##### 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, 2008
 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 
incorporation or organization)
    
    (I.R.S. employer
identification no.)
 650 SOUTH ROYAL LANE, SUITE 100
COPPELL, TEXAS 75019
 (972) 393-3800
 þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ o þ




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##### 



CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES
 TABLE OF CONTENTS
 Part I.
    

    Financial Information
    
    
    1Item 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
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    28Part II.
    
    Other Information
    
    
    28Item 1.
    
    Legal Proceedings
    
    
    28Item 1A.
    
    Risk Factors
    
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of
Proceeds
    
    
    29Item 3.
    
    Defaults Upon Senior Securities
    
    
    29Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    29Item 5.
    
    Other Information
    
    
    29Item 6.
    
    Exhibits
    
    
    29EX-10.6EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
  CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007Net sales
    
    $
    30,165
    
    
    $
    22,738Cost of goods sold
    
    
    (21,695
    )
    
    
    (15,228
    )Gross profit
    
    
    8,470
    
    
    
    7,510Gross profit as a percentage of net sales
    
    
    28.1
    %
    
    
    33.0
    %Selling, general and administrative expenses
    
    
    (7,897
    )
    
    
    (5,541
    )Depreciation and amortization
    
    
    (238
    )
    
    
    (205
    )Total operating expenses
    
    
    (8,135
    )
    
    
    (5,746
    )Income from operations
    
    
    335
    
    
    
    1,764Interest expense, net
    
    
    (359
    )
    
    
    (322
    )Other Income
    
    
    5
    
    
    
    Income (loss) before income taxes and minority interest
    
    
    (19
    )
    
    
    1,442Income tax (expense) / benefit
    
    
    51
    
    
    
    (326
    )Income before minority interest
    
    
    32
    
    
    
    1,116Minority interest
    
    
    (161
    )
    
    
    (498
    )Net income (loss)
    
    $
    (129
    )
    
    $
    618Weighted average common shares outstanding:Basic
    
    
    5,705
    
    
    
    5,205Diluted
    
    
    5,705
    
    
    
    5,206Basic earnings per common share
    
    $
    (0.02
    )
    
    $
    0.12Diluted earnings per common share
    
    $
    (0.02
    )
    
    $
    0.12Cash dividends declared per common share
    
    $
    
    
    
    $
    0.12
 
 1




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 September 30,
    
    
    June 30,2008
    
    
    2008(Unaudited)ASSETSCurrent assetsCash
    
    $
    478
    
    
    $
    1,269Accounts receivable, net
    
    
    23,196
    
    
    
    23,644Inventories, net
    
    
    25,377
    
    
    
    22,420Income taxes receivable
    
    
    1,496
    
    
    
    1,485Deferred income taxes
    
    
    1,228
    
    
    
    1,332Prepaid expenses and other current assets
    
    
    2,562
    
    
    
    2,574Total current assets
    
    
    54,337
    
    
    
    52,724Property and equipment, net
    
    
    11,622
    
    
    
    11,060Goodwill
    
    
    14,548
    
    
    
    14,419Other intangibles, net
    
    
    1,249
    
    
    
    1,300Other assets
    
    
    2,448
    
    
    
    2,457Total non-current assets
    
    
    29,867
    
    
    
    29,236Total assets
    
    $
    84,204
    
    
    $
    81,960LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS EQUITYCurrent liabilitiesBook overdrafts
    
    $
    17
    
    
    $
    182Accounts payable
    
    
    9,097
    
    
    
    8,411Other accrued expenses
    
    
    2,969
    
    
    
    3,329Current portion of long-term obligations
    
    
    515
    
    
    
    507Total current liabilities
    
    
    12,598
    
    
    
    12,429Non-current liabilitiesLong-term obligations
    
    
    29,771
    
    
    
    27,759Deferred income taxes
    
    
    1,117
    
    
    
    1,117Total non-current liabilities
    
    
    30,888
    
    
    
    28,876Total liabilities
    
    
    43,486
    
    
    
    41,305Minority interest
    
    
    3,723
    
    
    
    3,562Stockholders equityPreferred stock, $1.00 par value, 2,000,000 shares authorized;
nil shares issued
    
    
    
    
    
    
    Common stock, $0.01 par value, 15,000,000 shares authorized;
10,204,420 shares issued
    
    
    102
    
    
    
    102Additional paid-in capital
    
    
    22,246
    
    
    
    22,215Retained earnings
    
    
    52,773
    
    
    
    52,902Less: treasury stock, 4,499,920 common
shares at cost
    
    
    (38,126
    )
    
    
    (38,126
    )Total stockholders equity
    
    
    36,995
    
    
    
    37,093Total liabilities, minority interest and stockholders equity
    
    $
    84,204
    
    
    $
    81,960
 
 2




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 Three Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007Net cash provided (used) in operating activities
    
    $
    (1,801
    )
    
    $
    2,738Cash flows from investing activitiesAdditional contingent consideration
    
    
    (201
    )
    
    
    (197
    )Additions property, equipment and tooling
    
    
    (646
    )
    
    
    (140
    )Cash used in investing activities
    
    
    (847
    )
    
    
    (337
    )Cash flows from financing activitiesNet proceeds from/(payments) on note payable
    
    
    (113
    )
    
    
    (223
    )Net proceeds from/(payments) on lines of credit
    
    
    2,145
    
    
    
    (923
    )Cash dividends
    
    
    
    
    
    
    (624
    )Distributions to minority interest members
    
    
    
    
    
    
    (975
    )Increase/(decrease) in book overdrafts
    
    
    (164
    )
    
    
    141Principal payments on capital lease
    
    
    (11
    )Proceeds from capital lease
    
    
    
    
    
    
    (13
    )Stock options exercised
    
    
    Net cash provided (used) in financing activities
    
    
    1,857
    
    
    
    (2,617
    )Net decrease in cash
    
    
    (791
    )
    
    
    (216
    )Cash at beginning of period
    
    
    1,269
    
    
    
    928Cash at end of period
    
    $
    478
    
    
    $
    712
 
 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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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Preliminary 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)
 Unaudited Pro Forma Results
(In thousands, except per share data)
 Three Months EndedSeptember 30,
    
    September 30,2008
    
    2007Net salesAs reported
    
    $
    30,165
    
    
    $
    22,738Pro forma
    
    
    30,165
    
    
    
    32,014Net incomeAs reported
    
    $
    (129
    )
    
    $
    618Pro forma
    
    
    (129
    )
    
    
    191Basic earnings per shareAs reported
    
    $
    (0.02
    )
    
    $
    0.12Pro forma
    
    $
    (0.02
    )
    
    $
    0.03Diluted earnings per shareAs reported
    
    $
    (0.02
    )
    
    $
    0.12Pro forma
    
    $
    (0.02
    )
    
    $
    0.03Basic Shares Outstanding
    
    
    5,705
    
    
    
    5,205Proforma
    
    
    5,705
    
    
    
    5,705Diluted Shares Outstanding
    
    
    5,705
    
    
    
    5,206Proforma
    
    
    5,705
    
    
    
    5,705
  8




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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, 2008:Amount paid at closing, net of cash acquired
    
    $
    1,287Contingent payments earned
    
    
    2,544Acquisition-related costs
    
    
    220Total consideration as of September 30, 2008
    
    $
    4,051Percent of Adjusted Gross ProfitJuly 1, 2006 to August 31, 2011
    
    
    22
    %Additonal Percent of Adjusted Gross ProfitJuly 1, 2006 to June 30, 2007 (not to exceed $750)
    
    
    15
    %
  9




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Summary of Acquired Intangibles
(Dollars in thousands)
 Life
    
    
    Grossin Years
    
    
    AmountPatents and trademarks
    
    
    15
    
    
    $
    710Non-compete covenants
    
    
    7
    
    
    
    820$
    1,530
  10




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 3   EARNINGS PER SHARE
  Three Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007(In thousands, except per share data)Basic and diluted earnings per share:NumeratorNet income (loss)
    
    $
    (129
    )
    
    $
    618Denominator for basic EPSWeighted average common shares
outstanding
    
    
    5,705
    
    
    
    5,205Denominator for diluted EPSWeighted average common shares
outstanding
    
    
    5,705
    
    
    
    5,205Incremental shares for stock
options/warrants
    
    
    
    
    
    
    1Dilutive weighted average common shares
    
    
    5,705
    
    
    
    5,206Basic earnings per share
    
    $
    (0.02
    )
    
    $
    0.12Diluted earnings per share
    
    $
    (0.02
    )
    
    $
    0.12
 11




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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 4   SEGMENT INFORMATION
     12




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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 30,2008
    
    
    2007(In thousands)Net salesSpecialty
    
    $
    20,471
    
    
    $
    14,283Mass
    
    
    9,694
    
    
    
    8,455Total
    
    $
    30,165
    
    
    $
    22,738Gross profitSpecialty
    
    
    6,657
    
    
    $
    5,007Mass
    
    
    1,813
    
    
    
    2,503Total
    
    $
    8,470
    
    
    $
    7,510Income from operationsSpecialty
    
    $
    443
    
    
    $
    906Mass
    
    
    (108
    )
    
    
    858Total
    
    $
    335
    
    
    $
    1,764
 13




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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 30,2008
    
    2007Stock-based compensation expense recognized:Selling, general & administrative
    
    $
    30
    
    
    $
    28
  Future Stock-Based Compensation Expense
(Dollars in thousands)
 ExpectedFutureCompensationFiscal Year Ending
    
    CostJune 30, 2009 (remaining 9 months)
    
    $
    91June 30, 2010
    
    
    121June 30, 2011
    
    
    69June 30, 2012
    
    
    17$
    298
 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, 2008
    
    
    162,400
    
    
    
    13.63Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2008
    
    
    162,400
    
    
    $
    13.63
    
    
    $
    6.75-$25.20
    
    
    
    8.4Exercisable at September 30, 2008
    
    
    36,600
    
    
    $
    17.37
    
    
    $
    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 30,2008
    
    2007Effective tax rate
    
    
    28.3
    %
    
    
    34.5
    %
     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 30,2008
    
    Periods
    
    Period
    
    Settlements
    
    Limitations
    
    2008Unrecognized tax benefits
    
    $
    290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    290
   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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##### Table of Contents



Results of Operations
   Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
  Summary Income Statement by Segment
(Dollars in thousands)
 Three Months Ended
    
    
    Three Months EndedSeptember 30, 2008
    
    
    September 30, 2007Specialty
    
    
    Mass
    
    
    Total
    
    
    Specialty
    
    
    Mass
    
    
    TotalNet sales
    
    $
    20,471
    
    
    $
    9,694
    
    
    $
    30,165
    
    
    $
    14,283
    
    
    $
    8,455
    
    
    $
    22,738Cost of goods sold
    
    
    (13,814
    )
    
    
    (7,881
    )
    
    
    (21,695
    )
    
    
    (9,276
    )
    
    
    (5,952
    )
    
    
    (15,228
    )Gross profit
    
    
    6,657
    
    
    
    1,813
    
    
    
    8,470
    
    
    
    5,007
    
    
    
    2,503
    
    
    
    7,510As a % of net sales
    
    
    32.5
    %
    
    
    18.7
    %
    
    
    28.1
    %
    
    
    35.1
    %
    
    
    29.6
    %
    
    
    33.0
    %Selling, general and administrative
    
    
    (6,042
    )
    
    
    (1,855
    )
    
    
    (7,897
    )
    
    
    (3,961
    )
    
    
    (1,580
    )
    
    
    (5,541
    )As a % of net sales
    
    
    29.5
    %
    
    
    19.1
    %
    
    
    26.2
    %
    
    
    27.7
    %
    
    
    18.7
    %
    
    
    24.4
    %Depreciation and amortization
    
    
    (172
    )
    
    
    (66
    )
    
    
    (238
    )
    
    
    (140
    )
    
    
    (65
    )
    
    
    (205
    )Total operating expenses
    
    
    (6,214
    )
    
    
    (1,921
    )
    
    
    (8,135
    )
    
    
    (4,101
    )
    
    
    (1,645
    )
    
    
    (5,746
    )Income (loss) from operations
    
    $
    443
    
    
    $
    (108
    )
    
    
    335
    
    
    $
    906
    
    
    $
    858
    
    
    
    1,764Other income
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (359
    )
    
    
    
    
    
    
    
    
    
    
    (322
    )Income (loss) before income taxes
and minority interest
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    1,442Income taxes (expense) / benefit
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    (326
    )Income before minority interest
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    1,116Minority interest
    
    
    
    
    
    
    
    
    
    
    (161
    )
    
    
    
    
    
    
    
    
    
    
    (498
    )Net income (loss)
    
    
    
    
    
    
    
    
    
    $
    (129
    )
    
    
    
    
    
    
    
    
    
    $
    618
 Net Sales.
 20




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Net Sales of the Speciality Segment
(Dollars in thousands)
 Fans
    
    
    WoodardLighting &
    
    
    Outdoor
    
    
    SegmentThree Months Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalSeptember 30, 2008
    
    $
    12,359
    
    
    $
    8,112
    
    
    $
    20,471September 30, 2007
    
    
    14,283
    
    
    
    
    
    
    
    14,283Dollar increase (decrease)
    
    $
    (1,924
    )
    
    $
    8,112
    
    
    $
    6,188Percent increase (decrease)
    
    
    (13.5
    %)
    
    
    100.0
    %
    
    
    43.3%
    
 21




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##### Table of Contents



Net Sales of Mass Segment
(Dollars in thousands)
 Fans
    
    
    WoodardLighting &
    
    
    Outdoor
    
    
    SegmentThree Months Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalSeptember 30, 2008
    
    $
    7,359
    
    
    $
    2,335
    
    
    $
    9,694September 30, 2007
    
    
    8,455
    
    
    
    
    
    
    
    8,455Dollar increase (decrease)
    
    $
    (1,096
    )
    
    $
    2,335
    
    
    $
    1,239Percent increase (decrease)
    
    
    (13.0
    %)
    
    
    100.0
    %
    
    
    14.7
    %
     Gross Profit.
  22




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##### Table of Contents



Gross Profit as a Percentage of Net Sales of Specialty Segment
 Fans
    
    WoodardLighting &
    
    Outdoor
    
    SegmentThree Months Ended
    
    Accessories
    
    Furniture
    
    TotalSeptember 30, 2008
    
    
    34.0
    %
    
    
    30.3
    %
    
    
    32.5
    %September 30, 2007
    
    
    35.1
    %
    
    
    
    
    
    
    35.1
    %Percent decrease
    
    
    (1.1
    %)
    
    
    
    
    
    
    (2.6
    %)
    Gross Profit as a Percentage of Net Sales of Mass
 Fans
    
    WoodardLighting &
    
    Outdoor
    
    SegmentThree Months Ended
    
    Accessories
    
    Furniture
    
    TotalSeptember 30, 2008
    
    
    23.2
    %
    
    
    4.6
    %
    
    
    18.7
    %September 30, 2007
    
    
    29.6
    %
    
    
    
    
    
    
    29.6
    %Percent decrease
    
    
    (6.4
    %)
    
    
    
    
    
    
    (10.9
    %)
   Selling, General and Administrative Expenses.
 23




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##### Table of Contents



Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/Three Months Ended
    
    
    (Decrease)September 30,
    
    
    September 30,
    
    
    Over Prior2008
    
    
    2007
    
    
    Year PeriodHistorical Craftmade
    
    $
    5,322
    
    
    $
    5,541
    
    
    $
    (219
    )Woodard Incremental
    
    
    2,575
    
    
    
    
    
    
    
    2,575$
    7,897
    
    
    $
    5,541
    
    
    $
    2,356
  Historical Craftmade
Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/Three Months Ended
    
    
    (Decrease)September 30,
    
    
    September 30,
    
    
    Over Prior2008
    
    
    2007
    
    
    Year PeriodGroup Insurance
    
    $
    272
    
    
    $
    374
    
    
    
    (102
    )Commissions
    
    
    692
    
    
    
    761
    
    
    $
    (69
    )Accounting, legal and consulting
    
    
    685
    
    
    
    737
    
    
    
    (52
    )Other
    
    
    3,673
    
    
    
    3,669
    
    
    
    4$
    5,322
    
    
    $
    5,541
    
    
    $
    (219
    )
  Interest Expense.
 Minority interest.
 Provision for Income Taxes.
 24




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##### Table of Contents



Liquidity and Capital Resources
      Recent Accounting Pronouncements
   25




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##### Table of Contents



Long-Term Obligations
  Summary of Long Term Obligations
 (Dollars in thousands)
 OutstandingBalance
    
    
    CurrentCommitment
    
    
    Sept 30, 2008
    
    
    Interest Rate
    
    
    MaturityRevolving line of credit
    
    $
    50,000
    
    
    $
    19,517
    
    
    LIBOR plus 1.50%
    
    December 31, 2009Note payable  facility
    
    
    n/a
    
    
    
    10,667
    
    
    6.5%
    
    
    December 10, 2017Capital lease obligation
    
    
    n/a
    
    
    
    102
    
    
    
    
    
    
    November 5, 2010Sub-total
    
    
    
    
    
    
    30,286Less: current amounts due
    
    
    
    
    
    
    (515
    )Long-term obligations
    
    
    
    
    
    $
    29,771
 26




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  27




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Controls
  
 PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  28




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 ExhibitNumber
    
    Description2.1
    
    Asset Purchase Agreement dated as of December 18, 2007, by and among
Woodard, LLC, Henry Crown and Company d/b/a CC Industries, Inc. and Craftmade
International, Inc., previously filed as Exhibit 2.1 to Form 8-K on January 4, 2008
(File No. 000-26667), and incorporated by reference herein.Pursuant to Item 601(b)(2) of Regulation S-K, the Company has not filed
herewith the schedules and exhibits to the foregoing exhibit and agrees to
furnish supplementally to the Securities and Exchange Commission, upon request,
any omitted schedules or similar attachments to the foregoing exhibit.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 Form 8-K dated September 15, 2006 (File No.
000-26667), and incorporated by reference herein.Pursuant to Item 601(b)(2) of Regulation S-K, the Company has not filed
herewith the schedules and exhibits to the foregoing exhibit and agrees to
furnish supplementally to the Securities and Exchange Commission, upon request,
any omitted schedules or similar attachments to the foregoing exhibit.2.3
    
    Agreement for the Purchase and Sale of Personal Goodwill between Trade
Source International, Inc. and Robert Lackey, dated September 15, 2006, previously
filed as Exhibit 10.2 to Form 8-K dated September 15, 2006 (File No. 000-26667),
and incorporated by reference herein.
 29




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##### Table of Contents



ExhibitNumber
    
    Description2.4
    
    Agreement for the Purchase and Sale of Personal Goodwill between Trade
Source International, Inc. and Robert Lackey, Jr., dated September 15, 2006,
previously
filed as Exhibit 10.3 to Form 8-K dated September 15, 2006 (File No.
000-26667), and incorporated by reference herein.2.5
    
    Intellectual Property Assignment by and between Trade Source
International, Inc., Robert W. Lackey, Robert W. Lackey, Jr., RWL Incorporated
f/k/a Robert W. Lackey Corporation and R.L. Products Corporation, dated September
15, 2006, previously filed as Exhibit 10.4 to Form 8-K dated September 15, 2006
(File No. 000-26667), and incorporated by reference herein.2.6
    
    Non-Competition Agreement between Trade Source International, Inc. and
Robert W. Lackey, dated September 15, 2006, previously filed as Exhibit 10.5 to
Form 8-K dated September 15, 2006 (File No. 000-26667), and incorporated by
reference herein.2.7
    
    Non-Competition Agreement between Trade Source International and Robert
W. Lackey, Jr., dated September 15, 2006, previously filed as Exhibit 10.6 to Form
8-K dated September 15, 2006 (File No. 000-26667), and incorporated by reference
herein.2.8
    
    Consulting Agreement by and between Craftmade International, Inc.,
Trade Source International, Inc. and Imagine One Resources, LLC, dated September
15, 2006, previously filed as Exhibit 10.7 to Form 8-K dated September 15, 2006
(File No. 000-26667), and incorporated by reference herein.2.9
    
    Partially Subordinate Security Agreement among Trade Source
International, Inc., Marketing Impressions, Inc., Prime Home Impressions, LLC, and
Robert Lackey, (Lackey), as collateral agent for Lackey, Robert W. Lackey, Jr.,
Imagine One Resources, LLC, RWL Corporation and R.L. Products Corporation, dated
September 15, 2006, previously filed as Exhibit 10.8 to Form 8-K dated September
15, 2006 (File No. 000-26667), and incorporated by reference herein.2.10
    
    Subordination Agreement by and among Robert W. Lackey (Lackey), as
collateral agent for Lackey, Robert W. Lackey, Jr., Imagine One Resources, LLC, RWL
Corporation, R.L. Products Corporation, and The Frost National Bank, Trade Source
International, Inc., Marketing Impressions, Inc., Prime/Home Impressions, LLC and
Craftmade International, Inc., dated September 15, 2006, previously filed as
Exhibit 10.9 to Form 8-K dated September 15, 2006 (File No. 000-26667), and
incorporated by reference herein.2.11
    
    Agreement and Plan of Merger by and among Craftmade International,
Inc., Bill Teiber Co., Inc., Teiber Lighting Products, Inc., Todd Teiber and Edward
Oberstein dated March 1, 2005, previously filed as Exhibit 10.1 to Form 8-K dated
March 1, 2005 (File No. 000-26667), and incorporated by reference herein.2.12
    
    Agreement and Plan of Merger, dated as of July 1, 1998, by and among
Craftmade International, Inc., Trade Source International, Inc. a Delaware
corporation, Neall and Leslie Humphrey, John DeBlois, the Wiley Family Trust, James
Bezzerides, the Bezzco Inc. Employee Retirement Trust and Trade Source
International, Inc, a California corporation, filed as Exhibit 2.1 to Form 8-K
filed July 15, 1998 (File No. 33-33594-FW) and incorporated by reference herein.
 30




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##### Table of Contents



ExhibitNumber
    
    Description3.1
    
    Certificate of Incorporation of the Company, filed as Exhibit 3(a)(2)
to the Companys Post Effective Amendment No. 1 to Form S-8 (File No. 33-33594-FW),
and incorporated by reference herein.3.2
    
    Certificate of Amendment of Certificate of Incorporation of the
Company, dated
March 24, 1992, and filed as Exhibit 4.2 to the Companys Form S-8 (File No.
333-44337), and incorporated by reference herein.3.3
    
    Amended and Restated Bylaws of the Company, filed as Exhibit 3(b)(2) to
the Companys Post Effective Amendment No. 1 to Form S-8 (File No. 33-33594-FW),
and incorporated by reference herein.4.1
    
    Specimen Common Stock Certificate, filed as Exhibit 4.4 to the
Companys registration statement on Form S-3 (File No. 333-70823), and incorporated
by reference herein.4.2
    
    Rights Agreement, dated as of June 23, 1999, between Craftmade
International, Inc. and Harris Trust and Savings Bank, as Rights Agent, previously
filed as Exhibit 4 to Form 8-K dated July 9, 1999 (File No. 000-26667), and
incorporated by reference herein.10.1
    
    Promissory Note dated November 14, 2007, in the original principal
amount of $11,000,000 payable to the order of Allianz Life Insurance Company of
North America and executed by CM Real Estate, LLC., previously filed as Exhibit
10.1 to Form 8-K on November 20, 2007 (File No. 000-26667), and incorporated by
reference herein.10.2
    
    Deed of Trust, Mortgage and Security Agreement by CM Real Estate, LLC,
effective November 14, 2007, previously filed as Exhibit 10.2 to Form 8-K on
November 20, 2007 (File No. 000-26667), and incorporated by reference herein.10.3
    
    Guaranty Agreement dated November 14, 2007, by Craftmade International,
Inc. in favor of Allianz Life Insurance Company of North America, previously filed
as Exhibit 10.3 to Form 8-K on November 20, 2007 (File No. 000-26667), and
incorporated by reference herein.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 Form 8-K
on November 20, 2007 (File No. 000-26667), and incorporated by reference herein.10.5
    
    Third Amended and Restated Loan Agreement Among Craftmade
International, Inc., the Frost National Bank, As Administrative Agent, and the
Other Lenders Party Hereto, dated December 31, 2007, previously filed as Exhibit
10.1 to Form 8-K on January 7, 2008 (File No. 000-26667), and incorporated by
reference herein.
 31




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##### Table of Contents



ExhibitNumber
    
    Description10.6*
    
    First Amendment to Credit Agreement, effective September 30, 2008,
Among Craftmade International, Inc., the Frost National Bank, As Administrative
Agent, and the Other Lenders Party Thereto, dated November 10, 2008.10.7
    
    Revolving Promissory Note Between Craftmade International, Inc., and
The Frost National Bank, dated December 31, 2007, previously filed as Exhibit 10.2
to Form 8-K on January 7, 2008 (File No. 000-26667), and incorporated by reference
herein.10.8
    
    Revolving Promissory Note Between Craftmade International, Inc., and
Whitney National Bank, dated December 31, 2007, previously filed as Exhibit 10.3 to
Form 8-K on January 7, 2008 (File No. 000-26667), and incorporated by reference
herein.10.9
    
    Revolving Promissory Note Between Craftmade International, Inc., and
Commerce Bank, N.A., dated December 31, 2007, previously filed as Exhibit 10.4 to
Form 8-K on January 7, 2008 (File No. 000-26667), and incorporated by reference
herein.10.10
    
    Craftmade International, Inc. 2006 Long-Term Incentive Plan,
previously filed as Exhibit 10.1 to Form 8-K dated November 28, 2006 (File No.
000-26667), and incorporated by reference herein.10.11
    
    Incentive Stock Option Agreement, previously filed as Exhibit 10.2 to
Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by
reference herein.10.12
    
    Non-qualified Stock Option Agreement, previously filed as Exhibit 10.3
to Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by
reference herein.10.13
    
    Stock Appreciation Rights Agreement, previously filed as Exhibit 10.4
to Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by
reference herein.10.14
    
    Restricted Stock Award Agreement, previously filed as Exhibit 10.5 to
Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by
reference herein.31.1*
    
    Certification of 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. 32




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##### Table of Contents



SIGNATURES
  CRAFTMADE INTERNATIONAL, INC.
(Registrant)Date:  November 14, 2008
    /s/  J. Marcus ScrudderJ. MARCUS SCRUDDERChief Executive OfficerDate:  November 14, 2008
    /s/ C. Brett BurfordC. BRETT BURFORDChief Financial Officer 33