##### 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 September 30, 2009
 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
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES
 TABLE OF CONTENTS
 Part I. Financial InformationItem 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30Part II. Other InformationItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    33Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008Net sales
    
    $
    21,048
    
    
    $
    30,165Cost of goods sold
    
    
    (15,231
    )
    
    
    (21,695
    )Gross profit
    
    
    5,817
    
    
    
    8,470Gross profit as a percentage of net sales
    
    
    27.6
    %
    
    
    28.1
    %Selling, general and administrative expenses
    
    
    (5,876
    )
    
    
    (7,897
    )Depreciation and amortization
    
    
    (263
    )
    
    
    (238
    )Total operating expenses
    
    
    (6,139
    )
    
    
    (8,135
    )Income (loss) from operations
    
    
    (322
    )
    
    
    335Interest expense, net
    
    
    (343
    )
    
    
    (359
    )Other income
    
    
    
    
    
    
    5Loss before income taxes
    
    
    (665
    )
    
    
    (19
    )Income tax benefit
    
    
    288
    
    
    
    51Net income (loss)
    
    
    (377
    )
    
    
    32Less: Net income attributable to noncontrolling interest
    
    
    218
    
    
    
    161Net loss attributable to Craftmade International
    
    $
    (595
    )
    
    $
    (129
    )Weighted average common shares outstanding:Basic
    
    
    5,705
    
    
    
    5,705Diluted
    
    
    5,705
    
    
    
    5,705Basic loss per common share
    
    $
    (0.10
    )
    
    $
    (0.02
    )Diluted loss per common share
    
    $
    (0.10
    )
    
    $
    (0.02
    )
 
  1




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 September 30,
    
    
    June 30,2009
    
    
    2009(Unaudited)ASSETSCurrent assetsCash
    
    $
    126
    
    
    $
    384Accounts receivable, net
    
    
    21,326
    
    
    
    25,290Inventories, net
    
    
    20,078
    
    
    
    20,563Income taxes receivable
    
    
    2,052
    
    
    
    1,780Deferred income taxes
    
    
    1,392
    
    
    
    1,367Prepaid expenses and other current assets
    
    
    2,569
    
    
    
    2,443Total current assets
    
    
    47,543
    
    
    
    51,827Property and equipment, net
    
    
    10,955
    
    
    
    11,141Goodwill
    
    
    15,249
    
    
    
    14,947Other intangibles, net
    
    
    1,050
    
    
    
    1,097Other assets
    
    
    2,290
    
    
    
    1,856Total non-current assets
    
    
    29,544
    
    
    
    29,041Total assets
    
    $
    77,087
    
    
    $
    80,868LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS EQUITYCurrent liabilitiesBook overdrafts
    
    $
    191
    
    
    $
    8Accounts payable
    
    
    7,273
    
    
    
    7,231Other accrued expenses
    
    
    1,732
    
    
    
    2,422Current portion of long-term obligations
    
    
    826
    
    
    
    542Total current liabilities
    
    
    10,022
    
    
    
    10,203Non-current liabilitiesLong-term obligations
    
    
    26,638
    
    
    
    29,886Deferred income taxes
    
    
    1,127
    
    
    
    1,122Total non-current liabilities
    
    
    27,765
    
    
    
    31,008Total liabilities
    
    
    37,787
    
    
    
    41,211Stockholders equityCraftmade International stockholders equity:Common stock, $0.01 par value, 15,000,000 shares authorized;
10,204,420 shares issued
    
    
    102
    
    
    
    102Additional paid-in capital
    
    
    22,353
    
    
    
    22,335Retained earnings
    
    
    51,220
    
    
    
    51,814Less: treasury stock, 4,499,920
common shares at cost
    
    
    (38,126
    )
    
    
    (38,126
    )Total Craftmade International stockholders equity
    
    
    35,549
    
    
    
    36,125Noncontrolling interest
    
    
    3,751
    
    
    
    3,532Total equity
    
    
    39,300
    
    
    
    39,657Total liabilities and stockholders equity
    
    $
    77,087
    
    
    $
    80,868
 
  2




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 Three Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008Net cash provided by (used in) operating activities
    
    $
    2,789
    
    
    $
    (1,801
    )Cash flows from investing activitiesAdditional contingent consideration
    
    
    (170
    )
    
    
    (201
    )Additions property, equipment and tooling
    
    
    (98
    )
    
    
    (646
    )Cash used in investing activities
    
    
    (268
    )
    
    
    (847
    )Cash flows from financing activitiesNet proceeds from (payments on) notes payable
    
    
    3,331
    
    
    
    (113
    )Net proceeds from (payments on) lines of credit
    
    
    (6,283
    )
    
    
    2,145Increase (decrease) in book overdrafts
    
    
    185
    
    
    
    (164
    )Principal payments on capital lease
    
    
    (12
    )
    
    
    (11
    )Net cash provided by (used in) financing activities
    
    
    (2,779
    )
    
    
    1,857Net decrease in cash
    
    
    (258
    )
    
    
    (791
    )Cash at beginning of period
    
    
    384
    
    
    
    1,269Cash at end of period
    
    $
    126
    
    
    $
    478
 
  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 Assets of Woodard LLC.
    5




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 Cash paid at closing
    
    $
    16,168GAAP value of 500,000 shares issued
    
    
    4,000
    (1)Value of 200,000 Warrants
    
    
    279
    (2)Purchase price adjustment (Settled April, 2008)
    
    
    (1,272
    )Total consideration
    
    $
    19,175
 (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
    %
    6




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Purchase Price Allocation
 Initial estimated purchase price
    
    
    
    
    
    $
    20,168Less: Working capital adjustment
    
    
    
    
    
    
    (1,272
    )Value of warrants
    
    
    
    
    
    
    279Total Purchase Consideration
    
    
    
    
    
    
    19,175Acquired Assets (Adjusted to estimated fair value)Accounts receivable, net
    
    $
    12,708Inventories, net
    
    
    8,212Prepaid expenses and other current assets
    
    
    2,450Plant, property and equipment
    
    
    2,929Other assets
    
    
    1,528Total Assets
    
    
    
    
    
    
    27,827Assumed LiabilitiesAccounts payable
    
    $
    5,852Other accrued expenses
    
    
    1,702Other liabilities incurred during transactionProfessional fees associated with acquisition
    
    
    655Restructuring reserve
    
    
    692Deferred tax asset for restructuring reserve
    
    
    (249
    )Total Liabilities
    
    
    
    
    
    
    8,652Total Purchase Price
    
    
    
    
    
    $
    19,175
   7




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Acquisition of Marketing Impressions, Inc.
   Purchase Price Summary
(Dollars in thousands)
 As of September 30, 2009:Amount paid at closing, net of cash acquired
    
    $
    1,287Contingent payments earned
    
    
    3,116Acquisition-related costs
    
    
    220Total consideration as of September 30, 2009
    
    $
    4,623Percent of Adjusted Gross ProfitJuly 1, 2006 to August 31, 2011
    
    
    22
    %Additional Percent of Adjusted Gross ProfitJuly 1, 2006 to June 30, 2007 (not to exceed $750)
    
    
    15
    %
   8




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 The amount of goodwill allocated to the purchase price was $2,164,000, all of which is
deductible for tax purposes over a 15 year period. In connection with the acquisition, the
Company acquired certain identifiable intangible assets, including patents, trademarks and
covenants not-to-compete. The gross amounts of such assets along with the range of
amortizable lives are as follows:
 Summary of Acquired Intangibles
(Dollars in thousands)
 Life
    
    
    Grossin Years
    
    
    AmountPatents and trademarks
    
    
    15
    
    
    $
    710Non-compete covenants
    
    
    7
    
    
    
    820$
    1,530
   9




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 3    LOSS PER SHARE
  Three Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008(In thousands, except per share data)Basic and diluted loss per share:NumeratorNet loss
attributable to Craftmade International
    
    $
    (595
    )
    
    $
    (129
    )Denominator for basic loss per shareWeighted average common shares outstanding
    
    
    5,705
    
    
    
    5,705Denominator for diluted loss per shareWeighted average common shares outstanding
    
    
    5,705
    
    
    
    5,705Incremental shares for stock options/warrants
    
    
    
    
    
    
    Dilutive weighted average common shares
    
    
    5,705
    
    
    
    5,705Basic loss per share
    
    $
    (0.10
    )
    
    $
    (0.02
    )Diluted loss per share
    
    $
    (0.10
    )
    
    $
    (0.02
    )
   10




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 4    SEGMENT INFORMATION
     11




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Summary of Segment Information
 Three Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008(In thousands)Net salesSpecialty
    
    $
    14,394
    
    
    $
    20,471Mass
    
    
    6,654
    
    
    
    9,694Total
    
    $
    21,048
    
    
    $
    30,165Gross profitSpecialty
    
    $
    4,110
    
    
    $
    6,657Mass
    
    
    1,707
    
    
    
    1,813Total
    
    $
    5,817
    
    
    $
    8,470Income (loss) from operationsSpecialty
    
    $
    (566
    )
    
    $
    443Mass
    
    
    244
    
    
    
    (108
    )Total
    
    $
    (322
    )
    
    $
    335
  12




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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 EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008Stock-based compensation expense recognized:Selling, general & administrative
    
    $
    27
    
    
    $
    30
  13




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Future Stock-Based Compensation Expense
(Dollars in thousands)
 ExpectedFutureCompensationFiscal Year Ending
    
    CostJune 30, 2010 (remaining 9 months)
    
    $
    81June 30, 2011
    
    
    55June 30, 2012
    
    
    17$
    153
  14




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Summary of Stock Options
 Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Exercise
    
    
    AverageExercise
    
    
    Price
    
    
    RemainingShares
    
    
    Price
    
    
    Range
    
    
    Life (Years)Outstanding at June 30, 2009
    
    
    159,200
    
    
    
    13.53Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (20,000
    )
    
    
    8.01Outstanding at September 30, 2009
    
    
    139,200
    
    
    $
    14.32
    
    
    $
    6.75-$25.20
    
    
    
    7.1Exercisable at September 30, 2009
    
    
    65,975
    
    
    $
    14.26
    
    
    $
    6.75-$25.20
    
    
    
    6.4
   15




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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 EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008Effective tax rate
    
    
    32.6
    %
    
    
    28.3
    %
      16




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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
    
    
    September 30,2009
    
    
    Periods
    
    
    Period
    
    
    Settlements
    
    
    Limitations
    
    
    2009Reserve for state nexus issues
    
    $
    190
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    190Valuation allowance for Texas franchise tax refunds
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19State net operating loss and credit carryforwards
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56Unrecognized tax benefits
    
    $
    265
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    265
    Note 7    RELATED PARTY TRANSACTIONS
   17




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
   Note 8    COMMITMENTS AND CONTINGENCIES
   18




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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
    19




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20




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Subsequent Events 
  21




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Results of Operations
   Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
  Summary Income Statement by Segment
(Dollars in thousands)
 Three Months Ended
    
    
    Three Months EndedSeptember 30, 2009
    
    
    September 30, 2008Specialty
    
    
    Mass
    
    
    Total
    
    
    Specialty
    
    
    Mass
    
    
    TotalNet sales
    
    $
    14,394
    
    
    $
    6,654
    
    
    $
    21,048
    
    
    $
    20,471
    
    
    $
    9,694
    
    
    $
    30,165Cost of goods sold
    
    
    (10,284
    )
    
    
    (4,947
    )
    
    
    (15,231
    )
    
    
    (13,814
    )
    
    
    (7,881
    )
    
    
    (21,695
    )Gross profit
    
    
    4,110
    
    
    
    1,707
    
    
    
    5,817
    
    
    
    6,657
    
    
    
    1,813
    
    
    
    8,470As a % of net sales
    
    
    28.6
    %
    
    
    25.7
    %
    
    
    27.6
    %
    
    
    32.5
    %
    
    
    18.7
    %
    
    
    28.1
    %Selling, general and administrative
    
    
    (4,459
    )
    
    
    (1,417
    )
    
    
    (5,876
    )
    
    
    (6,042
    )
    
    
    (1,855
    )
    
    
    (7,897
    )As a % of net sales
    
    
    31.0
    %
    
    
    21.3
    %
    
    
    27.9
    %
    
    
    29.5
    %
    
    
    19.1
    %
    
    
    26.2
    %Depreciation and amortization
    
    
    (217
    )
    
    
    (46
    )
    
    
    (263
    )
    
    
    (172
    )
    
    
    (66
    )
    
    
    (238
    )Total operating expenses
    
    
    (4,676
    )
    
    
    (1,463
    )
    
    
    (6,139
    )
    
    
    (6,214
    )
    
    
    (1,921
    )
    
    
    (8,135
    )Income (loss) from operations
    
    $
    (566
    )
    
    $
    244
    
    
    
    (322
    )
    
    $
    443
    
    
    $
    (108
    )
    
    
    335Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (343
    )
    
    
    
    
    
    
    
    
    
    
    (359
    )Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    (665
    )
    
    
    
    
    
    
    
    
    
    
    (19
    )Income taxes benefit
    
    
    
    
    
    
    
    
    
    
    288
    
    
    
    
    
    
    
    
    
    
    
    51Net income (loss)
    
    
    
    
    
    
    
    
    
    
    (377
    )
    
    
    
    
    
    
    
    
    
    
    32Less: Net
income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    218
    
    
    
    
    
    
    
    
    
    
    
    161Net loss attributable to Craftmade International
    
    
    
    
    
    
    
    
    
    $
    (595
    )
    
    
    
    
    
    
    
    
    
    $
    (129
    )
 Net Sales.
  22




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Net Sales of the Specialty Segment
(Dollars in thousands)
 Fans
    
    
    WoodardLighting &
    
    
    Outdoor
    
    
    SegmentThree Months Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalSeptember 30, 2009
    
    $
    9,050
    
    
    $
    5,344
    
    
    $
    14,394September 30, 2008
    
    
    12,359
    
    
    
    8,112
    
    
    
    20,471Dollar increase (decrease)
    
    $
    (3,309
    )
    
    $
    (2,768
    )
    
    $
    (6,077
    )Percent increase (decrease)
    
    
    (27
    %)
    
    
    (34
    %)
    
    
    (30
    %)
  
 Net Sales of Mass Segment
(Dollars in thousands)
 Fans
    
    
    WoodardLighting &
    
    
    Outdoor
    
    
    SegmentThree Months Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalSeptember 30, 2009
    
    $
    5,444
    
    
    $
    1,210
    
    
    $
    6,654September 30, 2008
    
    
    7,359
    
    
    
    2,335
    
    
    
    9,694Dollar increase (decrease)
    
    $
    (1,915
    )
    
    $
    (1,125
    )
    
    $
    (3,040
    )Percent increase (decrease)
    
    
    (26
    %)
    
    
    (48
    %)
    
    
    (31
    %)
  23




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##### Table of Contents



Gross Profit.
  Gross Profit as a Percentage of Net Sales of Specialty Segment
 Fans
    
    
    WoodardLighting &
    
    
    Outdoor
    
    
    SegmentThree Months Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalSeptember 30, 2009
    
    
    32.4
    %
    
    
    22.1
    %
    
    
    28.6
    %September 30, 2008
    
    
    34.0
    %
    
    
    30.3
    %
    
    
    32.5
    %Percent increase (decrease)
    
    
    (1.6
    %)
    
    
    (8.2
    %)
    
    
    (3.9
    %)
  24




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##### Table of Contents



Gross Profit as a Percentage of Net Sales of Mass
 Fans
    
    
    WoodardLighting &
    
    
    Outdoor
    
    
    SegmentThree Months Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalSeptember 30, 2009
    
    
    31.0
    %
    
    
    1.7
    %
    
    
    25.7
    %September 30, 2008
    
    
    23.2
    %
    
    
    4.6
    %
    
    
    18.7
    %Percent increase (decrease)
    
    
    7.8
    %
    
    
    (2.9
    %)
    
    
    7.0
    %
  Selling, General and Administrative Expenses.
 Total Company
Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/Three Months Ended
    
    
    (Decrease)September 30,
    
    
    September 30,
    
    
    Over Prior2009
    
    
    2008
    
    
    Year PeriodSalaries and wages
    
    $
    1,959
    
    
    $
    2,482
    
    
    
    (523
    )Advertising
    
    
    532
    
    
    
    865
    
    
    $
    (333
    )Commissions
    
    
    905
    
    
    
    1,164
    
    
    
    (259
    )Accounting, legal and consulting
    
    
    381
    
    
    
    629
    
    
    
    (248
    )Health Insurance
    
    
    182
    
    
    
    343
    
    
    
    (161
    )Contract labor
    
    
    150
    
    
    
    311
    
    
    
    (161
    )Travel
    
    
    119
    
    
    
    274
    
    
    
    (155
    )Bank Charges
    
    
    216
    
    
    
    91
    
    
    
    125Other
    
    
    1,432
    
    
    
    1,738
    
    
    
    (306
    )$
    5,876
    
    
    $
    7,897
    
    
    $
    (2,021
    )
  25




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##### Table of Contents



Interest Expense.
 Noncontrolling
Interest.
 Provision for Income Taxes
 Liquidity and Capital Resources
    26




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##### Table of Contents



Recent Accounting Pronouncements
   27




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##### Table of Contents



28




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##### Table of Contents



Long-Term Obligations
  Summary of Long Term Obligations
(Dollars in thousands)
 OutstandingBalance
    
    
    CurrentCommitment
    
    
    Sept. 30, 2009
    
    
    Interest Rate
    
    
    MaturityRevolving line of credit
    
    $
    40,000
    
    
    $
    13,759
    
    
    
    4.25
    %(1)
    
    July 10, 2012Note payable  facility, Coppell, TX
    
    
    n/a
    
    
    
    10,196
    
    
    
    6.5
    %
    
    December 10, 2017Note payable  facility, Owasso, MI
    
    
    n/a
    
    
    
    3,452
    
    
    
    5.25
    %(2)
    
    July 10, 2012Capital lease obligation
    
    
    n/a
    
    
    
    57
    
    
    
    7.6
    %
    
    November 5, 2010Sub-total
    
    
    
    
    
    
    27,464Less: current amounts due
    
    
    
    
    
    
    (826
    )Long-term obligations
    
    
    
    
    
    $
    26,638
 (1)
    
    Based on 30 day LIBOR plus applicable margin of 4%(2)
    
    Based on Prime Rate plus applicable margin of 2%     29




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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
   30




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##### Table of Contents



Changes in Internal Controls
  
 PART II
OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 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
   31




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##### Table of Contents



Item 5.
    
    Other Information
    32




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##### Table of Contents



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, 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.2.2
    
    
    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 the
Companys Form 8-K on September 18, 2006, 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 the Companys Form 8-K on September 18, 2006, 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 the Companys Form 8-K on September 18, 2006, 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 the
Companys Form 8-K on September 18, 2006, 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 the Companys Form 8-K on
September 18, 2006, 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 the Companys Form 8-K on
September 18, 2006, 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 the Companys Form 8-K on September 18, 2006, and incorporated
by reference herein.
  33




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##### Table of Contents



ExhibitNumber
    
    Description2.9
    
    
    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 the
Companys Form 8-K on September 18, 2006, 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 International, Inc., Marketing
Impressions, Inc., Prime/Home Impressions, LLC and Craftmade International, Inc., dated
September 15, 2006, previously filed as Exhibit 10.9 to the Companys Form 8-K on September
18, 2006, 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 the Companys Form 8-K on March 7, 2005, 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 the Companys Form 8-K on 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, previously filed as Exhibit 3.1 to the
Companys Form 8-K on June 15, 2009, 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 99.1 to the
Companys Form 8-K on July 9, 1999, and incorporated by reference herein.4.3
    
    
    Amendment No. 1 to Rights Agreement, dated as of June 9, 2009, between Craftmade
International, Inc. and ComputerShare Trust Company, N.A., as Rights Agent, previously filed
as Exhibit 1(A) to Form 8-A/A on June 15, 2009, 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 the Companys Form 8-K on
November 20, 2007, and incorporated by reference herein.
  34




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##### Table of Contents



ExhibitNumber
    
    Description10.2
    
    
    Deed of Trust, Mortgage and Security Agreement by CM Real Estate, LLC, effective November
14, 2007, previously filed as Exhibit 10.2 to the Companys Form 8-K on November 20, 2007,
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 the
Companys Form 8-K on November 20, 2007, and incorporated by reference herein.10.4
    
    
    Lease Agreement dated as of November 14, 2007, between CM Real Estate, LLC and Craftmade
International, Inc., previously filed as Exhibit 10.4 to the Companys Form 8-K on November
20, 2007, and incorporated by reference herein.10.5
    
    
    Loan and Security Agreement dated as of July 8, 2009, among Craftmade International, Inc.
and Bank of America, N.A., previously filed as Exhibit 10.1 to the Companys Form 8-K on July
16, 2009, and incorporated by reference herein.10.6
    
    
    Term Loan Agreement dated as of July 8, 2009, among Craftmade International, Inc.,
WoodardCM, LLC and The Frost National Bank, previously filed as Exhibit 10.2 to the
Companys Form 8-K on July 16, 2009, and incorporated by reference herein.10.7
    
    
    Term Loan Note dated July 8, 2009 with the Frost National Bank, previously filed as Exhibit
10.3 to the Companys Form 8-K on July 16, 2009, and incorporated by reference herein.10.8
    
    
    Mortgage dated as of July 8, 2009 by WoodardCM, LLC for the benefit of the Frost National
Bank, previously filed as Exhibit 10.4 to the Companys Form 8-K on July 16, 2009, and
incorporated by reference herein.10.9
    
    
    Craftmade International, Inc. 2006 Long-Term Incentive Plan, previously filed as Exhibit
10.1 to the Companys Form 8-K on December 4, 2006, and incorporated by reference herein.10.10
    
    
    Incentive Stock Option Agreement, previously filed as Exhibit 10.2 to the Companys Form
8-K on December 4, 2006, and incorporated by reference herein.10.11
    
    
    Non-qualified Stock Option Agreement, previously filed as Exhibit 10.3 to the Companys
Form 8-K on December 4, 2006, and incorporated by reference herein.10.12
    
    
    Stock Appreciation Rights Agreement, previously filed as Exhibit 10.4 to the Companys
Form 8-K on December 4, 2006, and incorporated by reference herein.10.13
    
    
    Restricted Stock Award Agreement, previously filed as Exhibit 10.5 to the Companys Form
8-K on December 4, 2006, and incorporated by reference herein.31.1
    *
    
    Certification of J. Marcus Scrudder, Chief Executive Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    *
    
    Certification of C. Brett Burford, Chief Financial Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    *
    
    Certification of J. Marcus Scrudder, Chief Executive Officer of the Company, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    *
    
    Certification of C. Brett Burford, 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.  35




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##### Table of Contents



SIGNATURES
  CRAFTMADE INTERNATIONAL, INC.(Registrant)Date:  November 16, 2009
    /s/  J. Marcus ScrudderJ. MARCUS SCRUDDERChief Executive OfficerDate:  November 16, 2009
    /s/ C. Brett BurfordC. BRETT BURFORDChief Financial Officer  36