<PAGE>   1
                      SECURITIES AND EXCHANGE COMMISSION
===============================================================================

                             Washington, D.C. 20549

                                   FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
                                       or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 1997     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                                 75019
           COPPELL, TEXAS                                        (Zip Code)
(Address of principal executive offices)

              Registrant's telephone number, including area code:

                                 (972) 393-3800

             Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:



     Title of Each Class                                 Name of each exchange
COMMON STOCK, $0.01 PAR VALUE                             on which registered
                                                         NASDAQ NATIONAL MARKET
                                                                 SYSTEM

         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, and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         The aggregate market value of the voting stock held by nonaffiliates
of the registrant as of July 31, 1997, was $26,100,000.

         The number of shares outstanding of the registrant's $.01 Par Value
Common Stock as of July 31, 1997, was 2,900,000.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement pertaining to the registrant's
1997 annual meeting of shareholders are incorporated by reference into Part III
of this report.

===============================================================================
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                                     INDEX

<TABLE>
<CAPTION>

<S>         <C>                                                                                                <C>
PART I

       Item 1.   Business...................................................................................   1

       Item 2.   Properties.................................................................................   8

       Item 3.   Legal Proceedings..........................................................................   8

       Item 4.   Submission of Matters to a Vote of Security Holders........................................   8


PART II

       Item 5.   Market for the Registrant's Common Stock and Related
            Security Holder Matters.........................................................................   9

       Item 6.   Selected Financial Data....................................................................  10

       Item 7.   Management's Discussion and Analysis of Financial
            Condition and Results of Operations.............................................................  11

       Item 8.   Financial Statements.......................................................................  17

       Item 9.   Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure.............................................................  17


PART III

       Item 10.  Directors and Executive Officers of the Registrant.......................................... 18

       Item 11.  Executive Compensation...................................................................... 18

       Item 12.  Security Ownership of Certain Beneficial Owners
            and Management................................................................................... 18

       Item 13.  Certain Relationships and Related Transactions.............................................. 18


PART IV

       Item 14.  Exhibits, Financial Statements, Financial Statement
            Schedules and Reports on Form 8-K...............................................................  19

       Signatures ..........................................................................................  20

</TABLE>




<PAGE>   3
                                     PART 1

Item 1. Business

THE COMPANY

Craftmade International, Inc. (the "Company") was incorporated under the laws
of the State of Texas on July 16, 1985 under the name of Mastercraft
International, Inc. for the purpose of distributing ceiling fans, furniture,
hardware and plumbing products. In January 1986, the Company limited its
operations to the marketing and distribution of ceiling fans and related
products and accessories. An arrangement with Fanthing Electrical Corp.,
("Fanthing"), Taichung, Taiwan was completed in August 1986 for the manufacture
of ceiling fans designed to the Company's specifications. The Company's ceiling
fan product line consists of 24 series and 148 basic models of premium priced
to lower priced ceiling fans, and represents approximately 69% of the Company's
current product sales. The Company also markets 78 light kit models in various
colors for attachment and use with the Company's ceiling fans or other ceiling
fans, as well as parts and accessories for its ceiling fans and light kits. The
Company purchases substantially all of its light kits from Sunlit Industries
("Sunlit"), Taipei, Taiwan. The combination of design and functional features
which characterize Craftmade ceiling fans have made them, in management's
judgement, one of the most reliable, durable, energy efficient and cost
effective ceiling fans in the marketplace. The Company's national sales
organization, which consists of 33 independent sales representative groups
employing approximately 58 sales representatives, markets the Company's
products to in excess of 1,500 lighting showroom and electrical wholesaler
locations which sell primarily to the new home construction, remodeling and
replacement markets. These markets are comprised principally of private
residences and, to a lesser extent, offices, restaurants and certain public
facilities.

On July 26, 1990, the Company formed Durocraft International, Inc.
("Durocraft") and completed an agreement and plan of merger with DMI Products,
Inc. ("DMI"). Durocraft Design Manufacturing, a division of Durocraft, is a
lamp manufacturer whose customer base includes major specialty retail chains. A
division of Durocraft, Global Electronics, is a wholesaler of computer cable
and accessories.

On December 27, 1991, the Company changed its state of incorporation from Texas
to Delaware, at which time all of the Company's outstanding common stock was
exchanged, share for share, for $.01 par value common stock.

On September 30, 1992, the Company formed C/D/R Incorporated located in
Wilmington, Delaware for the purpose of holding all of the rights to the
Company's trademarks. Management believes that these intangible assets have
value and the Company will defend them as necessary.

BACKGROUND

Prior to the advent of air conditioning, ceiling fans were used in homes and
other facilities to make hot weather tolerable by reducing air stratification.
Developments in air conditioning technology and the pervasive use of central
air conditioning and individual air conditioning units limited the market for
ceiling fans until the mid 1970's, when high energy costs led to the
rediscovery of ceiling fans primarily due to their potential for energy
conservation. Additional benefits of utilizing ceiling fans during winter and
less temperate periods to circulate warm air concentrated near ceilings down to
floor level were also recognized at this time.

                                      -1-
<PAGE>   4

The Company estimates that annual unit sales of ceiling fans in the United
States grew substantially in the 1970's and through 1983, and then declined and
have stabilized since that time. Management believes that the principal factors
underlying growth of unit sales between 1976 and 1983 were increased
penetration of the residential household market, particularly in the northern
and western sections of the United States (areas which historically have had a
disproportionately low percentage of ceiling fan ownership), a continued shift
to lower and medium priced ceiling fans, an increase in multiple fan ownership
and replacement purchases. Management attributes the moderation of unit sales
since 1983 to the initial saturation in the northern and western sections of
the United States following limited usage prior to that time. The Company does
not believe that industry unit sales of ceiling fans in the United States
market will fluctuate substantially in the foreseeable future. The Company will
attempt to expand future sales of its ceiling fans by increasing its market
share.

PRODUCTS

All of the Company's ceiling fans are manufactured by Fanthing, and
substantially all of its light kits are purchased from Sunlit. Fanthing
manufactures the ceiling fans based on specifications provided by the Company.
The finished products are packaged and labelled by the manufacturer under the
Company's trade name, Craftmade (R). Light kits used in conjunction with
ceiling fans are similarly produced and packaged.

CEILING FANS -- The Company's ceiling fan product line consists of 24 series
and 148 basic models of ceiling fans for sales to the new home construction,
remodeling and replacement markets. Series are classified on the basis of cost,
air movement and appearance. Craftmade fans are manufactured and assembled in a
variety of colors, styles and finishes and can be used either in conjunction
with or independent of Craftmade light kits. Series lines include Early
American, Traditional and Modern High-Tech Decor and, depending on the size,
finish and other features, range in price from the premium Quest, Crescent and
Wellington series to various low-end builder series. Suggested retail prices
for the various Craftmade fans ranged at June 30, 1997 from $70.00 (builder
series) to $780.00 (Cameo Series), which the Company believes are favorably
priced relative to other mid-level and premium ceiling fans distributed by
Hunter and Casablanca, yet represent comparable quality and performance
characteristics.

The Company's ceiling fans come in five motor sizes, five blade sizes and 35
different decorative finishes. The range of styles and colors give consumers
the ability to select ceiling fans for any style of house, interior decoration
or living and working area, including outdoor patios. All Craftmade fans
include a dual capacitor system to control motor starting and running; a
16-pole motor for greater efficiency and smoother performance; aluminum rotors
die cast for cool running; two sealed heavy duty bearings which are permanently
lubricated; balanced blades and blade arms to minimize vibration; blade arm
gaskets for quieter performance; reversible switching for summer and winter
energy saving; shipping blocks to maintain alignment in transit; and
three-speed switches for high, medium, low and off. In management's judgement,
although not specifically confirmed by any independent testing service, these
features enable the Company's ceiling fans to perform efficiently, consistently
and for extended periods. Management also believes that, in addition to these
design features, the quality control program adhered to by Fanthing in the
course of manufacturing contributes significantly to the quality and durability
of the Craftmade fan. All Craftmade fans carry a limited warranty against
defects in workmanship and materials covering the entire ceiling fan for one
year and also provides a 25 year warranty with respect to the motor contained
in all fans except the Cameo, Crescent, CXL, High-Tech, Omni, Phoenix,
Presidential I, Presidential II, Quest, Sergio, and Wellington Series, which
carry a limited lifetime warranty. In addition, while the Company's agreement
with Fanthing does not contain provisions relating to



                                      -2-
<PAGE>   5

adjustments or returns as a result of product defect, Fanthing has previously
extended the Company full credit for any product returns during the period of
their working relationship.

LIGHT KITS -- The Company markets 78 models of light kits in various colors
which may be utilized with the Company's ceiling fans or other ceiling fans.
These kits, which consist of the glass shades and fitters, presently represent
approximately 16% of the Company's product sales. As of June 30, 1997,
suggested retail prices for the Company's light kits ranged from $16.50 to
$250.00. Since the demand for the Company's Elegance Collection, which includes
lead crystal and alabaster designer shades, has increased, the Company will
continue its efforts to expand these premium lines.

LAMPS -- The Company assembles and markets a variety of lamp styles for sale to
certain major retail chains and catalog houses to be sold under private brand
labels. In addition, the Company markets lamps under its own proprietary trade
names. The lamps are assembled at the Company's facilities in Coppell, Texas
and consist of wood, solid brass, zinc coated, crystal, ceramic and porcelain
table, floor and desk lamps as well as hanging lantern kits. At the present
time, all of the Company's lamps are sold at retail prices ranging from $58 to
$274. Sales of the Company's lamps account for approximately 5% of the
Company's product sales.

Bathstrip Lighting -- In January 1997 the Company introduced a bathroom and
dressing room lighting product line. This product line is being marketed
through the same distribution network and with the same sales representative
groups as the ceiling fan and light kit product lines. The Company currently
markets 14 series of bathstrip lighting in 7 different lengths and 14 different
decorative finishes. Bathstrip lighting presently represents 2% of the
Company's product sales. As of June 30, 1997, suggested retail prices for this
product line ranged from $12 to $200. The Company will add finishes and series
based on customer demand.

ACCESSORIES AND CABLE COMPONENTS -- The Company also markets a variety of
designer and standard wall controls to regulate the speed and intensity of
ceiling fans and lighting fixtures and universal downrods for use with ceiling
fans. In addition, following the acquisition of DMI Products, Inc. in July
1990, the Company also distributes various cable components, including
connectors, switches and compatibles acquired from Far East manufacturers for
use with computers and telephone board circuitry. Sales of such accessories and
cable components presently account for approximately 8% of the Company's
product sales.

MANUFACTURING

The Company's ceiling fans, bathstrip lighting and substantially all of its
light kits and certain accessories are produced by Fanthing and Sunlit. The
Company has had a working agreement with Fanthing since August 1986 to provide
the Company with all of its ceiling fans and certain fan accessories. The
Company selected Fanthing to manufacture the Craftmade fan based on its proven
capability to produce and ship a wide variety of ceiling fans on a cost
effective basis while at the same time maintaining excellent quality control in
the manufacturing process. According to information made available to the
Company, Fanthing was organized in 1981 and manufactures ceiling fans from a
manufacturing facility consisting of in excess of 21,000 square feet in
Taichung, Taiwan. The Company believes that a substantial part of Fanthing's
revenues are derived from sales of ceiling fans to the Company. On December 7,
1989, the Company and Fanthing entered into a formal written agreement which is
terminable on 180 days prior notice. The written agreement does not obligate
Fanthing to produce and sell products to the Company in any specified quantity,
nor does it obligate Fanthing to sell products to the Company at a fixed price.
Fanthing is permitted under the arrangement to manufacture ceiling fans for
other distribution provided such ceiling fans are not a replication




                                      -3-
<PAGE>   6

of Craftmade's series or models. Fanthing also manufactures certain ceiling fan
accessories, such as down rods, which are sold by the Company independently of
its ceiling fans.

Fanthing has provided the Company with a $1,000,000 credit facility, pursuant
to which Fanthing will manufacture and ship ceiling fans prior to receipt of
payment from the Company. Accordingly, payment can be deferred until delivery
of such products. At present levels, such credit facility is equivalent to
approximately one month's supply of ceiling fans and represents a supplier
commitment which, in the opinion of the Company, is unusual for the industry.
Fanthing is not required to provide this credit facility under its agreement
with the Company, and Fanthing may discontinue this arrangement at any time.
The Company places orders with Fanthing in anticipation of normally recurring
orders. In the ordinary course of business, orders are filled within 60 days
which includes approximately 20 days for transport. All orders are in U.S.
dollars. In the event of any fluctuation in exchange rates exceeding
approximately 5%, any future orders placed by the Company may be adjusted
accordingly. Ceiling fans are shipped in container-size lots, generally
consisting of 1,600 fan units. Delivery is made in Dallas, Texas upon
presentment of documents by the Company's designated freight forwarder
following payment for such containers at Fanthing's bank in Taiwan. While the
Company believes the present arrangement for purchases and delivery has been
generally satisfactory, the demand for Craftmade fans has periodically exceeded
the Company's delivery capabilities.

Under a stock purchase agreement between the Company and Fancy Industrial, Inc.
("Fancy"), a Texas corporation and wholly-owned subsidiary of Fanthing, the
Company, at its option, may repurchase 101,196 shares owned by Fancy
Industrial, Inc. for an aggregate purchase price of $137,774. The Company has
no intention of reacquiring any shares from Fancy at this time. The Company
believes that its relationship with Fanthing and its ability to supply quality
ceiling fans at competitive prices have been critical to the success of the
Company. The Company believes its relationship with Fanthing to be excellent
and foresees no reason, based on its association to date, for such relationship
to deteriorate. If for any reason Fanthing were to discontinue its relationship
with the Company in the future or should it be unable to continue to supply
sufficient amounts of Craftmade products, the Company would be required to seek
alternative sources of supply. There can be no assurance that any such
alternative source of supply will produce products of comparable quality to
those produced by Fanthing, or that any such source will sell products to the
Company at prices and on terms as favorable as those presently applicable to
purchases made by the Company from Fanthing.

The Company purchases its bathstrip lighting and substantially all of its light
kits from Sunlit which is located in Taipei, Taiwan. According to information
made available to the Company, Sunlit was organized in January 1989 and
occupies a manufacturing facility consisting of approximately 10,000 square
feet. The Company believes that substantially all of Sunlit's revenues are
derived from the sale of lighting kits to the Company. Light kit orders are
placed independently of ceiling fan orders, but are also received in
container-size lots generally consisting of up to 4,500 light kit units under
payment and delivery arrangements similar to those for ceiling fans. The
Company offers a variety of light kits in various finishes and colors, as well
as a variety of fixtures designed for ceiling fans. The Company also offers a
variety of glass selections for the various light fixtures, including blown
glass, beveled glass and crystal. Fixtures and glass are shipped from Sunlit in
the light kit containers. The Company's wall controls, timers and switches as
well as certain of its ceiling fan blades, representing approximately 1% of the
Company's product sales, are manufactured by companies based in the United
States. The Company offers a variety of custom blade sets in various sizes and
finishes, including unfinished oak, ash and other wood grains and in clear,
mirror, gold mirror, black, smoke and antique white acrylic. The finished
products are packaged and labeled under the Company's Craftmade brand name.




                                      -4-

<PAGE>   7

The Company assembles its lamps at its Coppell facility which includes the
placement of the base, cap and shade together with the necessary wiring.
Substantially all of the components are manufactured by domestic and foreign
manufacturers located in Taiwan, China and Germany; however, the Company does
undertake limited manufacturing of certain shade components. The Company
purchases its components on a non-exclusive basis from such suppliers on either
open account or through letters of credit, and no individual manufacturer
accounts for in excess of 3% of such components.

DISTRIBUTION

The Company's products are marketed through in excess of 1,500 lighting
showroom and electrical wholesaler locations specializing in sales to the new
home construction, remodelling and replacement markets. The Company's ceiling
fans, light kits and accessory parts are distributed through 33 independent
sales representative groups on a national basis (except for Alaska and Hawaii).
Each sales representative group is selected to represent the Company in a
specific market area. The independent sales representative groups comprise a
sales force for the Company's products of approximately 58 sales
representatives. Sales representatives represent the Company exclusively in the
sale of ceiling fans. Sales representatives are paid commissions on such sales.
During the fiscal year ended June 30, 1997, no single lighting showroom or
electrical wholesaler accounted for more than 2% of the Company's sales.

Sales representatives are carefully selected and continually evaluated in order
to promote high level representation of the Company's products. Company
personnel provide initial field training to new sales representatives covering
features, styles, operation and other attributes of Craftmade products to
enable representatives to more effectively market the Company's products.
Additional training is provided at least annually, especially for new product
series, at semi-annual trade shows held in Dallas, Texas and elsewhere.
Management believes it has assembled a highly motivated and effective sales
representative organization which has demonstrated a strong commitment to the
Company and its products. Management further believes that the strength of its
sales representative organization is primarily attributable to the quality and
competitive pricing of the Company's products as well as the ongoing
administrative and marketing support that the Company provides to its sales
representatives.

As of June 30, 1997, of the Company's lamps sold to major retail chains and
catalog houses to be distributed under private brand labels, approximately 68%
were sold to Bombay Company. The balance of these lamp sales are made to
various catalog houses and other retail chains including Tuesday Morning, Ethan
Allen, CBK Ltd, Inc., the Horchow Mail Order Catalog and Dr. Livingston. The
Company also markets lamps under proprietary labels through lighting showrooms,
furniture stores and mass merchandising and department stores.

In fiscal year 1997, the lamp division experienced a $2.5 million decrease in
lamp sales compared to fiscal year 1996 as orders from the lamp division's
primary customer declined due to an internal restructuring by that customer.
This division is currently pursuing an aggressive strategy of inventory
reduction through select "seconds" retailers and overhead reduction. The
Company's management anticipates that the inventory and overhead reduction
process will be completed between December 1997 and March 1998. 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 without material charges against earnings.




                                      -5-
<PAGE>   8

The Company acts as a distributor for various overseas manufacturers of a range
of cable components for use with computers and telephone board circuitry, which
account for approximately 4% of the Company's total product sales.

MARKETING

The Company relies primarily on the reputation of Craftmade ceiling fans and
light kits for high quality and competitive prices and the efforts of its sales
representative organization in order to promote the sales of the Company's
products. The principal market for the Company's products is the new home
construction, remodeling and replacement markets. The Company utilizes
advertising in home lighting magazines, particularly in special editions
devoted to ceiling fans and lighting fixtures, and broadly distributes its
product catalog. The Company also promotes its ceiling fans and light kits at
semi-annual trade shows in Dallas (January and July), and the Company maintains
a showroom at the Dallas Trade Mart. The Company provides the same 25- year
limited warranty on the fan motor for each series of its ceiling fans, and
includes a one year limited warranty against defects in workmanship and
materials to cover the entire ceiling fan. The Company also provides a limited
lifetime warranty on the Cameo, Crescent, CXL, High-Tech, Omni, Phoenix,
Presidential I, Presidential II, Quest, Sergio, and Wellington Series ceiling
fans. The Company believes these warranties are highly attractive to dealers
and consumers alike.

The Company has a 24-hour product shipment policy. In order to meet these
policy delivery requirements and to ensure that it has sufficient goods on hand
from its overseas suppliers, the Company maintains a significant level of
inventory. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."

PRODUCT EXPANSION

The Company's proposed expansion of its light kit product line will include the
development of new lighting fixture product lines to be marketed under the
Craftmade name, including under cabinet lighting, low voltage outside lighting
and additional parts and accessories complementing its various product lines.
The Company believes that such proposed new product lines will complement its
light kit product line and that such product lines can be marketed through the
same sales representatives, showrooms and electrical wholesalers which
presently distribute the Company's ceiling fans and light kit products. The
Company is continuing discussions with Sunlit and other manufacturers for the
production of such new lighting fixture lines.

Related to the Company's product expansion plans, in January 1997 the Company
introduced a bathroom and dressing room lighting product line, which is being
marketed through the same distribution network and sales representative groups
as the ceiling fan and light kit product lines. The Company currently markets
14 series of bathstrip lighting in 7 different lengths and 14 different
decorative finishes, which presently represent 2 % of the Company's product
sales. The Company will add finishes and series based on customer demand.

The Company's product sales, particularly ceiling fans, are somewhat seasonal
with sales in the warmer first and fourth quarters being historically higher
than in the two other fiscal quarters.

BACKLOG

As substantially all of the Company's ceiling fan and lighting kit products are
shipped to




                                      -6-
<PAGE>   9

customers within 72 hours following receipt of orders, backlog is not material
to the Company's operations. The Company at present is accepting orders for
ceiling fans, bathstrip lighting, and light kits based on product availability.

COMPETITION

The ceiling fan and lighting fixture market is highly competitive at all levels
of operation. Some of the major companies in this industry include Casablanca,
Hunter, Emerson Electric and Fasco. A number of other well established
companies are also currently engaged in activities that compete directly with
those of the Company. Some of the Company's competitors are better established,
have longer operating histories, have substantially greater financial resources
or have greater name recognition than the Company; however, the Company
believes that the quality of its products, the strength of its marketing
organization and the growing recognition of the Craftmade name will enable the
Company to compete successfully in these highly competitive markets.

INDEPENDENT SAFETY TESTING

All of the ceiling fans, light kits and lamps sold by the Company in the United
States are tested by UL, which is an independent non-profit corporation which
tests certain products, including ceiling fans and lighting fixtures, for
public safety. Under its agreement with UL, the Company voluntarily submits its
products to UL, and UL tests the products for safety. If the product is
acceptable, UL issues a listing report which provides a technical description
of the product. UL provides the manufacturers with procedures to follow in
manufacturing the products. Electrical products which are manufactured in
accordance with the designated procedures display the UL listing mark, which is
generally recognized by consumers as an indication of a safe product and which
is often required by various governmental authorities to comply with local
codes and ordinances. The contract between the Company and UL provides for
automatic renewal unless either party cancels as a result of default or gives
applicable prior notice.

PRODUCT LIABILITY

The Company is engaged in a business which could expose it to possible claims
for injury resulting from the failure of its products sold. While no material
claims have been made against the Company since its inception and the Company
maintains $10,000,000 in product liability insurance, there can be no assurance
that claims will not arise in the future or that the coverage of such policy
will be sufficient to pay such claims.

PATENTS AND TRADEMARKS

The Company does not believe that patent protection is significant to most of
the Company's products or current business operations. The Company holds a
patent on its Cathedral Ceiling Adapter and the license on the patents for the
Crescent, Wellington, Cameo, and Quest Series of fans and the Carousel light
kit. The Company also holds certain other license agreements which is in the
ordinary course of its business. Fanthing holds certain Taiwanese patents
covering specific technology employed in Craftmade ceiling fans, but the
Company does not believe that such patents are material to the production of
Craftmade products. The Company's trademarks, Craftmade (R) and Durocraft (R),
are registered with the United States Patent and Trademark office.




                                      -7-
<PAGE>   10

EMPLOYEES

As of July 31, 1997, the Company employed a total of 83 full time employees,
including three executive officers, sixteen managers, ten clerical and
administrative personnel, nine marketing, twenty-nine warehouse and sixteen
production personnel. The Company's employees are not covered by any collective
bargaining agreements, and the Company believes its employee relations are
satisfactory.

Item 2. Properties

The Company's headquarters were relocated to Coppell, Texas during December
1995 to a facility consisting of approximately 378,000 square feet of general
office and warehouse space. The Company purchased this new facility at a price
of approximately $9,225,182. The Company has financed $9,200,000 of the
purchase price of this facility through a financial institution at an interest
rate of 8.125% for a term of twelve years. Approximately 80,000 square feet of
this facility has been leased to an unrelated party for a term of three years
at an annual rate of $240,000. The Company's management believes that this
facility will be sufficient for its purposes for the foreseeable future. The
Company also leases 1,656 square feet of permanent display facilities at the
Dallas Trade Mart. The lease will expire in April 1998 and provides for monthly
rental payments of $3,083.

Item 3. Legal Proceedings

The company is currently not a party to any material legal or administrative
proceedings.

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

Not applicable




                                      -8-

<PAGE>   11

                                    PART II


Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters

Since the initial public offering of the Company's Common Stock at $3.50 per
share on April 16, 1990, the Common Stock has been traded on NASDAQ under the
symbol CRFT. On July 16, 1992, the Company was approved for inclusion in the
National Market System of NASDAQ.

The following table sets forth for the periods indicated the high and low
closing sales prices per share of Common Stock on the NASDAQ National Market
System, as reported by NASDAQ.

<TABLE>
<CAPTION>

                                                       High            Low
                                                       ----            ---
             <S>                                       <C>            <C>
             Fiscal Year Ended June 30, 1996:
                First Quarter                          8 1/8          6 1/8
                Second Quarter                         8 3/8          6 1/4
                Third Quarter                          7 1/8          5 7/8
                Fourth Quarter                         8 1/4          6 5/8

             Fiscal Year Ended June 30, 1997:
                First Quarter                          7 1/2          6
                Second Quarter                         7 1/4          5 7/8
                Third Quarter                          9              6 1/2
                Fourth Quarter                         8 1/8          6 7/8

             Fiscal Year Ended June 30, 1998:
                First Quarter (Through July 31, 1997)  9 1/4          7 1/2

</TABLE>

On July 31, 1997, there were 110 holders of record of the Company's Common
Stock.

North American Transfer Company, 147 West Merrick Road, Freeport, New York
11520, is the Transfer Agent and Registrar for the Company's Common Stock.

On March 15, 1994, the Company's Board of Directors adopted a policy to pay
$0.01 per share dividend on a quarter to quarter basis within the discretion of
the Board out of the capital surplus or profits of the Company. On April 30,
1997, the Company's Board of Directors increased the quarterly dividend to
$0.02 per share. The quarterly dividends may not exceed 40% of the Company's
net profit before taxes as restricted by the Company's revolving line of
credit. Pursuant to this policy, the Board has declared and paid a quarterly
dividend for each quarter since March 31, 1994.





                                      -9-

<PAGE>   12

COMPANY COMMON STOCK PRICE PERFORMANCE GRAPH

The following graph provides an indicator of and compares the percentage change
of cumulative total shareholder return of the Company's Common Stock against
the cumulative total return of the Russell 2000 Index and the NASDAQ Composite
Index since the initial public offering of the Company's common stock on April
16, 1990. This graph assumes $100 was invested on April 16, 1990 in the
Company's common stock, the Russell 2000 Index and the NASDAQ Composite Index.
Both the Russell 2000 Index and the NASDAQ Composite Index exclude the Company.
This graph also assumes that the Company's quarterly dividend was reinvested in
the Company's stock.




                     [PRICE PERFORMANCE CHART SHOWN HERE]





The historical stock price performance of the Company's common stock shown on
the graph above is not necessarily indicative of future stock performance.

The Company has compared its stock price performance with that of the Russell
2000 Index as it does not believe it can reasonably identify a peer group and
no comparable published industry or line-of-business index is available. The
Russell 2000 Index consists of companies with market capitalization similar to
that of the Company; accordingly, the Company believes the Russell 2000 Index
is the best available performance comparison.

Item 6. Selected Financial Data

The selected financial data in the tables below are for the five fiscal years
ended June 30, 1997. The data should be read in conjunction with the financial
statements and notes, which are included elsewhere herein. The amounts listed
below are in thousands (except per share amounts).

<TABLE>
<CAPTION>

                                                     For years ended
                                 -----------------------------------------------------------------
                                 June 30,       June 30,      June 30,      June 30,      June 30,
                                    1993          1994          1995          1996          1997
                                 --------       --------      --------      --------      --------
<S>                            <C>             <C>            <C>            <C>            <C>
Selected Operating Results:

Net sales                      $   27,479      $   32,130     $  34,353      $ 36,320       $39,523
Gross profit                        9,043          11,729        12,381        12,884        14,261
Income before income taxes          2,600           3,688         2,977         2,850         3,310
Net income                          1,646           2,385         1,903         1,826         2,113
Net income per common share           .48             .69           .55           .56           .70
Cash dividends declared
   per common share            $      -        $      .02     $     .04      $    .04       $   .05
Weighted average common
    shares outstanding              3,454           3,472         3,431         3,256         3,039

</TABLE>



                                     -10-
<PAGE>   13

<TABLE>
<CAPTION>

                                 June 30,       June 30,       June 30,       June 30,      June 30,
                                   1993           1994           1995           1996          1997
                                 --------       --------       --------       --------      --------
<S>                             <C>            <C>            <C>            <C>           <C>
Summary Balance Sheet:

Current assets                  $   11,513     $   14,878     $  16,720      $ 17,835      $ 20,431
Current liabilities                  5,535          6,444         8,065         8,799        11,487
Long-term debt                          15          -              -            8,519         7,989
Total assets                        12,474         15,853        17,631        27,996        30,278
Retained earnings                    3,445          5,761         7,528         9,224        11,187
Shareholders' equity                 6,853          9,373         9,565        10,633        10,720
Book value per common share     $     2.00     $     2.71     $    2.90      $   3.31      $   3.66

</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

With the exception of historical information, the matters discussed herein
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 would 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
conditions, changes in relationships with customers including, but not limited
to, Durocraft'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 political developments in the Republic of Taiwan, the location of
the Company's principal vendor, declining condition in the home construction
industry, and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of the Company.

Year Ended June 30, 1997 compared to June 30, 1996

Net sales increased to $39,523,383 for the year ended June 30, 1997 from
$36,320,034 for the year ended June 30, 1996, representing an increase of
$3,203,349 or 8.8%. This increase in sales was primarily the result of a 17.8%
increase in sales from the Company's fan division attributable to the success
of this division's marketing strategy of selective expansion of its
distribution base, an increase of 7% over last year, and new product
introductions. This increase was also supported by sales in fiscal 1997 of
approximately $600,000 related to the Company's entrance into the bathstrip
lighting market in January 1997. The Company's management anticipates that the
fan division's current marketing strategy will continue to yield strong growth
consistent with prior years provided new home construction does not experience
a downturn similar to 1995. In addition, based on the initial success
experienced with the entrance into the bathstrip lighting market, the Company's
management anticipates that this new product line will be well-received since
it complements the fan division's product lines and




                                     -11-
<PAGE>   14

because it utilizes the same distribution network and independent sales force
that currently exists with the fan division. This sales increase was partially
offset by a $2.5 million decrease in lamp sales as orders from the lamp
division's primary customer declined due to an internal restructuring by that
customer. This division is currently pursuing an aggressive strategy of
inventory reduction through select "seconds" retailers and overhead reduction.
The Company's management anticipates that the inventory and overhead reduction
process will be completed between December 1997 and March 1998. 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 without material charges against earnings.

Gross profit increased to $14,261,203, or 36.1% of net sales, for the year
ended June 30, 1997 from $12,884,051, or 35.5% of net sales, for the year ended
June 30, 1996. This increase was primarily attributable to the success of the
fan division's higher end product line and the initial benefit of price
concessions received from this division's overseas supplier received in the
fourth quarter of fiscal 1997. The Company's management anticipates that gross
margins will continue to improve provided that the Company continues to benefit
from stable 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 $472,425 to
$9,448,379, or 23.9% of net sales, for the year ended June 30, 1997 from
$8,975,954, or 24.7% of net sales, for the year ended June 30, 1996. This
increase was primarily attributable to increases in commissions and certain
other costs directly correlated to the increase in sales and to an increase in
property taxes relating to the Company's facility purchased December 1995,
partially offset by the reduction in operating lease expense. The Company's
management anticipates that, in the future, selling, general and administrative
expenses as a percentage of sales will decrease slightly due to the relatively
fixed nature of the majority of the Company's overhead expenses.

Net interest expense increased $459,407 to $1,355,338 for the year ended June
30, 1997 from $895,931 for the year ended June 30, 1996. This increase was the
result of increases in the average outstanding indebtedness this year over last
primarily related to the Company's growth and treasury stock purchases and
interest incurred relating to the financing of the Company's facility acquired
in December 1995. The Company's management anticipates that the trend of
increased interest expense partially offset by the decrease in operating lease
expense will continue.

The provision for income taxes increased to $1,196,821, or 36.2% of income
before income taxes, for the year ended June 30, 1997 from $1,024,466, or 36.0%
of income before income taxes, for the year ended June 30, 1996.

Net income increased to $2,113,136, or $.70 per share, for the year ended June
30, 1997 from $1,825,567, or $.56 per share, for the year ended June 30, 1996.
This increase was primarily attributable to the increase in sales and gross
margins. In addition, the per share amount also benefitted from treasury stock
purchases by reducing the number of shares outstanding.

Year Ended June 30, 1996 compared to June 30, 1995

Net sales increased to $36,320,034 for the year ended June 30, 1996 from
$34,352,775 for the year ended June 30, 1995, representing an increase of
$1,967,259 or 5.7%. This increase in




                                     -12-
<PAGE>   15

sales was primarily attributable to a 9.6% increase in sales from the Company's
fan division as a result of the recovery of this division's market through the
stabilization of new home construction and the continued success of this
division's marketing strategy of selective expansion of its distribution base
and new product introductions. This increase in sales was partially offset by
an 8.3% decrease in lamp sales due to delays in raw materials delivery. Sales
to one of the lamp division's customers represented approximately 89% of that
division's fiscal 1996 net sales.

Gross profit increased to $12,884,051, or 35.5% of sales, for the year ended
June 30, 1996, as compared to $12,380,599, or 36.0% of sales, for the year
ended June 30, 1995. The Company experienced a decrease in gross profit
percentage primarily as a result of increased raw materials cost incurred in
the latter part of fiscal 1995 associated with the manufacture of its products
and the addition of a lower end line of fans to the product mix of the
Company's fan division towards the end of fiscal 1995.

Total selling, general and administrative expenses increased $335,318 to
$8,975,954, or 24.7% of sales, for the year ended June 30, 1996 from
$8,640,636, or 25.2% of sales, for the year ended June 30, 1995. This increase
was primarily attributable to an increase in commissions and certain other
costs directly correlated to the increase in sales and one-time charges in
excess of $200,000 related to the acquisition of and relocation to the
Company's new facility completed in December 1995. As a result of this
relocation, fiscal 1996 lease expense declined approximately $310,000 from
prior year levels. However, the decline in this component of selling, general
and administrative expenses was fully offset by increases in depreciation and
interest costs also attributable to the relocation to the new facility.

Net interest expense increased $375,272 to $895,931 for the year ended June 30,
1996 from $520,659 for the year ended June 30, 1995. This increase was
primarily the result of $309,187 in interest incurred relating to the financing
of the Company's newly-acquired facility.

The provision for income taxes decreased to $1,024,466, or 36.0% of income
before income taxes, for the year ended June 30, 1996 from $1,073,551, or 36.1%
of income before income taxes, for the year ended June 30, 1995.

Net income decreased slightly to $1,825,567, or $.56 per share, for the year
ended June 30, 1996 from $1,903,117, or $.55 per share, for the year ended June
30, 1995. The decrease in net income was primarily the result of the decrease
in the Company's gross profit percentage, increases in selling, general and
administrative expenses and the increase in interest expense, partially offset
by the sales increase. Net income per common share improved slightly despite
the decrease in net income as a result of the Company's repurchase of 106,500
common shares during fiscal 1996 which effectively reduced weighted average
common shares outstanding at June 30, 1996.

Year Ended June 30, 1995 compared to June 30, 1994

Net sales increased to $34,352,775 for the year ended June 30, 1995 from
$32,130,223 for the year ended June 30, 1994, representing an increase of
$2,222,552, or 6.9%. This increase in sales was primarily attributable to a
6.5% increase in sales from the Company's fan division as a result of the
expansion of this division's customer base in excess of 10% and the continued
success of new product introductions, despite the significant weakness in new
home construction throughout the nation that affected the entire industry. This
increase was




                                     -13-
<PAGE>   16

supported by a 17% increase in lamp sales, primarily attributable to the
addition of several new lamp styles to this division's major customer.

Gross profit increased to $12,380,599, or 36.0% of sales, for the year ended
June 30, 1995, as compared to $11,728,649, or 36.5% of sales, for the year
ended June 30, 1994. The Company experienced a decrease in its gross profit
percentage primarily as a result of a 9% increase in costs of certain raw
materials associated with the manufacture of its products, partially offset by
a price increase to the Company's customers implemented during May 1995.

Total selling, general and administrative expenses increased $1,198,107 to
$8,640,636, or 25.2% of sales, for the year ended June 30, 1995 from
$7,442,529, or 23.2% of sales, for the year ended June 30, 1994. This increase
was primarily attributable to (i) an increase in commissions and certain other
costs directly correlated to the increase in sales and (ii) an increase in
costs associated with the growth in the Company's work force during the year
ended June 30, 1995.

Net interest expense increased $181,232 to $520,659 for the year ended June 30,
1995 from $339,427 for the year ended June 30, 1994. This increase was
primarily the result of increases in the bank's prime lending rate, coupled
with increases in indebtedness required to finance the Company's current growth
and its stock repurchase program.

The provision for income taxes decreased to $1,073,551, or 36.1% of income
before income taxes for the year ended June 30, 1995 from $1,303,320, or 35.3%
of income before income taxes, for the year ended June 30, 1994.

Net income decreased to $1,903,117, or $.55 per share, for the year ended June
30, 1995 from $2,385,026, or $.69 per share, for the year ended June 30, 1994.
This decrease was primarily the result of the decrease in the Company's gross
profit percentage and increases in selling, general and administrative
expenses.

LIQUIDITY AND CAPITAL RESOURCES

Fiscal year ended June 30, 1997- The Company's cash decreased $47,884, from
$663,057 at June 30, 1996 to $615,173 at June 30, 1997. The Company's operating
activities provided cash of $310,511 during fiscal 1997 compared to $1,136,852
during fiscal 1996. The decrease in cash flows was primarily attributable to a
$2,244,717 increase in inventory to meet anticipated sales growth and to build
up adequate stocking levels for the Company's new bathstrip lighting product
line, partially offset by improved operating results.

In order to meet its own delivery policies and to ensure that it has a
sufficient allotment of goods on hand from its overseas suppliers, the Company
maintains a significant level of inventory. Management believes that the
Company has sufficient amounts of working capital, trade credit, and
availability under its bank line to fund this level of inventory.

Cash used for investing activities of $143,508 related to the purchase of
warehouse equipment.

Cash used for financing activities of $214,887 was primarily the result of the
repurchase of 270,769 shares of the Company's stock in connection with the
Company's stock repurchase plan at an aggregate cost of $1,875,350, cash
dividends of $150,881 and principal payments of $488,656 made towards the
facility note, partially offset by $2,300,000 in additional borrowing from the
Company's line of credit.




                                     -14-
<PAGE>   17

The Company currently has a $12,000,000 line of credit with a financial
institution at an interest rate of LIBOR plus 1.50%. At June 30, 1997, pursuant
to the continued compliance with certain covenants and restrictions, the
Company had an additional $2,000,000 available on its existing line of credit.
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, annual payments under the note payable related to the facility
acquisition approximating $1,400,000, anticipated treasury stock purchases and
its projected growth over the next twelve months.

Fanthing has provided the Company with a $1,000,000 credit facility, pursuant
to which Fanthing will manufacture and ship ceiling fans prior to receipt of
payment from the Company. Accordingly, payment can be deferred until delivery
of such products. At present levels, such credit facility is equivalent to
approximately one month's supply of ceiling fans and represents a supplier
commitment which, in the opinion of the Company, is unusual for the industry.
Fanthing is not required to provide this credit facility under its agreement
with the Company, and Fanthing may discontinue this arrangement at any time.

Pursuant to the Company's stock repurchase program, the Company to date has
purchased a total of 569,269 shares of the Company's Common Stock at an
aggregate cost of $4,332,623. Under the terms of this program, the Company, at
its option, may purchase an additional 230,731 shares of the Company's Common
Stock.

At June 30, 1997, $8,519,131 remained outstanding under the twelve year note
payable for the Company's 378,000 square foot operating facility. The Company
continues to lease 80,000 square feet of this facility to an unrelated party at
a lease rate of $20,000 per month, expiring December 1998. The Company's
management believes that this facility will be sufficient for its purposes for
the foreseeable future.

Fiscal year ended June 30, 1996 - The Company's cash increased $394,354, from
$268,703 at June 30, 1995 to $663,057 at June 30, 1996. The Company's operating
activities provided cash of $1,136,852 during fiscal 1996 compared to $364,186
during fiscal 1995. The increase in cash provided by operating activities is
primarily attributable to net income and a fairly constant level of inventory
during 1996 compared to an approximate $1,400,000 increase during 1995. This
increase was partially offset by increases in accounts receivable of $821,448
relating to increased sales as a result of the stabilization of the new home
construction market.

Cash used by investing activities of $9,152,822 related to the purchase of the
Company's new facility in December 1995 and purchases of warehouse equipment,
computer equipment and general office furniture necessary to facilitate
relocation to this new facility.

Cash provided by financing activities of $8,410,324 was primarily from
$9,200,000 in financing obtained for the new facility, less principal payments
of $192,213, and $220,000 in additional borrowings from the Company's line of
credit, partially offset by the repurchase of 106,500 shares of the Company's
Common Stock at an aggregate cost of $699,955 and dividends paid totalling
$129,653.

Fiscal year ended June 30, 1995 - The Company's cash increased $152,392, from
$116,311 at June 30, 1994 to $268,703 at June 30, 1995. The Company's operating
activities provided cash of $364,186, primarily from net income and decreases
in accounts receivable of $452,062, offset by increases in inventory of
$1,437,940 and prepaid assets of $678,046.




                                     -15-
<PAGE>   18

The cash used by investing activities of $84,610 related to the purchase of
warehouse equipment and general office furniture.

Cash used by financing activities of $127,184 was primarily the result of the
repurchase of 192,000 of the Company's common stock at an aggregate cost of
$1,757,318, coupled with dividends paid totaling $136,141, but partially offset
by $1,755,000 in additional borrowings on the Company's line of credit.

ACCOUNTING CHANGES

Impairment of Assets - FAS 121

In March 1995, the Financial Accounting Standards Board issued FAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." This statement requires companies to investigate potential
impairments of long-lived assets, certain identifiable intangibles, and
associated goodwill on an exception basis, when there is evidence that events
or changes in circumstances have made recovery of an asset's carrying value
unlikely. An impairment loss will be recognized if the sum of the expected
future cash flows undiscounted and before interest from the use of the asset is
less than the net book value of the asset. The amount of the impairment loss
will generally be measured as the difference between the net book value of the
assets and their estimated fair value. The Company adopted this statement
effective July 1,1996. Such adoption had no impact on the Company's results of
operations or financial condition.

Stock-Based Compensation - FAS 123

In October 1995, the Financial Accounting Standards Board issued FAS 123,
"Accounting for Stock-Based Compensation", which is effective for fiscal years
beginning after December 15, 1995. Effective July 1, 1996, the Company adopted
FAS 123 which establishes financial accounting and reporting standards for
stock-based employee compensation plans. The pronouncement defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock option compensation plans. However, it also allows
an entity to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25). Entities electing to remain with the accounting in APB 25 must make
pro forma disclosures of net income and earnings per share as if the fair value
based method of accounting defined in FAS 123 had been applied. The Company
continues to account for stock-based employee compensation plans under the
intrinsic method pursuant to APB 25 and will make the disclosures in its
footnotes as required by FAS 123, when applicable.

Earning Per Share - FAS 128

In February 1997, the Financial Accounting Standards Board issued FAS 128,
"Earnings Per Share." This statement requires interim and annual presentation
of "basic" and "diluted" earnings per share (EPS) by all entities that have
issued common stock or potential common stock if those securities trade in a
public market. The objective of basic EPS is to measure the performance of an
entity over the reporting period. The objective of diluted EPS is to measure
the performance of an entity over the reporting period while giving effect to




                                     -16-
<PAGE>   19

all dilutive potential of common shares that were outstanding during the
period. This statement also requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. The Company will adopt this statement in the
second quarter ending December 31, 1997 at which time all prior period EPS data
presented will be restated to conform with the Provision of this statement.
Such adoption will have no impact on the Company's presentation of earnings per
share.


INFLATION

Generally inflation has not had, and the Company does not expect it to have, a
material impact upon operating results. However, there can be no assurance that
the Company's business will not be affected by inflation in the future.

Item 8. Financial Statements

The financial statements and supplementary data are included under Item
14(a)(1) and (2) of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

Not applicable.



                                     -17-
<PAGE>   20

                                    PART III


Item 10. Directors and Executive Officers of the Registrant

The information relating to the Company's directors and nominees for election
as directors of the Company is incorporated herein by reference from the
Company's Proxy Statement for its 1997 Annual Meeting of Shareholders,
specifically the discussion under the heading "Election of Directors." It is
currently anticipated that the Proxy Statement will be publicly available and
mailed to shareholders in September 1997.

Item 11. Executive Compensation

The discussion under "Remuneration of Directors and Officers and Certain
Transactions" in the Company's Proxy Statement is incorporated herein by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The discussion under "Voting and Principal Shareholders" in the Company's Proxy
Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

Not applicable.




                                     -18-
<PAGE>   21
                                    PART IV

Item 14. Exhibits, Financial Statements, Financial Statement Schedules and
Reports on Form 8-K

  (a)    The following documents are filed as a part of this report:

         1.  Financial Statements - The financial statements listed in the
             "Index to Consolidated Financial Statements" described at F-1.

         2.  Exhibits - Refer to (b) below.

         Financial Statement Schedules have been omitted since they are either
         not required, not applicable or the required information is shown in
         the financial statements or related notes.

  (b)    Exhibits

         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 10Q 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 10Q 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 10Q 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
                  10Q 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 10Q 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 10K for the year ended
                  June 30, 1996, and herein incorporated by reference.

         21     - Subsidiaries of the Registrant


         27     - Financial Data Schedule


                                     -19-

<PAGE>   22
                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on August 30, 1997.

Craftmade International, Inc.



By:  /s/ James Ridings
     ---------------------------------------
     James Ridings, Chairman of the Board,
     President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

Signatures                                  Capacity                                    Date
----------                                  --------                                    ----

<S>                                         <C>                                         <C>
/s/ James Ridings                           Chairman of the Board, President,           August 29, 1997
---------------------------                 Chief Executive Officer and
James Ridings                               Director (Principal Executive
                                            Officer)



/s/ Clifford Crimmings                      Vice President of Sales and                 August 29, 1997
---------------------------                  Director
Clifford Crimmings



/s/ Ken Cancienne                           Chief Financial Officer, Principal          August 29, 1997
---------------------------                 Accounting Officer and Director
Ken Cancienne



/s/ Jerry E. Kimmel                         Director                                    August 29, 1997
---------------------------
Jerry E. Kimmel



/s/ A. Paul Knuckley                        Director                                    August 29, 1997
---------------------------
A. Paul Knuckley

</TABLE>



                                     -20-
<PAGE>   23

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                        PAGE
                                                                        ----
<S>                                                                     <C>
Financial Statements:
   Report of Independent Accountants                                    F-2
   Consolidated Statements of Income                                    F-3
   Consolidated Balance Sheets                                          F-4
   Consolidated Statements of Cash Flows                                F-6
   Consolidated Statements of Changes in Shareholders' Equity           F-8
   Notes to Consolidated Financial Statements                           F-9

</TABLE>


   Financial statement schedules have been omitted since they are either not
   required, not applicable, or the required information is shown in the
   financial statements or related notes.


                                      F-1


<PAGE>   24
                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Shareholders
  of Craftmade International, Inc.


In our opinion, the consolidated financial statements listed in the index
appearing on page F-1 present fairly, in all material respects, the financial
position of Craftmade International, Inc. and its wholly-owned subsidiaries
(the "Company") at June 30, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.


PRICE WATERHOUSE LLP


Fort Worth, Texas
August 14, 1997




                                      F-2
<PAGE>   25
               CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                     For the years ended
                                        ----------------------------------------------
                                           June 30,        June 30,         June 30,
                                            1995            1996              1997
                                        -----------     ------------      ------------

<S>                                     <C>             <C>               <C>
Net sales                               $34,352,775     $ 36,320,034      $ 39,523,383
Cost of goods sold                       21,972,176       23,435,983        25,262,180
                                        -----------     ------------      ------------
Gross profit                             12,380,599       12,884,051        14,261,203



Selling, general and administrative
    expenses                              8,640,636        8,975,954         9,448,379
Depreciation and amortization               242,636          282,133           387,529
                                        -----------     ------------      ------------
Operating  profit                         3,497,327        3,625,964         4,425,295

Other (income) expense:
    Interest expense                        520,659          895,931         1,355,338
    Other, net                                   --         (120,000)         (240,000)
                                        -----------     ------------      ------------
Income before income taxes                2,976,668        2,850,033         3,309,957

Provision for income taxes                1,073,551        1,024,466         1,196,821
                                        -----------     ------------      ------------
Net income                              $ 1,903,117     $  1,825,567      $  2,113,136
                                        ===========     ============      ============
Net income per common share             $       .55     $        .56      $        .70
                                        ===========     ============      ============
</TABLE>






             The accompanying notes are an integral part of these
                      consolidated financial statements.



                                      F-3
<PAGE>   26
               CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                     ASSETS

<TABLE>
<CAPTION>
                                                         June 30,          June 30,
                                                          1996              1997
                                                     ------------      ------------
<S>                                                  <C>               <C>
Current assets:
   Cash                                              $    663,057      $    615,173
   Accounts receivable - trade, net of allowance
     of $164,000 and $275,000, respectively             7,239,457         7,599,775
   Inventory                                            8,680,625        10,925,342
   Deferred income taxes                                  395,556           544,160
   Prepaid expenses and other current assets              856,537           746,343
                                                     ------------      ------------

       Total current assets                            17,835,232        20,430,793
                                                     ------------      ------------


Property and equipment, at cost:
   Land                                                 1,534,894         1,534,894
   Building                                             7,690,288         7,714,033
   Office furniture and equipment                       1,061,383         1,177,377
   Leasehold improvements                                  54,970            58,739
                                                     ------------      ------------
                                                       10,341,535        10,485,043
Less:  accumulated depreciation                          (627,943)         (953,640)
                                                     ------------      ------------

Total property and equipment, net                       9,713,592         9,531,403

Goodwill, net of accumulated amortization
   of $342,567 and $398,210, respectively                 227,214           171,571
Deferred income taxes                                       7,752             7,752
Other assets                                              211,818           136,161
                                                     ------------      ------------
         Total other assets                            10,160,376         9,846,887
                                                     ------------      ------------

                                                     $ 27,995,608      $ 30,277,680
                                                     ============      ============
</TABLE>




             The accompanying notes are an integral part of these
                      consolidated financial statements.




                                      F-4
<PAGE>   27

               CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEETS (CONTINUED)
                      LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                       June 30,           June 30,
                                                                                        1996               1997
                                                                                       --------           --------
<S>                                                                                 <C>               <C>
Current liabilities:
   Note payable, facility - current portion                                         $    488,656      $    529,872
   Revolving line of credit                                                            7,700,000        10,000,000
   Accounts and commissions payable                                                      465,239           510,007
   Income taxes payable                                                                       --           204,191
   Accrued liabilities                                                                   144,774           243,410
                                                                                    ------------      ------------
       Total current liabilities                                                       8,798,669        11,487,480

Other non-current liabilities:
  Deferred income taxes                                                                   44,977            81,205
  Note payable, facility - long term portion                                           8,519,131         7,989,259
                                                                                    ------------      ------------

           Total liabilities                                                          17,362,777        19,557,944
                                                                                    ------------      ------------

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,  4,110,683 shares issued                                                 41,107            41,107
   Additional paid-in capital                                                          7,095,571         7,095,571
   Retained earnings                                                                   9,224,252        11,186,507
                                                                                    ------------      ------------
                                                                                      16,392,930        18,355,185
   Less: treasury stock, 907,914 and 1,178,683 common
     shares at cost, respectively,
     and  32,000 preferred shares at cost                                             (5,760,099)       (7,635,449)
                                                                                    ------------      ------------
                                                                                      10,632,831        10,719,736
Commitments and contingencies
   (Notes 8 and 9)
                                                                                    ------------      ------------
                                                                                    $ 27,995,608      $ 30,277,680
                                                                                    ============      ============
</TABLE>




             The accompanying notes are an integral part of these
                      consolidated financial statements.




                                      F-5
<PAGE>   28
               CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                   For the years ended
                                                                                     ---------------------------------------------
                                                                                       June 30,         June 30,         June 30,
                                                                                         1995             1996             1997
                                                                                     -----------      -----------      -----------
<S>                                                                                  <C>               <C>               <C>
Cash flows from operating activities:
Net income                                                                           $ 1,903,117      $ 1,825,567      $ 2,113,136
  Adjustments to reconcile net income to net cash provided by operating
       activities:
  Depreciation and amortization                                                          242,636          282,133          387,529
      Loss on sale of property and equipment                                               3,732               --               --
   Changes in assets and liabilities providing (using) cash:
     Accounts receivable                                                                 452,062         (821,448)        (360,318)
     Inventory                                                                        (1,437,940)        (101,955)      (2,244,717)
     Prepaid expenses and other assets                                                  (678,046)        (217,412)         179,662
     Accounts and commissions payable                                                     40,069          118,936           44,768
     Income taxes payable                                                                 36,214         (105,448)         204,191
     Deferred income taxes                                                              (122,804)          93,987         (112,376)
     Other accrued liabilities                                                           (74,854)          62,492           98,636
                                                                                     -----------      -----------      -----------
Net cash provided by operating activities                                                364,186        1,136,852          310,511
                                                                                     -----------      -----------      -----------

Cash flows used for investing activities:
     Additions to property and equipment                                                 (84,610)      (9,152,822)        (143,508)
                                                                                     -----------      -----------      -----------
Cash flows from financing activities:
  Proceeds from note payable, facility                                                        --        9,200,000               --
  Principal payments for note payable, facility                                               --         (192,213)        (488,656)
  Net proceeds from revolving line of credit                                           1,755,000          220,000        2,300,000
  Stock repurchase                                                                    (1,757,318)        (699,955)      (1,875,350)
  Cash dividends                                                                        (136,141)        (129,653)        (150,881)
  Principal payments under capital lease obligations                                     (14,625)            (595)              --
  Proceeds from exercise of employee stock options                                        25,900           12,740               --
                                                                                     -----------      -----------      -----------

Net cash provided by (used for) financing activities                                    (127,184)       8,410,324         (214,887)
                                                                                     -----------      -----------      -----------
Net increase (decrease) in cash                                                          152,392          394,354          (47,884)
Cash at beginning of year                                                                116,311          268,703          663,057
                                                                                     -----------      -----------      -----------
Cash at end of year                                                                  $   268,703      $   663,057      $   615,173
                                                                                     ===========      ===========      ===========
</TABLE>





             The accompanying notes are an integral part of these
                      consolidated financial statements.




                                      F-6

<PAGE>   29
               CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


Supplemental disclosures of cash flow information:

<TABLE>
<CAPTION>
                                                                   For the years ended
                                                       ----------------------------------------
                                                         June 30,       June 30,       June 30,
                                                          1995           1996           1997
                                                       ----------     ----------     ----------
<S>                                                    <C>            <C>            <C>
Cash paid during the year for:
   Interest                                            $  520,659     $  895,931     $1,355,338
                                                       ==========     ==========     ==========
   Income taxes                                        $1,142,509     $1,016,346     $1,097,170
                                                       ==========     ==========     ==========

</TABLE>



             The accompanying notes are an integral part of these
                      consolidated financial statements.




                                      F-7
<PAGE>   30

               CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                    FOR THE THREE YEARS ENDED JUNE 30, 1997


<TABLE>
<CAPTION>

                                                                          SERIES A     ADDITIONAL
                                                        VOTING           PREFERRED      PAID-IN         RETAINED
                                                     COMMON STOCK          STOCK        CAPITAL         EARNINGS
                                                 ---------------------   ---------     ----------     ------------ 
                                                   SHARES      AMOUNT
                                                 ---------    -------- 

<S>                                              <C>           <C>         <C>         <C>             <C>        
Balance as of June 30, 1994                      4,055,483     $40,555     $32,000     $6,841,488      $ 5,761,362

Exercise of employee
 stock options                                      37,000         370          --        182,777               -- 
Stock repurchase                                        --          --          --             --               -- 
Cash dividends                                          --          --          --             --         (136,141)
Net income for the year ended
  June 30, 1995                                         --          --          --             --        1,903,117
                                                 ---------     -------     -------     ----------       ----------

Balance as of June 30, 1995                      4,092,483      40,925      32,000      7,024,265        7,528,338

Exercise of employee
 stock options                                      18,200         182          --         71,306               -- 
Stock repurchase                                        --          --          --             --               --
Cash dividends                                          --          --          --             --         (129,653)
Net income for the year ended
  June 30, 1996                                         --          --          --             --        1,825,567
                                                 ---------     -------     -------     ----------     ------------

Balance as of June 30, 1996                      4,110,683      41,107      32,000      7,095,571        9,224,252

Stock repurchase                                        --          --          --             --               -- 
Cash dividends                                          --          --          --             --         (150,881)
Net income for the year ended
  June 30,1997                                          --          --          --             --        2,113,136


Balance as of June 30, 1997                      4,110,683     $41,107     $32,000     $7,095,571     $ 11,186,507
                                                 =========     =======     =======     ==========     ============

<CAPTION>

                                                        TREASURY STOCK                TOTAL
                                                   -----------------------          --------
                                                    SHARES         AMOUNT       
                                                   --------       --------      

<S>                                                 <C>          <C>              <C>         
Balance as of June 30, 1994                         641,414      ($3,302,826)     $  9,372,579

Exercise of employee
 stock options                                           --               --           183,147
Stock repurchase                                    192,000       (1,757,318)       (1,757,318)
Cash dividends                                           --               --          (136,141)
Net income for the year ended
  June 30, 1995                                          --               --         1,903,117
                                                 ----------      -----------      ------------

Balance as of June 30, 1995                         833,414       (5,060,144)        9,565,384


Exercise of employee
 stock options                                           --               --            71,488
Stock repurchase                                    106,500         (699,955)         (699,955)
Cash dividends                                           --               --          (129,653)
Net income for the year ended
  June 30, 1996                                          --               --         1,825,567
                                                 ----------      -----------      ------------

Balance as of June 30, 1996                         939,914       (5,760,099)       10,632,831



Stock repurchase                                    270,769       (1,875,350)       (1,875,350)
Cash dividends                                           --               --          (150,881)
Net income for the year ended
  June 30,1997                                           --               --         2,113,136


Balance as of June 30, 1997                       1,210,683      ($7,635,449)     $ 10,719,736
                                                 ==========      ===========      ============

</TABLE>



                The accompanying notes are an integral part of
                   these consolidated financial statements.




                                      F-8

<PAGE>   31

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

NOTE 1 - ORGANIZATION AND NATURE OF THE COMPANY

ORGANIZATION

Craftmade International, Inc. ("Craftmade") was incorporated in the state of
Texas in July 1985 under the name of Mastercraft International, Inc. In January
1987, Craftmade's Articles of Incorporation were amended to reflect Craftmade's
current name. On July 26, 1990, Craftmade formed Durocraft International, Inc.
("Durocraft"), a wholly-owned subsidiary of Craftmade International, Inc., and
consummated an agreement and plan of merger with Durocraft and DMI Products,
Inc., a lamp manufacturer based in Fort Worth, Texas. Craftmade and Durocraft
are located in Coppell, Texas.

NATURE OF THE COMPANY

Craftmade is principally engaged in the design, distribution and marketing of
ceiling fans, light kits, bathstrip lighting and related accessories to a
nationwide network of lighting showrooms and electrical wholesalers
specializing in sales to the remodeling and new home construction markets, as
well as the restaurant and commercial building market. Primarily all of the
fans and accessories are provided to Craftmade through one supplier. In
addition to the principal business of ceiling fans, Durocraft has two
divisions. The Durocraft Design Manufacturing division assembles build-to-order
floor and table lamps primarily for sale to a mid-price retailer with locations
in the United States and Canada. The other division, Global Electronics, Inc.,
imports and distributes a variety of cables and components for telephone and
communications industries.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation - The consolidated financial statements of the Company
include the accounts of Craftmade International, Inc. and its wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated.

Concentration of credit risk - Financial instruments which potentially subject
the Company to concentrations of credit risk consist primarily of trade
receivables. Substantially all of the fan division's customers are lighting
showrooms; however, credit risk is limited due to this division's large number
of customers and their dispersion across many different geographic locations.
As of June 30, 1997, the fan division had no significant concentration of
credit risk. The lamp division's customer base consists primarily of one
mid-price retailer with locations in the United States and Canada.

Inventories - Inventories are stated at the lower of cost or market, with cost
being determined using the average cost method which approximates the first-in,
first-out (FIFO) method. The cost of inventory includes freight-in and duties
on imported goods.

Property and equipment - Property and equipment is recorded at cost.
Depreciation is determined using the straight-line method over the estimated
useful lives of the property and equipment, which range from three to 40 years.




                                      F-9
<PAGE>   32

Maintenance and repairs are charged to expense as incurred; renewals and
betterments are charged to appropriate property or equipment accounts. Upon
sale or retirement of depreciable assets, the cost and related accumulated
depreciation is removed from the accounts, and the resulting gain or loss is
included in the results of operations in the period of the sale or retirement.

Goodwill - Goodwill related to the Company's acquisition of DMI Products, Inc.
in 1990 is being amortized using the straight-line method over 10 years.
Accordingly, goodwill amortization has been recorded in the accompanying
consolidated statements of income of $55,643 for each of the years ended June
30, 1995, 1996 and 1997.

Impairment of Assets - In March 1995, the Financial Accounting Standards Board
issued FAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." This statement requires companies to
investigate potential impairments of long-lived assets, certain identifiable
intangibles, and associated goodwill on an exception basis, when there is
evidence that events or changes in circumstances have made recovery of an
asset's carrying value unlikely. An impairment loss will be recognized if the
sum of the expected future cash flows undiscounted and before interest from the
use of the asset is less than the net book value of the asset. The amount of
the impairment loss will generally be measured as the difference between the
net book value of the assets and their estimated fair value. The Company
adopted this statement effective July 1, 1996. Such adoption had no impact on
the Company's results of operations or financial condition.

Advertising cost - The Company's advertising expenditures are expensed in the
period the advertising first occurs. Advertising expense for the fiscal years
ended June 30, 1995, 1996 and 1997 was $279,126, $338,744 and $471,258,
respectively.

Income taxes - The Company accounts for income taxes under an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. In estimating
future tax consequences, all expected future events other than enactments of
changes in the tax law or rates are considered.

Stock-Based Compensation - In October 1995, the Financial Accounting Standards
board issued FAS 123, "Accounting for Stock-Based Compensation", which is
effective for fiscal years beginning after December 15, 1995. Effective July 1,
1996, the Company adopted FAS 123 which establishes financial accounting and
reporting standards for stock-based employee compensation plans. The
pronouncement defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to adopt
that method of accounting for all of their employee stock option compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25). Entities electing to remain with the accounting
in APB 25 must make pro forma disclosures of net income and earnings per share
as if the fair value based method of accounting defined in FAS 123 had been
applied. The Company continues to account for stock-based employee compensation
plans under the intrinsic method pursuant to APB 25 and will make the
disclosures in its footnotes as required by FAS 123, when applicable.

Earnings per common share - Earnings per common share is based upon the
weighted average number of shares of common stock and common stock equivalents
outstanding during the periods.




                                     F-10

<PAGE>   33

For purposes of computing earnings per common share, stock options outstanding
during each of the years in the three year period ended June 30, 1997 were
treated as common stock equivalents using the treasury stock method. The
aggregate number of common stock equivalents added to weighted average shares
outstanding at June 30, 1995, 1996 and 1997 were 14,719, 1,800 and 1,545,
respectively.

Weighted average number of shares including common stock equivalents,
outstanding at June 30, 1995, 1996 and 1997 were 3,431,436, 3,255,717 and
3,038,988, respectively.

In February 1997, the Financial Accounting Standards Board issued FAS 128,
"Earnings Per Share." This statement requires interim and annual presentation
of "basic" and "diluted" earnings per share (EPS) by all entities that have
issued common stock or potential common stock if those securities trade in a
public market. The objective of basic EPS is to measure the performance of an
entity over the reporting period while giving effect to all dilutive potential
of common shares that were outstanding during the period. This statement also
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
The Company will adopt this statement in the second quarter ending December 31,
1997 at which time all prior period EPS data presented will be restated to
conform with the provisions of this statement. Proforma earnings per share will
be the same as amounts currently reported.

Pervasiveness of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Reclassifications - Certain fiscal 1996 amounts were reclassified to conform
with the current year presentation.

NOTE 3 - REVOLVING LINE OF CREDIT

The Company has a $12,000,000 line of credit with a financial institution at an
interest rate of LIBOR plus 1.5% (7 5/16% at June 30, 1997). The line of credit
is due on demand; however, if no demand is made, it is scheduled to mature
November 30, 1997. The line of credit contains certain financial covenants,
which include consolidated debt to consolidated tangible net worth, funded debt
to EBDIT ratio and capital expenditures and restricts the Company's payment of
quarterly dividends to 40% of the Company's net profit before taxes, of which
the Company is in compliance at June 30, 1997. This line of credit is secured
by inventory, accounts receivable and equipment.

NOTE 4 - NOTE PAYABLE, FACILITY

On December 21, 1995 the Company obtained a $9,200,000 recourse term loan to
finance the purchase of its new facility. The loan bears interest at 8.125% and
is payable in equal monthly installments of principal and interest of $100,280
until it matures on January 1, 2008. The loan is secured by the building and
land.




                                     F-11

<PAGE>   34

Scheduled maturities of the facility note payable are as follows:

<TABLE>
                                 <S>                     <C>
                                 1998                  $  529,872
                                 1999                     574,564
                                 2000                     623,025
                                 2001                     675,575
                                 2002                     732,556
                              Thereafter                5,383,539
                                                       ----------
                                                       $8,519,131
                                                       ==========
</TABLE>

NOTE 5 - INCOME TAXES

Components of the provision for income taxes for the years ended June 30, 1995,
1996 and 1997 consist of the following:

<TABLE>
<CAPTION>
                                                         1995           1996           1997
                                                    -----------      ----------     -----------
<S>     <C>                                         <C>              <C>            <C>
Current Expense:
         Federal                                    $ 1,018,292      $  836,983     $ 1,268,440
         State                                           59,666          33,760          40,757
         Charge in Lieu of Income Taxes Payable         118,397          39,638              --
                                                    -----------      ----------     -----------
Total Current Expense                                 1,196,355         910,381       1,309,197
                                                    -----------      ----------     -----------

Total Deferred (Benefit) Expense                       (122,804)        114,085        (112,376)
                                                    -----------      ----------     -----------

Total Provision                                     $ 1,073,551      $1,024,466     $ 1,196,821
                                                    ===========      ==========     ===========
</TABLE>


Deferred taxes are provided for temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities. The
temporary differences that give rise to deferred tax assets and liabilities at
June 30, 1995, 1996 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                          1995           1996           1997
                                                       ---------      ---------      ---------

     <S>                                               <C>            <C>            <C>      
     Inventory                                         $ 382,806      $ 322,203      $ 401,151
     Unutilized purchased NOL carryforward                27,850          7,752          7,752
     Freight reserves                                     49,300         55,760         93,500
     Other                                                16,193         17,593         49,509
                                                       ---------      ---------      ---------
     Total deferred tax assets                           476,149        403,308        551,912
                                                                      ---------      ---------
     Total deferred tax liabilities - depreciation        (3,733)       (44,977)       (81,205)
                                                       ---------      ---------      ---------
     Deferred tax assets valuation allowance                  --             --             --
                                                       ---------      ---------      ---------
                                                       $ 472,416      $ 358,331      $ 470,707
                                                       =========      =========      =========
</TABLE>



                                     F-12

<PAGE>   35

The differences between the Company's effective tax rate and the federal
statutory rate of 34% for the years ended June 30, 1995, 1996 and 1997 are as
follows:

<TABLE>
<CAPTION>
                                                        1995            1996            1997
                                                    ----------      ----------      ----------

     <S>                                            <C>             <C>             <C>       
     Tax at the statutory corporate rate            $1,012,067      $  969,011      $1,125,385
     State income taxes, net of federal benefit         39,380          22,282          26,900
     Other                                              22,104          33,173          44,536
                                                    ----------      ----------      ----------
        Provision for income taxes                  $1,073,551      $1,024,466      $1,196,821
                                                    ==========      ==========      ==========

     Effective tax rate                                     36%             36%             36%
                                                    ==========      ==========      ==========
</TABLE>


Upon adoption of FAS 109 for the fiscal year ended June 30, 1994, the Company
recognized a deferred tax benefit of $47,948 representing the expected tax
benefit of an unutilized net operating loss carryforward acquired in the
purchase of the assets of DMI Products, Inc. in July 1990. The Company
correspondingly reduced goodwill by this amount. A valuation allowance has not
been established as the Company believes that it is more likely than not to
realize this benefit before it expires in fiscal year 2005. The Company
utilized $20,098 of this deferred tax benefit in each of the years ended June
30, 1996 and 1995.

NOTE 6 - SHAREHOLDERS' EQUITY

Employee Stock Option Plans

On December 15, 1989, the Company granted to five key employees, including the
President, options to purchase an aggregate of 200,000 shares of common stock
of the Company at $.70 per share. Under the terms of the grant, the right to
exercise such options fully vested in fiscal 1994. All of these options were
exercised by June 30, 1996.

On December 31, 1992, the Company granted to two additional key employees
options to purchase an aggregate of 30,000 shares of common stock of the
Company at $6.56 per share, the average market value of common stock at date of
grant. Under the terms of the grant, the right to exercise such options fully
vested in fiscal 1994, provided such individuals remained in the employ of the
Company.

The options are exercisable for a five-year period subsequent to vesting,
except that following departure from the Company, exercisable options that have
accrued must be exercised within three months of termination of employment. The
exercise period is accelerated in the event of death, disability or early
retirement.




                                     F-13
<PAGE>   36

A summary of outstanding options are as follows:

<TABLE>
<CAPTION>
                                                       Number of Shares
                                             -------------------------------
                                               1989        1992
                                               Plan        Plan        Total
                                             -------      ------     -------

<S>                                           <C>         <C>         <C>   
Outstanding at June 30, 1994                  55,200      30,000      85,200
Exercised                                    (37,000)         --     (37,000)
                                             -------      ------     -------
Outstanding at June 30, 1995                  18,200      30,000      48,200
Exercised                                    (18,200)         --     (18,200)
                                             -------      ------     -------
Outstanding at June 30, 1996                      --      30,000      30,000
Exercised                                         --          --          --
                                             -------      ------     ------- 
Outstanding at June 30, 1997                      --      30,000      30,000
                                             =======      ======     =======
Exercisable at June 30, 1997                      --      30,000      30,000
                                             =======      ======     =======

Price range at June 30, 1997                                         $  6.56
                                                                     =======
</TABLE>

Stock Repurchase

On January 27, 1995, the Company's Board of Directors authorized the Company's
management to repurchase up to 200,000 shares of the Company's outstanding
Common Stock. During fiscal 1996, the Company's Board of Directors amended the
stock repurchase plan by 100,000 shares to allow the Company to repurchase up
to 300,000 shares of its issued and outstanding Common Stock. During fiscal
1997, the Company's Board of Directors authorized the Company's management to
repurchase up to an additional 500,000 shares of the Company's outstanding
Common Stock, for a total available for repurchase of 800,000 shares. During
the years ended June 30, 1996 and 1997, the Company acquired 106,500 and
270,769 shares, respectively, of its Common Stock related to this repurchase
program at an aggregate cost of $699,955 and $1,875,350, respectively. These
repurchased shares are reflected as treasury stock on the accompanying
consolidated balance sheets.


NOTE 7 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include cash, receivables, accounts and
commissions payable, accrued liabilities and amounts outstanding under various
debt agreements. Management believes the fair values of these instruments
approximate the related carrying 




                                     F-14

<PAGE>   37

values as of June 30, 1997 because of their short-term nature and/or variable
interest rates. In the case of the facility note payable fair value is
estimated at $8,825,000. Carrying value of the facility note payable at June
30, 1997 is $8,519,131.


NOTE 8 - COMMITMENTS

Operating Leases

The Company leases various equipment and real estate under non-cancelable
operating lease agreements which require future cash payments.

The Company incurred rental expense under its operating lease agreements of
$682,600, $372,576 and $38,998 for fiscal 1995, 1996 and 1997, respectively.

The Company leases 80,000 square feet of its new facility to an unaffiliated
company for $20,000 a month. At June 30, 1997 the remaining term under this
lease agreement is seventeen months.

NOTE 9 - CONTINGENCIES

In fiscal year 1997, the lamp division experienced a $2.5 million decrease in
lamp sales compared to fiscal year 1996 as orders from the lamp division's
primary customer declined due to an internal restructuring by that customer.
This division is currently pursuing an aggressive strategy of inventory
reduction through select "seconds" retailers and overhead reduction. The
Company's management anticipates that the inventory and overhead reduction
process will be completed between December 1997 and March 1998. 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 without material charges against earnings.

Due to the nature of the Company's business, it could be a party in legal or
administrative proceedings arising in the ordinary course of business. Although
occasional adverse settlements or resolutions may occur and negatively impact
earnings in the year of settlement, after consideration of the Company's
insurance coverage, it is the opinion of management that the ultimate
resolution would not have a materially adverse effect on the Company's
financial position or its results of operations.

The Company provides a limited warranty against workmanship or materials for
its ceiling fans for one year and also provides a 25 year warranty with respect
to the motor contained in all fans except for certain high-end models which
carry a limited lifetime warranty. Since inception 




                                     F-15
<PAGE>   38

of the Company's relationship with its major supplier of such fans, the
supplier has extended the Company full credit for all product returns.
Accordingly, no reserve for warranty has been accrued in the accompanying
consolidated financial statements. Should the Company's relationship change in
the future with respect to such supplier, the Company would be liable for any
claims received during the warranty period. Based upon historical experience,
management believes future claims resulting from defects in workmanship or
materials are not significant to the Company's operations.


NOTE 10 - 401(k) DEFINED CONTRIBUTION PLAN

On July 1, 1992, the Company established a qualified 401(k) defined
contribution plan which covers substantially all full-time employees who have
met certain eligibility requirements. Employees are allowed to tax defer the
lesser of 10% of their annual compensation or $8,994. The Company will match
one-half of the participant's contributions up to 6% of their annual
compensation. The Company's matching contribution for the years ended June 30,
1995, 1996 and 1997 aggregated approximately $42,000, $47,000 and $41,000,
respectively.

NOTE 11 - MAJOR SUPPLIER, MAJOR CUSTOMER AND RELATED PARTY

On December 7, 1989, the Company and its major Supplier (the "Supplier")
entered into a written agreement, terminable on 180 days prior notice, pursuant
to which the Supplier has agreed to manufacture Craftmade ceiling fans for the
Company. The Supplier is permitted under the arrangement to manufacture ceiling
fans for other distribution provided such ceiling fans are not a replication of
the Craftmade series or models.

Fans and accessories manufactured and sold to the Company by the Supplier
account for approximately 90%, 85% and 95% of the Company's purchases in fiscal
1995, 1996 and 1997, respectively. As of June 30, 1996 and 1997, the Supplier
owned 101,196 shares of the Company's common stock, representing 3.5% of
outstanding common stock. The Company, at its option, may repurchase the shares
for an aggregate purchase price of $137,774. 

Sales during fiscal 1997 to one of Durocraft's customers aggregated $1,342,564.
Sales to this customer represented approximately 68% of that division's fiscal
1997 net sales.




                                     F-16
<PAGE>   39

                                 EXHIBIT INDEX



<TABLE>
<CAPTION>
EXHIBIT
  NO.                             DESCRIPTION
-------                           -----------
<S>                   <C>
Ex-21                 Subsidiaries of the Registrant

Ex-27                 Financial Data Schedule

</TABLE>