEMENTS  (8)      STOCK OPTIONS (CONTINUED)           The following information applies to fixed stock options outstanding at          December 31, 2005:               Number outstanding (1)                               362,728              Range of exercise prices                             $4.80 to $9.30              Weighted-average exercise price                      $6.19              Weighted-average remaining contractual life          5.03 years  - ---------- (1) As adjusted for the five-for-four stock splits in June 1997 and July 1998. (2) Based on the weighted-average exercise price.  (9)      INCOME TAXES           A summary of income taxes is as follows:                                               2005          2004          2003                                            --------      --------     ----------          Current:              Federal                       $679,000      $705,000     $  719,000              State                          155,000       150,000        161,000          Deferred                           (64,000)       51,000        148,000                                            --------      --------     ----------           Total                             $770,000      $906,000     $1,028,000                                            ========      ========     ==========           Temporary differences between the financial statement carrying amounts          and tax bases of assets and liabilities that give rise to net deferred          income tax liability relate to the following:                                                            2005           2004                                                        ---------      ---------          Depreciation                                  $ 397,000      $ 517,000          Amortization                                    351,000        298,000          Inventories, due to additonal cost              recorded for income tax purposes            (17,000)       (19,000)          Accounts receivable, due to allowance              for doubtful accounts                       (51,000)       (56,000)          Directors' Trust                               (163,000)      (136,000)          Accrued liabilities, due to expenses not yet              deductible for income tax purposes          (17,000)       (40,000)                                                        ---------      ---------                                                        $ 500,000      $ 564,000                                                        =========      =========           The net deferred income tax liability is presented in the balance          sheets as follows:                                              2005         2004                                          --------     --------          Current Asset                   $ 85,000     $116,000          Long-term Liability              585,000      680,000                                        F-15                             DECORATOR INDUSTRIES, INC.                           NOTES TO FINANCIAL STATEMENTS  (9)      INCOME TAXES (CONTINUED)           The effective income tax rate varied from the statutory Federal tax          rate as follows:                                                2005       2004      2003                                               ----       ----      ----          Federal statutory rate               34.0%      34.0%     34.0%          State income taxes, net of              federal income tax benefit        4.1        4.2       4.4          Other                                (2.0)       1.2       1.3                                               ----       ----      ----          Effective income tax rate            36.1%      39.4%     39.7%                                               ====       ====      ====           The Internal Revenue Service ("IRS") is currently examining the          Company's federal income tax returns for 2003 and 2004. At this time,          the IRS has not proposed any adjustments to the returns. As of December          31, 2005, it is not possible to determine if the IRS will have          adjustments to the returns that may result in additional tax. If the          IRS presents any such adjustments, the Company will determine the          financial impact at that time.   (10)    EARNINGS PER SHARE           In accordance with SFAS No. 128, the following is a reconciliation of          the numerators and denominators of the basic and diluted EPS          computations.                                              2005          2004           2003                                          ----------    ----------     ----------          Numerator:            Net income                    $1,364,814    $1,394,698     $1,561,778                                          ==========    ==========     ==========           Denominator            Weighted-average number of              Common Shares outstanding    2,882,196     2,816,661      2,794,286            Dilutive effect of stock              options on net income          116,402       150,126         33,316                                          ----------    ----------     ----------                                            2,998,598     2,966,787      2,827,602                                          ==========    ==========     ==========           Diluted earnings per share      $     0.46    $     0.47     $     0.55                                          ==========    ==========     ==========                                        F-16                             DECORATOR INDUSTRIES, INC.                           NOTES TO FINANCIAL STATEMENTS  (11)     QUARTERLY FINANCIAL INFORMATION (UNAUDITED)                                      First             Second            Third            Fourth                                   Quarter           Quarter           Quarter           Quarter              Year                                 -----------       -----------       -----------        -----------        -----------       2005 Net Sales                       $12,431,382       $13,275,952       $12,597,173        $12,220,836        $50,525,343 Gross Profit                    $ 2,601,699       $ 2,588,400       $ 2,498,579        $ 2,578,550        $10,267,228 Net Income                      $   418,336       $   241,317       $   347,052        $   358,109        $ 1,364,814 Earnings Per Common Share:      Basic                      $      0.15       $      0.08       $      0.12        $      0.12        $      0.47      Diluted                    $      0.14       $      0.08       $      0.12        $      0.12        $      0.46 Average Common Shares Outstanding:      Basic                        2,852,270         2,880,102         2,882,788          2,913,625          2,882,196      Diluted                      2,994,455         3,015,562         2,979,321          3,005,054          2,998,598                                       First             Second            Third            Fourth                                   Quarter           Quarter           Quarter           Quarter              Year                                 -----------       -----------       -----------        -----------        -----------       2004 Net Sales                       $12,792,048       $14,320,830       $12,123,515        $11,212,821        $50,449,214 Gross Profit                    $ 2,283,228       $ 2,971,783       $ 2,397,845        $ 2,463,709        $10,116,565 Net Income                      $   200,884       $   538,612       $   295,020        $   360,182        $ 1,394,698 Earnings Per Common Share:      Basic                      $      0.07       $      0.19       $      0.11        $      0.13        $      0.50      Diluted                    $      0.07       $      0.18       $      0.10        $      0.12        $      0.47 Average Common Shares Outstanding:      Basic                        2,805,963         2,813,699         2,820,107          2,826,876          2,816,661      Diluted                      2,928,728         2,956,044         2,993,534          2,988,844          2,966,787                                         F-17                             DECORATOR INDUSTRIES, INC.                           NOTES TO FINANCIAL STATEMENTS  (12)     BUSINESS ACQUISITION           On January 23, 2004, the Company entered into an agreement, effective          January 26, 2004, to purchase the land, building, machinery, equipment,          inventory and other assets of Fleetwood Enterprises Inc.'s          ("Fleetwood") drapery operation in Douglas, Georgia for a purchase          price of $4 million in cash, plus an additional amount for inventory of          $1,067,472. Payment for the inventory was paid to Fleetwood on January          24, 2005 along with accrued interest at 4%.           In connection with the acquisition, the Company and Fleetwood entered          into an agreement for the Company to be the exclusive supplier of          Fleetwood's drapery, bedspread, and other decor requirements for a          period of six years. If, at the end of three years, Fleetwood is          satisfied with the Company's performance under this agreement, it will          extend the terms of this agreement an additional three years.           The acquired business was engaged in the manufacture of curtains,          valances, bedspreads and other decor items. Fleetwood used the acquired          business to supply most of its manufactured housing and some of its          recreational vehicle requirements for these items. Sales to other          customers were negligible.           The Company has assigned the excess costs of this acquisition over the          value of the asset acquired to an identifiable intangible asset. This          intangible will be amortized over the life of the agreement with          Fleetwood. The agreement to expand its relationship and become          Fleetwood's exclusive supplier of the above mentioned products was the          primary factor in compelling the Company to make the acquisition. The          asset is currently being amortized over six years. The remaining          benefits of the agreement with Fleetwood exceed the remaining          capitalized cost of the intangible asset.           The Company is unable to provide meaningful pro-forma financial          statements for this combination, because it is operating the business          on a substantially different basis than its predecessor.           Fleetwood was the Company's largest customer in 2005 and 2004,          representing 22.5% and 30.6% of total sales, respectively.                                        F-18                            INDEPENDENT AUDITORS' REPORT                          ON FINANCIAL STATEMENT SCHEDULE                          -------------------------------  The Board of  Directors   and Stockholders of DECORATOR INDUSTRIES, INC.           The audit referred to in our opinion dated February 11, 2006 on the financial statements as of December 31, 2005 and for each of the three fiscal years then ended includes the related supplemental financial schedule as listed in Item 15 (a), which, when considered in relation to the basic financial statements, presents fairly in all material respects the information shown therein.                                             LOUIS PLUNG & COMPANY, LLP                                            Certified Public Accountants  Pittsburgh, Pennsylvania February 11, 2006                                        F-19                             DECORATOR INDUSTRIES, INC.                  SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS    COLUMN A                     COLUMN B                      COLUMN C                      COLUMN D                   COLUMN E - -----------                  ----------         -------------------------------          ----------                 ----------                                                     (1)                 (2)                                                 Charged to           Charged to                              Balance at            Costs               Other                                        Balance at                              Beginning              And               Accounts           Deductions                    End Description                  of Period           Expenses            Described           Described                  of Period - -----------                  ----------         ----------           ----------          ----------                 ----------       DEDUCTED FROM ASSETS  TO WHICH THEY APPLY:  ALLOWANCE FOR DOUBTFUL ACCOUNTS                   2005        $144,077              30,000                    0             42,387 (A)               $ 131,690                  2004        $200,598                   0                    0             56,521 (A)               $ 144,077                  2003        $202,933              40,000                    0             42,335 (A)               $ 200,598  (A) Write-off bad debts   ALLOWANCE FOR SALES RETURNS                   2005        $ 30,000              23,663                    0                  0                    $ 53,663                  2004        $ 44,000             (14,000)                   0                  0                    $ 30,000                  2003        $ 54,000             (10,000)                   0                  0                    $ 44,000                                         F-20    EX-11.S 2 ex11s.txt COMPUTATION OF DILUTED EARNINGS                                                                       EXHIBIT 11S                             DECORATOR INDUSTRIES, INC.             COMPUTATION OF DILUTED EARNINGS PER SHARE OF COMMON STOCK                 FOR THE FIVE FISCAL YEARS ENDED DECEMBER 31, 2005                                           2005           2004           2003           2002           2001                                      ----------     ----------     ----------     ----------     ----------       Net income                           $1,364,814     $1,394,698     $1,561,778     $1,384,379     $  861,561                                      ==========     ==========     ==========     ==========     ==========  Average number of common   shares outstanding                  2,882,196      2,816,661      2,794,286      2,793,781      2,812,882  Dilutive effect of stock options   on net income                         116,402        150,126         33,316         36,526          7,895                                      ----------     ----------     ----------     ----------     ----------  Diluted weighted average shares   used in the calculation of   diluted earnings per share          2,998,598      2,966,787      2,827,602      2,830,307      2,820,777                                      ==========     ==========     ==========     ==========     ==========  Diluted earnings per share           $     0.46     $     0.47     $     0.55     $     0.49     $     0.31                                      ==========     ==========     ==========     ==========     ==========     EX-23.E 3 ex23e.txt CONSENT                                                                       EXHIBIT 23E                            INDEPENDENT AUDITORS' CONSENT                           -----------------------------  We consent to the incorporation by reference in Registration Statement No. 333-89173 on Form S-8 and the Prospectus included therein of our reports dated February 11, 2006 included in the Annual Report on Form 10-K of Decorator Industries, Inc. for the fiscal year ended December 31, 2005.                                                   LOUIS PLUNG & COMPANY, LLP                                                  Certified Public Accountants  Pittsburgh, Pennsylvania March 29, 2006    EX-31.1 4 ex311.txt CERTIFICATION                                                                      EXHIBIT 31.1  I, William A. Bassett, Chief Executive Officer and President, certify that:       1.   I have reviewed this annual report on Form 10-K of Decorator           Industries, Inc.;       2.   Based on my knowledge, this annual report does not contain any untrue           statement of a material fact or omit to state a material fact           necessary to make the statements made, in light of the circumstances           under which such statements were made, not misleading with respect to           the period covered by this annual report;       3.   Based on my knowledge, the financial statements, and other financial           information included in this annual report, fairly present in all           material respects the financial condition, results of operations and           cash flows of the registrant as of, and for, the periods presented in           this annual report;       4.   The registrant's other certifying officer and I are responsible for           establishing and maintaining disclosure controls and procedures (as           defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the           registrant and have:              (a)  Designed such disclosure controls and procedures, or caused                  such disclosure controls and procedures to be designed under                  our supervision, to ensure that material information relating                  to the registrant, including its consolidated subsidiaries, is                  made known to us by others within those entities, particularly                  during the period in which this annual report is being                  prepared;             (b)  Evaluated the effectiveness of the registrant's disclosure                  controls and procedures and presented in this annual report our                  conclusions about the effectiveness of the disclosure controls                  and procedures, as of the end of the period covered by this                  report based on such evaluation; and             (c)  Disclosed in this report any change in the registrant's                  internal control over financial reporting that occurred during                  the registrant's most recent fiscal quarter that has materially                  affected, or is reasonably likely to materially affect, the                  registrant's internal control over financial reporting; and       5.   The registrant's other certifying officer and I have disclosed, based           on our most recent evaluation of internal controls over financial           reporting, to the registrant's auditors and the audit committee of           registrant's board of directors (or persons performing the equivalent           functions):              (a)  All significant deficiencies and material weaknesses in the                  design or operation of internal control over financial                  reporting which are reasonably likely to adversely affect the                  registrant's ability to record, process, summarize and report                  financial information; and             (b)  Any fraud, whether or not material, that involves management or                  other employees who have a significant role in the registrant's                  internal control over financial reporting.              Date: March 29, 2006               By: /s/  William A. Bassett                   --------------                   ---------------------------                                                    William A. Bassett,                                                    Chief Executive Officer and                                                    President    EX-31.2 5 ex312.txt CERTIFICATION                                                                      EXHIBIT 31.2  I, Michael K. Solomon, Chief Financial Officer, certify that:       1.   I have reviewed this annual report on Form 10-K of Decorator           Industries, Inc.;       2.   Based on my knowledge, this annual report does not contain any untrue           statement of a material fact or omit to state a material fact           necessary to make the statements made, in light of the circumstances           under which such statements were made, not misleading with respect to           the period covered by this annual report;       3.   Based on my knowledge, the financial statements, and other financial           information included in this annual report, fairly present in all           material respects the financial condition, results of operations and           cash flows of the registrant as of, and for, the periods presented in           this annual report;       4.   The registrant's other certifying officer and I are responsible for           establishing and maintaining disclosure controls and procedures (as           defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the           registrant and have:              (a)  Designed such disclosure controls and procedures, or caused                  such disclosure controls and procedures to be designed under                  our supervision, to ensure that material information relating                  to the registrant, including its consolidated subsidiaries, is                  made known to us by others within those entities, particularly                  during the period in which this annual report is being                  prepared;             (b)  Evaluated the effectiveness of the registrant's disclosure                  controls and procedures and presented in this annual report our                  conclusions about the effectiveness of the disclosure controls                  and procedures, as of the end of the period covered by this                  report based on such evaluation; and             (c)  Disclosed in this report any change in the registrant's                  internal control over financial reporting that occurred during                  the registrant's most recent fiscal quarter that has materially                  affected, or is reasonably likely to materially affect, the                  registrant's internal control over financial reporting; and       5.   The registrant's other certifying officer and I have disclosed, based           on our most recent evaluation of internal controls over financial           reporting, to the registrant's auditors and the audit committee of           registrant's board of directors (or persons performing the equivalent           functions):              (a)  All significant deficiencies and material weaknesses in the                  design or operation of internal control over financial                  reporting which are reasonably likely to adversely affect the                  registrant's ability to record, process, summarize and report                  financial information; and             (b)  Any fraud, whether or not material, that involves management or                  other employees who have a significant role in the registrant's                  internal control over financial reporting.              Date: March 29, 2006               By: /s/  Michael K. Solomon                   --------------                   -----------------------                                                    Michael K. Solomon,                                                    Chief Financial Officer    EX-32 6 ex32.txt CERTIFICATION                                                                        EXHIBIT 32         CERTIFICATION REQUIRED BY 18 U.S.C.SS.1350, AS ADOPTED PURSUANT TO                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002  In connection with the annual report of Decorator Industries, Inc. ("the Company") on Form 10-K for the annual period ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, William A. Bassett, Chief Executive Officer and President of the Company, and Michael K. Solomon, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:       (1)  The Report fully complies with the requirements of section 13(a) or           15(d) of the Securities Exchange Act of 1934; and       (2)  The information contained in the Report fairly presents, in all           material respects, the financial condition and results of operations           of the Company.            Date: March 29, 2006               By: /s/  William A. Bassett                 --------------                   ------------------------------                                                  William A. Bassett,                                                  Chief Executive Officer and                                                  President             Date: March 29, 2006               By: /s/  Michael K. Solomon                 --------------                   ------------------------------                                                  Michael K. Solomon,                                                  Chief Financial Officer    -----END PRIVACY-ENHANCED MESSAGE-----