##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
 For the quarterly period ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 Commission File Number 000-26667
 CRAFTMADE INTERNATIONAL, INC.
  DELAWARE
    
    75-2057054(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    identification no.)
 650 SOUTH ROYAL LANE, SUITE 100
COPPELL, TEXAS 75019
 (972) 393-3800
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES
 TABLE OF CONTENTS
 Part I. Financial InformationItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial
Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market
RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of
ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
  CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    20,812
    
    
    $
    26,563
    
    
    $
    43,550
    
    
    $
    54,689Cost of goods sold
    
    
    (14,278
    )
    
    
    (18,039
    )
    
    
    (29,506
    )
    
    
    (37,383
    )Gross profit
    
    
    6,534
    
    
    
    8,524
    
    
    
    14,044
    
    
    
    17,306Gross profit as a percentage of net sales
    
    
    31.4
    %
    
    
    32.1
    %
    
    
    32.2
    %
    
    
    31.6
    %Selling, general and administrative expenses
    
    
    (4,977
    )
    
    
    (5,135
    )
    
    
    (10,518
    )
    
    
    (10,219
    )Depreciation and amortization
    
    
    (213
    )
    
    
    (201
    )
    
    
    (418
    )
    
    
    (401
    )Total operating expenses
    
    
    (5,190
    )
    
    
    (5,336
    )
    
    
    (10,936
    )
    
    
    (10,620
    )Income from operations
    
    
    1,344
    
    
    
    3,188
    
    
    
    3,108
    
    
    
    6,686Interest expense, net
    
    
    (298
    )
    
    
    (393
    )
    
    
    (620
    )
    
    
    (761
    )Income before income taxes and minority interest
    
    
    1,046
    
    
    
    2,795
    
    
    
    2,488
    
    
    
    5,925Income taxes
    
    
    (260
    )
    
    
    (782
    )
    
    
    (586
    )
    
    
    (1,763
    )Income before minority interest
    
    
    786
    
    
    
    2,013
    
    
    
    1,902
    
    
    
    4,162Minority interest
    
    
    (304
    )
    
    
    (513
    )
    
    
    (802
    )
    
    
    (778
    )Net income
    
    $
    482
    
    
    $
    1,500
    
    
    $
    1,100
    
    
    $
    3,384Weighted average common shares outstanding:Basic
    
    
    5,205
    
    
    
    5,204
    
    
    
    5,205
    
    
    
    5,204Diluted
    
    
    5,205
    
    
    
    5,206
    
    
    
    5,206
    
    
    
    5,207Basic earnings per common share
    
    $
    0.09
    
    
    $
    0.29
    
    
    $
    0.21
    
    
    $
    0.65Diluted earnings per common share
    
    $
    0.09
    
    
    $
    0.29
    
    
    $
    0.21
    
    
    $
    0.65Cash dividends declared per common share
    
    $
    0.12
    
    
    $
    0.12
    
    
    $
    0.24
    
    
    $
    0.24
 
 1




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 December 31,
    
    
    June 30,2007
    
    
    2007(Unaudited)ASSETSCurrent assetsCash
    
    $
    176
    
    
    $
    928Accounts receivable, net
    
    
    15,818
    
    
    
    18,082Inventories, net
    
    
    16,750
    
    
    
    18,076Income taxes receivable
    
    
    1,855
    
    
    
    1,376Deferred income taxes
    
    
    1,251
    
    
    
    1,251Prepaid expenses and other current assets
    
    
    1,779
    
    
    
    1,503Total current assets
    
    
    37,629
    
    
    
    41,216Property and equipment, net
    
    
    8,281
    
    
    
    8,379Goodwill
    
    
    13,952
    
    
    
    13,644Other intangibles, net
    
    
    1,402
    
    
    
    1,502Other assets
    
    
    157
    
    
    
    10Total non-current assets
    
    
    23,792
    
    
    
    23,535Total assets
    
    $
    61,421
    
    
    $
    64,751LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS EQUITYCurrent liabilitiesBook overdrafts
    
    $
    255
    
    
    $
    48Accounts payable
    
    
    3,991
    
    
    
    5,903Other accrued expenses
    
    
    2,467
    
    
    
    2,472Current portion of long-term obligations
    
    
    491
    
    
    
    264Total current liabilities
    
    
    7,204
    
    
    
    8,687Non-current liabilitiesLong-term obligations
    
    
    17,535
    
    
    
    18,938Deferred income taxes
    
    
    1,178
    
    
    
    1,107Total non-current liabilities
    
    
    18,713
    
    
    
    20,045Total liabilities
    
    
    25,917
    
    
    
    28,732Minority interest
    
    
    3,072
    
    
    
    3,495Commitments and contingencies (Note 9)Stockholders equityPreferred stock, $1.00 par value, 2,000,000 shares authorized;
nil shares issued
    
    
    
    
    
    
    Common stock, $0.01 par value, 15,000,000 shares authorized;
9,704,420 shares issued
    
    
    97
    
    
    
    97Additional paid-in capital
    
    
    17,887
    
    
    
    17,831Retained earnings
    
    
    52,574
    
    
    
    52,722Less: treasury stock, 4,499,920 common shares at cost
    
    
    (38,126
    )
    
    
    (38,126
    )Total stockholders equity
    
    
    32,432
    
    
    
    32,524Total liabilities, minority interest and stockholders equity
    
    $
    61,421
    
    
    $
    64,751
 
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 Six Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006Net cash provided by operating activities
    
    $
    3,271
    
    
    $
    836Cash flows from investing activitiesAcquisition of Marketing Impressions, Inc.Initial payment and acquisition-related costs, net of cash acquired
    
    
    
    
    
    
    (1,483
    )Additional contingent consideration
    
    
    (359
    )
    
    
    (870
    )Additions to property and equipment
    
    
    (215
    )
    
    
    (440
    )Cash used in investing activities
    
    
    (574
    )
    
    
    (2,793
    )Cash flows from financing activitiesNet proceeds from/(payments) on note payable
    
    
    10,777
    
    
    
    (555
    )Net proceeds from/(payments) on lines of credit
    
    
    (11,933
    )
    
    
    3,008Cash dividends
    
    
    (1,249
    )
    
    
    (1,249
    )Distributions to minority interest members
    
    
    (1,225
    )
    
    
    (1,347
    )Increase/(decrease) in book overdrafts
    
    
    207
    
    
    
    227Principal payments on capital lease
    
    
    (26
    )
    
    
    Proceeds from capital lease
    
    
    
    
    
    
    173Net cash used in financing activities
    
    
    (3,449
    )
    
    
    257Net decrease in cash
    
    
    (752
    )
    
    
    (1,700
    )Cash at beginning of period
    
    
    928
    
    
    
    2,164Cash at end of period
    
    $
    176
    
    
    $
    464
 
 3




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 1  BASIS OF PREPARATION AND PRESENTATION
    4




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 2  ACQUISITIONS
 Acquisition of Certain Net Assets of Woodard, LLC
  Acquisition of Marketing Impressions, Inc.
   Purchase Price Summary
(Dollars in thousands)
 As of December 31, 2007:Amount paid at closing, net of cash acquired
    
    $
    1,287Contingent payments earned
    
    
    2,005Acquisition-related costs
    
    
    220Total consideration as of December 31, 2007
    
    $
    3,512Percent of Adjusted Gross Profit
July 1, 2006 to August 31, 2011
    
    
    22
    %Additional Percent of Adjusted Gross Profit
July 1, 2006 to June 30, 2007 (Actual amount paid was $677)
    
    
    15
    %
  5




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Purchase Price Allocation
(Dollars in thousands)
 As of
    
    
    Additional
    
    
    As ofJune 30,
    
    
    Contingent
    
    
    December 31,2007
    
    
    Consideration
    
    
    2007Assets:Accounts receivable
    
    $
    368
    
    
    $
    
    
    
    $
    368Inventory
    
    
    2
    
    
    
    
    
    
    
    2Property and equipment
    
    
    214
    
    
    
    
    
    
    
    214Deferred tax assets
    
    
    70
    
    
    
    
    
    
    
    70Acquired intangibles
    
    
    1,530
    
    
    
    
    
    
    
    1,530Goodwill
    
    
    2,164
    
    
    
    308
    
    
    
    2,4724,348
    
    
    
    308
    
    
    
    4,656Liabilities:Accounts payable
    
    
    1,120
    
    
    
    
    
    
    
    1,120Note payable and other liabilities
    
    
    24
    
    
    
    
    
    
    
    241,144
    
    
    
    
    
    
    
    1,144Total purchase price
    
    $
    3,204
    
    
    $
    308
    
    
    $
    3,512
  6




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 3  EARNINGS PER SHARE
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except per share data)Basic and diluted earnings per share:NumeratorNet income
    
    $
    482
    
    
    $
    1,500
    
    
    $
    1,100
    
    
    $
    3,384Denominator for basic EPSWeighted average common shares outstanding
    
    
    5,205
    
    
    
    5,204
    
    
    
    5,205
    
    
    
    5,204Denominator for diluted EPSWeighted average common shares outstanding
    
    
    5,205
    
    
    
    5,204
    
    
    
    5,205
    
    
    
    5,204Incremental shares for stock options
    
    
    
    
    
    
    2
    
    
    
    1
    
    
    
    3Dilutive weighted average common shares
    
    
    5,205
    
    
    
    5,206
    
    
    
    5,206
    
    
    
    5,207Basic earnings per share
    
    $
    0.09
    
    
    $
    0.29
    
    
    $
    0.21
    
    
    $
    0.65Diluted earnings per share
    
    $
    0.09
    
    
    $
    0.29
    
    
    $
    0.21
    
    
    $
    0.65
 7




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 4  SEGMENT INFORMATION
    Summary of Segment Information
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Net salesCraftmade
    
    $
    12,297
    
    
    $
    13,778
    
    
    $
    26,580
    
    
    $
    30,229TSI
    
    
    8,515
    
    
    
    12,785
    
    
    
    16,970
    
    
    
    24,460Total
    
    $
    20,812
    
    
    $
    26,563
    
    
    $
    43,550
    
    
    $
    54,689Gross profitCraftmade
    
    $
    4,487
    
    
    $
    4,905
    
    
    $
    9,495
    
    
    $
    10,657TSI
    
    
    2,047
    
    
    
    3,619
    
    
    
    4,549
    
    
    
    6,649Total
    
    $
    6,534
    
    
    $
    8,524
    
    
    $
    14,044
    
    
    $
    17,306Income from operationsCraftmade
    
    $
    996
    
    
    $
    1,338
    
    
    $
    1,902
    
    
    $
    3,313TSI
    
    
    348
    
    
    
    1,850
    
    
    
    1,206
    
    
    
    3,373Total
    
    $
    1,344
    
    
    $
    3,188
    
    
    $
    3,108
    
    
    $
    6,686
  8




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 5    STOCK-BASED COMPENSATION
   Stock-Based Compensation Expense
(Dollars in thousands)
 Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,2007
    
    2006
    
    2007
    
    2006Stock-based compensation expense
recognized:Selling, general & administrative
    
    $
    28
    
    
    $
    7
    
    
    $
    56
    
    
    $
    11
  Future Stock-Based Compensation Expense
(Dollars in thousands)
 ExpectedFutureCompensationFiscal Year Ending
    
    CostJune 30, 2008 (remaining six months)
    
    $
    56June 30, 2009
    
    
    113June 30, 2010
    
    
    113June 30, 2011
    
    
    52
 9




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Stock Option Information
 WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    ContractualNumber of
    
    
    Exercise
    
    
    LifeShares
    
    
    Price
    
    
    (Years)Outstanding at June 30, 2007
    
    
    99,100
    
    
    $
    18.06
    
    
    
    8.8Options granted
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    Options forfeited
    
    
    (2,600
    )
    
    
    18.85Options expired
    
    
    
    
    
    
    Outstanding at December 31, 2007
    
    
    96,500
    
    
    $
    18.06
    
    
    
    8.3Exercisable at December 31, 2007
    
    
    3,500
    
    
    $
    6.00
    
    
    
    1.8
  10




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 6   INCOME TAXES
  Summary of Effective Tax Rate
 Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,2007
    
    2006
    
    2007
    
    2006Effective tax rate
    
    
    35.0
    %
    
    
    34.3
    %
    
    
    34.8
    %
    
    
    34.3
    %
     11




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Reconciliation of Unrecognized Tax Benefits
(Dollars in thousands)
 Increases/(Decreases) in UnrecognizedTax Benefits As a Result ofTax Positions from
    
    
    
    
    
    Lapse inJuly 1,
    
    Prior
    
    Current
    
    
    
    
    
    Statute of
    
    December 31,2007
    
    Periods
    
    Period
    
    Settlements
    
    Limitations
    
    2007Unrecognized tax benefits
    
    $
    290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    290
   Note 7    COMMITMENTS AND CONTINGENCIES
  Note 8    SUBSEQUENT EVENTS
   12




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Preliminary Purchase Price
(Dollars in thousands)
 Cash paid at closing
    
    $
    16,135Value of 500,000 shares of common stock
    
    
    4,000
    (1)Value of 200,000 common stock warrants
    
    
    279
    (2)Professional fees
    
    
    587$
    21,001
 
 (1)
    
    The value of the 500,000 shares of common stock was based on the average
closing prices of Craftmades common stock, $0.01 par value per share, for the
two days before, the day of, and the two days after the date of the
announcement of the merger or $8.00 per share.(2)
    
    The 200,000 common stock warrants were valued using the Black-Scholes
calculation at a warrant price of $1.39 per share using the following
assumptions: Expected volatility
    
    
    33
    %Risk-free interest rate
    
    
    3.81
    %Expected lives
    
    10 yearsDividend yield
    
    
    5.8
    %
   13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Disclosure Regarding Forward-looking Statements
  Critical Accounting Policies and Estimates
  Accounting for Uncertainty in Income Taxes.
 14




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Results of Operations
  Three Months Ended December 31, 2007 Compared to Three Months Ended December 31, 2006
  Summary Income Statement by Segment
(Dollars in thousands)
 Three Months Ended
    
    
    Three Months EndedDecember 31, 2007
    
    
    December 31, 2006Craftmade
    
    
    TSI
    
    
    Total
    
    
    Craftmade
    
    
    TSI
    
    
    TotalNet sales
    
    $
    12,297
    
    
    $
    8,515
    
    
    $
    20,812
    
    
    $
    13,778
    
    
    $
    12,785
    
    
    $
    26,563Cost of goods sold
    
    
    (7,810
    )
    
    
    (6,468
    )
    
    
    (14,278
    )
    
    
    (8,873
    )
    
    
    (9,166
    )
    
    
    (18,039
    )Gross profit
    
    
    4,487
    
    
    
    2,047
    
    
    
    6,534
    
    
    
    4,905
    
    
    
    3,619
    
    
    
    8,524As a % of net sales
    
    
    36.5
    %
    
    
    24.0
    %
    
    
    31.4
    %
    
    
    35.6
    %
    
    
    28.3
    %
    
    
    32.1
    %Selling, general and administrative
    
    
    (3,344
    )
    
    
    (1,633
    )
    
    
    (4,977
    )
    
    
    (3,427
    )
    
    
    (1,708
    )
    
    
    (5,135
    )As a % of net sales
    
    
    27.2
    %
    
    
    19.2
    %
    
    
    23.9
    %
    
    
    24.9
    %
    
    
    13.4
    %
    
    
    19.3
    %Depreciation and amortization
    
    
    (147
    )
    
    
    (66
    )
    
    
    (213
    )
    
    
    (140
    )
    
    
    (61
    )
    
    
    (201
    )Total operating expenses
    
    
    (3,491
    )
    
    
    (1,699
    )
    
    
    (5,190
    )
    
    
    (3,567
    )
    
    
    (1,769
    )
    
    
    (5,336
    )Income from operations
    
    $
    996
    
    
    $
    348
    
    
    
    1,344
    
    
    $
    1,338
    
    
    $
    1,850
    
    
    
    3,188Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (298
    )
    
    
    
    
    
    
    
    
    
    
    (393
    )Income before income taxes
and minority interest
    
    
    
    
    
    
    
    
    
    
    1,046
    
    
    
    
    
    
    
    
    
    
    
    2,795Income taxes
    
    
    
    
    
    
    
    
    
    
    (260
    )
    
    
    
    
    
    
    
    
    
    
    (782
    )Income before minority interest
    
    
    
    
    
    
    
    
    
    
    786
    
    
    
    
    
    
    
    
    
    
    
    2,013Minority interest
    
    
    
    
    
    
    
    
    
    
    (304
    )
    
    
    
    
    
    
    
    
    
    
    (513
    )Net income
    
    
    
    
    
    
    
    
    
    $
    482
    
    
    
    
    
    
    
    
    
    
    $
    1,500
 Net Sales.
   15




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##### Table of Contents



Net Sales of TSI Segment
(Dollars in thousands)
 Trade
    
    
    Design
    
    
    SegmentThree Months Ended
    
    Source
    
    
    Trends
    
    
    TotalDecember 31, 2007
    
    $
    3,952
    
    
    $
    4,563
    
    
    $
    8,515December 31, 2006
    
    
    7,101
    
    
    
    5,684
    
    
    
    12,785Dollar decrease
    
    $
    (3,149
    )
    
    $
    (1,121
    )
    
    $
    (4,270
    )Percent decrease
    
    
    (44.3
    %)
    
    
    (19.7
    %)
    
    
    (33.4
    %)
     Gross Profit.
  16




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##### Table of Contents



Gross Profit as a Percentage of Net Sales of TSI
 Trade
    
    
    Design
    
    
    SegmentThree Months Ended
    
    Source
    
    
    Trends
    
    
    TotalDecember 31, 2007
    
    
    22.5
    %
    
    
    25.4
    %
    
    
    24.0
    %December 31, 2006
    
    
    28.2
    %
    
    
    28.5
    %
    
    
    28.3
    %Percent increase/(decrease)
    
    
    (5.7
    %)
    
    
    (3.1
    %)
    
    
    (4.3
    %)
   Selling, General and Administrative Expenses.
 Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/Three Months Ended
    
    
    (Decrease)December 31,
    
    
    December 31,
    
    
    Over Prior2007
    
    
    2006
    
    
    Year PeriodCommissions
    
    $
    649
    
    
    $
    785
    
    
    $
    (136
    )Accounting, legal and consulting
    
    
    509
    
    
    
    601
    
    
    
    (92
    )Group health claims
    
    
    230
    
    
    
    148
    
    
    
    82Other
    
    
    3,589
    
    
    
    3,601
    
    
    
    (12
    )$
    4,977
    
    
    $
    5,135
    
    
    $
    (158
    )
   17




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##### Table of Contents



Interest Expense.
 Minority interest.
 Provision for Income Taxes.
 Six Months Ended December 31, 2007 Compared to Six Months Ended December 31, 2006
  Summary Income Statement by Segment
(Dollars in thousands)
 Six Months Ended
    
    
    Six Months EndedDecember 31, 2007
    
    
    December 31, 2006Craftmade
    
    
    TSI
    
    
    Total
    
    
    Craftmade
    
    
    TSI
    
    
    TotalNet sales
    
    $
    26,580
    
    
    $
    16,970
    
    
    $
    43,550
    
    
    $
    30,229
    
    
    $
    24,460
    
    
    $
    54,689Cost of goods sold
    
    
    (17,085
    )
    
    
    (12,421
    )
    
    
    (29,506
    )
    
    
    (19,572
    )
    
    
    (17,811
    )
    
    
    (37,383
    )Gross profit
    
    
    9,495
    
    
    
    4,549
    
    
    
    14,044
    
    
    
    10,657
    
    
    
    6,649
    
    
    
    17,306As a % of net sales
    
    
    35.7
    %
    
    
    26.8
    %
    
    
    32.2
    %
    
    
    35.3
    %
    
    
    27.2
    %
    
    
    31.6
    %Selling, general and administrative
    
    
    (7,306
    )
    
    
    (3,212
    )
    
    
    (10,518
    )
    
    
    (7,065
    )
    
    
    (3,154
    )
    
    
    (10,219
    )As a % of net sales
    
    
    27.5
    %
    
    
    18.9
    %
    
    
    24.2
    %
    
    
    23.4
    %
    
    
    12.9
    %
    
    
    18.7
    %Depreciation and amortization
    
    
    (287
    )
    
    
    (131
    )
    
    
    (418
    )
    
    
    (279
    )
    
    
    (122
    )
    
    
    (401
    )Total operating expenses
    
    
    (7,593
    )
    
    
    (3,343
    )
    
    
    (10,936
    )
    
    
    (7,344
    )
    
    
    (3,276
    )
    
    
    (10,620
    )Income from operations
    
    $
    1,902
    
    
    $
    1,206
    
    
    
    3,108
    
    
    $
    3,313
    
    
    $
    3,373
    
    
    
    6,686Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (620
    )
    
    
    
    
    
    
    
    
    
    
    (761
    )Income before income taxes
and minority interest
    
    
    
    
    
    
    
    
    
    
    2,488
    
    
    
    
    
    
    
    
    
    
    
    5,925Income taxes
    
    
    
    
    
    
    
    
    
    
    (586
    )
    
    
    
    
    
    
    
    
    
    
    (1,763
    )Income before minority interest
    
    
    
    
    
    
    
    
    
    
    1,902
    
    
    
    
    
    
    
    
    
    
    
    4,162Minority interest
    
    
    
    
    
    
    
    
    
    
    (802
    )
    
    
    
    
    
    
    
    
    
    
    (778
    )Net income
    
    
    
    
    
    
    
    
    
    $
    1,100
    
    
    
    
    
    
    
    
    
    
    $
    3,384
 18




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##### Table of Contents



Net Sales.
    Net Sales of TSI Segment
(Dollars in thousands)
 Trade
    
    
    Design
    
    
    SegmentSix Months Ended
    
    Source
    
    
    Trends
    
    
    TotalDecember 31, 2007
    
    $
    8,488
    
    
    $
    8,482
    
    
    $
    16,970December 31, 2006
    
    
    14,484
    
    
    
    9,976
    
    
    
    24,460Dollar decrease
    
    $
    (5,996
    )
    
    $
    (1,494
    )
    
    $
    (7,490
    )Percent decrease
    
    
    (41.4
    %)
    
    
    (15.0
    %)
    
    
    (30.6
    %)
    19




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##### Table of Contents



Gross Profit.
    Gross Profit as a Percentage of Net Sales of TSI
 Trade
    
    Design
    
    SegmentSix Months Ended
    
    Source
    
    Trends
    
    TotalDecember 31, 2007
    
    
    23.8
    %
    
    
    29.8
    %
    
    
    26.8
    %December 31, 2006
    
    
    28.3
    %
    
    
    25.6
    %
    
    
    27.2
    %Percent increase/(decrease)
    
    
    (4.5
    %)
    
    
    4.2
    %
    
    
    (0.4
    %)
   20




---



##### Table of Contents



Selling, General and Administrative Expenses.
 Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/Six Months Ended
    
    
    (Decrease)December 31,
    
    
    December 31,
    
    
    Over Prior2007
    
    
    2006
    
    
    Year PeriodCommissions
    
    $
    1,410
    
    
    $
    1,684
    
    
    $
    (274
    )Group health claims
    
    
    605
    
    
    
    317
    
    
    
    288Accounting, legal and consulting
    
    
    1,247
    
    
    
    1,066
    
    
    
    181Salaries and wages
    
    
    3,620
    
    
    
    3,486
    
    
    
    134Other
    
    
    3,636
    
    
    
    3,666
    
    
    
    (30
    )$
    10,518
    
    
    $
    10,219
    
    
    $
    299
   Interest Expense.
 Minority interest.
 Provision for Income Taxes.
 Liquidity and Capital Resources
  21




---



##### Table of Contents



Recent Accounting Pronouncements
     22




---



##### Table of Contents



Long-Term Obligations
  Summary of Long-Term Obligations
At December 31, 2007
(Dollars in thousands)
 OutstandingCommitment
    
    
    Balance
    
    
    Interest Rate
    
    
    MaturityRevolving lines of
credit
    
    $
    50,000
    
    
    $
    6,892
    
    
    LIBOR plus1.5
    %
    

December 31, 2009Note payable  facility
    
    
    
    
    
    
    11,000
    
    
    
    6.5
    %
    

December
10, 2017Capital lease obligation
    
    
    
    
    
    
    134
    
    
    
    
    
    
    November 5, 2010Sub-total
    
    
    
    
    
    
    18,026Less: current amounts due
    
    
    
    
    
    
    (491
    )Long-term obligations
    
    
    
    
    
    $
    17,535
    23




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Controls
  
 PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  24




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  Number of Votesof Common StockNominee
    
    For
    
    WithheldJames R. Ridings
    
    
    3,816,934
    
    
    
    995,519William E. Bucek
    
    
    3,826,041
    
    
    
    986,412L. Dale Griggs
    
    
    3,828,809
    
    
    
    983,644A. Paul Knuckley
    
    
    3,816,734
    
    
    
    995,719R. Don Morris
    
    
    3,829,009
    
    
    
    983,444Lary C. Snodgrass
    
    
    3,829,234
    
    
    
    983,219
  Number of Votes
    
    Number of VotesVoted For
    
    Voted Against
    
    Abstentions4,717,283
    
    
    92,783
    
    
    
    2,387
 
 Item 5. Other Information
  
 Item 6. Exhibits
 ExhibitNumber
    
    Description2.1
    
    Asset Purchase Agreement dated as of December 18, 2007, by and among
Woodard, LLC, Henry Crown and Company d/b/a CC Industries, Inc. and Craftmade
International, Inc., previously filed as Exhibit 2.1 to Form 8-K on January 4, 2008
(File No. 000-26667), and incorporated by reference herein.Pursuant to Item 601(b)(2) of Regulation S-K, the Company has not filed
herewith the schedules and exhibits to the foregoing exhibit and agrees to
furnish supplementally to the Securities and Exchange Commission, upon request,
any omitted schedules or similar attachments to the foregoing exhibit.
 25




---



##### Table of Contents



ExhibitNumber
    
    Description2.2
    
    Stock Purchase Agreement between Craftmade International, Inc., Trade
Source International, Inc., and Robert W. Lackey, dated September 15, 2006,
previously
filed as Exhibit 10.1 to Form 8-K dated September 15, 2006 (File
No. 000-26667), and incorporated by reference herein.Pursuant to Item 601(b)(2) of Regulation S-K, the Company has not filed
herewith the schedules and exhibits to the foregoing exhibit and agrees to
furnish supplementally to the Securities and Exchange Commission, upon request,
any omitted schedules or similar attachments to the foregoing exhibit.2.3
    
    Agreement for the Purchase and Sale of Personal Goodwill between Trade
Source International, Inc. and Robert Lackey, dated September 15, 2006, previously
filed as Exhibit 10.2 to Form 8-K dated September 15, 2006 (File No. 000-26667),
and incorporated by reference herein.2.4
    
    Agreement for the Purchase and Sale of Personal Goodwill between Trade
Source International, Inc. and Robert Lackey, Jr., dated September 15, 2006,
previously filed as Exhibit 10.3 to Form 8-K dated September 15, 2006 (File
No. 000-26667), and incorporated by reference herein.2.5
    
    Intellectual Property Assignment by and between Trade Source
International, Inc., Robert W. Lackey, Robert W. Lackey, Jr., RWL Incorporated
f/k/a Robert W. Lackey Corporation and R.L. Products Corporation, dated
September 15, 2006, previously filed as Exhibit 10.4 to Form 8-K dated September
15, 2006 (File No. 000-26667), and incorporated by reference herein.2.6
    
    Non-Competition Agreement between Trade Source International, Inc. and
Robert W. Lackey, dated September 15, 2006, previously filed as Exhibit 10.5 to
Form 8-K dated September 15, 2006 (File No. 000-26667), and incorporated by
reference herein.2.7
    
    Non-Competition Agreement between Trade Source International and Robert
W. Lackey, Jr., dated September 15, 2006, previously filed as Exhibit 10.6 to
Form 8-K dated September 15, 2006 (File No. 000-26667), and incorporated by
reference herein.2.8
    
    Consulting Agreement by and between Craftmade International, Inc.,
Trade Source International, Inc. and Imagine One Resources, LLC, dated
September 15, 2006, previously filed as Exhibit 10.7 to Form 8-K dated September
15, 2006 (File No. 000-26667), and incorporated by reference herein.2.9
    
    Partially Subordinate Security Agreement among Trade Source
International, Inc., Marketing Impressions, Inc., Prime Home Impressions, LLC, and
Robert Lackey, (Lackey), as collateral agent for Lackey, Robert W. Lackey, Jr.,
Imagine One Resources, LLC, RWL Corporation and R.L. Products Corporation, dated
September 15, 2006, previously filed as Exhibit 10.8 to Form 8-K dated September
15, 2006 (File No. 000-26667), and incorporated by reference herein.2.10
    
    Subordination Agreement by and among Robert W. Lackey (Lackey), as
collateral agent for Lackey, Robert W. Lackey, Jr., Imagine One Resources, LLC, RWL
Corporation, R.L. Products Corporation, and The Frost National Bank, Trade Source
 26




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##### Table of Contents



ExhibitNumber
    
    DescriptionInternational, Inc., Marketing Impressions, Inc., Prime/Home Impressions, LLC and
Craftmade International, Inc., dated September 15, 2006, previously filed as
Exhibit 10.9 to Form 8-K dated September 15, 2006 (File No. 000-26667), and
incorporated by reference herein.2.11
    
    Agreement and Plan of Merger by and among Craftmade International,
Inc., Bill
Teiber Co., Inc., Teiber Lighting Products, Inc., Todd Teiber and Edward
Oberstein dated March 1, 2005, previously filed as Exhibit 10.1 to Form 8-K
dated March 1, 2005 (File No. 000-26667), and incorporated by reference herein.2.12
    
    Agreement and Plan of Merger, dated as of July 1, 1998, by and among
Craftmade International, Inc., Trade Source International, Inc. a Delaware
corporation, Neall and Leslie Humphrey, John DeBlois, the Wiley Family Trust, James
Bezzerides, the Bezzco Inc. Employee Retirement Trust and Trade Source
International, Inc, a California corporation, filed as Exhibit 2.1 to Form 8-K
filed July 15, 1998 (File No. 33-33594-FW) and incorporated by reference herein.3.1
    
    Certificate of Incorporation of the Company, filed as Exhibit 3(a)(2)
to the Companys Post Effective Amendment No. 1 to Form S-8 (File No. 33-33594-FW),
and incorporated by reference herein.3.2
    
    Certificate of Amendment of Certificate of Incorporation of the
Company, dated March 24, 1992, and filed as Exhibit 4.2 to the Companys Form S-8
(File No. 333-44337), and incorporated by reference herein.3.3
    
    Amended and Restated Bylaws of the Company, filed as Exhibit 3(b)(2) to
the Companys Post Effective Amendment No. 1 to Form S-8 (File No. 33-33594-FW),
and incorporated by reference herein.4.1
    
    Specimen Common Stock Certificate, filed as Exhibit 4.4 to the
Companys registration statement on Form S-3 (File No. 333-70823), and incorporated
by reference herein.4.2
    
    Rights Agreement, dated as of June 23, 1999, between Craftmade
International, Inc. and Harris Trust and Savings Bank, as Rights Agent, previously
filed as Exhibit 4 to Form 8-K dated July 9, 1999 (File No. 000-26667), and
incorporated by reference herein.10.1
    
    Promissory Note dated November 14, 2007, in the original principal
amount of $11,000,000 payable to the order of Allianz Life Insurance Company of
North America and executed by CM Real Estate, LLC., previously filed as Exhibit
10.1 to Form 8-K on November 20, 2007 (File No. 000-26667), and incorporated by
reference herein.10.2
    
    Deed of Trust, Mortgage and Security Agreement by CM Real Estate, LLC,
effective November 14, 2007, previously filed as Exhibit 10.2 to Form 8-K on
November 20, 2007 (File No. 000-26667), and incorporated by reference herein.10.3
    
    Guaranty Agreement dated November 14, 2007, by Craftmade International,
Inc. in favor of Allianz Life Insurance Company of North America, previously filed
as Exhibit 10.3 to Form 8-K on November 20, 2007 (File No. 000-26667), and
incorporated by reference herein.
 27




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##### Table of Contents



ExhibitNumber
    
    Description10.4
    
    Lease Agreement dated as of November 14, 2007, between CM Real Estate,
LLC and Craftmade International, Inc., previously filed as Exhibit 10.4 to Form 8-K
on November 20, 2007 (File No. 000-26667), and incorporated by reference herein.10.5
    
    Third Amended and Restated Loan Agreement Among Craftmade
International, Inc., the Frost National Bank, As Administrative Agent, and the
Other Lenders Party Hereto, dated December 31, 2007, previously filed as Exhibit
10.1 to Form 8-K on January 7, 2008 (File No. 000-26667), and incorporated by
reference herein.10.6
    
    Revolving Promissory Note Between Craftmade International, Inc., and
The Frost National Bank, dated December 31,2007, previously filed as Exhibit 10.2
to Form 8-K on January 7, 2008 (File No. 000-26667), and incorporated by reference
herein.10.7
    
    Revolving Promissory Note Between Craftmade International, Inc., and
Whitney National Bank, dated December 31, 2007, previously filed as Exhibit 10.3 to
Form 8-K on January 7, 2008 (File No. 000-26667), and incorporated by reference
herein.10.8
    
    Revolving Promissory Note Between Craftmade International, Inc., and
Commerce Bank, N.A., dated December 31, 2007, previously filed as Exhibit 10.4 to
Form 8-K on January 7, 2008 (File No. 000-26667), and incorporated by reference
herein.10.9
    
    Craftmade International, Inc. 2006 Long-Term Incentive Plan, previously
filed as Exhibit 10.1 to Form 8-K dated November 28, 2006 (File No. 000-26667), and
incorporated by reference herein.10.10
    
    Incentive Stock Option Agreement, previously filed as Exhibit 10.2 to
Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by
reference herein.10.11
    
    Non-qualified Stock Option Agreement, previously filed as Exhibit 10.3
to Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by
reference herein.10.12
    
    Stock Appreciation Rights Agreement, previously filed as Exhibit 10.4
to Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by
reference herein.10.13
    
    Restricted Stock Award Agreement, previously filed as Exhibit 10.5 to
Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by
reference herein.31.1*
    
    Certification of James R. Ridings, Chief Executive Officer of the
Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of J. Marcus Scrudder, Chief Financial Officer of the
Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of James R. Ridings, Chairman of the Board, President
and Chief Executive Officer of the Company, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of J. Marcus Scrudder, Chief Financial Officer of the
Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Each document marked with an asterisk is filed or furnished
herewith. 28




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##### Table of Contents



SIGNATURES
  CRAFTMADE INTERNATIONAL, INC.
(Registrant)Date: February 6, 2008
    
    /s/ James R. RidingsJAMES R. RIDINGSChairman of the Board andChief Executive OfficerDate: February 6, 2008
    
    /s/ J. Marcus ScrudderJ. MARCUS SCRUDDERChief Financial Officer
 29