<PAGE>   1





                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER, 31 1998 OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO________

Commission File Number
----------------------
       1-10471

                          CRAFTMADE INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

           Delaware                                      75-2057054
           --------                                      ----------
(State or other jurisdiction                          (I.R.S. Employer
of Incorporation or Organization)                    Identification No.)


650 S. Royal Lane, Suite 100, Coppell, Texas               75019
--------------------------------------------               -----
  (Address of principal executive offices)                Zip Code


Registrants' telephone number, including area code (972) 393-3800
                                                   --------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes     x.      No       .
----------      ----------

7,555,331 shares of Common Stock were outstanding as of January 25, 1999.





<PAGE>   2




                 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES

                     Index to Quarterly Report on Form 10-Q



Part I.  Financial Information

         Item 1.  Financial Statements (unaudited)

                  Condensed Consolidated Statements of Income for the three
                  months and six months ended December 31, 1998 and 1997.

                  Condensed Consolidated Balance Sheets as of December 31, 1998
                  and June 30, 1998.

                  Condensed Consolidated Statement of Changes in Shareholders'
                  Equity for the six months ended December 31, 1998.

                  Condensed Consolidated Statements of Cash Flows for the six
                  months ended December 31,1998 and 1997.

                  Notes to Condensed Consolidated Financial Statements.

         Item 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations.

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk


Part II. Other Information

         Item 1.  Legal Proceedings
         Item 2.  Changes in Securities and Use of Proceeds
         Item 3.  Defaults Upon Senior Securities
         Item 4.  Submission of Matters to a Vote of Security Holders
         Item 5.  Other Information
         Item 6.  Exhibits and Reports on Form 8-K




<PAGE>   3




                 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                               FOR THE THREE MONTHS ENDED          FOR THE SIX MONTHS ENDED
                              -----------------------------      ----------------------------
                              December 31,     December 31,      December 31,     December 31,
                                  1997             1998              1997            1998
                              ------------     ------------      ------------     ------------
<S>                           <C>              <C>               <C>              <C>         
Net Sales                     $  9,005,351     $ 17,609,457      $ 20,537,453     $ 41,161,838
Cost of goods sold               5,432,765       11,368,543        12,372,318       27,161,224
                              ------------     ------------      ------------     ------------

  Gross profit                   3,572,586        6,240,914         8,165,135       14,000,614
                              ------------     ------------      ------------     ------------

Selling, general
 and administrative
 expenses                        2,380,552        3,550,966         4,682,606        6,829,069
Interest expense,net               310,336          320,209           667,722          727,871
Depreciation and
 amortization                       93,914          193,670           189,125          395,732
                              ------------     ------------      ------------     ------------

    Total expenses               2,784,802        4,064,845         5,539,453        7,952,672
                              ------------     ------------      ------------     ------------

Income before
 income taxes                      787,784        2,176,069         2,625,682        6,047,942
and minority interest

Provision for
 income taxes                      283,603          559,344           943,075        1,969,810
                              ------------     ------------      ------------     ------------

Income before
minority interest                  504,181        1,616,725         1,682,607        4,078,132
 Minority interest                      --         (357,810)               --         (623,425)
                              ------------     ------------      ------------     ------------

Net income                    $    504,181     $  1,258,915      $  1,682,607     $  3,454,707
                              ============     ============      ============     ============


Basic and diluted
 earnings per share           $        .08     $        .17      $        .26     $        .46
                              ============     ============      ============     ============

Cash dividends
declared
per common share              $        .02     $        .02      $        .04     $        .04
                              ============     ============      ============     ============
</TABLE>


                       SEE ACCOMPANYING NOTES TO CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS



<PAGE>   4


                 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                     ASSETS

<TABLE>
<CAPTION>

                                                         December 31,
                                           June 30,         1998
                                            1998         (Unaudited)
                                        ------------     ------------
<S>                                     <C>              <C>         
Current assets:
  Cash                                  $    924,541     $  4,115,047
  Accounts receivable - trade,
    net of allowance                       7,562,404       11,327,696
  Note receivable - employee                      --          500,000
  Inventory                                9,508,290       12,025,423
  Prepaid expenses and other
    current assets                           978,163        1,785,190
                                        ------------     ------------

   Total current assets                   18,973,398       29,753,356
                                        ------------     ------------


Property and equipment, net                9,306,318        9,662,508
                                        ------------     ------------

Other assets:
  Goodwill, net                                   --        5,684,256
  Other assets                                78,044           66,501
                                        ------------     ------------

         Total other assets                   78,044        5,750,757
                                        ------------     ------------

                                        $ 28,357,760     $ 45,166,621
                                        ============     ============
</TABLE>













                       SEE ACCOMPANYING NOTES TO CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS




<PAGE>   5



                 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                    December 31,
                                                     June 30,          1998
                                                      1998          (Unaudited)
                                                  ------------     -------------
<S>                                               <C>               <C>         
Current liabilities:
  Note payable, facility-
    current portion                               $    679,369      $    706,712
  Revolving line of credit                           7,000,000        10,500,000
  Accounts payable - trade and
    commissions                                        497,806         2,842,763
  Income taxes payable                                 366,997           987,001
  Other accrued liabilities                            293,151           377,354
                                                  ------------      ------------

         Total current liabilities                   8,837,323        15,413,830
                                                  ------------      ------------

  Note payable, facility -
    long term portion                                6,076,581         5,725,052
  Other liabilities                                    106,171           107,105
                                                  ------------      ------------

  Total liabilities                                 15,020,075        21,245,987
                                                  ------------      ------------

Shareholders' equity:
 Series A cumulative, convertible,
   callable preferred stock, $1.00
   par value, 2,000,000 shares
   authorized; 32,000 shares issued                     32,000            32,000
 Common stock, $.01 par value,
   15,000,000 shares authorized,
   9,295,535 and 6,197,025 shares
   issued as of December 31,1998
   and June 30, 1998, respectively                      61,970            92,955
Additional paid-in capital                           7,210,333        12,392,030
Retained earnings                                   13,912,831        17,116,804
                                                  ------------      ------------
                                                    21,217,134        29,633,789
 Less:  treasury stock, 1,740,174 and
   1,816,025 common shares at cost as
   of December 31, 1998 and June 30, 1998,
   respectively and 32,000 preferred shares
        at cost                                     (7,879,449)       (5,713,155)
         Total shareholders' equity                 13,337,685        23,920,634
                                                  ------------      ------------

                                                  $ 28,357,760      $ 45,166,621
                                                  ============      ============
</TABLE>


                       SEE ACCOMPANYING NOTES TO CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS




<PAGE>   6

                 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
      CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                   FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
                                   (UNAUDITED)




<TABLE>
<CAPTION>
                                       Voting                                                                     
                                    Common Stock        Series A      Additional                       Treasury
                               ---------------------    Preferred      Paid-In         Retained         Stock
                                  Shares      Amount      Stock        Capital         Earnings         Amount          Total
                               ------------  -------   -----------   ------------    ------------    ------------    ------------

<S>                            <C>          <C>       <C>           <C>             <C>             <C>             <C>         
Balance as of June 30, 1998      6,197,025   $61,970   $    32,000   $  7,210,333    $ 13,912,831    ($ 7,879,449)   $ 13,337,685

TSI Acquisition                       --        --            --        5,212,682            --         2,166,294       7,378,976

Cash Dividends                        --        --            --             --          (250,734)           --          (250,734)

Stock Split                      3,098,510    30,985          --          (30,985)           --              --              --

Net Income for the six months
ended December  31, 1998              --        --            --             --         3,454,707            --         3,454,707
                               -----------   -------   -----------   ------------    ------------    ------------    ------------

                                 9,295,535   $92,955   $    32,000   $ 12,392,030    $ 17,116,804    ($ 5,713,155)   $ 23,920,634
                               ===========   =======   ===========   ============    ============    ============    ============
</TABLE>





     SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>   7


                 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                     FOR THE SIX MONTHS ENDED
                                                  ------------------------------
                                                  December 31,      December 31,
                                                      1997              1998
                                                  ------------      ------------
<S>                                               <C>               <C>         
Net cash provided by
  operating activities                            $  3,961,072      $  5,713,390
                                                  ------------      ------------


Cash flows from investing activities:
  TSI acquisition                                           --        (2,040,569)
  Net additions to equipment                           (33,414)         (225,118)
                                                  ------------      ------------

  Net cash used for investing activities               (33,414)       (2,265,687)
                                                  ------------      ------------

Cash flows from financing activities:
  Principal payments for
  Note payable                                        (771,354)         (332,697)
  Stock repurchase                                    (244,000)               --
  Net proceeds from (principal payments for)
  revolving line of credit                          (3,000,000)          777,555
  Cash dividends                                      (145,000)         (250,734)
  Distributions to minority interest
    shareholders in subsidiary                              --          (451,321)
                                                  ------------      ------------
Net cash used for financing activities
                                                    (4,160,354)         (257,197)
                                                  ------------      ------------

 Net (decrease) increase in cash                      (232,696)        3,190,506

Cash at beginning of year                              615,173           924,541
                                                  ------------      ------------

 Cash at end of period                            $    382,477      $  4,115,047
                                                  ============      ============


Supplemental disclosures of cash flow information:

<CAPTION>

                                                     FOR THE SIX MONTHS ENDED
                                                  -----------------------------
                                                     December 31, December 31,
                                                      1997             1998
                                                  ------------     ------------
<S>                                               <C>               <C>         
Cash paid during the period for:
  Interest                                        $    667,722     $    727,871
                                                  ============     ============

  Income taxes                                    $  1,136,263     $  2,050,000
                                                  ============     ============
</TABLE>



                       SEE ACCOMPANYING NOTES TO CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS




<PAGE>   8


                 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                                   (Unaudited)





Non-cash disclosure:

On July 1, 1998, the Company acquired Trade Source International, Inc. for
approximately $11 million in a combination of approximately $3.6 million in cash
and approximately 656,000 shares of Craftmade's common stock valued at $11.25
per share. In connection with the acquisition, cash was paid as follows:

         Fair value of assets acquired
           (including goodwill)              $19,479,017
         Liabilities assumed                  (8,478,991)
         Stock issued                         (7,378,976)
                                             -----------
         Cash paid                             3,621,050
         Less:  cash acquired                  1,580,481
                                             -----------
         Net cash paid for acquisition       $ 2,040,569
                                             ===========












                       SEE ACCOMPANYING NOTES TO CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS





<PAGE>   9




              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        OF CRAFTMADE INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                                December 31, 1998
                                   (Unaudited)


Note 1 - BASIS OF PREPARATION AND PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
and include all adjustments which are, in the opinion of management, necessary
for a fair presentation. The condensed consolidated financial statements include
the accounts of the Company and its subsidiaries. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not misleading;
however, it is suggested that these financial statements be read in conjunction
with the financial statements and the notes thereto which are incorporated by
reference in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998. The financial data for the interim periods may not necessarily be
indicative of results to be expected for the year.


Note 2 - TRADE SOURCE INTERNATIONAL, INC. ACQUISITION


On July 1, 1998, the Company consummated the plan of merger with Trade Source
International, Inc., a California corporation (TSI California) engaged in the
wholesale distribution of outdoor lighting fixtures to mass merchandisers. As a
result, the Company acquired TSI California from its existing shareholders and
merged it into the Company's wholly-owned subsidiary, Trade Source
International, Inc., a Delaware corporation (TSI Delaware). The total purchase
price was approximately $11 million paid in a combination of approximately $3.6
million cash and approximately 656,000 shares of Craftmade's common stock,
valued at approximately $7.4 million, that had previously been repurchased by
the Company related to the Company's stock repurchase program. This transaction
has been accounted for under the purchase method of accounting, and the results
of operations of TSI Delaware have been consolidated since July 1, 1998. The
excess of the purchase price over the estimated fair value of the acquired net
assets, which approximates $5.8 million, has been recorded as goodwill and is
being amortized over 15 years.




<PAGE>   10



              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        OF CRAFTMADE INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                                December 31, 1998
                                   (Unaudited)




Note 2 - TRADE SOURCE INTERNATIONAL, INC. ACQUISITION (CONT'D)



Pro forma results from continuing operations, as if the acquisition had occurred
at the beginning of fiscal 1998, is as follows:

<TABLE>
<CAPTION>

                                   Three Months Ended     Six Months Ended
                                      December 31,          December 31,
                                          1997                  1997    
                                      ------------          ------------
                                                                         
<S>                                   <C>                   <C>         
     Revenues                         $ 13,369,990          $ 31,420,981
                                      ============          ============
                                                                        
     Net income                       $    276,076          $  1,867,922
                                      ============          ============
     Basic and diluted                                                  
       earnings per common share      $        .04          $        .25
                                      ============          ============
</TABLE>



Note 3 - MINORITY INTEREST


At TSI's acquisition date, TSI held a 50% ownership of Prime Home Impressions
(PHI), a corporation established for the purpose of selling ceiling fan
accessories. The Company is able to exert control over the operations of PHI by
virtue of having a majority of the Board of Directors. As a result, the assets,
liabilities and earnings of PHI have been included in the Company's consolidated
financial statements. The non-company owned shareholder interest has been
accounted for as minority interest. The minority interest in the accompanying
Consolidated Balance Sheet at December 31, 1998 approximates $172,000.
Shareholder distributions are limited to proportionate interest in the earnings
of PHI.





<PAGE>   11




              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        OF CRAFTMADE INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                                December 31, 1998
                                   (Unaudited)




Note 4 - EARNINGS PER SHARE

The following is a reconciliation of the numerator and denominator used in the
basic and diluted EPS calculation:

<TABLE>
<CAPTION>

                            FOR THE THREE MONTHS ENDED         FOR THE SIX MONTHS ENDED
                           -----------------------------     -----------------------------
                           December 31,     December 31,     December 31,     December 31,
                               1997             1998             1997             1998
                           ------------     ------------     ------------     ------------
<S>                        <C>              <C>              <C>              <C>         
Basic and  Diluted EPS
Numerator: Net Income

                           $    504,181     $  1,258,915     $  1,682,607     $  3,454,707
                           ------------     ------------     ------------     ------------
Denominator:
Common Shares
Outstanding
                              6,525,000        7,555,331        6,525,392        7,550,000
                           ------------     ------------     ------------     ------------

Basic EPS                  $        .08     $        .17     $        .26     $        .46
                           ============     ============     ============     ============

Denominator:
Common Shares
Outstanding                   6,525,000        7,555,331        6,525,392        7,550,000
Options                          28,599           15,831           26,876           15,514
                           ------------     ------------     ------------     ------------
Total Shares                  6,553,599        7,571,162        6,552,268        7,565,514
                           ============     ============     ============     ============

Diluted EPS                $        .08     $        .17     $        .26     $        .46
                           ============     ============     ============     ============
</TABLE>


Note 5 - STOCK SPLIT

On September 30, 1998, the Board of Directors declared a three-for-two split of
the Company's common stock effected in the form of a 50% stock dividend. New
shares were issued November 16, 1998 to holders of record as of the close of
business on October 30, 1998. Common stock, additional paid-in capital and
treasury stock as of December 31, 1998 and earnings per share and weighted
average share data for the three months and six months ended December 31, 1998
and 1997 have been adjusted to reflect the stock split.



<PAGE>   12



           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        OF CRAFTMADE INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                                December 31, 1998
                                   (Unaudited)




Note 6 - RELATED PARTY TRANSACTION

On December 31, 1998, the Company loaned an officer of TSI $500,000. This note
bears interest at prime (7.25% at December 31, 1998) and is payable in one
installment on the earlier of (i) the date this individual sells an aggregate
55,000 shares of the Company's common stock pursuant to the Registration
Statement on Form S-3 filed with the Securities and Exchange Commission on
January 20, 1999 (File No. 333-70823), (ii) the last day of employment of the
borrower, or (iii) 180 days from the date of the Registration Statement. This
loan is secured by a perfected, first priority security interest in and to the
55,000 shares of the Company's common stock held by the borrower.


Note 7 - CONTINGENCIES

The lamp division is currently pursuing an aggressive strategy of inventory
reduction through select "seconds" retailers. The Company's management believes
that this process will be completed by March 1999. Management will continue to
closely monitor this division and its financial results to determine the
feasibility of this division continuing as a single-customer manufacturer with
limited overhead or the dissolution of this division. At the current time,
management believes that the continued reduction of inventory can be
accomplished at a slight profit.


<PAGE>   13




ITEM 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS.

Cautionary Statement

With the exception of historical information, the matters discussed under
"Results of Operations" and "Liquidity and Capital Resources" contain
forward-looking statements. There are certain important factors which could
cause results to differ materially than those anticipated by some of the
forward-looking statements. Some of the important factors which could cause
actual results to differ materially from those in the forward-looking statements
include, among other things, changes from anticipated levels of sales, whether
due to future national or regional economic and competitive condition, changes
in relationships with customers including, but not limited to, the lamp
division's relationship with its major customer, customer acceptance of existing
and new products, pricing pressures due to excess capacity, raw material cost
increases, change of tax rates, change of interest rates, unfavorable economic
and political developments in the Republic of Taiwan, the location of the
Company's principal vendor, declining conditions in the home construction
industry,resolution of the Year 2000 issue, and other uncertainties, all of
which are difficult to predict and many of which are beyond the control the
Company.

On July 1, 1998, the Company acquired Trade Source International, Inc. (TSI). As
a result, the operations and financial position of TSI have been included in the
operations and financial position of the Company for the three months and six
months ended December 31, 1998.


Results of Operations

Net sales increased $8,604,106 for the three months ended December 31, 1998 to
$17,609,457, up from $9,005,351 for the same period last year. Net sales of TSI
represented $6,617,208 of this increase. For the six months ended December 31,
1998, net sales were $41,161,838, an increase of $20,624,385 from sales of
$20,537,453 for the same six month period last year. Net sales of TSI
represented $17,950,914 of this increase. The remaining increase of $1,986,898,
or 23.1%, and $2,673,471, or 13.0%, for the three months ended and six months
ended December 31, 1998, respectively, was primarily the result of an increase
of 21.8% and 12.0%, respectively, in sales from the fan division. This growth
has primarily been the result of an aggressive marketing strategy of competitive
pricing, innovative product design, new product introduction and selective
expansion of its distribution base. In addition, this division has benefited
from a strong housing market. The Company's management anticipates that this
marketing strategy will yield growth consistent with prior years. Net sales from
the Company's lamp division increased approximately $250,000 for the three
months ended December 31, 1998 and $487,000 for the six months ended December
31, 1998 as this division continues its aggressive strategy of inventory
reduction through select "seconds" retailers. The Company's management
anticipates that the inventory reduction will be completed within this fiscal
year at a small profit. Management will continue to closely monitor this
division and its 




<PAGE>   14



financial results to determine the feasibility of continuing this division as a
single-customer manufacturer with limited overhead or dissolving this division.

Gross profit for the three month period December 31, 1998 increased to
$6,240,914, or 35.4% of net sales, in 1998 from $3,572,586, or 39.7% of net
sales, in 1997. Gross profit from TSI represented $1,496,715 of this increase.
For the six month period ended December 31, 1998, gross profit increased to
$14,000,614, or 34.0% of net sales, in 1998 from $8,165,135, or 39.8% of sales,
in 1997. Gross profit from TSI represented $3,967,022 of this increase. The
remaining increases of $1,171,613 and $1,868,457 for the three months and six
months ended December 31, 1998, respectively, were primarily the result of
increasing margins in the fan division, to 44.7% for the six months ended
December 31, 1998 from 40.9% for the same six month period last year. This
increase was primarily attributable to the benefit of price concessions received
from the fan division's overseas suppliers, partially offset by price decreases
the fan division passed on to its customer base effective March 1998. The
Company's management anticipates that gross margins will stabilize at current
levels, for the near term, provided that the Company continues to benefit from
favorable product costs and increasing customer demand and that the aggressive
inventory reduction of the lamp division does not adversely affect overall
Company margins.

Total selling, general and administrative expenses increased to $3,550,996, or
20.2% of net sales, for the three months ended December 31, 1998, compared to
$2,380,552, or 26.4% of net sales, for the same three month period last year.
Total selling, general and administrative expenses from TSI represented $849,714
of this $1,170,444 increase. Total selling, general and administrative expenses
increased to $6,829,069, or 16.6% of net sales, for the six months ended
December 31, 1998, compared to $4,682,606, or 22.8% of net sales, for the same
six month period last year. Total selling, general and administrative expenses
from TSI represented $1,479,748 of this $2,146,463 increase. The remaining
increases were primarily the result of increases in certain costs directly
correlated to sales and the expensing of certain costs associated with the
acquisition of TSI. Due to the nature of TSI's business, commissions and freight
expense incurred by TSI are insignificant, thereby reducing selling, general and
administrative expenses as a percentage of net sales for the Company as a whole.
The Company's management anticipates that, for the near term, selling, general
and administrative expenses as a percentage of net sales will be fairly
consistent with the current level.

Net interest expense increased $9,873 to $320,209 for the three months ended
December 31, 1998 from $310,336 for the same three month period last year. Net
interest expense from TSI represented $22,130 of this increase. For the six
months ended December 31, 1998, net interest expense was $727,871, an increase
of $60,149 from net interest expense of $667,722 for the same six month period
last year. Net interest expense from TSI for the six months ended December 31,
1998 was $83,344. The Company utilized funds from its line of credit to provide
the approximately $3.6 million in cash required for the TSI acquisition. During
the six months the Company paid down $3 million on its line of credit by
utilizing the Company's excess cash flow. The 




<PAGE>   15


Company's management intends to continue this strategy of debt reduction as
excess cash flow is available.

The $623,425 minority interest represents the 50% ownership of Prime Home
Impressions by a non-company owned shareholder.


LIQUIDITY AND CAPITAL RESOURCES

The Company's cash increased $3,190,506, from $924,541 at June 30, 1998 to
$4,115,047 at December 31, 1998. The Company's operating activities provided
cash of $5,713,390 primarily attributable to the Company's improved operations.

The $2,265,687 of cash used for investing activities related to the $2,040,569
of net cash paid for the TSI acquisition and the purchase of general warehouse
and office equipment for $225,118.

The $257,197 of cash used for financing activities was primarily the result of
distributions of $451,321 made to the minority interest of Prime Home
Impressions, a 50% owned subsidiary of TSI, cash dividends of $250,734 and
principal payments of $332,697 made towards the notes payable, partially offset
by the advance of $777,555 on the Company's line of credit.

On July 1, 1998, the Company acquired TSI for approximately $11 million in a
combination of approximately $3.6 million cash and approximately 656,000 shares
of Craftmade's common stock. This transaction has been accounted for under the
purchase method of accounting, and the results of operations of TSI have been
consolidated for the three months and six months ended December 31, 1998.

At December 31, 1998, subject to continued compliance with certain covenants and
restrictions, the Company had $14,000,000 available on its line of credit of
which $9,000,000 had been utilized. In addition, TSI had $2,000,000 available on
its line of credit, of which $1,500,000 had been utilized. The Company's
management believes that its current line of credit, combined with cash flows
from operations, is adequate to fund the Company's current operating needs, make
annual payments under the facility note payable approximating $1,400,000, fund
the costs associated with Year 2000 compliance, as well as fund its projected
growth over the next twelve months. In addition, the Company is utilizing excess
cash flow to reduce outstanding indebtedness. It is management's intention to
continue this strategy of debt reduction as excess cash flow is made available.

At December 31, 1998, $6,431,764 remained outstanding under the twelve year note
payable for the Company's 378,000 square foot operating facility. The Company's
management believes that this facility will be sufficient for its purposes for
the foreseeable future.



<PAGE>   16


YEAR 2000 ISSUE

The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
00 as the year 1900 rather than the year 2000. The Year 2000 Issue potentially
not only impacts information technology systems, such as traditional computer
systems, but also non-information technology systems containing microcontrollers
or other embedded technology, such as elevators and other equipment and
machinery. The Year 2000 Issue could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. As a result, the Year 2000 Issue could
have a material adverse impact on the Company's business and its customers in
ways that cannot be fully determined at this time.

State of Readiness and Costs. The Company's analysis of the Year 2000 Issue
encompasses four phases: assessment, renovation, testing and implementation. The
assessment phase involves an investigation of the Company's systems for
potential Year 2000 Issues. The renovation phase involves the modification of
the Company's current systems, and the testing phase involves the validation of
these modifications. The implementation phase involves the ultimate use of the
converted systems by the Company.

The Company is currently assessing all systems that could potentially be
affected by the Year 2000 Issue, including facility systems, telephone hardware
and software, out-sourced services, suppliers and customers. In anticipation of
the renovation of the Company's systems, the Company has purchased the upgrade
for its current computer software, the cost of which was approximately $12,000.
The Company plans to install and test this upgrade within the next three months.
Within the next nine months, the Company plans to upgrade and test systems, as
needed,that will already be Year 2000 compliant. At this time, the Company's
management cannot estimate the cost of any systems upgrades that might be
required. However, the Company anticipates that these costs are not expected to
have a material impact on the Company's financial position, results of
operations or cash flows in future periods.

In addition to the current assessment of its systems, the Company is working
with its key suppliers, vendors, customers and other third parties with which it
has a material relationship to assist such parties in achieving compliance with
respect to the Year 2000 Issue in those systems affecting the Company's
operations. Although the Company believes that such persons are working
diligently to properly address the Year 2000 Issue, the Company cannot guarantee
that these third parties will convert their systems in a timely manner, or that
a failure to convert by another company or a conversion that is incompatible
with the Company's systems would not have a material adverse effect on the
Company.

Risks and Contingency Plans. The Company is not currently able to estimate the
effect on its results of operations, liquidity and financial condition in the
event that its plan to address the Year 2000 Issue and its discussions with key
third parties are not successful.

Because the Company is not able to estimate the full impact of any potential
failure of its systems as a result of the Year 2000 Issue, the Company has not
to date developed a contingency plan with respect to such potential failures.
However, the Company intends to create such a contingency plan within the next
nine months.


<PAGE>   17





ITEM 3   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
         MARKET RISK.


Not applicable.



<PAGE>   18





                                     PART II

                                OTHER INFORMATION






Item 1.                    Legal Proceedings

                           not applicable

Item 2.                    Changes in Securities and Use of Proceeds

                           not applicable

Item 3.                    Defaults Upon Senior Securities

                           not applicable

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

                           not applicable

Item 5.                    Other Information

                           not applicable

Item 6.                    Exhibits and Reports on Form 8-K

                           a).     Exhibits


         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-18 (File No. 33-33594-FW) and incorporated by reference
                  therein.

         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 therein.


<PAGE>   19


         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-18 (File No. 33-33594-FW) and incorporated by reference
                  therein.

         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 therein.

         10.1     Earnest Money contract and Design/Build Agreement dated May 8,
                  1995, between MEPC Quorum Properties II, Inc. and Craftmade
                  International, Inc. (including exhibits), previously filed as
                  an exhibit in Form 10-Q for the quarter ended December 31,
                  1995, and herein incorporated by reference.

         10.2     Assignment of Rents and Leases dated December 21, 1995,
                  between Craftmade International, Inc. and Allianz Life
                  Insurance Company of North America (including exhibits),
                  previously filed as an exhibit in Form 10-Q for the quarter
                  ended December 31, 1995, and herein incorporated by reference.

         10.3     Deed of Trust, Mortgage and Security Agreement made by
                  Craftmade International, Inc., dated December 21, 1995, to
                  Patrick M. Arnold, as trustee for the benefit of Allianz Life
                  Insurance Company of North America (including exhibits),
                  previously filed as an exhibit in Form 10-Q for the quarter
                  ended December 31, 1995, and herein incorporated by reference.

         10.4     Second Amended and Restated Credit Agreement dated November
                  14, 1995, among Craftmade International, Inc., Nations Bank of
                  Texas, N.A., as Agent and the Lenders defined therein
                  (including exhibits), previously filed as an exhibit in Form
                  10-Q for the quarter ended December 31, 1995, and herein
                  incorporated by reference.

         10.5     Lease Agreement dated November 30, 1995, between Craftmade
                  International, Inc. and TSI Prime, Inc., previously filed as
                  an exhibit in Form 10-Q for the quarter ended December 31,
                  1995, and herein incorporated by reference.

         10.6     Revolving credit facility with Texas Commerce Bank, previously
                  filed as an exhibit in Form 10-K for the year ended June 30,
                  1996, and herein incorporated by reference.

         10.7     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 Current Report on Form
                  8-K filed July 15, 1998 (File No. 33-33594-FW) and herein
                  incorporated by reference.

         10.8     Voting Agreement, dated July 1, 1998, by and among James R.
                  Ridings, Neall Humphrey and John DeBlois, filed as Exhibit 2.1


<PAGE>   20


                  to the Company's Current Report on Form 8-K filed July 15,
                  1998 (File No. 33-33594-FW) and herein incorporated by
                  reference.

         10.9     Third Amendment to Credit Agreement, dated July 1, 1998, by
                  and among Craftmade International, Inc., a Delaware
                  corporation, Trade Source International, Inc., a Delaware
                  corporation, Chase Bank of Texas, National Association
                  (formerly named Texas Commerce Bank, National Association) and
                  Frost National Bank (formerly named Overton Bank and Trust),
                  filed as Exhibit 2.1 to the Company's Current Report on Form
                  8-K filed July 15, 1998 (File No. 33-33594-FW) and herein
                  incorporated by reference.

         10.10    Consent to Merger by Chase Bank of Texas, National Association
                  and Frost National Bank, filed as Exhibit 2.1 to the Company's
                  Current Report on Form 8-K filed July 15, 1998 (File No.
                  33-33594-FW) and herein incorporated by reference.

         10.11    Employment Agreement, dated July 1, 1998, by and among
                  Craftmade International, Inc., Trade Source International,
                  Inc., a Delaware corporation, and Neall Humphrey, filed as
                  Exhibit 2.1 to the Company's Current Report on Form 8-K filed
                  July 15, 1998 (File No. 33-33594-FW) and herein incorporated
                  by reference.

         10.12    Employment Agreement, dated July 1, 1998, by and among
                  Craftmade International, Inc., Trade Source International,
                  Inc., a Delaware corporation, and Leslie Humphrey, filed as
                  Exhibit 2.1 to the Company's Current Report on Form 8-K filed
                  July 15, 1998 (File No. 33-33594-FW) and herein incorporated
                  by reference.

         10.13    Employment Agreement, dated July 1, 1998, by and among
                  Craftmade International, Inc., Trade Source International,
                  Inc., a Delaware corporation, and John DeBlois, filed as
                  Exhibit 2.1 to the Company's Current Report on Form 8-K filed
                  July 15, 1998 (File No. 33-33594-FW) and herein incorporated
                  by reference.

         10.14    Registration Rights Agreement, dated July 1, 1998, by and
                  among Craftmade International, Inc., Neall and Leslie Humphrey
                  and John DeBlois, filed as Exhibit 2.1 to the Company's
                  Current Report on Form 8-K filed July 15, 1998 (File No.
                  33-33594-FW) and herein incorporated by reference.

         27.1     Financial Data Schedule.


                      b). Reports on Form 8-K

                            None


<PAGE>   21





                                    SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                          CRAFTMADE INTERNATIONAL, INC.
                          ----------------------------
                                 (Registrant)



Date     January 25, 1999           /s/  James R. Ridings
    -------------------------       ---------------------
                                         JAMES R. RIDINGS
                                        President and Chief
                                         Executive Officer










<PAGE>   22



                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>

Exhibit No.                Description
-----------                -----------
  <S>                        <C>
  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-18 (File No. 33-33594-FW) and incorporated by reference
                           therein.

  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 therein.

  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-18 (File No. 33-33594-FW) and incorporated by reference
                           therein.

  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 therein.

  10.1                     Earnest Money contract and Design/Build Agreement dated May 8,
                           1995, between MEPC Quorum Properties II, Inc. and Craftmade
                           International, Inc. (including exhibits), previously filed as
                           an exhibit in Form 10-Q for the quarter ended December 31,
                           1995, and herein incorporated by reference.

  10.2                     Assignment of Rents and Leases dated December 21, 1995,
                           between Craftmade International, Inc. and Allianz Life
                           Insurance Company of North America (including exhibits),
                           previously filed as an exhibit in Form 10-Q for the quarter
                           ended December 31, 1995, and herein incorporated by reference.

  10.3                     Deed of Trust, Mortgage and Security Agreement made by
                           Craftmade International, Inc., dated December 21, 1995, to
                           Patrick M. Arnold, as trustee for the benefit of Allianz Life
                           Insurance Company of North America (including exhibits),
                           previously filed as an exhibit in Form 10-Q for the quarter
                           ended December 31, 1995, and herein incorporated by reference.

  10.4                     Second Amended and Restated Credit Agreement dated November
                           14, 1995, among Craftmade International, Inc., Nations Bank of
                           Texas, N.A., as Agent and the Lenders defined therein
                           (including exhibits), previously filed as an exhibit in Form
                           10-Q for the quarter ended December 31, 1995, and herein
                           incorporated by reference.

  10.5                     Lease Agreement dated November 30, 1995, between Craftmade
                           International, Inc. and TSI Prime, Inc., previously filed as
                           an exhibit in Form 10-Q for the quarter ended December 31,
                           1995, and herein incorporated by reference.

  10.6                     Revolving credit facility with Texas Commerce Bank, previously
                           filed as an exhibit in Form 10-K for the year ended June 30,
                           1996, and herein incorporated by reference.

  10.7                     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 Current Report on Form
                           8-K filed July 15, 1998 (File No.
                           33-33594-FW) and herein incorporated by reference.

  10.8                     Voting Agreement, dated July 1, 1998, by and among James R.
                           Ridings, Neall Humphrey and John DeBlois, filed as Exhibit 2.1

                           to the Company's Current Report on Form 8-K filed July 15,
                           1998 (File No. 33-33594-FW) and herein incorporated by
                           reference.

  10.9                     Third Amendment to Credit Agreement, dated July 1, 1998, by
                           and among Craftmade International, Inc., a Delaware
                           corporation, Trade Source International, Inc., a Delaware
                           corporation, Chase Bank of Texas, National Association
                           (formerly named Texas Commerce Bank, National Association) and
                           Frost National Bank (formerly named Overton Bank and Trust),
                           filed as Exhibit 2.1 to the Company's Current Report on Form
                           8-K filed July 15, 1998 (File No.
                           33-33594-FW) and herein incorporated by reference.

  10.10                    Consent to Merger by Chase Bank of Texas, National Association
                           and Frost National Bank, filed as Exhibit 2.1 to the Company's
                           Current Report on Form 8-K filed July 15, 1998 (File No.
                           33-33594-FW) and herein incorporated by reference.

  10.11                    Employment Agreement, dated July 1, 1998, by and among
                           Craftmade International, Inc., Trade Source International,
                           Inc., a Delaware corporation, and Neall Humphrey, filed as
                           Exhibit 2.1 to the Company's Current Report on Form 8-K filed
                           July 15, 1998 (File No. 33-33594-FW) and herein incorporated
                           by reference.

  10.12                    Employment Agreement, dated July 1, 1998, by and among
                           Craftmade International, Inc., Trade Source International,
                           Inc., a Delaware corporation, and Leslie Humphrey, filed as
                           Exhibit 2.1 to the Company's Current Report on Form 8-K filed
                           July 15, 1998 (File No. 33-33594-FW) and herein incorporated
                           by reference.

  10.13                    Employment Agreement, dated July 1, 1998, by and among
                           Craftmade International, Inc., Trade Source International,
                           Inc., a Delaware corporation, and John DeBlois, filed as
                           Exhibit 2.1 to the Company's Current Report on Form 8-K filed
                           July 15, 1998 (File No. 33-33594-FW) and herein incorporated
                           by reference.

  10.14                    Registration Rights Agreement, dated July 1, 1998, by and
                           among Craftmade International, Inc., Neall and Leslie Humphrey
                           and John DeBlois, filed as Exhibit 2.1 to the Company's
                           Current Report on Form 8-K filed July 15, 1998 (File No.
                           33-33594-FW) and herein incorporated by reference.

  27.1                     Financial Data Schedule.
</TABLE>