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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 Form 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR I5(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2005
 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
    
    75-2057054(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)650 S. Royal Lane, Suite 100
    
    75019Coppell, Texas
    
    (Zip Code)(Address of Principal Executive Offices)
 (972) 393-3800
(Registrants Telephone Number, Including Area Code)
 Securities registered pursuant to Section 12 (b) of the Act:
None
 Securities registered pursuant to Section 12 (g) of the Act:
 Title of Each Class
    
    Name of each exchange on which registeredCommon Stock, par value
    
    NASDAQ National Market System$0.01
 þ o
 o
 þ o
 o þ




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TABLE OF CONTENTS
 PART IITEM 1. BUSINESS.ITEM 2. PROPERTIES.ITEM 3. LEGAL PROCEEDINGS.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.ITEM 6. SELECTED FINANCIAL DATA.ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.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.ITEM 9B. OTHER INFORMATION.PART IIIITEM 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.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.Modification, Renewal and Extension AgreementArbitration and Notice of Final AgreementSubsidiariesConsent of BDO Seidman, LLPConsent of PricewaterhouseCoopers, LLPCertification of CEO Pursuant to Section 302Certification of Executive Vice President and Interim CFO Pursuant to Section 302Certification of Chairman of the Board, President and CEO Pursuant to Section 906Certification of Vice President and Interim Chief Financial Officer Pursuant to Section 906




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PART I
 
 ITEM 1. BUSINESS.
 The Company
  Craftmade
 TSI
 50%
Owned Limited Liability Companies
 PHI
 Design
Trends
   3




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http://www.sec.gov.
 Craftmade Products
 Ceiling Fans
 Light Kits
 Bath-strip Lighting
 Outdoor Lighting
 Teiber Light Bulbs
 Accessories
 TSI Products
 Indoor Lighting
 Outdoor Lighting
 4




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Accessories
 Manufacturing
       5




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Distribution
    Lowes Companies
    
    Wal-MartPercent of
    
    
    
    
    
    Percent ofFiscal
    
    Percent of
    
    Consolidated
    
    Percent of
    
    ConsolidatedYear
    

TSIs Sales
    
    Sales
    

TSIs Sales
    
    Sales2005
    
    
    73
    %
    
    
    40
    %
    
    
    18
    %
    
    
    10
    %2004
    
    
    75
    %
    
    
    42
    %
    
    
    15
    %
    
    
    8
    %2003
    
    
    70
    %
    
    
    39
    %
    
    
    17
    %
    
    
    9
    %
  6




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Marketing
     Product Expansion
  Seasonality
  Backlog
  Competition
  7




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Independent Safety Testing
  Product Liability
  Patents and Trademarks
   8




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Employees
  
 ITEM 2. PROPERTIES.
     
 ITEM 3. LEGAL PROCEEDINGS.
    9




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  10




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
   DividendsHigh
    
    Low
    
    PerBid
    
    Bid
    
    ShareFiscal Year Ended June 30, 2004First Quarter
    
    $
    23.73
    
    
    $
    17.32
    
    
    $
    0.10Second Quarter
    
    
    27.75
    
    
    
    22.03
    
    
    
    0.10Third Quarter
    
    
    29.40
    
    
    
    24.00
    
    
    
    0.10Fourth Quarter
    
    
    27.57
    
    
    
    19.79
    
    
    
    0.10Fiscal Year Ended June 30, 2005First Quarter
    
    $
    22.87
    
    
    $
    18.51
    
    
    $
    0.10Second Quarter
    
    
    25.16
    
    
    
    16.15
    
    
    
    0.10Third Quarter
    
    
    23.24
    
    
    
    19.13
    
    
    
    0.10Fourth Quarter
    
    
    22.74
    
    
    
    14.00
    
    
    
    0.10
  Holders
  Issuer Purchases Of Equity Securities
  Equity
Compensation Plans
  11




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA.
  For the year ended June 30,(In thousands, except per share data)2005
    

2004
    

2003
    
    2002
    
    2001(1
     )

    
    
    
    
    
    
    (2
    )
 
    
    (2
    )
       


    
    (2
    )Selected operating resultsNet sales
    
    $
    116,756
    
    
    $
    121,238
    
    
    $
    109,033
    
    
    $
    106,050
    
    
    $
    93,477Gross profit
    
    
    35,446
    
    
    
    35,910
    
    
    
    35,394
    
    
    
    31,923
    
    
    
    30,357Minority interest
    
    
    3,775
    
    
    
    3,719
    
    
    
    4,235
    
    
    
    2,516
    
    
    
    1,954Net income
    
    
    6,427
    
    
    
    7,646
    
    
    
    6,846
    
    
    
    6,160
    
    
    
    4,687Basic earnings per common share
    
    
    1.26
    
    
    
    1.43
    
    
    
    1.24
    
    
    
    1.04
    
    
    
    0.79Diluted earnings per common share
    
    
    1.26
    
    
    
    1.42
    
    
    
    1.23
    
    
    
    1.03
    
    
    
    0.79Cash dividends declared per common share
    
    
    0.40
    
    
    
    0.40
    
    
    
    0.28
    
    
    
    0.28
    
    
    
    0.25Basic common shares outstanding
    
    
    5,095
    
    
    
    5,336
    
    
    
    5,512
    
    
    
    5,937
    
    
    
    5,933Diluted common shares outstanding
    
    
    5,115
    
    
    
    5,383
    
    
    
    5,568
    
    
    
    6,001
    
    
    
    5,942Summary Balance SheetCurrent assets
    
    $
    50,595
    
    
    $
    41,454
    
    
    $
    35,804
    
    
    $
    35,395
    
    
    $
    42,214Total assets
    
    
    70,815
    
    
    
    55,254
    
    
    
    51,443
    
    
    
    53,298
    
    
    
    59,129Current liabilities
    
    
    40,600
    
    
    
    31,768
    
    
    
    22,329
    
    
    
    22,685
    
    
    
    31,981Long-term debt
    
    
    1,551
    
    
    
    2,949
    
    
    
    4,517
    
    
    
    5,746
    
    
    
    8,076Stockholders equity
    
    
    24,373
    
    
    
    18,339
    
    
    
    20,538
    
    
    
    22,624
    
    
    
    17,782Book value per common share
    
    
    4.78
    
    
    
    3.44
    
    
    
    3.73
    
    
    
    3.81
    
    
    
    3.00
 
 (1)
    
    Fiscal 2005 includes the results of operations
and net assets acquired of Bill Teiber Co., Inc.(2)
    
    Amounts have been restated to incorporate  the effects of FIN
46R. See Critical Accounting Policies and Estimates. 12




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
 Cautionary Statement
  Critical Accounting Policies and Estimates
  Revenue Recognition
  13




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Allowance for Doubtful Accounts
  Inventories
  Goodwill
  Income Taxes
  14




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Variable Interest Entities
   15




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Overview
  Fiscal 2005
    
    
    Fiscal 2004Craftmade
    
    
    TSI
    
    
    Total
    
    
    Craftmade
    
    
    TSI
    
    
    TotalNet sales
    
    $
    55,663
    
    
    $
    61,093
    
    
    $
    116,756
    
    
    $
    53,526
    
    
    $
    67,712
    
    
    $
    121,238Cost of goods sold
    
    
    35,352
    
    
    
    45,958
    
    
    
    81,310
    
    
    
    32,501
    
    
    
    52,827
    
    
    
    85,328Gross profit
    
    
    20,311
    
    
    
    15,135
    
    
    
    35,446
    
    
    
    21,025
    
    
    
    14,885
    
    
    
    35,910Gross margin
    
    
    36.5
    %
    
    
    24.8
    %
    
    
    30.4
    %
    
    
    39.3
    %
    
    
    22.0
    %
    
    
    29.6
    %SG&A
    
    
    13,372
    
    
    
    7,131
    
    
    
    20,503
    
    
    
    11,359
    
    
    
    7,221
    
    
    
    18,580As a % of net sales
    
    
    24.0
    %
    
    
    11.7
    %
    
    
    17.6
    %
    
    
    21.2
    %
    
    
    10.7
    %
    
    
    15.3
    %Interest
    
    
    973
    
    
    
    108
    
    
    
    1,081
    
    
    
    708
    
    
    
    69
    
    
    
    777Depreciation
    
    
    537
    
    
    
    44
    
    
    
    581
    
    
    
    554
    
    
    
    94
    
    
    
    648Income before minority
interests and income taxes
    
    $
    5,429
    
    
    $
    7,852
    
    
    
    13,281
    
    
    $
    8,404
    
    
    $
    7,501
    
    
    
    15,905Minority interests
    
    
    
    
    
    
    
    
    
    
    3,775
    
    
    
    
    
    
    
    
    
    
    
    3,719Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    3,079
    
    
    
    
    
    
    
    
    
    
    
    4,540Net income
    
    
    
    
    
    
    
    
    
    $
    6,427
    
    
    
    
    
    
    
    
    
    
    $
    7,646
 Results of Operations
 Fiscal year ended June 30, 2005 compared to fiscal year ended June 30, 2004.
 Net Sales.
    16




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Prime/
    
    
    TSITrade
    
    
    Design
    
    
    Home
    
    
    SegmentSource
    
    
    Trends
    
    
    Impressions
    
    
    TotalNet sales fiscal 2004
    
    $
    22,015
    
    
    $
    36,422
    
    
    $
    9,275
    
    
    $
    67,712Net sales fiscal 2005
    
    
    21,688
    
    
    
    28,782
    
    
    
    10,623
    
    
    
    61,093Dollar change
    
    
    (327
    )
    
    
    (7,640
    )
    
    
    1,348
    
    
    
    (6,619
    )Percent change
    
    
    -1.5
    %
    
    
    -21.0
    %
    
    
    14.5
    %
    
    
    -9.8
    %
   PHINet SalesNet sales for fiscal 2004
    
    $
    9,275Add
back: charge in connection with the rollout of the lamps replacement parts business in fiscal 2004
    
    
    2,100Net decrease in sales in fiscal 2005
    
    
    (752
    )Net sales for fiscal 2005
    
    $
    10,623
     17




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
    
    Maintain the distribution as implemented in mid-August 2005;
    
    Increase the distribution of the Design Trends program to additional or
all regional distribution centers; or
    
    Increase the distribution of the competitors program to additional or all
regional distribution centers.
   Gross Profit.
  Prime/
    
    TSITrade
    
    Design
    
    Home
    
    SegmentSource
    
    Trends
    
    Impressions
    
    TotalGross margin for fiscal 2004
    
    
    15.8
    %
    
    
    26.1
    %
    
    
    20.3
    %
    
    
    22.0
    %Charge in connection with the rollout of the lamp
replacement parts business in fiscal 2004
    
    
    
    
    
    
    
    
    
    
    14.7
    %
    
    
    2.3
    %Net change in gross margin
    
    
    1.0
    %
    
    
    0.2
    %
    
    
    2.1
    %
    
    
    0.5
    %Gross margin for fiscal 2005
    
    
    16.8
    %
    
    
    26.3
    %
    
    
    37.1
    %
    
    
    24.8
    %
  18




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Selling, General and Administrative Expenses.
  ChangeFromFiscal
    
    
    Fiscal
    
    
    Prior Year2005
    
    
    2004
    
    
    PeriodAccounting, legal and consulting
    
    $
    3,371
    
    
    $
    1,656
    
    
    $
    1,715Salaries and wages
    
    
    3,981
    
    
    
    3,517
    
    
    
    464Other
    
    
    6,020
    
    
    
    6,186
    
    
    
    (166
    )$
    13,372
    
    
    $
    11,359
    
    
    $
    2,013
     Interest Expense.
 19




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Minority Interests.
 Provision
For Income Taxes.
 20




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Fiscal year ended June 30, 2004 compared to fiscal year ended June 30, 2003.
 Net Sales.
  Gross Profit.
 Selling, General and Administrative Expenses.
 Interest Expense.
 Minority Interests.
 Provision for Income Taxes.
 21




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Liquidity and Capital Resources
 Fiscal year ended June 30, 2005
           22




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Fiscal year ended June 30, 2004
   23




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Fiscal year ended June 30, 2003
    Contractual Obligations
  Payments Due By PeriodContractual
    
    
    
    
    
    Less than
    
    
    1 to 3
    
    
    3 to 5
    
    
    More thanObligations
    
    Total
    
    
    1 year
    
    
    Years
    
    
    Years
    
    
    5 yearsLines of Credit
    
    $
    24,548,000
    
    
    $
    24,548,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Long-Term Debt Obligations
    
    
    2,870,000
    
    
    
    1,319,000
    
    
    
    1,551,000
    
    
    
    
    
    
    
    Operating Lease Obligations
    
    
    719,000
    
    
    
    369,000
    
    
    
    350,000
    
    
    
    
    
    
    
    Assumed Interest (1)
    
    
    1,688,220
    
    
    
    1,574,160
    
    
    
    114,060
    
    
    
    
    
    
    
    Total
    
    $
    29,825,220
    
    
    $
    27,810,160
    
    
    $
    2,015,060
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Assumed interest calculated at the Companys current
average interest rates. Actual results may be different.    Effects of Recent Accounting Pronouncements
  24




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Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provisions within the American Jobs
Creation Act of 2004,










Inflation




Related Party Transactions









ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.






25



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USD:TWDJune 30, 2004
    
    
    33.75September 30, 2004
    
    
    33.99December 31, 2004
    
    
    31.98March 31, 2005
    
    
    31.88June 30, 2005
    
    
    31.67
    26




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##### Table of Contents



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 ProceduresDisclosure controls and procedures are designed to ensure that information required to be
disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 (the
Exchange Act) is recorded, processed, summarized and reported, within the time periods
specified in the SECs rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed
in the reports filed under the Exchange Act is accumulated and communicated to management,
including the Chief Executive Officer and Interim Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.As of June 30, 2005, management carried out an evaluation, under the supervision and with the
participation of the Chief Executive Officer and Interim Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls and procedures.
Based upon and as of the date of that evaluation, the Chief Executive Officer and Interim Chief
Financial Officer concluded that the Companys disclosure controls and procedures are effective
to provide reasonable assurance that information required to be disclosed in the reports the
Company files and submits under the Exchange Act is recorded, processed, summarized and reported
as and when required.(b)
    
    Managements Report on Internal ControlsFor Managements Report on Internal Control over Financial Reporting, see page F-2 of this
Report.(c)
    
    Report of Independent Registered Public Accounting FirmFor the Report of Independent Registered Public Accounting Firm, see page F-3 and F-4 of this
Report.(d)
    
    Changes in Internal ControlsAs noted in our Annual Report on Form 10-K for the year ended June 30, 2004, and in the
Companys Quarterly Reports on Form 10-Q for the quarters ended September 30, 2004, December 31,
2004 and March 31, 2005, filed with the SEC, the Company
and the Companys Audit Committee believed that the
personnel and management of the Company who performed its accounting and financial reporting
functions were not sufficiently expert in U.S. GAAP and the requirements of the SEC and the
Public Company Accounting Oversight Board, and this lack of expertise represented a material
weakness. A material weakness is a control deficiency, or combination of control deficiencies,
that results in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected.In response to the foregoing material weakness, management of the Company, with the guidance of
the Companys Audit Committee, starting in October 2004, engaged in remediation efforts to
ensure that the preparation of the Companys consolidated financial statements, including the
process to review and analyze elements of the Companys financial statement close process, is in
accordance with U.S. GAAP. In addition, the plan ensured that the personnel involved in this
process have available to them the relevant information
 27




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about U.S. GAAP, SEC financial reporting requirements, and the requirements of the Public
Company Accounting Oversight Board necessary for them to be able to prepare the Companys
financial statements.Pursuant to the remediation efforts described above, the Company took many actions, including
the following:
 
    
    It hired a Chief Accounting Officer (the CAO) and accepted the resignation of its
former Chief Financial Officer.
    
    The Board of Directors of the Company appointed the Companys Executive Vice
President to serve as the Companys Interim Chief Financial Officer.
    
    The CAO and senior Company finance and accounting staff responsible for the
preparation of U.S. GAAP financial reports and SEC disclosures increased their level of
attendance at targeted U.S. GAAP and SEC reporting courses.
    
    The Company subscribed during the second quarter of fiscal year 2005 to additional
information networks that provide publications and updates of SEC and U.S. GAAP
releases and rule changes and of information about the requirements of the Public
Company Accounting Oversight Board.
    
    The Company engaged an outside internal control consulting firm in the second
quarter of fiscal year 2005 to assist it with its assessment, documentation and testing
of the Companys internal controls to ensure that they operated
effectively. As part of this process, several internal control
weaknesses were remediated.
  
 ITEM 9B. OTHER INFORMATION.
  28




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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
    
    
    Plans1999 Stock Option Plan
    
    
    13,000
    
    
    $
    6.75
    
    
    
    100,0002000 Non-Employee Director Plan
    
    
    12,000
    
    
    
    18.74
    
    
    
    49,500Total
    
    
    25,000
    
    
    $
    12.50
    
    
    
    149,500
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
  29




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PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 (a)
    
    The following documents are filed as part of this report:
 1.
    
    Financial Statements  The financial statements listed in the Index to Consolidated
Financial Statements described at F-1.2.
    
    Financial Statement Schedule  The financial statement schedule listed in the Index to
Consolidated Financial Statements described at F-1.3.
    
    Exhibits  Refer to (b) below.
 (b)
    
    Exhibits
 2.1
    
    Agreement and Plan of Merger by and among Craftmade International, Inc., Bill Teiber
Co., Inc., Teiber Lighting Products, Inc., Todd Teiber and Edward Oberstein dated March 1,
2005, previously filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K dated March 1, 2005 (File No.
000-26667), and incorporated by reference herein.2.2
    
    Agreement and Plan of Merger, dated as of July 1, 1998, by and among Craftmade
International, Inc., Trade Source International, Inc. a Delaware corporation, Neall and
Leslie Humphrey, John DeBlois, the Wiley Family Trust, James Bezzerides, the Bezzco Inc.
Employee Retirement Trust and Trade Source International, Inc, a California corporation,
filed as Exhibit 2.1 to the Companys Current Report on Form 8-K filed July 15, 1998 (File
No. 33-33594-FW) previously and incorporated by reference herein.3.1
    
    Certificate of Incorporation of the Company, previously filed as Exhibit 3(a)(2) to the Companys
Post Effective Amendment No. 1 to Form S-18 (File No. 33-33594-FW), and incorporated by
reference herein.3.2
    
    Certificate of Amendment of Certificate of Incorporation of the Company, dated March
24, 1992, previously filed as Exhibit 4.2 to the Companys Form S-8 (File No. 333-44337), and
incorporated by reference herein.3.3
    
    Amended and Restated Bylaws of the Company, previously filed as Exhibit 3(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, previously 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 the Companys Current Report on Form 8-K
dated July 9, 1999 (File No. 000-26667), and incorporated by reference herein.10.1
    
    Agreement for the Purchase and Sale of Personal Goodwill by and between Teiber Lighting
Products, Inc. and Todd Teiber dated March 1, 2005, previously filed as Exhibit 10.2 to
the Companys Current Reports on Form 8-K dated March 1,
2005 (File No. 000-26667), and incorporated by reference herein.10.2
    
    Agreement for the Purchase and Sale of Personal Goodwill by and between Teiber Lighting
Products, Inc. and Edward Oberstein dated March 1, 2005, previously filed as Exhibit 10.3
to the Companys Current Report on Form 8-K dated March 1,
2005 (File No. 000-26667), and incorporated by reference herein.10.3
    
    Consulting Agreement dated March 1, 2005, by and among Craftmade International, Inc.,
Teiber Lighting Products, Inc. and Todd Teiber, previously filed as
Exhibit 10.4 to  the Companys Current Report on Form
8-K dated March 1, 2005 (File No. 000-26667), and incorporated by reference herein.
 30




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##### Table of Contents



10.4
    
    Employment Agreement dated March 1, 2005, by and among Craftmade International, Inc.,
Teiber Lighting Products, Inc. and Edward Oberstein, previously filed
as Exhibit 10.5 to the Companys Current Report on
Form 8-K dated March 1, 2005 (File No. 000-26667), and incorporated by reference herein.10.5
    
    Promissory Note dated February 25, 2005, by and between Craftmade International, Inc.
and The Frost National Bank, previously filed as Exhibit 10.6 to the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 2005 (File No. 000-26667), and
incorporated by reference herein.10.6
    
    Third Amendment to Loan Agreement dated February 25,
2005, by and between Craftmade
International, Inc. and The Frost National Bank, previously filed as Exhibit 10.7 to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (File No.
000-26667), and incorporated by reference herein.10.7
    
    Arbitration and Notice of Final Agreement dated
February 25, 2005, by and between
Craftmade International, Inc. and The Frost National Bank, previously filed as Exhibit 10.8
to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (File
No. 000-26667), and incorporated by reference herein.10.8
    
    Renewal and Extension Agreement dated March 31, 2005, by and between Craftmade
International, Inc. and The Frost National Bank, previously filed as Exhibit 10.9 to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (File No.
000-26667), and incorporated by reference herein.10.9
    
    Arbitration and Notice of Final Agreement dated
March 31, 2005, by and between Craftmade
International, Inc. and The Frost National Bank, previously filed as Exhibit 10.10 to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (File No.
000-26667), and incorporated by reference herein.10.10*
    
    Modification, Renewal and Extension Agreement dated May 31, 2005, by and between The Frost
National Bank, a national banking association, and Craftmade International, Inc., a
Delaware corporation.10.11*
    
    Arbitration and Notice of Final Agreement dated June 14, 2005, by and between The Frost
National Bank, a national banking association, and Craftmade International, Inc., a
Delaware corporation.21.0*
    
    List of the subsidiaries of Craftmade International, Inc., a Delaware corporation, as of June 30, 2005.23.1*
    
    Consent of BDO Seidman, LLP.23.2*
    
    Consent of PricewaterhouseCoopers, 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 Brad Dale Heimann, Executive Vice President and Interim 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.
 31




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##### Table of Contents



32.2*
    
    Certification of Brad Dale Heimann, Executive Vice President and Interim Chief
Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
 
 *
    
    Each document marked with an asterisk is filed herewith. (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.
 32




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##### Table of Contents



SIGNATURES
  CRAFTMADE INTERNATIONAL, INC.By:
    
    /s/ James R. RidingsJames R. Ridings
Chairman of the Board and Chief Executive Officer
  Signatures
    
    Capacity
    
    Date/s/ James R. Ridings

James R. Ridings
    
    Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
    
    September 20, 2005/s/ Brad Dale Heimann

Brad Dale Heimann
    
    Executive Vice President and
Interim Chief Financial Officer
(Principal Financial and
Accounting Officer)
    
    September 20, 2005/s/ Clifford Crimmings

Clifford Crimmings
    
    Vice President of Marketing
and Director
    
    September 20, 2005/s/ John S. DeBlois

John S. DeBlois
    
    Executive Vice President of
Trade Source International, Inc.
and Director
    
    September 20, 2005/s/ William E. Bucek

William E. Bucek
    
    Director
    
    September 20, 2005/s/ L. Dale Griggs

L. Dale Griggs
    
    Director
    
    September 20, 2005/s/ A. Paul Knuckley

A. Paul Knuckley
    
    Director
    
    September 20, 2005/s/ R. Don Morris

R. Don Morris
    
    Director
    
    September 20, 2005/s/ Lary Snodgrass

Lary Snodgrass
    
    Director
    
    September 20, 2005
 33




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Managements Report on Internal Control Over Financial Reporting
    
    
    F-2Reports of Independent Registered Public Accounting Firms
    
    
    F-3Consolidated Statements of Income
    
    
    F-6Consolidated Balance Sheets
    
    
    F-7Consolidated Statements of Cash Flows
    
    
    F-9Consolidated Statements of Changes in Stockholders Equity
    
    
    F-10Notes to Consolidated Financial Statements
    
    
    F-12Financial Statement Schedule:II  Valuation and Qualifying Accounts
    
    
    F-34
 F-1




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##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     F-2




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Internal Control  Integrated Framework
  
 F-3




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated Framework
    Internal Control  Integrated Framework Internal Control 
Integrated Framework
   
 F-4




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
 F-5




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (In thousands, except per share data)
 FOR THE YEAR ENDEDJune 30,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2003Net sales
    
    $
    116,756
    
    
    $
    121,238
    
    
    $
    109,033Cost of goods sold
    
    
    81,310
    
    
    
    85,328
    
    
    
    73,639Gross profit
    
    
    35,446
    
    
    
    35,910
    
    
    
    35,394Selling, general and administrative expenses
    
    
    20,503
    
    
    
    18,580
    
    
    
    18,600Interest expense, net
    
    
    1,081
    
    
    
    777
    
    
    
    896Depreciation and amortization
    
    
    581
    
    
    
    648
    
    
    
    659Total expenses
    
    
    22,165
    
    
    
    20,005
    
    
    
    20,155Income before income taxes and minority interests
    
    
    13,281
    
    
    
    15,905
    
    
    
    15,239Minority interests
    
    
    3,775
    
    
    
    3,719
    
    
    
    4,235Income before income taxes
    
    
    9,506
    
    
    
    12,186
    
    
    
    11,004Provision for income taxes
    
    
    3,079
    
    
    
    4,540
    
    
    
    4,158Net income
    
    $
    6,427
    
    
    $
    7,646
    
    
    $
    6,846Basic earnings per common share
    
    $
    1.26
    
    
    $
    1.43
    
    
    $
    1.24Diluted earnings per common share
    
    $
    1.26
    
    
    $
    1.42
    
    
    $
    1.23Cash dividends declared per common share
    
    $
    0.40
    
    
    $
    0.40
    
    
    $
    0.28
 
 F-6




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands)
 ASSETS
 June 30,
    
    
    June 30,2005
    
    
    2004Current assetsCash
    
    $
    9,145
    
    
    $
    5,838Accounts receivable  net of allowance
of $300 and $150, respectively
    
    
    21,810
    
    
    
    19,242Inventories
- net of allowance of $717 and $1,171, respectively
    
    
    18,042
    
    
    
    15,172Deferred income taxes
    
    
    1,224
    
    
    
    9Prepaid expenses and other current assets
    
    
    374
    
    
    
    1,193Total current assets
    
    
    50,595
    
    
    
    41,454Property and equipmentLand
    
    
    1,535
    
    
    
    1,535Building
    
    
    7,796
    
    
    
    7,784Office furniture and equipment
    
    
    9,148
    
    
    
    9,013Leasehold improvements
    
    
    279
    
    
    
    27918,758
    
    
    
    18,611Less: accumulated depreciation
    
    
    (10,266
    )
    
    
    (9,626
    )Total property and equipment, net
    
    
    8,492
    
    
    
    8,985Other assetsGoodwill
    
    
    11,480
    
    
    
    4,735Other intangibles net of accumulated amortization
of $10 at June 30, 2005
    
    
    190
    
    
    
    Other assets
    
    
    58
    
    
    
    80Total other assets
    
    
    11,728
    
    
    
    4,815Total assets
    
    $
    70,815
    
    
    $
    55,254
 
 F-7




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 LIABILITIES AND STOCKHOLDERS EQUITY
 June 30,
    
    
    June 30,2005
    
    
    2004Current liabilitiesNotes payable  current
    
    $
    1,319
    
    
    $
    2,662Revolving line of credit
    
    
    24,548
    
    
    
    16,125Accounts payable
    
    
    9,299
    
    
    
    6,186Commissions payable
    
    
    248
    
    
    
    289Income taxes payable/(receivable)
    
    
    (33
    )
    
    
    1,112Accrued customer allowances
    
    
    4,164
    
    
    
    4,320Other accrued expenses
    
    
    1,055
    
    
    
    1,074Total current liabilities
    
    
    40,600
    
    
    
    31,768Other non-current liabilitiesNotes payable  long term
    
    
    1,551
    
    
    
    2,949Other accrued expenses
    
    
    860
    
    
    
    Deferred income taxes
    
    
    226
    
    
    
    214Total other non-current liabilities
    
    
    2,637
    
    
    
    3,163Total liabilities
    
    
    43,237
    
    
    
    34,931Minority interests
    
    
    3,205
    
    
    
    1,984Commitments and contingencies (Note 10)Stockholders equitySeries A cumulative, convertible callable
preferred stock, $1.00 par value, 2,000,000
shares authorized; 32,000 shares issued
    
    
    32
    
    
    
    32Common stock, $0.01 par value, 15,000,000
shares authorized, 9,699,920 and 9,465,535
shares issued, respectively
    
    
    97
    
    
    
    95Additional paid-in capital
    
    
    18,653
    
    
    
    14,098Unearned deferred compensation
    
    
    
    
    
    
    (11
    )Retained earnings
    
    
    45,598
    
    
    
    41,207Less: treasury stock, 4,499,920 and 4,336,587
common shares at cost, and 32,000
preferred shares at cost
    
    
    (40,007
    )
    
    
    (37,082
    )Total stockholders equity
    
    
    24,373
    
    
    
    18,339Total liabilities and stockholders equity
    
    $
    70,815
    
    
    $
    55,254
 
 F-8




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 FOR THE YEAR ENDEDJune 30,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    6,427
    
    
    $
    7,646
    
    
    $
    6,846Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation
and amortization
    
    
    651
    
    
    
    2,102
    
    
    
    2,295Provision for bad debts
    
    
    223
    
    
    
    69
    
    
    
    108Stock compensation expense
    
    
    11
    
    
    
    33
    
    
    
    33Deferred income taxes
    
    
    (1,203
    )
    
    
    147
    
    
    
    802Minority interest
    
    
    3,775
    
    
    
    3,719
    
    
    
    4,235Change in assets and liabilities providing
(using) cash:Accounts receivable
    
    
    (1,975
    )
    
    
    (2,728
    )
    
    
    4,741Inventories
net of allowances
    
    
    (765
    )
    
    
    (2,046
    )
    
    
    (1,799
    )Prepaid expenses and other current assets
    
    
    861
    
    
    
    (590
    )
    
    
    65Accounts and commissions payable
    
    
    1,120
    
    
    
    1,851
    
    
    
    (608
    )Income taxes payable
    
    
    (1,146
    )
    
    
    505
    
    
    
    (250
    )Accrued
expenses and customer allowances
    
    
    778
    
    
    
    1,422
    
    
    
    (1,573
    )Minority interest payable
    
    
    
    
    
    
    (153
    )
    
    
    Net cash provided by operating activities
    
    
    8,757
    
    
    
    11,977
    
    
    
    14,895Cash flows from investing activities:Acquisition of Bill Teiber Co., Inc.
    
    
    (4,000
    )
    
    
    
    
    
    
    Additions to property and equipment
    
    
    (111
    )
    
    
    (195
    )
    
    
    (186
    )Additions to other intangibles
    
    
    (10
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (4,121
    )
    
    
    (195
    )
    
    
    (186
    )Cash flows from financing activities:Proceeds from notes payable
    
    
    
    
    
    
    2,100
    
    
    
    Principal payments on notes payable
    
    
    (2,740
    )
    
    
    (1,982
    )
    
    
    (950
    )Net proceeds from lines of credit
    
    
    8,423
    
    
    
    4,125
    
    
    
    1,798Treasury stock purchases
    
    
    (2,925
    )
    
    
    (8,269
    )
    
    
    (7,746
    )Distributions to minority interest members
    
    
    (2,554
    )
    
    
    (5,302
    )
    
    
    (2,912
    )Cash dividends
    
    
    (2,036
    )
    
    
    (2,123
    )
    
    
    (1,542
    )Proceeds from exercise of employee stock options
    
    
    503
    
    
    
    514
    
    
    
    323Net cash used in financing activities
    
    
    (1,329
    )
    
    
    (10,936
    )
    
    
    (11,029
    )Net increase in cash
    
    
    3,307
    
    
    
    846
    
    
    
    3,680Cash at beginning of year
    
    
    5,838
    
    
    
    4,992
    
    
    
    1,312Cash at end of year
    
    $
    9,145
    
    
    $
    5,838
    
    
    $
    4,992Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    929
    
    
    $
    777
    
    
    $
    896Income taxes
    
    $
    3,683
    
    
    $
    3,752
    
    
    $
    3,435Supplemental disclosure of non-cash investing and
financing activities:Common stock and additional paid-in-capital
issued in conjunction with acquisition
    
    $
    4,056
    
    
    
    
    
    
    
    Dividends declared but not paid
    
    $
    531
    
    
    $
    524
    
    
    $
    384
  F-9




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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, 2005
 Series A
    
    
    Additional
    
    
    UnearnedCommon Stock
    
    
    Preferred
    
    
    Paid-In
    
    
    Deferred
    
    
    Retained
    
    
    Treasury Stock(In thousands)
    
    Shares
    
    
    Amount
    
    
    Stock
    
    
    Capital
    
    
    Compensation
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance as of June 30, 2002
    
    
    9,391
    
    
    $
    94
    
    
    $
    32
    
    
    $
    13,261
    
    
    
    ($76
    )
    
    $
    30,380
    
    
    
    3,478
    
    
    
    ($21,067
    )
    
    $
    22,624Comprehensive income:Net income for the twelve
months ended June 30, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,846
    
    
    
    
    
    
    
    
    
    
    
    6,846Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,846
    
    
    
    
    
    
    
    
    
    
    
    6,846Deferred compensation earned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33Treasury stock purchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    558
    
    
    
    (7,746
    )
    
    
    (7,746
    )Exercise of employee stock options
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    323
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    323Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,542
    )
    
    
    
    
    
    
    
    
    
    
    (1,542
    )Balance as of June 30, 2003
    
    
    9,426
    
    
    $
    94
    
    
    $
    32
    
    
    $
    13,584
    
    
    
    ($43
    )
    
    $
    35,684
    
    
    
    4,036
    
    
    
    ($28,813
    )
    
    $
    20,538Comprehensive income:Net income for the twelve
months ended June 30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,646
    
    
    
    
    
    
    
    
    
    
    
    7,646Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,646
    
    
    
    
    
    
    
    
    
    
    
    7,646Deferred compensation earned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32Treasury stock purchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    332
    
    
    
    (8,269
    )
    
    
    (8,269
    )Exercise of employee stock options
    
    
    40
    
    
    
    1
    
    
    
    
    
    
    
    514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    515Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,123
    )
    
    
    
    
    
    
    
    
    
    
    (2,123
    )Balance as of June 30, 2004
    
    
    9,466
    
    
    $
    95
    
    
    $
    32
    
    
    $
    14,098
    
    
    
    ($11
    )
    
    $
    41,207
    
    
    
    4,368
    
    
    
    ($37,082
    )
    
    $
    18,339
 
 F-10




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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, 2005
 Series A
    
    
    Additional
    
    
    UnearnedCommon Stock
    
    
    Preferred
    
    
    Paid-In
    
    
    Deferred
    
    
    Retained
    
    
    Treasury Stock(In thousands)
    
    Shares
    
    
    Amount
    
    
    Stock
    
    
    Capital
    
    
    Compensation
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance as of June 30, 2004
    
    
    9,466
    
    
    $
    95
    
    
    $
    32
    
    
    $
    14,098
    
    
    
    ($11
    )
    
    $
    41,207
    
    
    
    4,368
    
    
    
    ($37,082
    )
    
    $
    18,339Comprehensive income:Net income for the twelve months
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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (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
    
    
    $
    0
    
    
    $
    45,598
    
    
    
    4,531
    
    
    
    ($40,007
    )
    
    $
    24,373
 
 F-11




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  ORGANIZATION AND NATURE OF THE COMPANY
  NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation 
 Accounts receivable 
 Concentration of credit risk 
 F-12




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Lowes Companies
    
    Wal-MartPercent of
    
    
    
    
    
    Percent ofFiscal
    
    Percent of
    
    Consolidated
    
    Percent of
    
    ConsolidatedYear
    

TSIs Sales
    
    Sales
    

TSIs Sales
    
    Sales2005
    
    
    73
    %
    
    
    40
    %
    
    
    18
    %
    
    
    10
    %2004
    
    
    75
    %
    
    
    42
    %
    
    
    15
    %
    
    
    8
    %2003
    
    
    70
    %
    
    
    39
    %
    
    
    17
    %
    
    
    9
    %
 Inventories 
 Property and equipment 
 Building
    
    40 yearsOffice furniture and equipment
    
    3 to 7 years
    Impairment of long-lived assets 
 Goodwill 
 F-13




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Product warranties 
 Warranty Reserves
 Fiscal
    
    
    Fiscal
    
    
    Fiscal(In thousands)
    
    2005
    
    
    2004
    
    
    2003Beginning of year balance
    
    $
    230
    
    
    $
    139
    
    
    $
    0Provision for estimated expenses
    
    
    1,769
    
    
    
    1,764
    
    
    
    1,748Warranty claims paid
    
    
    (1,743
    )
    
    
    (1,673
    )
    
    
    (1,609
    )End of year balance
    
    $
    256
    
    
    $
    230
    
    
    $
    139
 Income taxes 
  Revenue recognition 
 F-14




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Advertising
costs 
 Research and development 
 F-15




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Stock-based compensation 
  Fiscal
    
    
    Fiscal
    
    
    Fiscal(In thousands, except per share data)
    
    2005
    
    
    2004
    
    
    2003Net income, as reported
    
    $
    6,427
    
    
    $
    7,646
    
    
    $
    6,846Compensation expense, pro forma
    
    
    (63
    )
    
    
    (138
    )
    
    
    (157
    )Net income, pro forma
    
    $
    6,364
    
    
    $
    7,508
    
    
    $
    6,689Basic earnings per share, as reported
    
    $
    1.26
    
    
    $
    1.43
    
    
    $
    1.24Basic earnings per share, pro forma
    
    
    1.25
    
    
    
    1.41
    
    
    
    1.21Diluted earnings per share, as reported
    
    $
    1.26
    
    
    $
    1.42
    
    
    $
    1.23Diluted earnings per share, pro forma
    
    
    1.24
    
    
    
    1.39
    
    
    
    1.20
  Fiscal
    
    Fiscal
    
    Fiscal2005
    
    2004
    
    2003Expected volatility
    
    
    47
    %
    
    
    50
    %
    
    
    50
    %Risk-free interest rate
    
    
    3.7
    %
    
    
    2.9
    %
    
    
    3.7
    %Expected lives
    
    
    4 years
    
    
    
    7 years
    
    
    
    7 yearsDividend yield
    
    
    1.9
    %
    
    
    1.6
    %
    
    
    1.8
    %
  Earnings per common share 
 Segment information 
 F-16




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Pervasiveness of estimates 
 Effects
of recent accounting pronouncements
 Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provisions
within the American Jobs Creation Act of 2004,
     NOTE 3  ACQUISITION OF BILL TEIBER CO., INC.
    F-17




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Number of shares of Common Stock
    
    
    190,385Average trading price
    
    $
    21.306
    (i)Sub-total
    
    $
    4,056,343Cash consideration
    
    
    4,000,000Merger-related costs
    
    
    107,178Total consideration
    
    $
    8,163,521
 
 (i)
    
    The average trading price is based on the average of the closing prices of
Craftmades common stock, $0.01 par value per share (Common Stock), for the
two days before, the day of, and the two days after the date of the
announcement of the merger, March 1, 2005.  Current assets
    
    $
    3,015,990Property and equipment
    
    
    36,771Intangible assets
    
    
    200,000Goodwill
    
    
    6,744,397Other assets
    
    
    9,559Total assets
    
    
    10,006,717Current liabilities
    
    
    (1,843,196
    )Total liabilities
    
    
    (1,843,196
    )Total purchase price
    
    $
    8,163,521
    F-18




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Unaudited Pro Forma Results
(In thousands except per share data)
 Year Ended
    
    Year EndedJune 30,
    
    June 30,2005
    
    2004Revenues
    
    $
    121,432
    
    $
    128,003Net income
    
    
    6,684
    
    
    7,857Basic earnings per share
    
    $
    1.28
    
    $
    1.42Diluted earnings per share
    
    
    1.27
    
    
    1.41
 NOTE 4  ACCOUNTING CHANGES
 Variable Interest Entities
    F-19




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2005
 Consolidation/Craftmade/
    
    
    Design
    
    
    Prime
    
    
    Elimination(In thousands)
    
    TSI
    
    
    Trends
    
    
    Home
    
    
    Entries
    
    
    ConsolidatedTotal assets
    
    $
    53,486
    
    
    $
    8,999
    
    
    $
    4,119
    
    
    $
    4,211
    
    
    $
    70,815Total liabilities and minority interests
    
    
    36,434
    
    
    
    4,613
    
    
    
    4,154
    
    
    
    1,241
    
    
    
    46,442Total stockholders equity
    
    
    17,052
    
    
    
    4,386
    
    
    
    (35
    )
    
    
    2,970
    
    
    
    24,373Total liabilities and stockholders
equity
    
    $
    53,486
    
    
    $
    8,999
    
    
    $
    4,119
    
    
    $
    4,211
    
    
    $
    70,815
 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2004
 Consolidation/Craftmade/
    
    
    Design
    
    
    Prime
    
    
    Elimination(In thousands)
    
    TSI
    
    
    Trends
    
    
    Home
    
    
    Entries
    
    
    ConsolidatedTotal assets
    
    $
    39,132
    
    
    $
    10,954
    
    
    $
    3,508
    
    
    $
    1,660
    
    
    $
    55,254Total liabilities and minority interests
    
    
    24,316
    
    
    
    8,844
    
    
    
    5,318
    
    
    
    (1,563
    )
    
    
    36,915Total stockholders equity
    
    
    14,816
    
    
    
    2,110
    
    
    
    (1,810
    )
    
    
    3,223
    
    
    
    18,339Total liabilities and stockholders
equity
    
    $
    39,132
    
    
    $
    10,954
    
    
    $
    3,508
    
    
    $
    1,660
    
    
    $
    55,254
 F-20




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 2005
 Craftmade/
    
    Design
    
    Prime
    
    Elimination(In thousands)
    
    TSI
    
    Trends
    
    Home
    
    Entries
    
    ConsolidatedNet sales
    
    $
    77,350
    
    
    $
    28,782
    
    
    $
    10,624
    
    
    
    
    
    
    $
    116,756Income before minority
interest
expense and income taxes
    
    
    5,604
    
    
    
    4,700
    
    
    
    2,977
    
    
    
    
    
    
    
    13,281Net income
    
    
    2,627
    
    
    
    4,598
    
    
    
    2,977
    
    
    
    (3,775
    )
    
    
    6,427
 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 2004
 Consolidation/Craftmade/
    
    Design
    
    Prime
    
    Elimination(In thousands)
    
    TSI
    
    Trends
    
    Home
    
    Entries
    
    ConsolidatedNet sales
    
    $
    75,541
    
    
    $
    36,422
    
    
    $
    9,275
    
    
    $
    0
    
    
    $
    121,238Income before minority
interest
expense and income taxes
    
    
    8,274
    
    
    
    6,830
    
    
    
    801
    
    
    
    0
    
    
    
    15,905Net income
    
    
    3,928
    
    
    
    6,636
    
    
    
    801
    
    
    
    (3,719
    )
    
    
    7,646
 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 2003
 Consolidation/Craftmade/
    
    Design
    
    Prime
    
    Elimination(In thousands)
    
    TSI
    
    Trends
    
    Home
    
    Entries
    
    ConsolidatedNet sales
    
    $
    71,817
    
    
    $
    29,079
    
    
    $
    8,137
    
    
    $
    0
    
    
    $
    109,033Income before minority
interest
expense and income taxes
    
    
    6,658
    
    
    
    5,724
    
    
    
    2,857
    
    
    
    0
    
    
    
    15,239Net income
    
    
    2,610
    
    
    
    5,591
    
    
    
    2,881
    
    
    
    (4,236
    )
    
    
    6,846
 F-21




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5  REVOLVING LINES OF CREDIT AND NOTES PAYABLE
 June 30,
    
    
    June 30,Description
    
    2005
    
    
    2004On October 27, 2003 the Company renewed its $20,000,000 loan agreement with The
Frost National Bank. Borrowings under this agreement are made under a
revolving promissory note (the Craftmade Line of Credit) and are limited to
the lesser of $20,000,000 less the amount outstanding under a separate
$2,000,000 revolving promissory note with the bank (Design Trends Line of
Credit) or the amount equal to the borrowing base calculated on eligible
accounts receivable and inventory. The borrowings are collateralized by
certain inventory and accounts receivable and bear interest at prime (6.00% at
June 30, 2005) less .5% and require the maintenance of a tangible net worth
ratio, interest coverage ratio and fixed charge coverage ratio. The line of
credit is due on demand; however, if no demand is made, it is scheduled to
mature October 31, 2005. On February 25, 2005, the line of credit was amended
to provide, among other things, a $3.0 million increase in the commitment
initially through March 31, 2005. The increase was
subsequently extended through May 31, 2005 and then through December 31, 2005. The amended
agreement stipulates that the Company will not
repurchase Company common stock if its debt to
tangible net worth ratio exceeds 3.0 to 1.0.
Management is negotiating to renew the
Companys line of credit and believes it will
be able to complete the transaction prior to
the maturity of its existing line of credit.
Management believes that alternative bank
financing on acceptable terms would be
available should the Company not be able to
renew its current line of credit.
    
    $
    23,000
    
    
    $
    14,577On June 14, 2004 the Company entered into a
$2,000,000 loan agreement with Frost National
Bank. Borrowings under this agreement are
made under a promissory note (the Design
Trends Line of Credit) collateralized by
certain inventory and accounts receivable of
the Company and 50% or $1,000,000 whichever is
less of outstanding borrowings are guaranteed
by the other member of Design Trends. The
borrowings bear interest at a variable
interest rate 3.5% at June 30, 2004 and
require the maintenance of working capital of
2 to 1 and tangible net worth of 2.5 to 1.
Any borrowings under this agreement will be
due on October 31, 2005.
    
    
    
    
    
    
    
 F-22




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
    
    
    June 30,Description
    
    2005
    
    
    2004On November 24, 2003 PHI entered into a loan
agreement with Wachovia Bank NA. Borrowings
under this agreement are made under a
$2,100,000 promissory note collateralized by
substantially all the assets of PHI. This
loan is guaranteed jointly and severally by
each of the PHI members. Borrowings under
this agreement are payable in quarterly
installments of $525,000 plus interest at
1-month LIBOR (3.3401% at June 30, 2005) plus
2.5% beginning on June 15, 2004. The note was
scheduled to mature on March 15, 2005, but was
subsequently extended through September
15, 2005 when all unpaid principal and
interest shall be due and payable. This loan
agreement requires the maintenance of certain
financial ratios including minimum tangible
net worth and funded debt to EBITDA.
    
    
    263
    
    
    
    1,575On April 17, 2002 PHI entered into a
$2,000,000 note and security agreement with
Wachovia Bank, NA. 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 LIBOR (3.3401% at
June 30, 2005) plus 2% payable monthly,
collateralized by certain inventory and
receivables of the Company and jointly and
severally guaranteed by the PHI members. This
loan agreement requires, which expires on
October 1, 2005, requires the maintenance of certain
financial ratios including the maintenance of
minimum tangible net worth and funded debt to
EBITDA.
    
    
    1,548
    
    
    
    1,548On April 29, 2002 PHI entered into a three-year $500,000
note and security agreement with Wachovia Bank, NA.
Borrowings under this agreement are payable monthly in
installments of $13,889 plus interest at LIBOR (3.3401% at June
30, 2005) plus 2.5%
collateralized by certain inventory and receivables of the
Company. The note is scheduled to mature on July 29, 2005.
    
    
    28
    
    
    
    195On 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 with a net book
value of approximately $7,521,000 at June 30, 2005. The loan is
scheduled to mature on January 1, 2008.
    
    
    2,579
    
    
    
    3,84127,418
    
    
    
    21,736Less lines of credit due on demand
    
    
    (24,548
    )
    
    
    (16,125
    )Less amounts due in following year  current
    
    
    (1,319
    )
    
    
    (2,662
    )Non-current
    
    $
    1,551
    
    
    $
    2,949
 F-23




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  LinesFiscal
    
    
    Notes
    
    
    ofYear
    
        
Payable
    
    
Credit
    
    
Total2006

    
    $
    1,319
    
    $
    24,548
    
    $
    25,8672007

    
    
    1,118
    
    
    
    
    
    1,1182008

    
    
    433
    
    
    

    
    
    433Thereafter

    
    
    0
    
    
    
    
    
    $
    2,870
    
    $
    24,548
    
    $
    27,418
    F-24




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6  INCOME TAXES
  Fiscal
    
    
    Fiscal
    
    
    Fiscal2005
    
    
    2004
    
    
    2003Current expense:Federal
    
    $
    3,659
    
    
    $
    3,499
    
    
    $
    2,617State
    
    
    264
    
    
    
    536
    
    
    
    487Foreign
    
    
    359
    
    
    
    358
    
    
    
    252Total current expense
    
    
    4,282
    
    
    
    4,393
    
    
    
    3,356Deferred expense (benefit)
    
    
    (1,203
    )
    
    
    147
    
    
    
    802Provision for income tax expense
    
    $
    3,079
    
    
    $
    4,540
    
    
    $
    4,158
  Fiscal
    
    
    Fiscal2005
    
    
    2004Inventories
    
    $
    369
    
    
    $
    433Accounts receivable reserves
    
    
    75
    
    
    
    55Accrued customer allowances
    
    
    394
    
    
    
    172Investment in 50% owned LLCs
    
    
    720
    
    
    
    577Other
    
    
    123
    
    
    
    116Total deferred tax assets
    
    
    1,681
    
    
    
    1,353Depreciation and amortization
    
    
    (301
    )
    
    
    (388
    )Foreign taxes
    
    
    (354
    )
    
    
    (1,163
    )Other
    
    
    (28
    )
    
    
    (7
    )Total deferred tax liabilities
    
    
    (683
    )
    
    
    (1,558
    )Net deferred tax asset (liability)
    
    $
    998
    
    
    
    ($205
    )
 F-25




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Fiscal
    
    
    Fiscal
    
    
    Fiscal2005
    
    
    2004
    
    
    2003Tax at the statutory corporate rate
    
    $
    4,515
    
    
    $
    5,416
    
    
    $
    5,181Less: federal income tax attributable to minority interest
    
    
    (1,284
    )
    
    
    (1,297
    )
    
    
    (1,459
    )Foreign tax rate under federal statutory rate
    
    
    (338
    )
    
    
    
    
    
    
    State income taxes, net of federal benefit
    
    
    180
    
    
    
    343
    
    
    
    360Federal taxes on anticipated repatriation of foreign earnings
    
    
    51
    
    
    
    
    
    
    
    Other
    
    
    (45
    )
    
    
    78
    
    
    
    76Provision for income taxes
    
    $
    3,079
    
    
    $
    4,540
    
    
    $
    4,158
 F-26




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 7  STOCKHOLDERS EQUITY
 Stock Option Plans
  1999 Plan
    
    
    Non-Employee PlanWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Exercise
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Exercise
    
    
    AverageExercise
    
    
    Price
    
    
    Remaining
    
    
    
    
    
    
    Exercise
    
    
    Price
    
    
    RemainingShares
    
    
    Price
    
    
    Range
    
    
    Life
    
    
    Shares
    
    
    Price
    
    
    Range
    
    
    LifeOutstanding at June 30, 2002
    
    
    126,000
    
    
    $
    6.75
    
    
    
    
    
    
    
    
    
    
    
    13,500
    
    
    $
    9.66Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500
    
    
    
    14.15Exercised
    
    
    (33,500
    )
    
    
    6.75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at June 30, 2003
    
    
    92,500
    
    
    $
    6.75
    
    
    
    
    
    
    
    
    
    
    
    18,000
    
    
    $
    10.78Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500
    
    
    
    25.20Exercised
    
    
    (40,500
    )
    
    
    6.75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at June 30, 2004
    
    
    52,000
    
    
    $
    6.75
    
    
    
    
    
    
    
    
    
    
    
    22,500
    
    
    $
    13.67Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000
    
    
    
    20.74Exercised
    
    
    (32,000
    )
    
    
    6.75
    
    
    
    
    
    
    
    
    
    
    
    (12,000
    )
    
    
    8.92Forfeited
    
    
    (7,000
    )
    
    
    6.75
    
    
    
    
    
    
    
    
    
    
    
    (1,500
    )
    
    
    25.20$
    14.85-Outstanding at June 30, 2005
    
    
    13,000
    
    
    $
    6.75
    
    
    $
    6.75
    
    
    
    5.3
    
    
    
    12,000
    
    
    $
    18.74
    
    
    $
    25.20
    
    
    
    8.1Exercisable at June 30, 2005
    
    
    13,000
    
    
    $
    6.75
    
    
    
    
    
    
    
    
    
    
    
    9,000
    
    
    $
    18.07
 F-27




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Treasury Stock Purchases
   Stockholder Rights Plan
  F-28




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8  EARNINGS PER SHARE
  Fiscal
    
    
    Fiscal
    
    
    Fiscal2005
    
    
    2004
    
    
    2003(In thousands except per share data)Basic and diluted earnings per share:NumeratorNet income
    
    $
    6,427
    
    
    $
    7,646
    
    
    $
    6,846Denominator for basic EPSWeighted-average common shares outstanding
    
    
    5,095
    
    
    
    5,336
    
    
    
    5,512Denominator for diluted EPSWeighted-average common shares outstanding
    
    
    5,095
    
    
    
    5,336
    
    
    
    5,512Stock options
    
    
    20
    
    
    
    47
    
    
    
    56Potentially dilutive common shares
    
    
    5,115
    
    
    
    5,383
    
    
    
    5,568Basic earnings per share
    
    $
    1.26
    
    
    $
    1.43
    
    
    $
    1.24Diluted earnings per share
    
    $
    1.26
    
    
    $
    1.42
    
    
    $
    1.23
 F-29




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
  NOTE 10   COMMITMENTS AND CONTINGENCIES
  FiscalYear
    
    Amount2006
    
    $
    3692007
    
    
    3222008
    
    
    282009
    
    
    Thereafter
    
    
    $
    719
    NOTE 11   401(k) DEFINED CONTRIBUTION PLAN
  F-30




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 12   MAJOR SUPPLIER AND RELATED PARTY
      NOTE 13   SEGMENT INFORMATION
   F-31




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Craftmade
    
    
    TSI
    
    
    TotalFor the year ended June 30, 2005:Net sales
    
    $
    55,663
    
    
    $
    61,093
    
    
    $
    116,756Operating
profit(1)
    
    
    6,402
    
    
    
    7,960
    
    
    
    14,362Interest expense
    
    
    973
    
    
    
    108
    
    
    
    1,081Minority interest
    
    
    
    
    
    
    3,775
    
    
    
    3,775Provision for income taxes
    
    
    1,895
    
    
    
    1,184
    
    
    
    3,079Depreciation and amortization
    
    
    537
    
    
    
    44
    
    
    
    581Total assets
    
    
    50,835
    
    
    
    19,980
    
    
    
    70,815For the year ended June 30, 2004:Net sales
    
    $
    53,526
    
    
    $
    67,712
    
    
    $
    121,238Operating
profit(1)
    
    
    9,112
    
    
    
    7,570
    
    
    
    16,682Interest expense
    
    
    708
    
    
    
    69
    
    
    
    777Minority interest
    
    
    
    
    
    
    3,719
    
    
    
    3,719Provision for income taxes
    
    
    3,019
    
    
    
    1,521
    
    
    
    4,540Depreciation
    
    
    554
    
    
    
    94
    
    
    
    648Total assets
    
    
    29,163
    
    
    
    26,091
    
    
    
    55,254For the year ended June 30, 2003:Net sales
    
    $
    49,154
    
    
    $
    59,879
    
    
    $
    109,033Operating
profit(1)
    
    
    7,835
    
    
    
    8,300
    
    
    
    16,135Interest expense
    
    
    851
    
    
    
    45
    
    
    
    896Minority interest
    
    
    
    
    
    
    4,235
    
    
    
    4,235Provision for income taxes
    
    
    2,677
    
    
    
    1,481
    
    
    
    4,158Depreciation
    
    
    570
    
    
    
    89
    
    
    
    659Total assets
    
    
    28,372
    
    
    
    23,071
    
    
    
    51,443
 
 (1)
    
    Operating profit represents income before minority interest
and interest.  Fiscal
    
    
    Fiscal
    
    
    Fiscal2005
    
    
    2004
    
    
    2003United States
    
    $
    107,247
    
    
    $
    112,894
    
    
    $
    99,781Hong Kong
    
    
    9,509
    
    
    
    8,344
    
    
    
    9,252$
    116,756
    
    
    $
    121,238
    
    
    $
    109,033
  
 F-32




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE
14   QUARTERLY DATA  (UNAUDITED)
   Fiscal 2005
    
    
    Fiscal 2004(In thousands,
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    First
    
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    Firstexcept per share data)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterNet Sales
    
    $
    32,323
    
    
    $
    27,059
    
    
    $
    28,349
    
    
    $
    29,025
    
    
    $
    32,112
    
    
    $
    28,988
    
    
    $
    28,947
    
    
    $
    31,191Gross Profit
    
    
    10,221
    
    
    
    7,893
    
    
    
    8,812
    
    
    
    8,520
    
    
    
    9,584
    
    
    
    8,462
    
    
    
    7,643
    
    
    
    10,221Operating Profit (1)
    
    
    4,380
    
    
    
    2,843
    
    
    
    4,175
    
    
    
    2,964
    
    
    
    4,673
    
    
    
    3,890
    
    
    
    2,556
    
    
    
    5,563Net Income
    
    
    2,064
    
    
    
    1,093
    
    
    
    1,872
    
    
    
    1,398
    
    
    
    2,131
    
    
    
    1,782
    
    
    
    1,364
    
    
    
    2,369Basic EPS
    
    $
    0.40
    
    
    $
    0.22
    
    
    $
    0.37
    
    
    $
    0.27
    
    
    $
    0.41
    
    
    $
    0.34
    
    
    $
    0.25
    
    
    $
    0.44Diluted EPS
    
    
    0.40
    
    
    
    0.22
    
    
    
    0.37
    
    
    
    0.27
    
    
    
    0.41
    
    
    
    0.33
    
    
    
    0.25
    
    
    
    0.43Basic shares outstanding
    
    
    5,200
    
    
    
    5,062
    
    
    
    5,034
    
    
    
    5,084
    
    
    
    5,165
    
    
    
    5,314
    
    
    
    5,437
    
    
    
    5,422Diluted shares outstanding
    
    
    5,206
    
    
    
    5,074
    
    
    
    5,057
    
    
    
    5,124
    
    
    
    5,207
    
    
    
    5,360
    
    
    
    5,477
    
    
    
    5,481
 
 (1)
    
    Operating profit represents income before
minority interest and interest. F-33




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 
 Schedule II  Valuation and Qualifying Accounts
 AdditionsBalance at
    
    
    Charged
    
    
    Charged
    
    
    
    
    
    
    Balancebeginning
    
    
    to costs
    
    
    to other
    
    
    
    
    
    
    at end ofDescription
    
    of period
    
    
    and expense
    
    
    accounts
    
    
    Deductions
    
    
    periodAllowance for doubtful accounts
for the years ended:June 30, 2005
    
    $
    150
    
    
    $
    223
    
    
    $
    116
    
    
    ($
    189
    )(a)
    
    $
    300June 30, 2004
    
    
    150
    
    
    
    69
    
    
    
    
    
    
    
    (69
    )(a)
    
    
    150June 30, 2003
    
    
    150
    
    
    
    108
    
    
    
    
    
    
    
    (108
    )(a)
    
    
    150Allowance for inventory obsolescence
for the years ended:June 30, 2005
    
    $
    1,171
    
    
    $
    481
    
    
    
    
    
    
    ($
    935
    )(b)
    
    $
    717June 30, 2004
    
    
    1,641
    
    
    
    1,070
    
    
    
    
    
    
    
    (1,540
    )(b)
    
    
    1,171June 30, 2003
    
    
    2,241
    
    
    
    1,516
    
    
    
    
    
    
    
    (2,116
    )(b)
    
    
    1,641
 
 (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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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
EXHIBIT INDEX
 ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Merger by and among Craftmade International, Inc., Bill Teiber
Co., Inc., Teiber Lighting Products, Inc., Todd Teiber and Edward Oberstein dated March 1,
2005, previously filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K dated March 1, 2005 (File No.
000-26667), and incorporated by reference herein.2.2

    
    Agreement and Plan of Merger, dated as of July 1, 1998, by and among Craftmade
International, Inc., Trade Source International, Inc. a Delaware corporation, Neall and
Leslie Humphrey, John DeBlois, the Wiley Family Trust, James Bezzerides, the Bezzco Inc.
Employee Retirement Trust and Trade Source International, Inc, a California corporation,
filed as Exhibit 2.1 to the Companys Current Report on Form 8-K filed July 15, 1998 (File
No. 33-33594-FW) previously and incorporated by reference herein.3.1

    
    Certificate of Incorporation of the Company, previously filed as Exhibit 3(a)(2) to the Companys
Post Effective Amendment No. 1 to Form S-18 (File No. 33-33594-FW), and incorporated by
reference herein.3.2

    
    Certificate of Amendment of Certificate of Incorporation of the Company, dated March
24, 1992, previously filed as Exhibit 4.2 to the Companys Form S-8 (File No. 333-44337), and
incorporated by reference herein.3.3

    
    Amended and Restated Bylaws of the Company, previously filed as Exhibit 3(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, previously 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 the Companys Current Report on Form 8-K
dated July 9, 1999 (File No. 000-26667), and incorporated by reference herein.10.1

    
    Agreement for the Purchase and Sale of Personal Goodwill by and between Teiber Lighting
Products, Inc. and Todd Teiber dated March 1, 2005, previously filed as Exhibit 10.2 to
the Companys Current Reports on Form 8-K dated March 1,
2005 (File No. 000-26667), and incorporated by reference herein.10.2

    
    Agreement for the Purchase and Sale of Personal Goodwill by and between Teiber Lighting
Products, Inc. and Edward Oberstein dated March 1, 2005, previously filed as Exhibit 10.3
to the Companys Current Report on Form 8-K dated March 1,
2005 (File No. 000-26667), and incorporated by reference herein.10.3

    
    Consulting Agreement dated March 1, 2005, by and among Craftmade International, Inc.,
Teiber Lighting Products, Inc. and Todd Teiber, previously filed as
Exhibit 10.4 to  the Companys Current Report on Form
8-K dated March 1, 2005 (File No. 000-26667), and incorporated by reference herein.




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##### Table of Contents



ExhibitNumber

    Description10.4
    
    Employment Agreement dated March 1, 2005, by and among Craftmade International, Inc.,
Teiber Lighting Products, Inc. and Edward Oberstein, previously filed
as Exhibit 10.5 to the Companys Current Report on
Form 8-K dated March 1, 2005 (File No. 000-26667), and incorporated by reference herein.10.5
    
    Promissory Note dated February 25, 2005, by and between Craftmade International, Inc.
and The Frost National Bank, previously filed as Exhibit 10.6 to the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 2005 (File No. 000-26667), and
incorporated by reference herein.10.6
    
    Third Amendment to Loan Agreement dated February 25,
2005, by and between Craftmade
International, Inc. and The Frost National Bank, previously filed as Exhibit 10.7 to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (File No.
000-26667), and incorporated by reference herein.10.7
    
    Arbitration and Notice of Final Agreement dated
February 25, 2005, by and between
Craftmade International, Inc. and The Frost National Bank, previously filed as Exhibit 10.8
to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (File
No. 000-26667), and incorporated by reference herein.10.8
    
    Renewal and Extension Agreement dated March 31, 2005, by and between Craftmade
International, Inc. and The Frost National Bank, previously filed as Exhibit 10.9 to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (File No.
000-26667), and incorporated by reference herein.10.9
    
    Arbitration and Notice of Final Agreement dated
March 31, 2005, by and between Craftmade
International, Inc. and The Frost National Bank, previously filed as Exhibit 10.10 to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (File No.
000-26667), and incorporated by reference herein.10.10*
    
    Modification, Renewal and Extension Agreement dated May 31, 2005, by and between The Frost
National Bank, a national banking association, and Craftmade International, Inc., a
Delaware corporation.10.11*
    
    Arbitration and Notice of Final Agreement dated June 14, 2005, by and between The Frost
National Bank, a national banking association, and Craftmade International, Inc., a
Delaware corporation.21.0*
    
    List of the subsidiaries of Craftmade International, Inc., a Delaware corporation, as of June 30, 2005.23.1*
    
    Consent of BDO Seidman, LLP.23.2*
    
    Consent of PricewaterhouseCoopers, 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 Brad Dale Heimann, Executive Vice President and Interim 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 Brad Dale Heimann, Executive Vice President and Interim Chief
Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
 
 *
    
    Each document marked with an asterisk is filed herewith.