##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from       to
 Commission file number 000-26667
 Craftmade International, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware(State or Other Jurisdiction of 
Incorporation or Organization)
    
    75-2057054(I.R.S. Employer
Identification No.)650 South Royal Lane, Suite 100
Coppell, Texas(Address of Principal Executive Offices)
    
    75019(Zip Code)
 (972) 393-3800  (Registrants Telephone Number, Including Area Code)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of each exchange on which registeredCommon Stock, par value $0.01
    
    NASDAQ Global Market
 Securities registered pursuant to Section 12(g) of the Act:
None
 o þ
 o þ
 þ o
 o
  o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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Disclosure Regarding Forward-Looking Statements
   
    
    Revenues and profits;
    
    Gross margin;
    
    Customer concentration;
    
    Customer buying patterns;
    
    Sales and marketing expenses;
    
    General and administrative expenses;
    
    Pricing and cost reduction activities;
    
    Income tax provision and effective tax rate;
    
    Realization of deferred tax assets;
    
    Liquidity and sufficiency of existing cash, cash equivalents, and investments for
near-term requirements;
    
    Purchase commitments;
    
    Product development and transitions;
    
    Competition and competing technology;
    
    Outcomes of pending or threatened litigation; and
    
    Financial condition and results of operations as a result of recent accounting pronouncements.




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##### 



TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    8Item 1B.
    
    Unresolved Staff Comments
    
    
    14Item 2.
    
    Properties
    
    
    14Item 3.
    
    Legal Proceedings
    
    
    14Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    14PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    15Item 6.
    
    Selected Financial Data
    
    
    17Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    18Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 8.
    
    Financial Statements and Supplementary Data
    
    
    31Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    31Item 9A.
    
    Controls and Procedures
    
    
    31Item 9B.
    
    Other Information
    
    
    33PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant.
    
    
    33Item 11.
    
    Executive Compensation
    
    
    33Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    33Item 13.
    
    Certain Relationships and Related Transactions
    
    
    33Item 14.
    
    Principal Accountant Fees and Services
    
    
    33PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    34Signatures
    
    
    35List of the SubsidiariesConsent of BDO Seidman, LLPCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906




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PART I
 
 Item 1. Business.
 (a)
    
    General Development of BusinessAcquisition of Marketing Impressions, Inc.Effective July 1, 2006, the Companys Trade Source International, Inc. (TSI) subsidiary
acquired Marketing Impressions, Inc., a Georgia corporation (Marketing Impressions).
Marketing Impressions owned the remaining 50% interest in the Companys limited liability
company Prime/Home Impressions, Inc. (PHI) and also supplied the Company with certain fan
accessory products. This acquisition increased the Companys effective ownership of PHI to
100%. The transaction enables the Company to benefit from 100% of PHIs earnings, gives the
Company complete control over the operations of PHI and also allows it to source certain of its
fan accessory products directly. The acquisition was immediately accretive to the Companys
earnings.Current Market ConditionsAt the beginning of the 2007 fiscal year, the slowing of housing-related demand affected our
business. The decline in housing turnover was compounded by the corresponding decline in home
improvement demand which impacted both our showroom and mass retail segments. Management
believes that consumers chose to delay home improvement projects due to well-publicized reports
of a slowing housing marketing and declining home values. As the year progressed, housing
turnover slowed more quickly and deeply.Despite the housing related pressures, the Company has continued to introduce innovative and
distinctive products that reflect emerging consumer trends, including new lines of interior
lighting fixtures (e.g., chandeliers) and the addition of clocks and weather gauges marketed
under the Durocraft brand name through a new distribution channel of independent lawn and
garden retailers. We also expanded Teiber accounts with existing and new customers and
completed the transition of all ceiling fan production from Taiwan to a state-of-the-art
manufacturer in China. This transition has enabled us to offer more competitive pricing to our
customers.Additional information regarding current market conditions are detailed in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operation.Relationship with Lowes Companies, Inc.In November 2006, the Companys 50% owned subsidiary, Design Trends, LLC (Design Trends)
began supplying mix and match portable lamps to four additional Lowes regional distribution
centers and stores serviced by the distribution centers. As a result, Design Trends currently
supplies mix and match portable lamps to all of Lowes regional distribution centers and
supplies approximately 60% of the SKUs in each display set.In November 2006, Lowes also notified TSI that it will no longer source the 14 indoor and
outdoor lighting SKUs previously sold to Lowes via direct import. Management has been told
that Lowes will be sourcing these products directly from various overseas manufacturers. TSI
shipped all outstanding orders of discontinued products as of January 31, 2007.Exploration of Strategic AlternativesOn May 9, 2007, the Company announced that it retained Mazzone & Associates to assist the
Company in evaluating its strategic alternatives to enhance shareholder value. With input from
management, a committee of independent directors performed a comprehensive review of our
strategic alternatives. At the completion of this process, the Board of Directors determined
that at this time the best alternative to maximize shareholder value is to continue to
implement the Companys strategic plan for growth. This plan includes the pursuit of selective
and opportunistic acquisitions with the potential to expand into adjacent product categories
and sales channels, although there can be no assurances that any transaction will be
consummated.
 1




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(b)
    
    Financial Information About Reportable SegmentsThe Company is organized by product type and customer base into two operating segments:
Craftmade International, Inc. (Craftmade) and Trade Source International, Inc. (TSI). The
Craftmade segment primarily derives its revenue from home furnishings including ceiling fans,
light kits, bath-strip lighting, light bulbs, door chimes, ventilation systems, clocks, weather
gauges and other lighting accessories offered primarily through lighting showrooms, certain
major retail chains, electrical wholesalers, and lawn and garden stores. Hereafter, Craftmade
International, Inc. refers to the Company and Craftmade to the segment. The TSI segment
derives its revenue from indoor and outdoor lighting, portable lamps, and fan accessories
marketed solely to mass merchandisers.Financial information with respect to the Companys segments is found in Note 11  Segment
Information in the Companys Consolidated Financial Statements.(c)
    
    Narrative Description of BusinessCraftmade International, Inc. was incorporated in the state of Texas in July 1985 and
reincorporated in the state of Delaware in December 1991.Craftmade Craftmade is principally engaged in the design, distribution and marketing of
ceiling fans, light kits, bath-strip lighting, interior lighting fixtures, light bulbs, door
chimes, ventilation systems and related accessories to a nationwide network of over 1,600
lighting showrooms, electrical wholesalers specializing in sales to the remodeling, new home
construction and replacement markets.Craftmades ceiling fan product line consists of over 50 premium priced to lower priced ceiling
fans and is distributed under the Craftmade® trade name. Craftmade also markets nearly eighty
light kit models in various colors for attachment and use with its ceiling fans or other
ceiling fans, along with parts and accessories for its ceiling fans and light kits. In
addition, nearly two dozen styles of bath-strip lighting and over 40 designs of outdoor
lighting are marketed under its Accolade® trade name.The combination of design and functional features which characterize Craftmade ceiling fans
have made them, in managements judgment, one of the most reliable, durable, energy efficient
and cost effective ceiling fans in the marketplace.TSI TSI is the reporting segment for the portion of the Company that is principally engaged
in the design, distribution and marketing of outdoor and indoor lighting, various fan
accessories and lamp parts, and home décor items to mass merchandisers. TSIs outdoor lighting
consists of numerous lighting programs distributed to mass merchandisers in a variety of
designs and decorative finishes. The indoor lighting product line primarily includes portable
lamps.The TSI segment includes three subsidiaries: Trade Source International (Trade Source), PHI
and Design Trends. Trade Source and PHI are wholly-owned and Design Trends is 50% owned.
Hereafter, TSI refers to the segment and Trade Source to the entity.Prior to the beginning of this fiscal year, PHI was 50% owned. Effective July 1, 2006, TSI
acquired Marketing Impressions. Marketing Impressions owned the remaining 50% interest in PHI
and also supplied the Company with certain fan accessory products. This acquisition increased
the Companys effective ownership of PHI to 100% and has been accounted for using the purchase
method of accounting. The transaction enables the Company to benefit from 100% of PHIs
earnings, gives the Company complete control over the operations of PHI and also allows it to
source certain of its fan accessory products directly.50% Owned Limited Liability Company The Company has a 50% ownership interest in Design
Trends, a Delaware limited liability company, which is part of the TSI segment. Design Trends
was formed in 1999 to market indoor lighting, including portable table lamps, floor lamps,
chandeliers and wall sconces designed by Patrick Dolan of Dolan Northwest, LLC, an unaffiliated
Oregon limited liability company, which owns the remaining 50% of Design Trends. Substantially
all of Design Trends sales are to mass merchandisers. As a part of the operating agreement,
Patrick Dolan is responsible for designing and sourcing Design Trends products and the Company
is responsible for sales, distribution and accounting for Design Trends.
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Products
  Net Sales by Product Category
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2007
    
    2006
    
    2005CraftmadeCeiling fans, light kits and blades
    
    
    37
    %
    
    
    36
    %
    
    
    37
    %Teiber lighting products
    
    
    10
    %
    
    
    8
    %
    
    
    2
    %Durocraft clocks and weather gauges
    
    
    3
    %
    
    
    1
    %
    
    
    0
    %Accolade lighting
    
    
    8
    %
    
    
    8
    %
    
    
    8
    %58
    %
    
    
    53
    %
    
    
    47
    %TSIIndoor lighting
    
    
    23
    %
    
    
    29
    %
    
    
    36
    %Outdoor lighting
    
    
    2
    %
    
    
    6
    %
    
    
    7
    %Accessories
    
    
    17
    %
    
    
    12
    %
    
    
    10
    %42
    %
    
    
    47
    %
    
    
    53
    %100
    %
    
    
    100
    %
    
    
    100
    %
 Craftmade Products
  Craftmade Family of Products
 Craftmade®
    
    Teiber
    
    Durocraft®
    
    Accolade®Decorative ceiling fans
    
    Light bulbs
    
    Clocks
    
    Bath-strip lightingBuilder ceiling fans
    
    Door chimes
    
    Weather gauges
    
    Outdoor lightingLight kits and blades
    
    Smoke alarms
    
    
    
    Interior lighting fixturesChandeliers and flushmounts
    
    Ventilation systemsCeiling fan accessories
 Craftmade ®
  Teiber
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Durocraft ®
 Accolade ® ®
 TSI Products
  Indoor Lighting
 Outdoor Lighting
 Accessories
 Product Sourcing
 Craftmade.
   TSI.
  4




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Distribution
 Craftmade.
  TSI.
  Marketing
 Craftmade.
  TSI.
 5




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Product Expansion
  Seasonality
  Backlog
  Competition
   6




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Product Warranties
  Product Warranty Costs
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2007
    
    2006
    
    2005Product warranty costs
    
    $
    1,147
    
    
    $
    1,037
    
    
    $
    1,009
 Research and Development
  Research and Development
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2007
    
    2006
    
    2005Research and development
    
    $
    265
    
    
    $
    217
    
    
    $
    202
 Independent Safety Testing
  Product Liability
  Patents and Trademarks
 ® ® ®
 7




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EmployeesAs of June 30, 2007, the Company employed a total of 141 full time employees, compared to 138
employees as of June 30, 2006. Substantially all employees are based in the U.S. and are
primarily located at the Companys headquarters and distribution center in Coppell, Texas.
There were six employees based in Hong Kong. The Company believes that its relationship with
its employees is excellent. None of the Companys employees is represented by a labor union or
is a member of a collective bargaining unit.(d)
    
    Financial Information by Geographic AreaNet sales are attributed to geographic areas based on the location of the customer to which
products are shipped. Substantially all of the Companys net sales are to customers in North
America, principally the United States. In addition, substantially all of the Companys assets
are attributable to its operations in the United States with the exception of a small product
sourcing and international sales office in Hong Kong.(e)
    
    Available InformationOur Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and amendments to those reports filed or furnished to the Securities and Exchange Commission
(the SEC) pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934,
as amended (the Exchange Act), are available on the investor relations section of our website
at www.craftmade.com under the caption SEC promptly after we electronically file such
materials with, or furnish such materials to, the SEC. The Investor Relations section of our
website also contains corporate governance documentation, including the Audit Committee
Charter, Compensation Committee Charter, Disclosure Review Committee Charter, Nominating and
Corporate Governance Committee Charter, and our Business Ethics Policy.We will provide a copy of our Form 10-K annual report upon written request of any shareholder.
The SEC maintains an Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC atwww.sec.gov. The public may read and copy any materials we file with the SEC at the SECs
Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
 
 Item 1A. Risk Factors.
   8




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Strategic Risks and Strategy Execution Risks
 The ceiling fan and lighting industry is highly competitive, and we may not be able to compete
successfully.
  If we fail to gain customer acceptance of our existing and new products, our operating results
could suffer.
  Our failure in pursuing or executing any of our new business ventures, strategic alliances and
acquisitions could have a material adverse impact on our business.
  Our revenues depend on our relationships with capable sales personnel as well as key customers,
vendors, and manufacturers of the products that we distribute to our customers.
  Our future success is substantially dependent upon our senior management and retention of key
personnel.
  James R. Ridings
    
    Chairman of the Board and Chief Executive OfficerBrad D. Heimann
    
    President and Chief Operating OfficerJ. Marcus Scrudder
    
    Chief Financial OfficerMichael L. Patton
    
    Chief Accounting OfficerJohn S. DeBlois
    
    Executive Vice President of TSIClifford F. Crimmings
    
    Vice President of Marketing
  9




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Risks Associated with International Trade
 As we do not manufacture the products that we distribute, we are dependent upon third parties for
the manufacture and supply of high quality competitive products on a timely basis.
  Risks Related to Profitable Growth
 A decline in general economic condition, particularly the housing, home construction, and remodel
sectors, could lead to reduced demand for our products.
  The loss of certain of our customers that represent a significant percentage of our net sales could
adversely affect our results of operations.
    10




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Our mass merchandise customers may pressure us to lower our prices or take other actions that may
adversely impact our results of operations.
  Our mass merchandise customers may choose to source many of the products we provide directly
themselves.
  To the extent our mass merchandiser customers purchase products in excess of consumer consumption
in any period, our net sales in a subsequent period may be adversely affected as mass merchandisers
seek to reduce their inventory levels.
  Increases in our shipping costs or service trouble with our third-party shippers could harm our
business.
  We experience fluctuations in our quarterly earnings. As a result, we may fail to meet or exceed
the expectations of securities analysts and investors, which could cause our stock price to decline
or be highly volatile.
  
    
    the timing of our new product releases;
    
    costs related to our acquisitions and/or integrations of businesses that we may acquire;
    
    timing and amount of our sales and marketing expenditures;
    
    timing of our orders from mass merchandisers;
    
    our commitments to mass merchandisers, including charge-backs for returns and defective merchandise;
 11




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
    
    loss of any of our sales representatives;
    
    general economic conditions that may affect us, including those in the housing sector;
    
    establishing or maintaining our business relationships; and
    
    changes in our accounting principles.
  Risks Relating to Liquidity
 Our inability to meet financial covenants contained in our credit facilities could adversely impact
our ability to fund our operations.
    We are exposed to the risk of an increase in interest rates.
  We are exposed to the risk of foreign currency appreciation.
  12




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Risks Associated with Dependence on Technology
 We rely heavily on our management information systems for inventory management, distribution and
other functions. If our systems fail to perform these functions adequately or if we experience an
interruption in our operations, we could be materially adversely affected.
  Regulatory Risks
 Tax legislation initiatives could adversely affect our net earnings and tax liabilities.
  We are subject to increasingly complex corporate governance, public disclosure, accounting, and tax
requirements that have increased our costs and the risk of our not being in compliance with these
requirements.
   Recent changes in accounting rules, including the expensing of stock options granted to our
employees, could have a material impact on our reported business and financial results.
  13




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Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  Summary of Properties
 CurrentApproximate
    
    LeaseSquare
    
    TermLocation
    
    Use
    
    Feet
    
    ExpirationCoppell, Texas
    
    Headquarters, warehouse and distribution facility
    
    
    378,000
    
    
    OwnedCarrollton, Texas
    
    Warehouse
    
    
    42,320
    
    
    July 31, 2007Dallas, Texas
    
    Dallas Trade Mart Showroom - Craftmade and TSI
    
    
    4,292
    
    
    April 30, 2012Kowloon, Hong Kong
    
    Product sourcing and international sales office
    
    
    2,534
    
    
    February 11, 2009
    
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  14




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
   DividendsSales Price
    
    PerHigh
    
    Low
    
    ShareFiscal Year Ended June 30, 2007Fourth Quarter
    
    $
    18.18
    
    
    $
    14.63
    
    
    $
    0.12Third Quarter
    
    
    18.48
    
    
    
    14.86
    
    
    
    0.12Second Quarter
    
    
    19.95
    
    
    
    17.00
    
    
    
    0.12First Quarter
    
    
    18.29
    
    
    
    14.51
    
    
    
    0.12Fiscal Year Ended June 30, 2006Fourth Quarter
    
    $
    19.57
    
    
    $
    16.27
    
    
    $
    0.12Third Quarter
    
    
    20.68
    
    
    
    16.22
    
    
    
    0.12Second Quarter
    
    
    21.37
    
    
    
    17.42
    
    
    
    0.12First Quarter
    
    
    19.25
    
    
    
    15.75
    
    
    
    0.12
   Holders
  Issuer Purchases of Equity Securities
  Equity Compensation Plans
  15




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Stock Performance Graph
  Stock Performance Graph
 
 6/30/2002
    
    
    6/30/2003
    
    
    6/30/2004
    
    
    6/30/2005
    
    
    6/30/2006
    
    
    6/30/2007Russell 2000
    
    
    $
    100.00
    
    
    
    $
    99.25
    
    
    
    $
    133.39
    
    
    
    $
    145.81
    
    
    
    $
    165.96
    
    
    
    $
    193.96NASDAQ Composite
    
    
    
    100.00
    
    
    
    
    110.91
    
    
    
    
    139.95
    
    
    
    
    140.58
    
    
    
    
    148.45
    
    
    
    
    177.91Craftmade
    
    
    
    100.00
    
    
    
    
    120.33
    
    
    
    
    134.74
    
    
    
    
    113.68
    
    
    
    
    120.46
    
    
    
    
    125.99
   16




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Item 6. Selected Financial Data.
  Summary of Selected Financial Data
(In thousands, except percentage and per share data)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,
    
    June 30,2007
    
    2006
    
    2005
    
    2004
    
    2003(1)
    
    
    
    
    
    (2)Selected Operating ResultsNet sales
    
    $
    103,350
    
    
    $
    118,054
    
    
    $
    118,806
    
    
    $
    121,238
    
    
    $
    109,033Gross profit
    
    
    32,291
    
    
    
    35,469
    
    
    
    35,446
    
    
    
    35,910
    
    
    
    35,394Gross profit as a percentage of net sales
    
    
    31.2
    %
    
    
    30.0
    %
    
    
    29.8
    %
    
    
    29.6
    %
    
    
    32.5
    %Selling, general and administrative
    
    
    21,151
    
    
    
    19,895
    
    
    
    20,503
    
    
    
    18,580
    
    
    
    18,600Income from operations
    
    
    10,341
    
    
    
    14,980
    
    
    
    14,362
    
    
    
    16,682
    
    
    
    16,135Minority interest
    
    
    1,507
    
    
    
    3,430
    
    
    
    3,775
    
    
    
    3,719
    
    
    
    4,235Net income
    
    
    5,911
    
    
    
    7,100
    
    
    
    6,427
    
    
    
    7,646
    
    
    
    6,846Basic earnings per common share
    
    
    1.14
    
    
    
    1.37
    
    
    
    1.26
    
    
    
    1.43
    
    
    
    1.24Diluted earnings per common share
    
    
    1.14
    
    
    
    1.36
    
    
    
    1.26
    
    
    
    1.42
    
    
    
    1.23Cash dividends declared per common share
    
    
    0.48
    
    
    
    0.48
    
    
    
    0.40
    
    
    
    0.40
    
    
    
    0.28Basic common shares outstanding
    
    
    5,204
    
    
    
    5,201
    
    
    
    5,095
    
    
    
    5,336
    
    
    
    5,512Diluted common shares outstanding
    
    
    5,206
    
    
    
    5,211
    
    
    
    5,115
    
    
    
    5,383
    
    
    
    5,568Summary Balance SheetCurrent assets
    
    $
    41,216
    
    
    $
    45,291
    
    
    $
    50,595
    
    
    $
    41,454
    
    
    $
    35,804Total assets
    
    
    64,751
    
    
    
    65,061
    
    
    
    70,815
    
    
    
    55,254
    
    
    
    51,443Current liabilities
    
    
    8,687
    
    
    
    15,020
    
    
    
    39,714
    
    
    
    31,768
    
    
    
    22,329Long-term debt
    
    
    18,938
    
    
    
    16,204
    
    
    
    1,551
    
    
    
    2,949
    
    
    
    4,517Total liabilities
    
    
    28,732
    
    
    
    32,362
    
    
    
    42,351
    
    
    
    34,931
    
    
    
    27,338Stockholders equity
    
    
    32,524
    
    
    
    29,037
    
    
    
    24,373
    
    
    
    18,339
    
    
    
    20,538Book value per common share
    
    
    6.25
    
    
    
    5.58
    
    
    
    4.78
    
    
    
    3.44
    
    
    
    3.73
 
 (1)
    
    Effective July 1, 2006, TSI acquired Marketing Impressions. This acquisition increased
the Companys effective ownership of PHI to 100%. The results of operations of PHI have
always been included in the consolidated income before minority interest of the Company.
Prior to the acquisition, the minority interest in PHI income was excluded from the
Companys consolidated net income. Since the effective date of the acquisition on July 1,
2006, no minority interest exists in PHI, and accordingly, the consolidated net income will
include the full amount of PHI results from this date.(2)
    
    Fiscal year 2005 results include net assets acquired and four months of the results of
operations of Teiber effective March 1, 2005. 17




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation.
 The following discussion should be read in conjunction with the information contained in our
consolidated financial statements, including the notes thereto. Statements regarding future
economic performance, managements plans and objectives, and any statements concerning assumptions
related to the foregoing contained in Managements Discussion and Analysis of Financial Condition
and Results of Operation constitute forward-looking statements. Certain factors, which may cause
actual results to vary materially from these forward-looking statements, accompany such statements
or appear elsewhere in this Form 10-K , including the factors disclosed under Item 1A. Risk
Factors.
 Critical Accounting Policies and Estimates
  Revenue Recognition
     18




---



##### Table of Contents



Allowance for Doubtful Accounts
  Inventories
  Goodwill
  Income Taxes
  Variable Interest Entities
  19




---



##### Table of Contents



before
 Overview
  Fiscal year ended June 30, 2007 compared to fiscal year ended June 30, 2006
 Income Statement by Segment
(Dollars in thousands)
 Fiscal Year Ended
    
    
    Fiscal Year EndedJune 30, 2007
    
    
    June 30, 2006Craftmade
    
    
    TSI
    
    
    Total
    
    
    Craftmade
    
    
    TSI
    
    
    TotalNet sales
    
    $
    59,925
    
    
    $
    43,425
    
    
    $
    103,350
    
    
    $
    62,902
    
    
    $
    55,152
    
    
    $
    118,054Cost of goods sold
    
    
    (38,745
    )
    
    
    (32,314
    )
    
    
    (71,059
    )
    
    
    (40,361
    )
    
    
    (42,224
    )
    
    
    (82,585
    )Gross profit
    
    
    21,180
    
    
    
    11,111
    
    
    
    32,291
    
    
    
    22,541
    
    
    
    12,928
    
    
    
    35,469Gross profit as a % of net sales
    
    
    35.3
    %
    
    
    25.6
    %
    
    
    31.2
    %
    
    
    35.8
    %
    
    
    23.4
    %
    
    
    30.0
    %Selling, general and administrative expenses
    
    
    (14,900
    )
    
    
    (6,251
    )
    
    
    (21,151
    )
    
    
    (13,449
    )
    
    
    (6,446
    )
    
    
    (19,895
    )As a % of net sales
    
    
    24.9
    %
    
    
    14.4
    %
    
    
    20.5
    %
    
    
    21.4
    %
    
    
    11.7
    %
    
    
    16.9
    %Depreciation and amortization
    
    
    (548
    )
    
    
    (251
    )
    
    
    (799
    )
    
    
    (575
    )
    
    
    (19
    )
    
    
    (594
    )Total operating expenses
    
    
    (15,448
    )
    
    
    (6,502
    )
    
    
    (21,950
    )
    
    
    (14,024
    )
    
    
    (6,465
    )
    
    
    (20,489
    )Income from operations
    
    
    5,732
    
    
    
    4,609
    
    
    
    10,341
    
    
    
    8,517
    
    
    
    6,463
    
    
    
    14,980Interest expense, net
    
    
    (1,416
    )
    
    
    (25
    )
    
    
    (1,441
    )
    
    
    (1,104
    )
    
    
    (80
    )
    
    
    (1,184
    )Other expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )
    
    
    35
    
    
    
    Income before income taxes
and minority interests
    
    
    4,316
    
    
    
    4,584
    
    
    
    8,900
    
    
    
    7,378
    
    
    
    6,418
    
    
    
    13,796Provision for income taxes
    
    
    (1,469
    )
    
    
    (13
    )
    
    
    (1,482
    )
    
    
    (2,501
    )
    
    
    (765
    )
    
    
    (3,266
    )Income before minority interests
    
    
    2,847
    
    
    
    4,571
    
    
    
    7,418
    
    
    
    4,877
    
    
    
    5,653
    
    
    
    10,530Minority interests
    
    
    
    
    
    
    (1,507
    )
    
    
    (1,507
    )
    
    
    
    
    
    
    (3,430
    )
    
    
    (3,430
    )Net income
    
    $
    2,847
    
    
    $
    3,064
    
    
    $
    5,911
    
    
    $
    4,877
    
    
    $
    2,223
    
    
    $
    7,100
 Net Sales.
  20




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##### Table of Contents



Net Sales of TSI Segment
(Dollars in thousands)
 Trade
    
    
    Design
    
    
    SegmentFiscal Year Ended
    
    Source
    
    
    Trends
    
    
    TotalJune 30, 2007
    
    $
    26,160
    
    
    $
    17,265
    
    
    $
    43,425June 30, 2006
    
    
    33,372
    
    
    
    21,780
    
    
    
    55,152Dollar decrease
    
    $
    (7,212
    )
    
    $
    (4,515
    )
    
    $
    (11,727
    )Percent decrease
    
    
    (21.6
    %)
    
    
    (20.7
    %)
    
    
    (21.3
    %)
      Gross Profit.
  21




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##### Table of Contents



Gross Profit as a Percentage of Net Sales of TSI
 Trade
    
    Design
    
    SegmentFiscal Year Ended
    
    Source
    
    Trends
    
    TotalJune 30, 2007
    
    
    25.6
    %
    
    
    25.5
    %
    
    
    25.6
    %June 30, 2006
    
    
    21.4
    %
    
    
    26.6
    %
    
    
    23.4
    %Percent increase/(decrease)
    
    
    4.2
    %
    
    
    (1.1
    %)
    
    
    2.2
    %
   Selling, General and Administrative Expenses.
 Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/Fiscal Year
    
    
    (Decrease)June 30,
    
    
    June 30,
    
    
    Over Prior2007
    
    
    2006
    
    
    Year PeriodAdvertising
    
    $
    2,161
    
    
    $
    1,514
    
    
    $
    647Salaries and wages
    
    
    7,135
    
    
    
    6,821
    
    
    
    314Accounting, legal and consulting
    
    
    2,237
    
    
    
    2,065
    
    
    
    172Other
    
    
    9,618
    
    
    
    9,495
    
    
    
    123$
    21,151
    
    
    $
    19,895
    
    
    $
    1,256
   22




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##### Table of Contents



Depreciation and Amortization.
 Interest Expense.
 Minority Interests.
 Provision for Income Taxes.
 23




---



##### Table of Contents



Fiscal year ended June 30, 2006 compared to fiscal year ended June 30, 2005
 Income Statement by Segment
(Dollars in thousands)
 Fiscal Year Ended
    
    
    Fiscal Year EndedJune 30, 2006
    
    
    June 30, 2005Craftmade
    
    
    TSI
    
    
    Total
    
    
    Craftmade
    
    
    TSI
    
    
    TotalNet sales
    
    $
    62,902
    
    
    $
    55,152
    
    
    $
    118,054
    
    
    $
    55,663
    
    
    $
    63,143
    
    
    $
    118,806Cost of goods sold
    
    
    (40,361
    )
    
    
    (42,224
    )
    
    
    (82,585
    )
    
    
    (35,352
    )
    
    
    (48,008
    )
    
    
    (83,360
    )Gross profit
    
    
    22,541
    
    
    
    12,928
    
    
    
    35,469
    
    
    
    20,311
    
    
    
    15,135
    
    
    
    35,446Gross profit as a % of net sales
    
    
    35.8
    %
    
    
    23.4
    %
    
    
    30.0
    %
    
    
    36.5
    %
    
    
    24.0
    %
    
    
    29.8
    %Selling, general and
administrative expenses
    
    
    (13,449
    )
    
    
    (6,446
    )
    
    
    (19,895
    )
    
    
    (13,372
    )
    
    
    (7,131
    )
    
    
    (20,503
    )As a % of net sales
    
    
    21.4
    %
    
    
    11.7
    %
    
    
    16.9
    %
    
    
    24.0
    %
    
    
    11.3
    %
    
    
    17.3
    %Depreciation and amortization
    
    
    (575
    )
    
    
    (19
    )
    
    
    (594
    )
    
    
    (537
    )
    
    
    (44
    )
    
    
    (581
    )Total operating expenses
    
    
    (14,024
    )
    
    
    (6,465
    )
    
    
    (20,489
    )
    
    
    (13,909
    )
    
    
    (7,175
    )
    
    
    (21,084
    )Income from operations
    
    
    8,517
    
    
    
    6,463
    
    
    
    14,980
    
    
    
    6,402
    
    
    
    7,960
    
    
    
    14,362Interest expense, net
    
    
    (1,104
    )
    
    
    (80
    )
    
    
    (1,184
    )
    
    
    (973
    )
    
    
    (108
    )
    
    
    (1,081
    )Other expenses
    
    
    (35
    )
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
and minority interests
    
    
    7,378
    
    
    
    6,418
    
    
    
    13,796
    
    
    
    5,429
    
    
    
    7,852
    
    
    
    13,281Provision for income taxes
    
    
    (2,501
    )
    
    
    (765
    )
    
    
    (3,266
    )
    
    
    (1,895
    )
    
    
    (1,184
    )
    
    
    (3,079
    )Income before minority interests
    
    
    4,877
    
    
    
    5,653
    
    
    
    10,530
    
    
    
    3,534
    
    
    
    6,668
    
    
    
    10,202Minority interests
    
    
    
    
    
    
    (3,430
    )
    
    
    (3,430
    )
    
    
    
    
    
    
    (3,775
    )
    
    
    (3,775
    )Net income
    
    $
    4,877
    
    
    $
    2,223
    
    
    $
    7,100
    
    
    $
    3,534
    
    
    $
    2,893
    
    
    $
    6,427
 Net Sales.
  
 Net Sales of TSI Segment
(Dollars in thousands)
 TSITrade
    
    
    Design
    
    
    
    
    
    
    SegmentFiscal Year Ended
    
    Source
    
    
    Trends
    
    
    PHI
    
    
    TotalJune 30, 2006
    
    $
    20,334
    
    
    $
    21,780
    
    
    $
    13,038
    
    
    $
    55,152June 30, 2005
    
    
    21,838
    
    
    
    30,022
    
    
    
    11,283
    
    
    
    63,143Dollar increase/(decrease)
    
    $
    (1,504
    )
    
    $
    (8,242
    )
    
    $
    1,755
    
    
    $
    (7,991
    )Percent increase/(decrease)
    
    
    (6.9
    %)
    
    
    (27.5
    %)
    
    
    15.6
    %
    
    
    (12.7
    %)
 24




---



##### Table of Contents



Gross Profit.
   Gross Profit as a Percentage of Net Sales of TSI Segment
 TSITrade
    
    Design
    
    
    
    
    
    SegmentFiscal Year Ended
    
    Source
    
    Trends
    
    PHI
    
    TotalJune 30, 2006
    
    
    13.5
    %
    
    
    26.6
    %
    
    
    33.7
    %
    
    
    23.4
    %June 30, 2005
    
    
    16.6
    %
    
    
    25.2
    %
    
    
    35.0
    %
    
    
    24.0
    %Percent increase/(decrease)
    
    
    (3.1
    %)
    
    
    1.4
    %
    
    
    (1.3
    %)
    
    
    (0.6
    %)
  25




---



##### Table of Contents



Selling, General and Administrative Expenses.
 Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/(Decrease)Fiscal Year Ended
    
    
    OverJune 30,
    
    
    June 30,
    
    
    Prior Year2006
    
    
    2005
    
    
    PeriodSalaries and wages
    
    $
    6,821
    
    
    $
    6,220
    
    
    $
    601Accounting, legal and consulting
    
    
    2,065
    
    
    
    3,709
    
    
    
    (1,644
    )Other
    
    
    11,009
    
    
    
    10,574
    
    
    
    435$
    19,895
    
    
    $
    20,503
    
    
    $
    (608
    )
    Interest Expense.
 Minority Interests.
 Provision for Income Taxes.
 26




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##### Table of Contents



Liquidity and Capital Resources
 Fiscal year ended June 30, 2007
       27




---



##### Table of Contents



Contractual Obligations
  Summary of Contractual Obligations
At June 30, 2007
(Dollars in thousands)
 Payments Due By PeriodContractual
    
    
    
    
    
    Less than
    
    
    1 to 3
    
    
    3 to 5
    
    
    More thanObligations
    
    Total
    
    
    1 year
    
    
    Years
    
    
    Years
    
    
    5 yearsLines of credit
    
    $
    18,825
    
    
    $
    
    
    
    $
    18,825
    
    
    $
    
    
    
    $
    Note payable
    
    
    223
    
    
    
    223
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    235
    
    
    
    128
    
    
    
    100
    
    
    
    7
    
    
    
    Capital lease obligations
    
    
    154
    
    
    
    41
    
    
    
    113
    
    
    
    
    
    
    
    Guaranteed royalties
    
    
    270
    
    
    
    71
    
    
    
    199
    
    
    
    
    
    
    
    Assumed interest(1)
    
    
    2,808
    
    
    
    1,299
    
    
    
    1,509
    
    
    
    
    
    
    
    Contingent consideration(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    22,515
    
    
    $
    1,762
    
    
    $
    20,746
    
    
    $
    7
    
    
    $
    
 
 (1)
    
    Assumed interest calculated at the interest rate in effect at June 30, 2007 for each
obligation.(2)
    
    The Company is contractually obligated to pay contingent consideration based on
future levels of adjusted gross profit in connection with its acquisition of Marketing Impressions.
We have not estimated the amounts of these payments given their contingent nature. Lines of Credit and Notes Payable
  Summary of Revolving Lines of Credit and Notes Payable
At June 30, 2007
 OutstandingCommitment
    
    
    Balance
    
    
    Interest Rate
    
    
    MaturityRevolving line of credit
    
    $
    30,000,000
    
    
    $
    18,825,000
    
    
    LIBOR plus 1.5%
    
    September 1, 2009Note payable  facility
    
    
    N/A
    
    
    
    223,000
    
    
    
    8.302
    %
    
    January 1, 2008$
    19,048,000
   28




---



##### Table of Contents



Operating and Capital Lease Obligations
  Guaranteed Royalties
  Inflation
  Fiscal year ended June 30, 2006
    Fiscal year ended June 30, 2005
   29




---



##### Table of Contents



Effects of Recent Accounting Pronouncements
     Related Party Transactions
  30




---



##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 Foreign Currency Risk
  Interest Rate Exposure
  
 Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 (a)
    
    Evaluation of Disclosure Controls and ProceduresAs of the end of the period covered by this report, the Companys management conducted an
evaluation, under the supervision and with the participation of the principal executive
officer and principal financial officer, of the Companys disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).Based on this evaluation, the principal executive officer and principal financial officer
concluded that, as of the end of the period covered by this report, the Companys
disclosure controls and procedures are effective. Notwithstanding the foregoing, a control
system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that it will detect or uncover failures within the Company to disclose
material information otherwise required to be set forth in the Companys periodic reports.(b)
    
    Managements Annual Report on Internal Control Over Financial ReportingThe Companys management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f).
Under the supervision and with the participation of management, including the principal
executive officer and principal financial officer, the Company conducted an evaluation of
the effectiveness of the Companys internal control over financial reporting based on the
framework in Internal Control  Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.Based on the Companys evaluation under the framework in Internal Control  Integrated
Framework, the Companys management concluded that its internal control over financial
reporting was effective as of June 30, 2007.
 31




---



##### Table of Contents



(c)
    
    Report of Independent Registered Public Accounting Firm
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated Framework
    Internal Control  Integrated Framework
  
 
 (d)
    
    Changes in Internal Control Over Financial ReportingDuring the quarter ended June 30, 2007, there were no changes in our internal control over
financial reporting identified in connection with the evaluation described above that have
materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
 32




---



##### Table of Contents



Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
  
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  Equity Compensation Plan Information
 Number ofSecuritiesNumber of
    
    
    
    
    
    
    RemainingSecurities
    
    
    Weighted-
    
    
    Availableto be Issued
    
    
    Average
    
    
    for FutureUpon
    
    
    Exercise
    
    
    IssuanceExercise of
    
    
    Price of
    
    
    Under EquityOutstanding
    
    
    Outstanding
    
    
    CompensationPlan Category
    
    Options (#)
    
    
    Options ($)
    
    
    Plans (#)1999 Stock Option Plan
    
    
    3,500
    
    
    $
    6.75
    
    
    
    2000 Non-Employee Director Plan
    
    
    15,000
    
    
    
    18.48
    
    
    
    2007 Long-Term Incentive Plan
    
    
    80,600
    
    
    
    18.47
    
    
    
    319,400Total
    
    
    99,100
    
    
    $
    18.06
    
    
    
    319,400
  
 Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accountant Fees and Services.
  33




---



##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a)
    
    The following documents are filed as part of this report:
 1.
    
    Consolidated Financial Statements  The consolidated financial statements
listed in the Index to Consolidated Financial Statements described at F-1 are
incorporated by reference herein.2.
    
    Financial Statement Schedule  The financial statement schedule Schedule II
 Valuation and Qualifying Accounts on page F-34 is incorporated by reference herein.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.3.
    
    Exhibits  Certain of the exhibits to this Annual Report are hereby
incorporated by references, as summarized in (b) below.
 (b)
    
    ExhibitsA list of exhibits required to be filed as part of this report is set forth in the Exhibit
Index immediately following the Consolidated Financial Statements filed as part of this
report on Form 10-K and is incorporated herein by reference.(c)
    
    All other 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.
 34




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##### Table of Contents



SIGNATURES
  CRAFTMADE INTERNATIONAL, INC.By:
    
    /s/ James R. Ridings

James R. RidingsChairman of the Board and Chief Executive Officer(Principal Executive Officer)
  Signatures
    
    Capacity
    
    Date/s/ James R. Ridings

James R. Ridings
    
    Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
    
    September 11, 2007/s/ Brad Dale Heimann

Brad Dale Heimann
    
    President and Chief Operating Officer
    
    September 11, 2007/s/ J. Marcus Scrudder

J. Marcus Scrudder
    
    Chief Financial Officer (Principal
Financial Officer)
    
    September 11, 2007/s/ Clifford Crimmings

Clifford Crimmings
    
    Vice President of Marketing and
Director
    
    September 11, 2007/s/ John S. DeBlois

John S. DeBlois
    
    Executive Vice President of Trade
Source International, Inc.
and Director
    
    September 11, 2007/s/ Michael L. Patton

Michael L. Patton
    
    Chief Accounting Officer (Principal
Accounting Officer)
    
    September 11, 2007/s/ William E. Bucek

William E. Bucek
    
    Director
    
    September 11, 2007/s/ L. Dale Griggs

L. Dale Griggs
    
    Director
    
    September 11, 2007/s/ A. Paul Knuckley

A. Paul Knuckley
    
    Director
    
    September 11, 2007/s/ R. Don Morris

R. Don Morris
    
    Director
    
    September 11, 2007/s/ Lary Snodgrass

Lary Snodgrass
    
    Director
    
    September 11, 2007/s/ Richard T. Walsh

Richard T. Walsh
    
    Director
    
    September 11, 2007
 35




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Income
    
    
    F-3Consolidated Balance Sheets
    
    
    F-4Consolidated Statements of Cash Flows
    
    
    F-5Consolidated Statements of Changes in Stockholders Equity
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9Financial Statement Schedule:II  Valuation and Qualifying Accounts
    
    
    F-34
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      Internal Control  Integrated
Framework
 
 
 F-2




---



##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (In thousands, except per share data)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2005Net sales
    
    $
    103,350
    
    
    $
    118,054
    
    
    $
    118,806Cost of goods sold
    
    
    (71,059
    )
    
    
    (82,585
    )
    
    
    (83,360
    )Gross profit
    
    
    32,291
    
    
    
    35,469
    
    
    
    35,446Selling, general and administrative expenses
    
    
    (21,151
    )
    
    
    (19,895
    )
    
    
    (20,503
    )Depreciation and amortization
    
    
    (799
    )
    
    
    (594
    )
    
    
    (581
    )Total operating expenses
    
    
    (21,950
    )
    
    
    (20,489
    )
    
    
    (21,084
    )Income from operations
    
    
    10,341
    
    
    
    14,980
    
    
    
    14,362Interest expense, net
    
    
    (1,441
    )
    
    
    (1,184
    )
    
    
    (1,081
    )Income before income taxes and minority interests
    
    
    8,900
    
    
    
    13,796
    
    
    
    13,281Provision for income taxes
    
    
    (1,482
    )
    
    
    (3,266
    )
    
    
    (3,079
    )Income before minority interests
    
    
    7,418
    
    
    
    10,530
    
    
    
    10,202Minority interests
    
    
    (1,507
    )
    
    
    (3,430
    )
    
    
    (3,775
    )Net income
    
    $
    5,911
    
    
    $
    7,100
    
    
    $
    6,427Earnings per share data:Basic weighted average common shares outstanding
    
    
    5,204
    
    
    
    5,201
    
    
    
    5,095Diluted weighted average common shares outstanding
    
    
    5,206
    
    
    
    5,211
    
    
    
    5,115Basic earnings per common share
    
    $
    1.14
    
    
    $
    1.37
    
    
    $
    1.26Diluted earnings per common share
    
    $
    1.14
    
    
    $
    1.36
    
    
    $
    1.26Cash dividends declared per common share
    
    $
    0.48
    
    
    $
    0.48
    
    
    $
    0.40
  F-3




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share data)
 June 30,
    
    
    June 30,2007
    
    
    2006ASSETSCurrent assetsCash
    
    $
    928
    
    
    $
    2,164Accounts receivable, net
    
    
    18,082
    
    
    
    19,968Inventories, net
    
    
    18,076
    
    
    
    21,085Income taxes receivable
    
    
    1,376
    
    
    
    Deferred income taxes
    
    
    1,251
    
    
    
    1,252Prepaid expenses and other current assets
    
    
    1,503
    
    
    
    822Total current assets
    
    
    41,216
    
    
    
    45,291Property and equipment, net
    
    
    8,379
    
    
    
    8,098Goodwill
    
    
    13,644
    
    
    
    11,480Other intangibles, net
    
    
    1,502
    
    
    
    169Other assets
    
    
    10
    
    
    
    23Total non-current assets
    
    
    23,535
    
    
    
    19,770Total assets
    
    $
    64,751
    
    
    $
    65,061LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS EQUITYCurrent liabilitiesBook overdrafts
    
    $
    48
    
    
    $
    70Accounts payable
    
    
    5,903
    
    
    
    7,544Other accrued expenses
    
    
    2,472
    
    
    
    4,098Current portion of long-term obligations
    
    
    264
    
    
    
    3,308Total current liabilities
    
    
    8,687
    
    
    
    15,020Non-current liabilitiesLong-term obligations
    
    
    18,938
    
    
    
    16,204Deferred income taxes
    
    
    1,107
    
    
    
    345Other long-term liabilities
    
    
    
    
    
    
    793Total non-current liabilities
    
    
    20,045
    
    
    
    17,342Total liabilities
    
    
    28,732
    
    
    
    32,362Minority interests
    
    
    3,495
    
    
    
    3,662Commitments and contingencies (Note 9)Stockholders equityPreferred stock, $1.00 par value, 2,000,000 shares authorized;
nil shares issued
    
    
    
    
    
    
    Common stock, $0.01 par value, 15,000,000 shares authorized;
9,704,420 and 9,703,420 shares issued, respectively
    
    
    97
    
    
    
    97Additional paid-in capital
    
    
    17,831
    
    
    
    17,757Retained earnings
    
    
    52,722
    
    
    
    49,309Less: treasury stock, 4,499,920 common shares at cost
    
    
    (38,126
    )
    
    
    (38,126
    )Total stockholders equity
    
    
    32,524
    
    
    
    29,037Total liabilities, minority interests and stockholders equity
    
    $
    64,751
    
    
    $
    65,061
  F-4




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    5,911
    
    
    $
    7,100
    
    
    $
    6,427Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    799
    
    
    
    594
    
    
    
    651Provision for bad debts and inventories
    
    
    136
    
    
    
    564
    
    
    
    704Loss on sale of property and equipment
    
    
    7
    
    
    
    63
    
    
    
    Stock compensation expense
    
    
    64
    
    
    
    23
    
    
    
    11Deferred income taxes
    
    
    763
    
    
    
    91
    
    
    
    (1,203
    )Minority interest
    
    
    1,507
    
    
    
    3,430
    
    
    
    3,775Change in assets and liabilities providing/(using) cash,
net of acquisitionsAccounts receivable
    
    
    1,854
    
    
    
    1,809
    
    
    
    (1,488
    )Inventories
    
    
    2,908
    
    
    
    (3,527
    )
    
    
    (1,246
    )Prepaid expenses and other current assets
    
    
    (300
    )
    
    
    (469
    )
    
    
    374Accounts payable
    
    
    (2,882
    )
    
    
    (322
    )
    
    
    (286
    )Other accrued expenses
    
    
    (3,725
    )
    
    
    (1,522
    )
    
    
    (368
    )Net cash provided by operating activities
    
    
    7,042
    
    
    
    7,834
    
    
    
    7,351Cash flows from investing activities:Acquisition of Marketing Impressions, Inc.Initial payment and acquisition related costs, net of cash acquired
    
    
    (1,507
    )
    
    
    
    
    
    
    Additional contingent consideration
    
    
    (1,601
    )
    
    
    
    
    
    
    Additions to property and equipment
    
    
    (499
    )
    
    
    (233
    )
    
    
    (111
    )Acquisition of Bill Teiber Co., Inc.
    
    
    
    
    
    
    
    
    
    
    (4,000
    )Additions to other intangibles
    
    
    
    
    
    
    
    
    
    
    (10
    )Net cash used in investing activities
    
    
    (3,607
    )
    
    
    (233
    )
    
    
    (4,121
    )Cash flows from financing activities:Cash dividends
    
    
    (2,498
    )
    
    
    (2,404
    )
    
    
    (2,036
    )Distributions to minority interest members
    
    
    (1,674
    )
    
    
    (3,859
    )
    
    
    (1,668
    )Principal payments on notes payable
    
    
    (1,134
    )
    
    
    (1,512
    )
    
    
    (2,740
    )Increase/(decrease) in book overdrafts
    
    
    (22
    )
    
    
    (450
    )
    
    
    520Treasury stock purchases
    
    
    
    
    
    
    
    
    
    
    (2,925
    )Proceeds from exercise of employee stock options
    
    
    10
    
    
    
    37
    
    
    
    503Principal payments on capital lease
    
    
    (24
    )
    
    
    
    
    
    
    Net proceeds/(payments on) from lines of credit
    
    
    671
    
    
    
    (6,394
    )
    
    
    8,423Net cash provided by/(used in) financing activities
    
    
    (4,671
    )
    
    
    (14,582
    )
    
    
    77Net increase/(decrease) in cash
    
    
    (1,236
    )
    
    
    (6,981
    )
    
    
    3,307Cash at beginning of year
    
    
    2,164
    
    
    
    9,145
    
    
    
    5,838Cash at end of year
    
    $
    928
    
    
    $
    2,164
    
    
    $
    9,145
  F-5




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTINUED
(In thousands)
 Supplemental disclosures of cash flow information:Cash paid during the fiscal year for:Interest
    
    $
    1,316
    
    
    $
    1,202
    
    
    $
    929Income taxes
    
    
    2,719
    
    
    
    3,033
    
    
    
    4,299Supplemental disclosures of non-cash investing and financing activities:Dividends declared but not paid
    
    $
    625
    
    
    $
    624
    
    
    $
    531Property and equipment financed under capital lease
    
    
    177
    
    
    
    
    
    
    
    Common stock and additional paid-in-capital
issued in conjunction with acquisition
    
    $
    
    
    
    $
    
    
    
    $
    4,056Retirement of preferred stockDecrease in Series A Preferred Stock
    
    $
    
    
    
    $
    (32
    )
    
    $
    Decrease in additional paid-in capital
    
    
    
    
    
    
    (956
    )
    
    
    Charge to retained earnings
    
    
    
    
    
    
    (893
    )
    
    
    Decrease in preferred treasury stock
    
    
    
    
    
    
    1,881
    
    
    
    
  F-6




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 FOR THE THREE YEARS ENDED JUNE 30, 2007
 (In thousands)
 Series A
    
    
    Additional
    
    
    UnearnedCommon Stock
    
    
    Preferred
    
    
    Paid-In
    
    
    Deferred
    
    
    Retained
    
    
    Treasury StockShares
    
    
    Amount
    
    
    Stock
    
    
    Capital
    
    
    Compensation
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance as of June 30, 2004
    
    
    9,466
    
    
    $
    95
    
    
    $
    32
    
    
    $
    14,098
    
    
    $
    (11
    )
    
    $
    41,207
    
    
    
    4,369
    
    
    $
    (37,082
    )
    
    $
    18,339Comprehensive income:Net income for the fiscal year ended June
30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,427
    
    
    
    
    
    
    
    
    
    
    
    6,427Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,427
    
    
    
    
    
    
    
    
    
    
    
    6,427Deferred compensation earned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Treasury stock purchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163
    
    
    
    (2,925
    )
    
    
    (2,925
    )Exercise of stock options
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    501
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    501Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,036
    )
    
    
    
    
    
    
    
    
    
    
    (2,036
    )Acquisition of Bill Teiber Co., Inc.
    
    
    190
    
    
    
    2
    
    
    
    
    
    
    
    4,054
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,056Balance as of June 30, 2005
    
    
    9,700
    
    
    $
    97
    
    
    $
    32
    
    
    $
    18,653
    
    
    $
    
    
    
    $
    45,598
    
    
    
    4,532
    
    
    $
    (40,007
    )
    
    $
    24,373Comprehensive income:Net income for the fiscal year ended June
30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,100
    
    
    
    
    
    
    
    
    
    
    
    7,100Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,100
    
    
    
    
    
    
    
    
    
    
    
    7,100Exercise of stock options, net of tax benefit
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Stock-based compensation charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,496
    )
    
    
    
    
    
    
    
    
    
    
    (2,496
    )Retirement of preferred stock
    
    
    
    
    
    
    
    
    
    
    (32
    )
    
    
    (956
    )
    
    
    
    
    
    
    (893
    )
    
    
    (32
    )
    
    
    1,881
    
    
    
    Balance as of June 30, 2006
    
    
    9,703
    
    
    $
    97
    
    
    $
    
    
    
    $
    17,757
    
    
    $
    
    
    
    $
    49,309
    
    
    
    4,500
    
    
    $
    (38,126
    )
    
    $
    29,037
  F-7




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY  CONTINUED
FOR THE THREE YEARS ENDED JUNE 30, 2007
(In thousands)
 AdditionalCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury StockShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance as of June 30, 2006
    
    
    9,703
    
    
    $
    97
    
    
    $
    17,757
    
    
    $
    49,309
    
    
    
    4,500
    
    
    $
    (38,126
    )
    
    $
    29,037Comprehensive income:Net income for the fiscal year ended June 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,911
    
    
    
    
    
    
    
    
    
    
    
    5,911Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,911
    
    
    
    
    
    
    
    
    
    
    
    5,911Exercise of stock options, net of tax benefit
    
    
    1
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Stock-based compensation charge
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,498
    )
    
    
    
    
    
    
    
    
    
    
    (2,498
    )Balance as of June 30, 2007
    
    
    9,704
    
    
    $
    97
    
    
    $
    17,831
    
    
    $
    52,722
    
    
    
    4,500
    
    
    $
    (38,126
    )
    
    $
    32,524
  F-8




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Organization and Nature of the Company
   Note 2  Summary of Significant Accounting Policies
 Basis of presentation 
 Accounts receivable 
 Summary of Accounts Receivable
(Dollars in thousands)
 June 30,
    
    
    June 30,2007
    
    
    2006Accounts receivable
    
    $
    17,780
    
    
    $
    20,095Other receivables
    
    
    553
    
    
    
    166Allowance for doubtful accounts
    
    
    (251
    )
    
    
    (293
    )Net accounts receivable
    
    $
    18,082
    
    
    $
    19,968
   F-9




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Concentration of credit risk 
 LowesPercent of
    
    Percent ofTSIs
    
    ConsolidatedFiscal Year Ended
    
    Net Sales
    
    Net SalesJune 30, 2007
    
    
    70
    %
    
    
    29
    %June 30, 2006
    
    
    87
    %
    
    
    41
    %June 30, 2005
    
    
    83
    %
    
    
    44
    %
 Inventories 
 Property and equipment 
 Summary of Property and Equipment
(Dollars in thousands)
 June 30,
    
    
    June 30,2007
    
    
    2006Land
    
    $
    1,535
    
    
    $
    1,535Building
    
    
    7,796
    
    
    
    7,796Office furniture and equipment
    
    
    4,203
    
    
    
    3,320Leasehold improvements
    
    
    194
    
    
    
    187Gross property and equipment
    
    
    13,728
    
    
    
    12,838Accumulated depreciation
    
    
    (5,349
    )
    
    
    (4,740
    )Net property and equipment
    
    $
    8,379
    
    
    $
    8,098
  Building
    
    40 yearsOffice furniture and equipment
    
    2 to 7 years
  F-10




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Depreciation and Amortization
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2005Depreciation of property and equipment
    
    $
    601
    
    
    $
    564
    
    
    $
    570Amortization of intangibles
    
    
    198
    
    
    
    30
    
    
    
    11$
    799
    
    
    $
    594
    
    
    $
    581
  Impairment of long-lived assets 
 Goodwill and other intangible assets 
 Summary of Goodwill
(Dollars in thousands)
 Craftmade
    
    
    TSI
    
    
    TotalJune 30, 2006
    
    $
    6,745
    
    
    $
    4,735
    
    
    $
    11,480Acquisition of Marketing Impressions
    
    
    
    
    
    
    2,164
    
    
    
    2,164June 30, 2007
    
    $
    6,745
    
    
    $
    6,899
    
    
    $
    13,644
  F-11




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Summary of Intangible Assets
(Dollars in thousands)
 June 30,
    
    
    June 30,
    
    
    Life2007
    
    
    2006
    
    
    in YearsNon-compete covenants
    
    $
    1,020
    
    
    $
    200
    
    
    
    7Patents and trademarks
    
    
    720
    
    
    
    10
    
    
    
    15 to 17Gross intangible assets
    
    
    1,740
    
    
    
    210Accumulated amortization
    
    
    (238
    )
    
    
    (41
    )Net intangible assets
    
    $
    1,502
    
    
    $
    169
  Summary of Future Amortization Expense
(Dollars in Thousands)
 Fiscal Year EndingJune 30, 2008
    
    $
    234June 30, 2009
    
    
    228June 30, 2010
    
    
    166June 30, 2011
    
    
    166June 30, 2012
    
    
    165Thereafter
    
    
    543$
    1,502
 Other accrued expenses
 Summary of Other Accrued Expenses
(Dollars in Thousands)
 June 30,
    
    
    June 30,2007
    
    
    2006Accrued customer allowances
    
    $
    947
    
    
    $
    2,637Accrued dividend payable
    
    
    625
    
    
    
    624Commissions payable
    
    
    287
    
    
    
    274Accrued payroll
    
    
    217
    
    
    
    183Income taxes payable
    
    
    
    
    
    
    114Other current liabilities
    
    
    396
    
    
    
    266Other accrued expenses
    
    $
    2,472
    
    
    $
    4,098
 Returns
 F-12




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Sales Returns Allowance
(Dollars in thousands)
 June 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2005Beginning of year balance
    
    $
    87
    
    
    $
    85
    
    
    $
    85Provision for estimated returns
    
    
    1,025
    
    
    
    939
    
    
    
    760Return credits issued
    
    
    (1,021
    )
    
    
    (937
    )
    
    
    (760
    )End of year balance
    
    $
    91
    
    
    $
    87
    
    
    $
    85
 Product warranties 
 Product Warranty Reserves
(Dollars in thousands)
 June 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2005Beginning of year balance
    
    $
    169
    
    
    $
    171
    
    
    $
    145Provision for estimated expenses
    
    
    1,147
    
    
    
    1,037
    
    
    
    1,009Warranty claims paid
    
    
    (1,139
    )
    
    
    (1,039
    )
    
    
    (983
    )End of year balance
    
    $
    177
    
    
    $
    169
    
    
    $
    171
 Income taxes 
 Revenue recognition 
  F-13




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
     Variable interest entities
  before
 F-14




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2007
(Dollars in thousands)
 Craftmade/
    
    
    DesignTrade Source
    
    
    Trends
    
    
    ConsolidatedTotal assets
    
    $
    48,599
    
    
    $
    16,064
    
    
    $
    64,663Total liabilities
and minority interests
    
    $
    30,407
    
    
    $
    1,732
    
    
    $
    32,139Total stockholders equity
    
    
    18,192
    
    
    
    14,332
    
    
    
    32,524Total liabilities
and stockholders equity
    
    $
    48,599
    
    
    $
    16,064
    
    
    $
    64,663
 AS OF JUNE 30, 2006
(Dollars in thousands)
 Craftmade/
    
    
    DesignTrade Source
    
    
    Trends
    
    
    ConsolidatedTotal assets
    
    $
    48,699
    
    
    $
    16,362
    
    
    $
    65,061Total liabilities
and minority interests
    
    $
    32,487
    
    
    $
    3,537
    
    
    $
    36,024Total stockholders equity
    
    
    16,212
    
    
    
    12,825
    
    
    
    29,037Total liabilities
and stockholders equity
    
    $
    48,699
    
    
    $
    16,362
    
    
    $
    65,061
 Advertising costs 
 Advertising
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2007
    
    2006
    
    2005Advertising expense
    
    $
    2,161
    
    
    $
    1,514
    
    
    $
    1,442Prepaid advertising costs
    
    
    407
    
    
    
    164
    
    
    
    188
 F-15




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Research and development 
 Research and Development
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2007
    
    2006
    
    2005Research and development
    
    $
    265
    
    
    $
    217
    
    
    $
    202
 Stock-based compensation 
  Stock-Based Compensation Expense
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2007
    
    2006
    
    2005(A)Stock-based compensation expense recognized:Selling, general & administrative
    
    $
    64
    
    
    $
    23
    
    
    $
    
 
 (A)
    
    See pro forma analysis below.  F-16




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Pro Forma Net Income
(In thousands, except per shara data)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2005Net income, as reported
    
    $
    5,911
    
    
    $
    7,100
    
    
    $
    6,427Compensation expense,
pro forma, net of related taxes
    
    
    
    
    
    
    
    
    
    
    (63
    )Net income, proforma
    
    $
    5,911
    
    
    $
    7,100
    
    
    $
    6,364Basic weighted average shares of common stock
    
    
    5,204
    
    
    
    5,201
    
    
    
    5,095Diluted weighted average shares of common stock
    
    
    5,206
    
    
    
    5,211
    
    
    
    5,115Basic earnings per share, as reported
    
    $
    1.14
    
    
    $
    1.37
    
    
    $
    1.26Basic earnings per share, pro forma
    
    
    1.14
    
    
    
    1.37
    
    
    
    1.25Diluted earnings per share, as reported
    
    $
    1.14
    
    
    $
    1.36
    
    
    $
    1.26Diluted earnings per share, pro forma
    
    
    1.14
    
    
    
    1.36
    
    
    
    1.24
  Future Stock-Based Compensation Expense
(Dollars in thousands)
 ExpectedFutureCompensationFiscal Year Ending
    
    CostJune 30, 2008
    
    $
    113June 30, 2009
    
    
    113June 30, 2010
    
    
    113June 30, 2011
    
    
    52
 Pervasiveness of estimates 
 Effects of recent accounting pronouncements 
 F-17




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    Note 3  Acquisitions
 Acquisition of Marketing Impressions, Inc.
   before
 F-18




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Purchase Price Summary
(Dollars in thousands)
 As of June 30, 2007:Amount paid at closing, net of cash acquired
    
    $
    1,287Contingent payments earned
    
    
    1,697Acquisition-related costs
    
    
    220Total consideration as of June 30, 2007
    
    $
    3,204Percent of Adjusted Gross ProfitJuly 1, 2006 to August 31, 2011
    
    
    22
    %Additonal Percent of Adjusted Gross ProfitJuly 1, 2006 to June 30, 2007 (not to exceed $750)
    
    
    15
    %
 Business Combinations
  Purchase Price Allocation
(Dollars in thousands)
 Assets:Accounts receivable
    
    $
    368Inventory
    
    
    2Property and equipment
    
    
    214Deferred tax assets
    
    
    70Acquired intangibles
    
    
    1,530Goodwill
    
    
    2,1644,348Liabilities:Accounts payable
    
    
    1,120Note payable and other liabilities
    
    
    241,144Total purchase price as of June 30, 2007
    
    $
    3,204
 F-19




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Summary of Acquired Intangibles
(Dollars in thousands)
 Life
    
    
    Grossin Years
    
    
    AmountPatents and trademarks
    
    
    15
    
    
    $
    710Non-compete covenants
    
    
    7
    
    
    
    820$
    1,530
   Unaudited Pro Forma Results
(In thousands, except per share data)
 FiscalYearEndedJune 30,2006Net sales(1)As reported
    
    $
    118,054Pro forma
    
    
    118,054Net income(2)As reported
    
    $
    7,100Pro forma
    
    
    8,224Diluted earnings per shareAs reported
    
    $
    1.36Pro forma
    
    
    1.58
 
 (1)
    
    Since net sales of Marketing Impressions represent sales to Craftmade, they eliminate in consolidation.
Net sales of PHI have historically been included in consolidated net sales of the
Company in accordance with FIN 46R. Accordingly, pro forma net sales equal actual net
sales.(2)
    
    Pro forma net income includes the remaining 50% net income of PHI (minority
interest portion) plus additional gross margin for certain products, less interest,
depreciation, amortization, and consulting fees. F-20




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Acquisition of Bill Teiber Co., Inc.
    Unaudited Pro Forma Results
(In thousands, except per share data)
 FiscalYearEndedJune 30,2005Net salesAs reported
    
    $
    118,806Pro forma
    
    
    123,482Net incomeAs reported
    
    $
    6,427Pro forma
    
    
    6,684Diluted earnings per shareAs reported
    
    $
    1.26Pro forma
    
    
    1.27
 F-21




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 4  Long-Term Obligations
  Summary of Revolving Lines of Credit
and Notes Payable at June 30, 2007
(Dollars in thousands)
 OutstandingCommitment
    
    
    Balance
    
    
    Interest Rate
    
    
    MaturityRevolving line of credit
    
    $
    30,000
    
    
    $
    18,825
    
    
    LIBOR plus 1.50%
    
    September 1, 2009Note payable  facility
    
    
    N/A
    
    
    
    223
    
    
    
    8.302%
    
    
    January 1, 2008Capital lease obligation
    
    
    N/A
    
    
    
    154
    
    
    
    
    
    
    November 5, 2010$
    19,202
  June 30,
    
    
    June 30,Description
    
    2007
    
    
    2006On September 18, 2006, the Company entered into a
Second Amended and Restated Loan Agreement (the
Frost Loan Agreement) with The Frost National
Bank, San Antonio, Texas (Frost). The Frost Loan
Agreement amends the Restated Loan Agreement dated
October 31, 2005, between Craftmade and Frost.
Also, on September 18, 2006, Craftmade executed a
Revolving Promissory Note (the Note) payable to
the order of Frost, in the principal amount of
$30,000,000 or the amount equal to the borrowing
base calculated on eligible accounts receivable and
inventory, with an interest rate equal to LIBOR
plus 1.5%. The LIBOR rate in effect at June 30,
2007 was 5.32%. There was $4,505,000 available to
borrow under the Note at June 30, 2007. The Note
will mature on September 1, 2009. The Frost Loan
Agreement contains financial covenants that require
Craftmade to maintain a ratio of total liabilities
(excluding any subordinated debt) to tangible net
worth of not greater than 3.0 to 1.0 and a Fixed
Charge Coverage Ratio (as defined in the Frost Loan
Agreement) of not less than 1.25 to 1.0, tested
quarterly. The Company is in compliance with all
of its covenants at June 30, 2007. All
wholly-owned subsidiaries of Craftmade and Design
Trends, a 50% owned subsidiary of Craftmade, have
agreed to be guarantors of the Frost Loan Agreement
(the Guarantors). Craftmade and each of the
Guarantors have granted a security interest to
Frost in each of their accounts receivable and
inventory
    
    $
    18,825
    
    
    $
    15,981On May 9, 2000, the Company entered into a term
loan to finance its home office and warehouse with
an original principal balance of $9,200,000. The
loan is payable in equal monthly installments of
$100,378 of principal and interest at 8.302%. The
loan is collateralized by the building and land.
The loan is scheduled to mature on January 1, 2008,
but was fully repaid in August 2007
    
    
    223
    
    
    
    1,358Capital lease obligation for computer
equipment
    
    
    154
    
    
    
    
 F-22




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
    
    
    June 30,Description
    
    2007
    
    
    2006On April 17, 2002 PHI entered into a $3,000,000 note and
security agreement with Wachovia Bank, N.A.
(Wachovia). Borrowings under this agreement are
limited to a borrowing base calculated as a percentage
of certain eligible accounts receivable and inventory
are payable on demand with interest at the monthly LIBOR
index (5.10906% at June 30, 2006) plus 2%,
collateralized by certain inventory and receivables of
the Company and jointly and severally guaranteed by the
PHI members. This loan agreement, which expires on
December 15, 2006, requires the maintenance of certain
financial ratios including the maintenance of minimum
tangible net worth and funded debt to EBITDA. The note
was paid in full and cancelled in September 2006 in
conjunction with the issuance of the Frost Loan
Agreement
    
    
    
    
    
    
    2,173Sub-total
    
    
    19,202
    
    
    
    19,512Less: Lines of credit due on
demand
    
    
    
    
    
    
    (2,173
    )Less: Current amounts due in following
year
    
    
    (264
    )
    
    
    (1,135
    )Non-current
    
    $
    18,938
    
    
    $
    16,204Weighted average interest rates on outstanding borrowingsLines of credit
    
    
    6.8
    %
    
    
    6.9
    %Notes payable
    
    
    8.3
    %
    
    
    8.3
    %Total
    
    
    6.8
    %
    
    
    7.0
    %
  Schedule of Maturities
(Dollars in thousands)
 Line of
    
    
    Note
    
    
    CapitalFiscal Year Ended
    
    Credit
    
    
    Payable
    
    
    Lease
    
    
    TotalJune 30, 2008
    
    $
    
    
    
    $
    223
    
    
    $
    41
    
    
    $
    264June 30, 2009
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    44June 30, 2010
    
    
    18,825
    
    
    
    
    
    
    
    48
    
    
    
    18,873June 30, 2011
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    21$
    18,825
    
    
    $
    223
    
    
    $
    154
    
    
    $
    19,202
 F-23




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 5  Income Taxes
  Provision for Income Taxes
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2005Current expense/(benefit):Federal
    
    $
    1,003
    
    
    $
    3,309
    
    
    $
    3,659State
    
    
    (427
    )
    
    
    (243
    )
    
    
    264Foreign
    
    
    143
    
    
    
    109
    
    
    
    359Total current expense
    
    
    719
    
    
    
    3,175
    
    
    
    4,282Deferred expense/(benefit)
    
    
    763
    
    
    
    91
    
    
    
    (1,203
    )Provision for income tax expense
    
    $
    1,482
    
    
    $
    3,266
    
    
    $
    3,079
   Summary of Deferred Taxes
(Dollars in thousands)
 June 30,
    
    
    June 30,2007
    
    
    2006Inventories
    
    $
    346
    
    
    $
    518Investment in 50% owned LLCs
    
    
    181
    
    
    
    377Reserves and accruals
    
    
    158
    
    
    
    276Accounts receivable reserves
    
    
    85
    
    
    
    100State refund claims, net of federal tax
    
    
    100
    
    
    
    59Net operating loss carryforwards
    
    
    24
    
    
    
    24Other
    
    
    88
    
    
    
    54Valuation allowance
    
    
    (100
    )
    
    
    (59
    )Total deferred tax assets
    
    
    882
    
    
    
    1,349Depreciation and amortization
    
    
    (580
    )
    
    
    (409
    )Foreign taxes
    
    
    (158
    )
    
    
    (31
    )Other
    
    
    
    
    
    
    (2
    )Total deferred tax liabilities
    
    
    (738
    )
    
    
    (442
    )Net deferred tax asset/(liability)
    
    $
    144
    
    
    $
    907
  F-24




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Reconciliation of Federal Tax Rate to Effective Tax Rate
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2005Tax at the statutory corporate rate
    
    $
    3,026
    
    
    $
    4,691
    
    
    $
    4,515Less: federal income tax attributable to minority interest
    
    
    (459
    )
    
    
    (1,158
    )
    
    
    (1,284
    )Foreign tax rate under federal statutory rate(1)
    
    
    (905
    )
    
    
    (156
    )
    
    
    (338
    )Federal taxes on anticipated repatriation of foreign earnings
    
    
    147
    
    
    
    (157
    )
    
    
    51State income taxes, net of federal benefit(2)
    
    
    (314
    )
    
    
    22
    
    
    
    180Other
    
    
    (13
    )
    
    
    24
    
    
    
    (45
    )Provision for income taxes
    
    $
    1,482
    
    
    $
    3,266
    
    
    $
    3,079
 
 (1)
    
    The foreign tax rate under the federal statutory rate for the fiscal
year ended June 30, 2007 includes benefits obtained from a reduction in amounts set
aside for tax contingencies of $793,000 recorded in the quarter ended June 30, 2007
and a lower foreign tax rate of approximately $112,000.(2)
    
    State income taxes, net of federal benefit, includes the benefit resulting
from lower state apportionment rates applied to prior periods as a result of a change
in the state tax law totaling $516,000, offset by increases in amounts set aside for
tax contingencies totaling $231,000. Note 6  Stockholders Equity
 Stock Option Plans
   F-25




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Summary of Stock Options
 Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Exercise
    
    
    AverageExercise
    
    
    Price
    
    
    RemainingShares
    
    
    Price
    
    
    Range
    
    
    Life (Years)Outstanding at June 30, 2004
    
    
    69,500
    
    
    $
    8.99Granted
    
    
    3,000
    
    
    
    20.74Exercised
    
    
    (44,000
    )
    
    
    7.34Forfeited
    
    
    (8,500
    )
    
    
    10.01Outstanding at June 30, 2005
    
    
    20,000
    
    
    
    13.94Granted
    
    
    3,000
    
    
    
    17.48Exercised
    
    
    (3,500
    )
    
    
    6.75Outstanding at June 30, 2006
    
    
    19,500
    
    
    
    15.78Granted
    
    
    85,000
    
    
    
    18.49Exercised
    
    
    (1,000
    )
    
    
    6.75Forfeited
    
    
    (4,400
    )
    
    
    18.85$
    6.75-Outstanding at June 30, 2007
    
    
    99,100
    
    
    $
    18.06
    
    
    $
    25.20
    
    
    
    8.8$
    6.75-Exercisable at June 30, 2007
    
    
    18,500
    
    
    $
    16.26
    
    
    $
    25.20
    
    
    
    5.8
  Weighted-Average Stock Option Assumptions
 Fiscal
    
    Fiscal
    
    Fiscal2007
    
    2006
    
    2005Expected volatility
    
    
    36
    %
    
    
    45
    %
    
    
    47
    %Risk-free interest rate
    
    
    4.9
    %
    
    
    4.5
    %
    
    
    3.7
    %Expected lives
    
    4 years
    
    4 years
    
    4 yearsDividend yield
    
    
    2.6
    %
    
    
    2.7
    %
    
    
    1.9
    %Weighted average fair value of options granted per share
    
    $
    5.31
    
    
    $
    5.88
    
    
    $
    7.43Total fair value of options granted
    
    $
    451,000
    
    
    $
    18,000
    
    
    $
    22,000Total fair value of options vested
    
    $
    105,000
    
    
    $
    93,000
    
    
    $
    113,000Total intrinsic value of stock options exercised(1)
    
    $
    9,000
    
    
    $
    34,000
    
    
    $
    566,000
 
 (1)
    
    Intrinsic value of stock options is calculated using the difference between the
common share price on the date of exercise and the strike price times the number of stock options
exercised. F-26




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Stock Option Exercise Prices
 Number of SharesUnder Stock Options
    
    
    ExerciseExpiration Date
    
    Outstanding
    
    
    Exercisable
    
    
    Price10/28/2009
    
    
    3,500
    
    
    
    3,500
    
    
    $
    6.752/15/2012
    
    
    3,000
    
    
    
    3,000
    
    
    
    14.852/15/2013
    
    
    3,000
    
    
    
    3,000
    
    
    
    14.152/15/2014
    
    
    3,000
    
    
    
    3,000
    
    
    
    25.202/15/2015
    
    
    3,000
    
    
    
    3,000
    
    
    
    20.742/15/2016
    
    
    3,000
    
    
    
    3,000
    
    
    
    17.4811/27/2016
    
    
    55,600
    
    
    
    
    
    
    
    18.852/4/2017
    
    
    25,000
    
    
    
    
    
    
    
    17.6299,100
    
    
    
    18,500
    
    
    $
    18.06
 Retirement of Preferred Stock
  Stockholder Rights Plan
  F-27




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 7  Earnings Per Share
  Earnings Per Common Share
(In thousands, except per shara data)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2005Basic and diluted earnings per share:NumeratorNet income
    
    $
    5,911
    
    
    $
    7,100
    
    
    $
    6,427Denominator for basic EPSWeighted average common shares outstanding
    
    
    5,204
    
    
    
    5,201
    
    
    
    5,095Denominator for diluted EPSWeighted average common shares outstanding
    
    
    5,204
    
    
    
    5,201
    
    
    
    5,095Incremental shares for stock options
    
    
    2
    
    
    
    10
    
    
    
    20Potentially dilutive weighted average common shares
    
    
    5,206
    
    
    
    5,211
    
    
    
    5,115Basic earnings per common share
    
    $
    1.14
    
    
    $
    1.37
    
    
    $
    1.26Diluted earnings per common share
    
    $
    1.14
    
    
    $
    1.36
    
    
    $
    1.26
 Note 8  Disclosures About Fair Value of Financial Instruments
  F-28




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 9  Commitments and Contingencies
  Rental Expense Under Operating Leases
(Dollars in thousands)
 Fiscal Year Ended
    
    
    
    AmountJune 30, 2007
    
    
    
    $
    383June 30, 2006
    
    
    
    
    438June 30, 2005
    
    
    
    
    315
   Future Minimum Lease and Royalty Payments
(Dollars in thousands)
 Operating
    
    
    GuaranteedFiscal Year Ended
    
    Leases
    
    
    Royalties
    
    
    TotalJune 30, 2008
    
    $
    128
    
    
    $
    71
    
    
    $
    199June 30, 2009
    
    
    84
    
    
    
    109
    
    
    
    193June 30, 2010
    
    
    8
    
    
    
    90
    
    
    
    98June 30, 2011
    
    
    8
    
    
    
    
    
    
    
    8Thereafter
    
    
    7
    
    
    
    
    
    
    
    7$
    235
    
    
    $
    270
    
    
    $
    505
   F-29




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 10  401(k) Defined Contribution Plan
  Contributions to 401(k) Retirement Plan
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2007
    
    2006
    
    2005Contributions to 401(k)
    
    $
    110
    
    
    $
    101
    
    
    $
    94
 Note 11  Segment Information
 
   F-30




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Summary of Reportable Segments
(Dollars in thousands)
 Craftmade
    
    TSI
    
    TotalFiscal year ended June 30, 2007:Net sales
    
    $
    59,925
    
    
    $
    43,425
    
    
    $
    103,350Gross profit
    
    
    21,180
    
    
    
    11,111
    
    
    
    32,291Income from operations
    
    
    5,732
    
    
    
    4,609
    
    
    
    10,341Interest expense, net
    
    
    1,416
    
    
    
    25
    
    
    
    1,441Minority interest
    
    
    
    
    
    
    1,507
    
    
    
    1,507Provision for income taxes
    
    
    1,469
    
    
    
    13
    
    
    
    1,482Depreciation and amortization
    
    
    548
    
    
    
    251
    
    
    
    799Net income
    
    
    2,847
    
    
    
    3,064
    
    
    
    5,911Total assets
    
    
    53,579
    
    
    
    11,172
    
    
    
    64,751Fiscal year ended June 30, 2006:Net sales
    
    $
    62,902
    
    
    $
    55,152
    
    
    $
    118,054Gross profit
    
    
    22,541
    
    
    
    12,928
    
    
    
    35,469Income from operations
    
    
    8,517
    
    
    
    6,463
    
    
    
    14,980Interest expense, net
    
    
    1,104
    
    
    
    80
    
    
    
    1,184Minority interest
    
    
    
    
    
    
    3,430
    
    
    
    3,430Provision for income taxes
    
    
    2,501
    
    
    
    765
    
    
    
    3,266Depreciation and amortization
    
    
    575
    
    
    
    19
    
    
    
    594Net income
    
    
    4,877
    
    
    
    2,223
    
    
    
    7,100Total assets
    
    
    52,833
    
    
    
    12,228
    
    
    
    65,061Fiscal year ended June 30, 2005:Net sales
    
    $
    55,663
    
    
    $
    63,143
    
    
    $
    118,806Gross profit
    
    
    20,311
    
    
    
    15,135
    
    
    
    35,446Income from operations
    
    
    6,402
    
    
    
    7,960
    
    
    
    14,362Interest expense, net
    
    
    973
    
    
    
    108
    
    
    
    1,081Minority interest
    
    
    
    
    
    
    3,775
    
    
    
    3,775Provision for income taxes
    
    
    1,895
    
    
    
    1,184
    
    
    
    3,079Depreciation and amortization
    
    
    537
    
    
    
    44
    
    
    
    581Net income
    
    
    3,534
    
    
    
    2,893
    
    
    
    6,427Total assets
    
    
    50,835
    
    
    
    19,980
    
    
    
    70,815
 F-31




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Net Sales by Product Category
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2007
    
    2006
    
    2005CraftmadeCeiling fans, light kits and blades
    
    
    37
    %
    
    
    36
    %
    
    
    37
    %Teiber lighting products
    
    
    10
    %
    
    
    8
    %
    
    
    2
    %Durocraft gauges and clocks
    
    
    3
    %
    
    
    1
    %
    
    
    0
    %Accolade lighting
    
    
    8
    %
    
    
    8
    %
    
    
    8
    %58
    %
    
    
    53
    %
    
    
    47
    %TSIIndoor lighting
    
    
    23
    %
    
    
    29
    %
    
    
    36
    %Outdoor lighting
    
    
    2
    %
    
    
    6
    %
    
    
    7
    %Accessories
    
    
    17
    %
    
    
    12
    %
    
    
    10
    %42
    %
    
    
    47
    %
    
    
    53
    %100
    %
    
    
    100
    %
    
    
    100
    %
 F-32




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 12  Quarterly Data (Unaudited)
   Quarterly Data (Unaudited)
(In thousands, except per share data)
 Fiscal Year Ended June 30, 2007(1)
    
    Fiscal Year Ended June 30, 2006Fourth
    
    Third
    
    Second
    
    First
    
    
    
    
    
    Fourth
    
    Third
    
    Second
    
    FirstTotal
    
    Quarter(2)
    
    Quarter
    
    Quarter
    
    Quarter
    
    Total
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterNet sales
    
    $
    103,350
    
    
    $
    26,169
    
    
    $
    22,492
    
    
    $
    26,563
    
    
    $
    28,126
    
    
    $
    118,054
    
    
    $
    31,248
    
    
    $
    27,154
    
    
    $
    28,628
    
    
    $
    31,024Gross profit
    
    
    32,291
    
    
    
    7,894
    
    
    
    7,091
    
    
    
    8,524
    
    
    
    8,782
    
    
    
    35,469
    
    
    
    9,567
    
    
    
    8,568
    
    
    
    8,588
    
    
    
    8,746Income from operations
    
    
    10,341
    
    
    
    2,242
    
    
    
    1,413
    
    
    
    3,188
    
    
    
    3,498
    
    
    
    14,980
    
    
    
    4,218
    
    
    
    3,385
    
    
    
    3,687
    
    
    
    3,690Net income
    
    
    5,911
    
    
    
    1,794
    
    
    
    733
    
    
    
    1,500
    
    
    
    1,884
    
    
    
    7,100
    
    
    
    1,923
    
    
    
    1,748
    
    
    
    1,697
    
    
    
    1,732Basic EPS
    
    $
    1.14
    
    
    $
    0.34
    
    
    $
    0.14
    
    
    $
    0.29
    
    
    $
    0.36
    
    
    $
    1.37
    
    
    $
    0.37
    
    
    $
    0.34
    
    
    $
    0.33
    
    
    $
    0.33Diluted EPS
    
    
    1.14
    
    
    
    0.34
    
    
    
    0.14
    
    
    
    0.29
    
    
    
    0.36
    
    
    
    1.36
    
    
    
    0.37
    
    
    
    0.34
    
    
    
    0.33
    
    
    
    0.33Basic shares outstanding
    
    
    5,204
    
    
    
    5,205
    
    
    
    5,204
    
    
    
    5,204
    
    
    
    5,204
    
    
    
    5,201
    
    
    
    5,203
    
    
    
    5,201
    
    
    
    5,200
    
    
    
    5,200Diluted shares outstanding
    
    
    5,206
    
    
    
    5,206
    
    
    
    5,206
    
    
    
    5,206
    
    
    
    5,215
    
    
    
    5,211
    
    
    
    5,211
    
    
    
    5,211
    
    
    
    5,210
    
    
    
    5,210
 
 (1)
    
    Includes the results of Marketing Impressions, Inc. effective July 1, 2006. See
Note 3  Acquisitions.(2)
    
    See Note 5  Income Taxes regarding benefit obtained from a reduction in amounts
set aside for tax contingencies. F-33




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 
 Schedule II  Valuation and Qualifying Accounts
 Summary of Allowance for Doubtful Accounts and Inventory Obsolescence
(Dollars in thousands)
 AdditionsBalance at
    
    Charged
    
    Charged
    
    
    
    
    
    Balancebeginning
    
    to costs
    
    to other
    
    
    
    
    
    at end ofDescription
    
    of period
    
    and expense
    
    accounts
    
    Deductions
    
    periodAllowance for doubtful accounts as of:June 30, 2007
    
    $
    293
    
    
    $
    32
    
    
    $
    
    
    
    $
    (74
    )(a)
    
    $
    251June 30, 2006
    
    
    300
    
    
    
    80
    
    
    
    
    
    
    
    (87
    )(a)
    
    
    293June 30, 2005
    
    
    150
    
    
    
    223
    
    
    
    116
    
    
    
    (189
    )(a)
    
    
    300Allowance for inventory obsolescence as of:June 30, 2007
    
    $
    934
    
    
    $
    104
    
    
    $
    
    
    
    $
    (635
    )(b)
    
    $
    403June 30, 2006
    
    
    717
    
    
    
    484
    
    
    
    
    
    
    
    (267
    )(b)
    
    
    934June 30, 2005
    
    
    1,171
    
    
    
    481
    
    
    
    
    
    
    
    (935
    )(b)
    
    
    717
 
 (a)
    
    Reduction of the allowance for doubtful accounts associated with the write-off of certain uncollectible accounts
receivable balances.(b)
    
    Reduction of the allowance for inventory obsolescence associated with the disposal or sale of certain inventory items. F-34




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CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 
 EXHIBIT INDEX
 ExhibitNumber
    
    Description2.1
    
    Stock Purchase Agreement between Craftmade International, Inc., Trade Source International,
Inc., and Robert W. Lackey, dated September 15, 2006, previously filed as Exhibit 10.1 to
Form 8-K dated September 15, 2006 (File No. 000-26667), and incorporated by reference herein.Pursuant to Item 601(b)(2) of Regulation S-K, the Company has not filed herewith the
schedules and exhibits to the foregoing exhibit and agrees to furnish supplementally to
the Securities and Exchange Commission, upon request, any omitted schedules or similar
attachments to the foregoing exhibit.2.2
    
    Agreement for the Purchase and Sale of Personal Goodwill between Trade Source
International, Inc. and Robert Lackey, dated September 15, 2006, previously filed as Exhibit
10.2 to Form 8-K dated September 15, 2006 (File No. 000-26667), and incorporated by reference
herein.2.3
    
    Agreement for the Purchase and Sale of Personal Goodwill between Trade Source
International, Inc. and Robert Lackey, Jr., dated September 15, 2006, previously filed as
Exhibit 10.3 to Form 8-K dated September 15, 2006 (File No. 000-26667), and incorporated by
reference herein.2.4
    
    Intellectual Property Assignment by and between Trade Source International, Inc., Robert W.
Lackey, Robert W. Lackey, Jr., RWL Incorporated f/k/a Robert W. Lackey Corporation and R.L.
Products Corporation, dated September 15, 2006, previously filed as Exhibit 10.4 to Form 8-K
dated September 15, 2006 (File No. 000-26667), and incorporated by reference herein.2.5
    
    Non-Competition Agreement between Trade Source International, Inc. and Robert W. Lackey,
dated September 15, 2006, previously filed as Exhibit 10.5 to Form 8-K dated September 15,
2006 (File No. 000-26667), and incorporated by reference herein.2.6
    
    Non-Competition Agreement between Trade Source International and Robert W. Lackey, Jr.,
dated September 15, 2006, previously filed as Exhibit 10.6 to Form 8-K dated September 15,
2006 (File No. 000-26667), and incorporated by reference herein.2.7
    
    Consulting Agreement by and between Craftmade International, Inc., Trade Source
International, Inc. and Imagine One Resources, LLC, dated September 15, 2006, previously
filed as Exhibit 10.7 to Form 8-K dated September 15, 2006 (File No. 000-26667), and
incorporated by reference herein.2.8
    
    Partially Subordinate Security Agreement among Trade Source International, Inc., Marketing
Impressions, Inc., Prime Home Impressions, LLC, and Robert Lackey, (Lackey), as collateral
agent for Lackey, Robert W. Lackey, Jr., Imagine One Resources, LLC, RWL Corporation and R.L.
Products Corporation, dated September 15, 2006, previously filed as Exhibit 10.8 to Form 8-K
dated September 15, 2006 (File No. 000-26667), and incorporated by reference herein.2.9
    
    Subordination Agreement by and among Robert W. Lackey (Lackey), as collateral agent for
Lackey, Robert W. Lackey, Jr., Imagine One Resources, LLC, RWL Corporation, R.L. Products
Corporation, and The Frost National Bank, Trade Source International, Inc., Marketing
Impressions, Inc., Prime/Home Impressions, LLC and Craftmade International, Inc., dated
September 15, 2006, previously filed as Exhibit 10.9 to Form 8-K dated September 15, 2006
(File No. 000-26667), and incorporated by reference herein.2.10
    
    Agreement and Plan of Merger by and among Craftmade International, Inc., Bill Teiber Co.,
Inc., Teiber Lighting Products, Inc., Todd Teiber and Edward Oberstein dated March 1, 2005,
previously filed as Exhibit 10.1 to Form 8-K dated March 1, 2005 (File No. 000-26667), and
incorporated by reference herein.




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##### Table of Contents



ExhibitNumber
    
    Description2.11
    
    Agreement and Plan of Merger, dated as of July 1, 1998, by and among Craftmade
International, Inc., Trade Source International, Inc. a Delaware corporation, Neall and
Leslie Humphrey, John DeBlois, the Wiley Family Trust, James Bezzerides, the Bezzco Inc.
Employee Retirement Trust and Trade Source International, Inc, a California corporation,
filed as Exhibit 2.1 to Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and incorporated
by reference herein.3.1
    
    Certificate of Incorporation of the Company, filed as Exhibit 3(a)(2) to the Companys Post
Effective Amendment No. 1 to Form S-8 (File No. 33-33594-FW), and incorporated by reference
herein.3.2
    
    Certificate of Amendment of Certificate of Incorporation of the Company, dated March 24,
1992, and filed as Exhibit 4.2 to the Companys Form S-8 (File No. 333-44337), and
incorporated by reference herein.3.3
    
    Amended and Restated Bylaws of the Company, filed as Exhibit 3(b)(2) to the Companys Post
Effective Amendment No. 1 to Form S-8 (File No. 33-33594-FW), and incorporated by reference
herein.4.1
    
    Specimen Common Stock Certificate, filed as Exhibit 4.4 to the Companys registration
statement on Form S-3 (File No. 333-70823), and incorporated by reference herein.4.2
    
    Rights Agreement, dated as of June 23, 1999, between Craftmade International, Inc. and
Harris Trust and Savings Bank, as Rights Agent, previously filed as Exhibit 4 to Form 8-K
dated July 9, 1999 (File No. 000-26667), and incorporated by reference herein.10.1
    
    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 Exhibit 10.2 to Form 10-Q for the quarter ended December 31, 1995, and incorporated
by reference herein.10.2
    
    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 Exhibit 10.3 to Form 10-Q
for the quarter ended December 31, 1995, and incorporated by reference herein.10.3
    
    Second Amended and Restated Loan Agreement with Frost National Bank dated September 18,
2006, previously filed as Exhibit 10.1 to Form 8-K dated September 18, 2006 (File No.
000-26667), and incorporated by reference herein.10.4
    
    Revolving Promissory Note with Frost National Bank dated September 18, 2006, previously
filed as Exhibit 10.2 to Form 8-K dated September 18, 2006 (File No. 000-26667), and
incorporated by reference herein.10.5
    
    Craftmade International, Inc. 2006 Long-Term Incentive Plan, previously filed as Exhibit
10.1 to Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by reference
herein.10.6
    
    Incentive Stock Option Agreement, previously filed as Exhibit 10.2 to Form 8-K dated
November 28, 2006 (File No. 000-26667), and incorporated by reference herein.10.7
    
    Non-qualified Stock Option Agreement, previously filed as Exhibit 10.3 to Form 8-K dated
November 28, 2006 (File No. 000-26667), and incorporated by reference herein.10.8
    
    Stock Appreciation Rights Agreement, previously filed as Exhibit 10.4 to Form 8-K dated
November 28, 2006 (File No. 000-26667), and incorporated by reference herein.10.9
    
    Restricted Stock Award Agreement, previously filed as Exhibit 10.5 to Form 8-K dated
November 28, 2006 (File No. 000-26667), and incorporated by reference herein.21.1*
    
    List of the subsidiaries of Craftmade International, Inc.




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##### Table of Contents



ExhibitNumber
    
    Description23.1*
    
    Consent of BDO Seidman, LLP.31.1*
    
    Certification of James R. Ridings, Chief Executive Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of J. Marcus Scrudder, Chief Financial Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of James R. Ridings, Chairman of the Board, President and Chief Executive
Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of J. Marcus Scrudder, Chief Financial Officer of the Company, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Each document marked with an asterisk is filed or furnished herewith.