##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 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, 2006
 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 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:
 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
 In this Form 10-K , references to Craftmade, ourselves, we, our, us, its, itself,
and the Company refer to Craftmade International, Inc., Trade Source International, Inc., their
wholly-owned subsidiaries, and the Companys 50% owned limited liability companies (LLCs)
unless the context requires otherwise.
 Various statements in this Form 10-K or incorporated by reference into this Form 10-K , in
future filings with the SEC, in press releases, and in oral statements made by or with the approval
of authorized personnel constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are based on current
expectations and are indicated by words or phrases such as may, will, should, could,
might, expects, plans, anticipates, believes, estimates, projects, predicts,
forecasts, intends, potential, continue, and similar words or phrases and involve known and
unknown risks, uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from the future results, performance or achievements
expressed in or implied by such forward-looking statements. These forward-looking statements
include statements or predictions regarding among other items:
 
    
    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.
 These forward-looking statements are based largely on expectations and judgments and are
subject to a number of risks and uncertainties, many of which are beyond our control. Significant
factors that cause our actual results to differ materially from our expectations are described in
this Form 10-K under the heading of Risk Factors. We undertake no obligation to publicly update
or revise these Risk Factors or any forward-looking statements, whether as a result of new
information, future events or otherwise.
 Available Information
 Our 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 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 its 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 at www.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.




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##### 



TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    8Item 1B.
    
    Unresolved Staff Comments
    
    
    13Item 2.
    
    Properties
    
    
    13Item 3.
    
    Legal Proceedings
    
    
    13Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    13PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    14Item 6.
    
    Selected Financial Data
    
    
    15Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    16Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 8.
    
    Financial Statements and Supplementary Data
    
    
    29Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    29Item 9A.
    
    Controls and Procedures
    
    
    29Item 9B.
    
    Other Information
    
    
    31PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    31Item 11.
    
    Executive Compensation
    
    
    31Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    31Item 13.
    
    Certain Relationships and Related Transactions
    
    
    31Item 14.
    
    Principal Accountant Fees and Services
    
    
    31PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    32Signatures
    
    
    34Certification of James R. Ridings, Pursuant to Section 302Certification of J. Marcus Scrudder, Pursuant to Section 302Certification of James R. Ridings, Pursuant to Section 906Certification of J. Marcus Scrudder, Pursuant to Section 906List of SubsidiariesConsent of BDO Seidman, LLPConsent of PricewaterhouseCoopers, 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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##### Table of Contents



PART I
 
 Item 1. Business.
 The Company
  Craftmade 
  TSI
 50% Owned Limited Liability Companies
 Design Trends
 PHI
 1




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Segment Financial Information
  Summary of Reportable Segments
(Dollars in thousands)
 Craftmade
    
    TSI
    
    TotalFiscal 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
    
    
    
    70,815Fiscal year ended June 30, 2004:Net sales
    
    $
    53,526
    
    
    $
    67,712
    
    
    $
    121,238Gross profit
    
    
    21,025
    
    
    
    14,885
    
    
    
    35,910Income from operations
    
    
    9,112
    
    
    
    7,570
    
    
    
    16,682Interest expense, net
    
    
    708
    
    
    
    69
    
    
    
    777Minority interest
    
    
    
    
    
    
    3,719
    
    
    
    3,719Provision for income taxes
    
    
    3,019
    
    
    
    1,521
    
    
    
    4,540Depreciation
    
    
    554
    
    
    
    94
    
    
    
    648Net income
    
    
    5,385
    
    
    
    2,261
    
    
    
    7,646Total assets
    
    
    29,163
    
    
    
    26,091
    
    
    
    55,254
 Net Sales by Geographic Area
  2




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Products
  Net Sales by Product Category
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2006
    
    2005
    
    2004CraftmadeCeiling fans
    
    
    27
    %
    
    
    29
    %
    
    
    29
    %Teiber lighting products
    
    
    8
    %
    
    
    2
    %
    
    
    0
    %Other
    
    
    18
    %
    
    
    16
    %
    
    
    15
    %53
    %
    
    
    47
    %
    
    
    44
    %TSIIndoor lighting
    
    
    29
    %
    
    
    36
    %
    
    
    39
    %Outdoor lighting
    
    
    7
    %
    
    
    7
    %
    
    
    10
    %Accessories
    
    
    11
    %
    
    
    10
    %
    
    
    7
    %47
    %
    
    
    53
    %
    
    
    56
    %100
    %
    
    
    100
    %
    
    
    100
    %
 Craftmade Products
 Ceiling Fans
 Light Kits
 Bath-strip Lighting
 Outdoor Lighting
 Teiber Lighting Products
 Accessories
 TSI Products
 Indoor Lighting
 3




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Outdoor Lighting
 Accessories
 Manufacturing
 Craftmade.
    TSI.
    4




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Distribution
 Craftmade.
  TSI.
 Lowes Companies
    
    Wal-MartPercent of
    
    Percent of
    
    Percent of
    
    Percent ofTSIs
    
    Consolidated
    
    TSIs
    
    ConsolidatedFiscal Year Ended
    
    Net Sales
    
    Net Sales
    
    Net Sales
    
    Net SalesJune 30, 2006
    
    87%
    
    41%
    
    12%
    
    6%June 30, 2005
    
    83%
    
    44%
    
    20%
    
    11%June 30, 2004
    
    75%
    
    42%
    
    15%
    
    8%
  Marketing
 Craftmade.
  TSI.
 5




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General.
  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 30,2006
    
    2005
    
    2004Product warranty costs
    
    $
    1,037
    
    
    $
    1,009
    
    
    $
    872
 Research and development
  Research and Development
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2006
    
    2005
    
    2004Research and development
    
    $
    217
    
    
    $
    202
    
    
    $
    293
 Independent Safety Testing
  Product Liability
  Patents and Trademarks
  7




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##### Table of Contents



Employees
  
 Item 1A. Risk Factors.
   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.
  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.
  Summary of Purchases from Fanthing
(Dollars in thousands)
 As % of
    
    As % ofCraftmade
    
    TotalFiscal Year Ended
    
    Purchases
    
    PurchasesJune 30, 2006
    
    50%
    
    23%June 30, 2005
    
    60%
    
    29%June 30, 2004
    
    67%
    
    21%
 8




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A decline in general economic condition, particularly the housing, home construction, and remodel
sectors, could lead to reduced demand for the Companys products.
  The loss of certain of our customers that represent a significant percentage of our net sales could
adversely affect our results of operations.
  Lowes Companies
    
    Wal-MartPercent of
    
    Percent of
    
    Percent of
    
    Percent ofTSIs
    
    Consolidated
    
    TSIs
    
    ConsolidatedFiscal Year Ended
    
    Net Sales
    
    Net Sales
    
    Net Sales
    
    Net SalesJune 30, 2006
    
    87%
    
    41%
    
    12%
    
    6%June 30, 2005
    
    83%
    
    44%
    
    20%
    
    11%June 30, 2004
    
    75%
    
    42%
    
    15%
    
    8%
    9




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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.
  To the extent our mass merchandiser customers purchase product 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;
    
    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.
  10




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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 OfficerJohn S. DeBlois
    
    Executive Vice President of TSIClifford F. Crimmings
    
    Vice President of Marketing
  Our inability to meet financial covenants contained in our credit facilities could adversely impact
our ability to fund our operations.
    11




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We are exposed to the risk of an increase in interest rates.
  We are exposed to the risk of foreign currency appreciation.
  Tax legislation initiatives could adversely affect the Companys net earnings and tax liabilities.
  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.
  We are subject to increasingly complex corporate governance, public disclosure, accounting, and tax
requirements that has increased our costs and the risk of our not being in compliance with these
requirements.
   12




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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.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  Summary of Properties
 CurrentApproximate
    
    LeaseSquare
    
    TermLocation
    
    Use
    
    Feet
    
    ExpirationCoppell, Texas
    
    Distribution Facility
    
    
    378,000
    
    
    OwnedCarrollton, Texas
    
    Warehouse
    
    
    42,320
    
    
    July 31, 2007Dallas, Texas
    
    Dallas Trade Mart Showroom  Craftmade and TSI
    
    
    4,292
    
    
    April 30, 2007Dallas, Texas
    
    Dallas Trade Mart Showroom  Teiber
    
    
    533
    
    
    September 30, 2006
    
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  13




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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, 2007First Quarter (Through August 31, 2006)
    
    $
    17.72
    
    
    $
    14.61
    
    
    
    N/AFiscal Year Ended June 30, 2006Fourth Quarter
    
    $
    18.87
    
    
    $
    16.41
    
    
    $
    0.12Third Quarter
    
    
    20.41
    
    
    
    16.75
    
    
    
    0.12Second Quarter
    
    
    21.06
    
    
    
    18.00
    
    
    
    0.12First Quarter
    
    
    19.08
    
    
    
    16.10
    
    
    
    0.12Fiscal Year Ended June 30, 2005Fourth Quarter
    
    $
    22.38
    
    
    $
    15.46
    
    
    $
    0.10Third Quarter
    
    
    22.95
    
    
    
    19.25
    
    
    
    0.10Second Quarter
    
    
    24.75
    
    
    
    16.59
    
    
    
    0.10First Quarter
    
    
    22.14
    
    
    
    19.49
    
    
    
    0.10
   Holders
  Issuer Purchases of Equity Securities
  Equity Compensation Plans
  14




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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 30,2006
    
    2005
    
    2004
    
    2003
    
    2002(1)
    
    
    
    
    
    (2)
    
    (2)Selected Operating ResultsNet sales
    
    $
    118,054
    
    
    $
    118,806
    
    
    $
    121,238
    
    
    $
    109,033
    
    
    $
    106,050Gross profit
    
    
    35,469
    
    
    
    35,446
    
    
    
    35,910
    
    
    
    35,394
    
    
    
    31,923Gross profit as a percentage of net sales
    
    
    30.0
    %
    
    
    29.8
    %
    
    
    29.6
    %
    
    
    32.5
    %
    
    
    30.1
    %Selling, general and administrative
    
    
    19,895
    
    
    
    20,503
    
    
    
    18,580
    
    
    
    18,600
    
    
    
    17,962Income from operations
    
    
    14,980
    
    
    
    14,362
    
    
    
    16,682
    
    
    
    16,135
    
    
    
    13,383Minority interest
    
    
    3,430
    
    
    
    3,775
    
    
    
    3,719
    
    
    
    4,235
    
    
    
    2,516Net income
    
    
    7,100
    
    
    
    6,427
    
    
    
    7,646
    
    
    
    6,846
    
    
    
    6,160Basic earnings per common share
    
    
    1.37
    
    
    
    1.26
    
    
    
    1.43
    
    
    
    1.24
    
    
    
    1.04Diluted earnings per common share
    
    
    1.36
    
    
    
    1.26
    
    
    
    1.42
    
    
    
    1.23
    
    
    
    1.03Cash dividends declared per common share
    
    
    0.48
    
    
    
    0.40
    
    
    
    0.40
    
    
    
    0.28
    
    
    
    0.28Basic common shares outstanding
    
    
    5,201
    
    
    
    5,095
    
    
    
    5,336
    
    
    
    5,512
    
    
    
    5,937Diluted common shares outstanding
    
    
    5,211
    
    
    
    5,115
    
    
    
    5,383
    
    
    
    5,568
    
    
    
    6,001Summary Balance SheetCurrent assets
    
    $
    45,291
    
    
    $
    50,595
    
    
    $
    41,454
    
    
    $
    35,804
    
    
    $
    35,395Total assets
    
    
    65,061
    
    
    
    70,815
    
    
    
    55,254
    
    
    
    51,443
    
    
    
    53,298Current liabilities
    
    
    15,020
    
    
    
    39,714
    
    
    
    31,768
    
    
    
    22,329
    
    
    
    22,685Long-term debt
    
    
    16,204
    
    
    
    1,551
    
    
    
    2,949
    
    
    
    4,517
    
    
    
    5,746Total liabilities
    
    
    32,362
    
    
    
    42,351
    
    
    
    34,931
    
    
    
    27,338
    
    
    
    28,430Stockholders equity
    
    
    29,037
    
    
    
    24,373
    
    
    
    18,339
    
    
    
    20,538
    
    
    
    22,624Book value per common share
    
    
    5.58
    
    
    
    4.78
    
    
    
    3.44
    
    
    
    3.73
    
    
    
    3.81
 
 (1)
    
    Fiscal year 2005 results include net assets acquired and four months of the results of
operations of Bill Teiber Co., Inc. effective March 1, 2005.(2)
    
    Amounts have been restated to incorporate the effects of FIN 46R. See Item 7 
Managements Discussion and Analysis of Financial Condition and Results of Operations 
Critical Accounting Policies and Estimates and Note 4  Accounting Changes in the notes
to consolidated financial statements. 15




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation.
 Critical Accounting Policies and Estimates
  Revenue Recognition
    Allowance for Doubtful Accounts
  16




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Inventories
  Goodwill
  Income Taxes
   Variable Interest Entities
   17




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Overview
  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
    
    
    (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.
   18




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##### Table of Contents



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
    %)
      Gross Profit.
  19




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##### Table of Contents



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
    %)
   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
    )
   20




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##### Table of Contents



Interest Expense.
 Minority Interests.
 Provision for Income Taxes.
 Fiscal year ended June 30, 2005 compared to fiscal year ended June 30, 2004.
 Income Statement by Segment
(Dollars in thousands)
 Fiscal Year Ended
    
    
    Fiscal Year EndedJune 30, 2005
    
    
    June 30, 2004Craftmade
    
    
    TSI
    
    
    Total
    
    
    Craftmade
    
    
    TSI
    
    
    TotalNet sales
    
    $
    55,663
    
    
    $
    63,143
    
    
    $
    118,806
    
    
    $
    53,526
    
    
    $
    67,712
    
    
    $
    121,238Cost of goods sold
    
    
    (35,352
    )
    
    
    (48,008
    )
    
    
    (83,360
    )
    
    
    (32,501
    )
    
    
    (52,827
    )
    
    
    (85,328
    )Gross profit
    
    
    20,311
    
    
    
    15,135
    
    
    
    35,446
    
    
    
    21,025
    
    
    
    14,885
    
    
    
    35,910Gross profit as a % of net sales
    
    
    36.5
    %
    
    
    24.0
    %
    
    
    29.8
    %
    
    
    39.3
    %
    
    
    22.0
    %
    
    
    29.6
    %Selling, general and administrative
    
    
    (13,372
    )
    
    
    (7,131
    )
    
    
    (20,503
    )
    
    
    (11,359
    )
    
    
    (7,221
    )
    
    
    (18,580
    )As a % of net sales
    
    
    24.0
    %
    
    
    11.3
    %
    
    
    17.3
    %
    
    
    21.2
    %
    
    
    10.7
    %
    
    
    15.3
    %Depreciation and amortization
    
    
    (537
    )
    
    
    (44
    )
    
    
    (581
    )
    
    
    (554
    )
    
    
    (94
    )
    
    
    (648
    )Total operating expenses
    
    
    (13,909
    )
    
    
    (7,175
    )
    
    
    (21,084
    )
    
    
    (11,913
    )
    
    
    (7,315
    )
    
    
    (19,228
    )Income from operations
    
    
    6,402
    
    
    
    7,960
    
    
    
    14,362
    
    
    
    9,112
    
    
    
    7,570
    
    
    
    16,682Interest expense, net
    
    
    (973
    )
    
    
    (108
    )
    
    
    (1,081
    )
    
    
    (708
    )
    
    
    (69
    )
    
    
    (777
    )Income before income taxes and minority interests
    
    
    5,429
    
    
    
    7,852
    
    
    
    13,281
    
    
    
    8,404
    
    
    
    7,501
    
    
    
    15,905Provision for income taxes
    
    
    (1,895
    )
    
    
    (1,184
    )
    
    
    (3,079
    )
    
    
    (3,019
    )
    
    
    (1,521
    )
    
    
    (4,540
    )Income before minority interests
    
    
    3,534
    
    
    
    6,668
    
    
    
    10,202
    
    
    
    5,385
    
    
    
    5,980
    
    
    
    11,365Minority interests
    
    
    
    
    
    
    (3,775
    )
    
    
    (3,775
    )
    
    
    
    
    
    
    (3,719
    )
    
    
    (3,719
    )Net income
    
    $
    3,534
    
    
    $
    2,893
    
    
    $
    6,427
    
    
    $
    5,385
    
    
    $
    2,261
    
    
    $
    7,646
 21




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##### Table of Contents



Net Sales.
   Net Sales of TSI Segment
(Dollars in thousands)
 TSITrade
    
    
    Design
    
    
    
    
    
    
    SegmentSource
    
    
    Trends
    
    
    PHI
    
    
    TotalNet sales fiscal 2005
    
    $
    21,838
    
    
    $
    30,022
    
    
    $
    11,283
    
    
    $
    63,143Net sales fiscal 2004
    
    
    22,015
    
    
    
    36,422
    
    
    
    9,275
    
    
    
    67,712Dollar increase/(decrease)
    
    $
    (177
    )
    
    $
    (6,400
    )
    
    $
    2,008
    
    
    $
    (4,569
    )Percent increase/(decrease)
    
    
    (0.8
    %)
    
    
    (17.6
    %)
    
    
    21.6
    %
    
    
    (6.7
    %)
     Gross Profit.
 22




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##### Table of Contents



Gross Profit as a Percentage of Net Sales of the TSI Segment
 TSITrade
    
    Design
    
    
    
    
    
    SegmentSource
    
    Trends
    
    PHI
    
    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
    
    
    0.8
    %
    
    
    (0.9
    )%
    
    
    0.0
    %
    
    
    (0.3
    )%Gross margin for fiscal 2005
    
    
    16.6
    %
    
    
    25.2
    %
    
    
    35.0
    %
    
    
    24.0
    %
   Selling, General and Administrative Expenses.
 Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/(Decrease)Fiscal Year Ended
    
    
    FromJune 30,
    
    
    June 30,
    
    
    Prior Year2005
    
    
    2004
    
    
    PeriodSalaries and wages
    
    $
    6,220
    
    
    $
    6,077
    
    
    $
    143Accounting, legal and consulting
    
    
    3,709
    
    
    
    1,899
    
    
    
    1,810Other
    
    
    10,574
    
    
    
    10,604
    
    
    
    (30
    )$
    20,503
    
    
    $
    18,580
    
    
    $
    1,923
   Interest Expense.
 23




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##### Table of Contents



Minority Interests.
 Provision for Income Taxes.
 Liquidity and Capital Resources
 Fiscal year ended June 30, 2006
      24




---



##### Table of Contents



Contractual Obligations
  Summary of Contractual Obligations
At June 30, 2006
(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
    
    $
    18,154
    
    
    $
    2,173
    
    
    $
    15,981
    
    
    $
    
    
    
    $
    Note payable
    
    
    1,358
    
    
    
    1,135
    
    
    
    223
    
    
    
    
    
    
    
    Assumed interest (1)
    
    
    1,785
    
    
    
    1,235
    
    
    
    550
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    422
    
    
    
    348
    
    
    
    74
    
    
    
    
    
    
    
    Total
    
    $
    21,719
    
    
    $
    4,891
    
    
    $
    16,828
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Assumed interest calculated at the interest rate in effect at June 30, 2006 for each line of
credit or note payable. Lines of Credit and Notes Payable
  Summary of Revolving Lines of Credit
and Notes Payable at June 30, 2006
(Dollars in thousands)
 OutstandingCommitment
    
    
    Balance
    
    
    Interest Rate
    
    MaturityRevolving lines of creditThe Frost National Bank
    
    $
    20,000
    
    
    $
    15,981
    
    
    LIBOR plus 1.50%
    
    October 31, 2007The Frost National Bank
    
    
    3,000
    
    
    
    
    
    
    LIBOR plus 1.50%
    
    January 15, 2007Wachovia Bank, N.A.
    
    
    3,000
    
    
    
    2,173
    
    
    LIBOR plus 2.00%
    
    December 15, 2006$
    26,000
    
    
    
    18,154Notes payable  facility
    

    N/A

    
    
    1,358
    
    
    8.302%
    
    January 1, 2008$
    19,512
  25




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##### Table of Contents



Operating Lease Obligations
  Inflation
  Fiscal year ended June 30, 2005
    26




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##### Table of Contents



Fiscal year ended June 30, 2004
    Effects of Recent Accounting Pronouncements
    Related Party Transactions
  27




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 Foreign Currency Risk
    USD:TWD
    
    USD:YUANDecember 31, 2004
    
    
    31.980
    
    
    
    8.287March 31, 2005
    
    
    31.875
    
    
    
    8.287June 30, 2005
    
    
    31.665
    
    
    
    8.287September 30, 2005
    
    
    33.270
    
    
    
    8.110December 31, 2005
    
    
    32.951
    
    
    
    8.073March 31, 2006
    
    
    32.568
    
    
    
    8.035June 30, 2006
    
    
    32.619
    
    
    
    8.006
   Summary of Foreign Purchases
Fiscal Year Ended June 30, 2006
(Dollars in thousands)
 China
    
    $
    50,498,000Taiwan
    
    
    16,271,000
 28




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##### Table of Contents



Hypothetical Appreciation of Foreign Currencies
(Dollars in thousands)
 Annual
    
    AnnualForeign
    
    Increase in
    
    Decrease inCurrency
    
    Cost of
    
    NetAppreciation
    
    Sales
    
    Income1
    %
    
    
    $
    2,020
    
    
    $
    1,1495
    %
    
    
    
    13,354
    
    
    
    7,97510
    %
    
    
    
    25,080
    
    
    
    14,835
 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, 2006. The
Companys assessment of the effectiveness of its internal control over financial reporting
as of June 30, 2006 has been audited by BDO Seidman, LLP, an independent registered public
accounting firm, as stated in their report which is included herein.
 (c)
    
    Report of Independent Registered Public Accounting Firm
 29




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 To the Board of Directors and Stockholders of Craftmade International, Inc.
Coppell, TexasWe have audited managements assessment, included in the accompanying Managements Annual
Report on Internal Control over Financial Reporting appearing under Item 9A, that Craftmade
International, Inc. and Subsidiaries (the Company) maintained effective internal control
over financial reporting as of June 30, 2006, based on the criteria established in Internal
Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Management of the Company is responsible for maintaining
effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on managements assessment and an opinion on the effectiveness of the
internal control over financial reporting of the Company based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, evaluating managements
assessment, testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect
on the financial statements.Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.In our opinion, managements assessment that the Company maintained effective internal
control over financial reporting as of June 30, 2006, is fairly stated, in all material
respects, based on criteria established in Internal Control  Integrated Frameworkissued
by the COSO. Also, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of June 30, 2006, based on the
criteria established in Internal Control  Integrated Frameworkissued by the COSO.We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Craftmade
International, Inc. and Subsidiaries as of June 30, 2006 and June 30, 2005 and the related
consolidated statements of income, stockholders equity, and cash flows for the years then
ended June 30, 2006 and June 30, 2005. We have also audited the schedule listed in Item
15(a)(2) for this Form 10-K for the years ended June 30, 2006 and June 30, 2005. Our
report dated August 25, 2006 expressed an unqualified opinion on those consolidated
financial statements and schedule.
 
 
 30




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##### Table of Contents



(d)
    
    Changes in Internal Controls Over Financial ReportingNone.
 
 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
    
    
    4,500
    
    
    $
    6.75
    
    
    
    100,0002000 Non-Employee Director Plan
    
    
    15,000
    
    
    
    18.48
    
    
    
    46,500Total
    
    
    19,500
    
    
    $
    15.77
    
    
    
    146,500
  
 Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accountant Fees and Services.
  31




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##### 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-31 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)
    
    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 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) 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-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, 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 an
exhibit 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 an exhibit in Form 10Q for the quarter ended
December 31, 1995, and herein incorporated by reference.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 an exhibit in Form 10Q for the quarter ended December 31, 1995,
and herein incorporated by reference.10.3
    
    Craftmade International, Inc. 1999 Stock Option Plan, filed as Exhibit A to
the Companys Proxy Statement on Schedule 14A filed October 4, 2000 (File No.
000-26667) and herein incorporated by reference.
 32




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##### Table of Contents



10.4
    
    Craftmade International, Inc. 2000 Non-Employee Director Stock Plan, filed as
Exhibit B to the Companys Proxy Statement on Schedule 14A filed October 4, 2000 (File
No. 000-26667) and herein incorporated by reference.10.5
    
    Modification, Renewal and Extension Agreement dated October 31, 2005 by and
between Craftmade International, Inc. and The Frost National Bank, filed as Exhibit
10.1 to the Companys Form 10-Q/A dated November 9, 2005 (File No. 000-26667), and
incorporated by reference herein.10.6
    
    Amended and Restated Loan Agreement dated October 31, 2005 by and between
Craftmade International, Inc. and The Frost National Bank, filed as Exhibit 10.2 to
the Companys Form 10-Q/A dated November 9, 2005 (File No. 000-26667), and
incorporated by reference herein.10.7
    
    Arbitration and Notice of Final Agreement dated October 31, 2005 by and
between Craftmade International, Inc. and The Frost National Bank, filed as Exhibit
10.3 to the Companys Form 10-Q/A dated November 9, 2005 (File No. 000-26667), and
incorporated by reference herein.21.0*
    
    List of the subsidiaries of Craftmade International, Inc., a Delaware corporation, as of June 30, 2006.23.1*
    
    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 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 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.
 33




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##### Table of Contents



SIGNATURES
  CRAFTMADE INTERNATIONAL, INC.By:
    /s/ James R. RidingsJames R. RidingsChairman of the Board and Chief Executive Officer
(Principal Executive Officer)  Signatures
    
    Capacity
    
    Date/s/ James R. Ridings
    
    Chairman of the Board, Chief
    
    September 12, 2006James R. Ridings
    
    Executive
Officer and Director(Principal Executive Officer)/s/ J. Marcus Scrudder
    
    Chief Financial Officer
    
    September 12, 2006J. Marcus Scrudder
    
    (Principal
Financial Officer)/s/ Clifford Crimmings
    
    Vice President of Marketing
    
    September 12, 2006Clifford Crimmings
    
    and
Director/s/ John S. DeBlois
    
    Executive Vice President of
    
    September 12, 2006John S. DeBlois
    
    Trade
Source International, Inc.and Director/s/ Michael L. Patton
    
    Chief Accounting Officer
    
    September 12, 2006Michael L. Patton
    
    (Principal
Accounting Officer)/s/ William E. Bucek
    
    Director
    
    September 12, 2006William E. Bucek/s/ L. Dale Griggs
    
    Director
    
    September 12, 2006L. Dale Griggs/s/ A. Paul Knuckley
    
    Director
    
    September 12, 2006A. Paul Knuckley/s/ R. Don Morris
    
    Director
    
    September 12, 2006R. Don Morris/s/ Lary Snodgrass
    
    Director
    
    September 12, 2006Lary Snodgrass/s/ Richard T. Walsh
    
    Director
    
    September 12, 2006Richard T. Walsh
 34




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Reports of Independent Registered Public Accounting Firms
    
    F-2Consolidated Statements of Income
    
    F-4Consolidated Balance Sheets
    
    F-5Consolidated Statements of Cash Flows
    
    F-7Consolidated Statements of Changes in Stockholders Equity
    
    F-9Notes to Consolidated Financial Statements
    
    F-11Financial Statement Schedule:II  Valuation and Qualifying Accounts
    
    F-31
 F-1




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##### Table of Contents



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




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   
 
 F-3




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2004(In thousands, except per share data)Net sales
    
    $
    118,054
    
    
    $
    118,806
    
    
    $
    121,238Cost of goods sold
    
    
    (82,585
    )
    
    
    (83,360
    )
    
    
    (85,328
    )Gross profit
    
    
    35,469
    
    
    
    35,446
    
    
    
    35,910Selling, general and administrative expenses
    
    
    (19,895
    )
    
    
    (20,503
    )
    
    
    (18,580
    )Depreciation and amortization
    
    
    (594
    )
    
    
    (581
    )
    
    
    (648
    )Total operating expenses
    
    
    (20,489
    )
    
    
    (21,084
    )
    
    
    (19,228
    )Income from operations
    
    
    14,980
    
    
    
    14,362
    
    
    
    16,682Interest expense, net
    
    
    (1,184
    )
    
    
    (1,081
    )
    
    
    (777
    )Income before income taxes and minority interests
    
    
    13,796
    
    
    
    13,281
    
    
    
    15,905Provision for income taxes
    
    
    (3,266
    )
    
    
    (3,079
    )
    
    
    (4,540
    )Income before minority interests
    
    
    10,530
    
    
    
    10,202
    
    
    
    11,365Minority interests
    
    
    (3,430
    )
    
    
    (3,775
    )
    
    
    (3,719
    )Net income
    
    $
    7,100
    
    
    $
    6,427
    
    
    $
    7,646Earnings per share data:Basic weighted average common shares outstanding
    
    
    5,201
    
    
    
    5,095
    
    
    
    5,336Diluted weighted average common shares outstanding
    
    
    5,211
    
    
    
    5,115
    
    
    
    5,383Basic earnings per common share
    
    $
    1.37
    
    
    $
    1.26
    
    
    $
    1.43Diluted earnings per common share
    
    $
    1.36
    
    
    $
    1.26
    
    
    $
    1.42Cash dividends declared per common share
    
    $
    0.48
    
    
    $
    0.40
    
    
    $
    0.40
  F-4




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    June 30,2006
    
    
    2005(In thousands)ASSETSCurrent assetsCash
    
    $
    2,164
    
    
    $
    9,145Accounts receivable  net of allowance
of $293 and $300, respectively
    
    
    19,802
    
    
    
    21,810Inventories  net of allowance of $934
and $717, respectively
    
    
    21,085
    
    
    
    18,042Deferred income taxes
    
    
    1,252
    
    
    
    1,224Prepaid expenses and other current assets
    
    
    988
    
    
    
    374Total current assets
    
    
    45,291
    
    
    
    50,595Property and equipmentLand
    
    
    1,535
    
    
    
    1,535Building
    
    
    7,796
    
    
    
    7,796Office furniture and equipment
    
    
    3,320
    
    
    
    9,148Leasehold improvements
    
    
    187
    
    
    
    27912,838
    
    
    
    18,758Less: accumulated depreciation
    
    
    (4,740
    )
    
    
    (10,266
    )Total property and equipment, net
    
    
    8,098
    
    
    
    8,492Other assetsGoodwill
    
    
    11,480
    
    
    
    11,480Other intangibles, net of accumulated amortization
of $41 and $10, respectively
    
    
    169
    
    
    
    190Other assets
    
    
    23
    
    
    
    58Total other assets
    
    
    11,672
    
    
    
    11,728Total assets
    
    $
    65,061
    
    
    $
    70,815
  F-5




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    June 30,2006
    
    
    2005(In thousands,except share data)LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS EQUITYCurrent liabilitiesBook overdrafts
    
    $
    70
    
    
    $
    520Notes payable  current
    
    
    1,135
    
    
    
    1,319Revolving lines of credit
    
    
    2,173
    
    
    
    24,548Accounts payable
    
    
    7,544
    
    
    
    7,893Commissions payable
    
    
    274
    
    
    
    248Income taxes payable/(receivable)
    
    
    114
    
    
    
    (33
    )Accrued customer allowances
    
    
    2,637
    
    
    
    4,164Other accrued expenses
    
    
    1,073
    
    
    
    1,055Total current liabilities
    
    
    15,020
    
    
    
    39,714Other non-current liabilitiesNotes payable  long term
    
    
    223
    
    
    
    1,551Revolving line of credit
    
    
    15,981
    
    
    
    Other long-term expenses
    
    
    793
    
    
    
    860Deferred income taxes
    
    
    345
    
    
    
    226Total other non-current liabilities
    
    
    17,342
    
    
    
    2,637Total liabilities
    
    
    32,362
    
    
    
    42,351Minority interests
    
    
    3,662
    
    
    
    4,091Commitments and contingencies (Note 10)Stockholders equitySeries A cumulative, convertible callable preferred
stock, $1.00 par value, 2,000,000 shares authorized;
nil and 32,000 shares issued, respectively
    
    
    
    
    
    
    32Common stock, $0.01 par value, 15,000,000
shares authorized; 9,703,420 and 9,699,920
shares issued, respectively
    
    
    97
    
    
    
    97Additional paid-in capital
    
    
    17,757
    
    
    
    18,653Retained earnings
    
    
    49,309
    
    
    
    45,598Less: treasury stock, 4,499,920 common
shares at cost; and nil and 32,000
preferred shares at cost, respectively
    
    
    (38,126
    )
    
    
    (40,007
    )Total stockholders equity
    
    
    29,037
    
    
    
    24,373Total liabilities, minority interests and stockholders equity
    
    $
    65,061
    
    
    $
    70,815
  F-6




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2004(In thousands)Cash flows from operating activities:Net income
    
    $
    7,100
    
    
    $
    6,427
    
    
    $
    7,646Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    594
    
    
    
    651
    
    
    
    2,102Provision for bad debts and inventories
    
    
    564
    
    
    
    704
    
    
    
    1,139Loss on sale of property and equipment
    
    
    63
    
    
    
    
    
    
    
    Stock compensation expense
    
    
    23
    
    
    
    11
    
    
    
    33Deferred income taxes
    
    
    91
    
    
    
    (1,203
    )
    
    
    147Minority interest
    
    
    3,430
    
    
    
    3,775
    
    
    
    3,719Change in assets and liabilities providing
(using) cash:Accounts receivable
    
    
    1,928
    
    
    
    (1,975
    )
    
    
    (2,728
    )Inventories
    
    
    (3,527
    )
    
    
    (1,246
    )
    
    
    (3,116
    )Prepaid expenses and other current assets
    
    
    (588
    )
    
    
    861
    
    
    
    (590
    )Accounts and commissions payable
    
    
    (493
    )
    
    
    (1,172
    )
    
    
    1,851Income taxes payable
    
    
    147
    
    
    
    (1,146
    )
    
    
    505Accrued expenses and customer allowances
    
    
    (1,669
    )
    
    
    778
    
    
    
    1,422Minority interest payable
    
    
    171
    
    
    
    886
    
    
    
    (153
    )Net cash provided by operating activities
    
    
    7,834
    
    
    
    7,351
    
    
    
    11,977Cash flows from investing activities:Additions to property and equipment
    
    
    (233
    )
    
    
    (111
    )
    
    
    (195
    )Acquisition of Bill Teiber Co., Inc.
    
    
    
    
    
    
    (4,000
    )
    
    
    Additions to other intangibles
    
    
    
    
    
    
    (10
    )
    
    
    Net cash used in investing activities
    
    
    (233
    )
    
    
    (4,121
    )
    
    
    (195
    )Cash flows from financing activities:Net proceeds/(payments on) from lines of credit
    
    
    (6,394
    )
    
    
    8,423
    
    
    
    4,125Principal payments on notes payable
    
    
    (1,512
    )
    
    
    (2,740
    )
    
    
    (1,982
    )Distributions to minority interest members
    
    
    (3,859
    )
    
    
    (1,668
    )
    
    
    (5,302
    )Cash dividends
    
    
    (2,404
    )
    
    
    (2,036
    )
    
    
    (2,123
    )Treasury stock purchases
    
    
    
    
    
    
    (2,925
    )
    
    
    (8,269
    )Proceeds from exercise of employee stock options
    
    
    37
    
    
    
    503
    
    
    
    514Increase/(decrease) in book overdrafts
    
    
    (450
    )
    
    
    520
    
    
    
    Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    2,100Net cash provided by/(used in) financing activities
    
    
    (14,582
    )
    
    
    77
    
    
    
    (10,936
    )Net increase/(decrease) in cash
    
    
    (6,981
    )
    
    
    3,307
    
    
    
    846Cash at beginning of year
    
    
    9,145
    
    
    
    5,838
    
    
    
    4,992Cash at end of year
    
    $
    2,164
    
    
    $
    9,145
    
    
    $
    5,838
  F-7




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTINUED
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2004(In thousands)Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    1,202
    
    
    $
    929
    
    
    $
    777Income taxes
    
    
    3,033
    
    
    
    4,299
    
    
    
    3,752Supplemental disclosures of non-cash investing and financing activities:Dividends declared but not paid
    
    $
    624
    
    
    $
    531
    
    
    $
    524Common stock and additional paid-in-capital
issued in conjunction with acquisition
    
    $
    
    
    
    $
    4,056
    
    
    $
    Retirement 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-8




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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, 2006
 (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, 2003
    
    
    9,426
    
    
    $
    94
    
    
    $
    32
    
    
    $
    13,584
    
    
    $
    (43
    )
    
    $
    35,684
    
    
    
    4,036
    
    
    $
    (28,813
    )
    
    $
    20,538Comprehensive income:Net income for the fiscal year 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 stock options
    
    
    40
    
    
    
    1
    
    
    
    
    
    
    
    514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    515Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,123
    )
    
    
    
    
    
    
    
    
    
    
    (2,123
    )Balance 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 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
    
    
    
    4,531
    
    
    $
    (40,007
    )
    
    $
    24,373
  F-9




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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, 2006
(In thousands)
 Series A
    
    
    AdditionalCommon Stock
    
    
    Preferred
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury StockShares
    
    
    Amount
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance as of June 30, 2005
    
    
    9,700
    
    
    $
    97
    
    
    $
    32
    
    
    $
    18,653
    
    
    $
    45,598
    
    
    
    4,531
    
    
    $
    (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
    
    
    
    4,499
    
    
    $
    (38,126
    )
    
    $
    29,037
  F-10




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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 
 F-11




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Concentration of credit risk 
 Lowes Companies
    
    Wal-MartPercent of
    
    Percent of
    
    Percent of
    
    Percent ofTSIs
    
    Consolidated
    
    TSIs
    
    ConsolidatedFiscal Year Ended
    
    Net Sales
    
    Net Sales
    
    Net Sales
    
    Net SalesJune 30, 2006
    
    87%
    
    41%
    
    12%
    
    6%June 30, 2005
    
    83%
    
    44%
    
    20%
    
    11%June 30, 2004
    
    75%
    
    42%
    
    15%
    
    8%
 Inventories 
 Property and equipment 
 Building
    
    40 yearsOffice furniture and equipment
    
    
    3 to 7 years
   Depreciation and Amortization
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2004Depreciation of property and equipment
    
    $
    564
    
    
    $
    570
    
    
    $
    648Amortization of intangibles
    
    
    30
    
    
    
    11
    
    
    
    $
    594
    
    
    $
    581
    
    
    $
    648
   F-12




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Impairment of long-lived assets 
 Goodwill 
 Summary of Goodwill at June 30, 2006
(Dollars in thousands)
 Acquisition
    
    Craftmade
    
    
    TSI
    
    
    TotalTeiber
    
    $
    6,745
    
    
    $
    
    
    
    $
    6,745TSI
    
    
    
    
    
    
    4,735
    
    
    
    4,735$
    6,745
    
    
    $
    4,735
    
    
    $
    11,480
  Returns
 Sales Returns Allowance
(Dollars in thousands)
 June 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2004Beginning of year balance
    
    $
    85
    
    
    $
    85
    
    
    $
    92Provision for estimated returns
    
    
    939
    
    
    
    760
    
    
    
    800Return credits issued
    
    
    (937
    )
    
    
    (760
    )
    
    
    (807
    )End of year balance
    
    $
    87
    
    
    $
    85
    
    
    $
    85
 F-13




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Product warranties 
 Product Warranty Reserves
(Dollars in thousands)
 June 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2004Beginning of year balance
    
    $
    171
    
    
    $
    145
    
    
    $
    139Provision for estimated expenses
    
    
    1,037
    
    
    
    1,009
    
    
    
    872Warranty claims paid
    
    
    (1,039
    )
    
    
    (983
    )
    
    
    (866
    )End of year balance
    
    $
    169
    
    
    $
    171
    
    
    $
    145
 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 
 Advertising
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2004Advertising expense
    
    $
    1,514
    
    
    $
    1,442
    
    
    $
    1,154Prepaid advertising costs
    
    
    125
    
    
    
    176
    
    
    
    339
 Research and development 
 Research and Development
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2004Research and development
    
    $
    217
    
    
    $
    202
    
    
    $
    293
 Stock-based compensation  Share-Based Payment
  F-15




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Pro Forma Net Income
(In thousands, except per shara data)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    7,100
    
    
    $
    6,427
    
    
    $
    7,646Compensation
expense, pro forma, net of related taxes
    
    
    
    
    
    
    (63
    )
    
    
    (138
    )Net income, proforma
    
    $
    7,100
    
    
    $
    6,364
    
    
    $
    7,508Basic weighted average shares of common stock
    
    
    5,201
    
    
    
    5,095
    
    
    
    5,336Diluted weighted average shares of common stock
    
    
    5,211
    
    
    
    5,115
    
    
    
    5,383Basic earnings per share, as reported
    
    $
    1.37
    
    
    $
    1.26
    
    
    $
    1.43Basic earnings per share, pro forma
    
    
    1.37
    
    
    
    1.25
    
    
    
    1.41Diluted earnings per share, as reported
    
    $
    1.36
    
    
    $
    1.26
    
    
    $
    1.42Diluted earnings per share, pro forma
    
    
    1.36
    
    
    
    1.24
    
    
    
    1.39
  Summary of Stock Option Assumptions
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2004Expected volatility
    
    
    45
    %
    
    
    47
    %
    
    
    50
    %Risk-free interest rate
    
    
    4.5
    %
    
    
    3.7
    %
    
    
    2.9
    %Expected lives
    
    4 years
    
    4 years
    
    7 yearsDividend yield
    
    
    2.7
    %
    
    
    1.9
    %
    
    
    1.6
    %Weighted average fair
value of options granted
    
    $
    5.88
    
    
    $
    7.43
    
    
    $
    5.06
 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 
 Note 3  Acquisition
 Acquisition of Bill Teiber Co., Inc.
    Unaudited Pro Forma Results
(In thousands, except per share data)
 Fiscal Year EndedJune 30,
    
    June 30,2005
    
    2004Revenues
    
    $
    123,482
    
    
    $
    128,003Net income
    
    
    6,684
    
    
    
    7,857Basic earnings per share
    
    $
    1.28
    
    
    $
    1.42Diluted earnings per share
    
    
    1.27
    
    
    
    1.41
 F-17




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 4  Accounting Changes
 Variable Interest Entities
    CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2006
 Consolidation/Craftmade/
    
    
    Design
    
    
    
    
    
    
    EliminationTrade Source
    
    
    Trends
    
    
    PHI
    
    
    Entries
    
    
    Consolidated(In thousands)Total assets
    
    $
    44,554
    
    
    $
    6,251
    
    
    $
    6,014
    
    
    $
    8,242
    
    
    $
    65,061Total liabilities
and minority interests
    
    $
    25,062
    
    
    $
    5,649
    
    
    $
    7,239
    
    
    $
    (1,926
    )
    
    $
    36,024Total stockholders equity
    
    
    19,492
    
    
    
    602
    
    
    
    (1,225
    )
    
    
    10,168
    
    
    
    29,037Total liabilities
and stockholders equity
    
    $
    44,554
    
    
    $
    6,251
    
    
    $
    6,014
    
    
    $
    8,242
    
    
    $
    65,061
 AS OF JUNE 30, 2005
 Consolidation/Craftmade/
    
    
    Design
    
    
    
    
    
    
    EliminationTrade Source
    
    
    Trends
    
    
    PHI
    
    
    Entries
    
    
    Consolidated(In thousands)Total 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
 F-18




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 4  Accounting Changes, Continued
 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FISCAL YEAR ENDED JUNE 30, 2006
 Craftmade/
    
    DesignTrade Source
    
    Trends
    
    PHI
    
    Consolidated(In thousands)Net sales
    
    $
    83,236
    
    
    $
    21,780
    
    
    $
    13,038
    
    
    $
    118,054Income from operations
    
    
    8,151
    
    
    
    3,418
    
    
    
    3,411
    
    
    
    14,980Net income
    
    
    3,670
    
    
    
    1,771
    
    
    
    1,659
    
    
    
    7,100
 FISCAL YEAR ENDED JUNE 30, 2005
 Craftmade/
    
    DesignTrade Source
    
    Trends
    
    PHI
    
    Consolidated(In thousands)Net sales
    
    $
    77,501
    
    
    $
    30,022
    
    
    $
    11,283
    
    
    $
    118,806Income from operations
    
    
    6,571
    
    
    
    4,700
    
    
    
    3,091
    
    
    
    14,362Net income
    
    
    2,627
    
    
    
    2,311
    
    
    
    1,489
    
    
    
    6,427
 FISCAL YEAR ENDED JUNE 30, 2004
 Craftmade/
    
    DesignTrade Source
    
    Trends
    
    PHI
    
    Consolidated(In thousands)Net sales
    
    $
    75,541
    
    
    $
    36,422
    
    
    $
    9,275
    
    
    $
    121,238Income from operations
    
    
    8,981
    
    
    
    6,830
    
    
    
    871
    
    
    
    16,682Net income
    
    
    3,928
    
    
    
    3,318
    
    
    
    400
    
    
    
    7,646
 F-19




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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
  Summary of Revolving Lines of Credit
and Notes Payable at June 30, 2006
(Dollars in thousands)
 OutstandingCommitment
    
    
    Balance
    
    
    Interest Rate
    
    
    MaturityRevolving lines of creditThe Frost National Bank
    
    $
    20,000
    
    
    $
    15,981
    
    
    LIBOR plus 1.50%
    
    October 31, 2007The Frost National Bank
    
    
    3,000
    
    
    
    
    
    
    LIBOR plus 1.50%
    
    January 15, 2007Wachovia Bank, N.A.
    
    
    3,000
    
    
    
    2,173
    
    
    LIBOR plus 2.00%
    
    December 15, 2006$
    26,000
    
    
    
    18,154Notes payable  facility
    

    N/A

    
    
    1,358
    
    
    
    8.302%
    
    
    January 1, 2008$
    19,512
  June 30,
    
    
    June 30,Description
    
    2006
    
    
    2005On October 31, 2005, 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 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 at the one-month LIBOR
interest rate (5.34625% at June 30, 2006) plus 1.50% to
2.75%, depending on the Companys debt to worth ratio.
The line of credit is scheduled to mature on October 31,
2007. Financial covenants of the agreement include a
requirement that the Company maintain a fixed charge
coverage ratio greater than 1.25 to 1. Other
covenants and restrictions that apply to this agreement
require the Companys debt to tangible net worth ratio
to be less than 3.0 to 1.0 after December 31, 2005.
Additionally, the Company has agreed not to purchase its
stock if its debt to tangible net worth exceeds 3.0 to
1.0. The Companys debt to tangible net worth ratio, as
defined in the loan agreement, equaled 1.6 to 1.0 at
June 30, 2006, resulting in the effective interest rate
of LIBOR plus 1.50%. On February 25, 2005, the line of
credit was amended to provide, among other things, a
$3,000,000 increase in the commitment. This increase in
commitment expires on January 15, 2007.
    
    $
    15,981
    
    
    $
    23,000
 F-20




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
    
    
    June 30,Description
    
    2006
    
    
    2005On 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.
    
    
    2,173
    
    
    
    1,548On 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.
    
    
    1,358
    
    
    
    2,579On November 24, 2003, PHI entered into a loan agreement
with Wachovia. Borrowings under this agreement are made
under a $2,100,000 promissory note collateralized by
substantially all the assets of PHI. The note matured on
September 15, 2005 and all outstanding principal and
interest were paid in full.
    
    
    
    
    
    
    263On 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
matured on July 29, 2005.
    
    
    
    
    
    
    28Sub-total
    
    
    19,512
    
    
    
    27,418Less: Lines of credit due on demand
    
    
    (2,173
    )
    
    
    (24,548
    )Less: Current amounts due in following
year
    
    
    (1,135
    )
    
    
    (1,319
    )Non-current
    
    $
    16,204
    
    
    $
    1,551Weighted average interest rates on outstanding borrowingsLines of credit
    
    
    6.9
    %
    
    
    5.5
    %Notes payable
    
    
    8.3
    %
    
    
    8.1
    %Total
    
    
    7.0
    %
    
    
    5.8
    %
  F-21




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Schedule of Maturities
(Dollars in thousands)
 Notes
    
    
    Lines ofFiscal Year Ended
    
    Payable
    
    
    Credit
    
    
    TotalJune 30, 2007
    
    $
    1,135
    
    
    $
    2,173
    
    
    $
    3,308June 30, 2008
    
    
    223
    
    
    
    15,981
    
    
    
    16,204June 30, 2009
    
    
    
    
    
    
    
    
    
    
    Thereafter
    
    
    
    
    
    
    
    
    
    
    $
    1,358
    
    
    $
    18,154
    
    
    $
    19,512
 Note 6  Income Taxes
  Provision for Income Taxes
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2004Current expense/(benefit):Federal
    
    $
    3,309
    
    
    $
    3,659
    
    
    $
    3,499State
    
    
    (243
    )
    
    
    264
    
    
    
    536Foreign
    
    
    109
    
    
    
    359
    
    
    
    358Total current expense
    
    
    3,175
    
    
    
    4,282
    
    
    
    4,393Deferred expense (benefit)
    
    
    91
    
    
    
    (1,203
    )
    
    
    147Provision for income tax expense
    
    $
    3,266
    
    
    $
    3,079
    
    
    $
    4,540
 F-22




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Summary of Deferred Taxes
(Dollars in thousands)
 June 30,
    
    
    June 30,2006
    
    
    2005Inventories
    
    $
    518
    
    
    $
    369Investment in 50% owned LLCs
    
    
    377
    
    
    
    720Reserves and accruals
    
    
    276
    
    
    
    394Accounts receivable reserves
    
    
    100
    
    
    
    75State refund claims, net of federal tax
    
    
    59
    
    
    
    Net operating loss carryforwards
    
    
    24
    
    
    
    Other
    
    
    54
    
    
    
    123Valuation allowance
    
    
    (59
    )
    
    
    Total deferred tax assets
    
    
    1,349
    
    
    
    1,681Depreciation and amortization
    
    
    (409
    )
    
    
    (301
    )Foreign taxes
    
    
    (31
    )
    
    
    (354
    )Other
    
    
    (2
    )
    
    
    (28
    )Total deferred tax liabilities
    
    
    (442
    )
    
    
    (683
    )Net deferred tax asset/(liability)
    
    $
    907
    
    
    $
    998
  Reconciliation of Federal Tax Rate to Effective Tax Rate
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2004Tax at the statutory corporate rate
    
    $
    4,691
    
    
    $
    4,515
    
    
    $
    5,416Less: federal income tax attributable to minority interest
    
    
    (1,158
    )
    
    
    (1,284
    )
    
    
    (1,297
    )Foreign tax rate under federal statutory rate
    
    
    (156
    )
    
    
    (338
    )
    
    
    Federal taxes on anticipated repatriation of foreign earnings
    
    
    (157
    )
    
    
    51
    
    
    
    State income taxes, net of federal benefit
    
    
    22
    
    
    
    180
    
    
    
    343Other
    
    
    24
    
    
    
    (45
    )
    
    
    78Provision for income taxes
    
    $
    3,266
    
    
    $
    3,079
    
    
    $
    4,540
 F-23




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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
  Summary of Stock Options
 1999 Plan
    
    
    Non-Employee PlanWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Exercise
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Exercise
    
    
    AverageExercise
    
    
    Price
    
    
    Remaining
    
    
    
    
    
    
    Exercise
    
    
    Price
    
    
    RemainingShares
    
    
    Price
    
    
    Range
    
    
    Life (Years)
    
    
    Shares
    
    
    Price
    
    
    Range
    
    
    Life (Years)Outstanding at June 30, 2003
    
    
    87,500
    
    
    $
    6.75
    
    
    
    
    
    
    
    
    
    
    
    18,000
    
    
    $
    10.78Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500
    
    
    
    25.20Exercised
    
    
    (40,000
    )
    
    
    6.75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (500
    )
    
    
    6.75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at June 30, 2004
    
    
    47,000
    
    
    $
    6.75
    
    
    
    
    
    
    
    
    
    
    
    22,500
    
    
    $
    13.67Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000
    
    
    
    20.74Exercised
    
    
    (32,000
    )
    
    
    6.75
    
    
    
    
    
    
    
    
    
    
    
    (12,000
    )
    
    
    8.92Forfeited
    
    
    (7,000
    )
    
    
    6.75
    
    
    
    
    
    
    
    
    
    
    
    (1,500
    )
    
    
    25.20Outstanding at June 30, 2005
    
    
    8,000
    
    
    $
    6.75
    
    
    
    
    
    
    
    
    
    
    
    12,000
    
    
    $
    18.74Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000
    
    
    
    17.48Exercised
    
    
    (3,500
    )
    
    
    6.75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at June 30, 2006
    
    
    4,500
    
    
    $
    6.75
    
    
    $
    6.75
    
    
    
    4.3
    
    
    
    15,000
    
    
    $
    18.48
    
    
    $
    14.15-$25.20
    
    
    
    5.5Exercisable at June 30, 2006
    
    
    4,500
    
    
    $
    6.75
    
    
    
    
    
    
    
    
    
    
    
    12,000
    
    
    $
    18.74
 F-24




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Retirement of Preferred Stock
  Treasury Stock Purchases
  Stockholder Rights Plan
  F-25




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##### Table of Contents



CRAFTMADE
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 8  Earnings Per Share
  Earnings Per Common Share
(In thousands, except per share data)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2004Basic and diluted earnings per share:NumeratorNet income
    
    $
    7,100
    
    
    $
    6,427
    
    
    $
    7,646Denominator for basic EPSWeighted average common shares outstanding
    
    
    5,201
    
    
    
    5,095
    
    
    
    5,336Denominator for diluted EPSWeighted average common shares outstanding
    
    
    5,201
    
    
    
    5,095
    
    
    
    5,336Incremental shares for stock options
    
    
    10
    
    
    
    20
    
    
    
    47Potentially dilutive weighted average common shares
    
    
    5,211
    
    
    
    5,115
    
    
    
    5,383Basic earnings per common share
    
    $
    1.37
    
    
    $
    1.26
    
    
    $
    1.43Diluted earnings per common share
    
    $
    1.36
    
    
    $
    1.26
    
    
    $
    1.42
 Note 9  Disclosures About Fair Value of Financial Instruments
  Note 10  Commitments and Contingencies
  F-26




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##### Table of Contents



CRAFTMADE
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Rental Expense Under Operating Leases
(Dollars in thousands)
 Fiscal Year Ended
    
    AmountJune 30, 2006
    
    $
    438June 30, 2005
    
    
    315June 30, 2004
    
    
    264
  Future Minimum Lease Payments
(Dollars in thousands)
 Fiscal Year Ended
    
    AmountJune 30, 2007
    
    $
    348June 30, 2008
    
    
    53June 30, 2009
    
    
    21$
    422
  Note
11  401(k) Defined Contribution Plan
  Contributions to 401(k) Retirement Plan
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2006
    
    2005
    
    2004Contributions to 401(k)
    
    $
    101
    
    
    $
    94
    
    
    $
    90
 F-27




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##### Table of Contents



CRAFTMADE
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Note
12  Major Supplier
  Summary of Purchases from Fanthing
(Dollars in thousands)
 As % of
    
    As % ofCraftmade
    
    TotalFiscal Year Ended
    
    Purchases
    
    PurchasesJune 30, 2006
    
    
    50
    %
    
    
    23
    %June 30, 2005
    
    
    60
    %
    
    
    29
    %June 30, 2004
    
    
    67
    %
    
    
    21
    %
  Note
13  Segment Information
 
   F-28




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Summary of Reportable Segments
(Dollars in thousands)
 Craftmade
    
    TSI
    
    TotalFiscal 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
    
    
    
    70,815Fiscal year ended June 30, 2004:Net sales
    
    $
    53,526
    
    
    $
    67,712
    
    
    $
    121,238Gross profit
    
    
    21,025
    
    
    
    14,885
    
    
    
    35,910Income from operations
    
    
    9,112
    
    
    
    7,570
    
    
    
    16,682Interest expense, net
    
    
    708
    
    
    
    69
    
    
    
    777Minority interest
    
    
    
    
    
    
    3,719
    
    
    
    3,719Provision for income taxes
    
    
    3,019
    
    
    
    1,521
    
    
    
    4,540Depreciation
    
    
    554
    
    
    
    94
    
    
    
    648Net income
    
    
    5,385
    
    
    
    2,261
    
    
    
    7,646Total assets
    
    
    29,163
    
    
    
    26,091
    
    
    
    55,254
 F-29




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##### Table of Contents

\

CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 14  Quarterly Data (Unaudited)
   Quarterly Data (Unaudited)
(In thousands, except per share data)
 Fiscal Year Ended June 30, 2006
    
    Fiscal Year Ended June 30, 2005Fourth
    
    Third
    
    Second
    
    First
    
    
    
    
    
    Fourth
    
    Third
    
    Second
    
    FirstTotal
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Total
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterNet sales
    
    $
    118,054
    
    
    $
    31,248
    
    
    $
    27,154
    
    
    $
    28,628
    
    
    $
    31,024
    
    
    $
    118,806
    
    
    $
    32,906
    
    
    $
    27,566
    
    
    $
    28,844
    
    
    $
    29,490Gross profit
    
    
    35,469
    
    
    
    9,567
    
    
    
    8,568
    
    
    
    8,588
    
    
    
    8,746
    
    
    
    35,446
    
    
    
    10,221
    
    
    
    7,893
    
    
    
    8,812
    
    
    
    8,520Income from operations
    
    
    14,980
    
    
    
    4,232
    
    
    
    3,371
    
    
    
    3,687
    
    
    
    3,690
    
    
    
    14,362
    
    
    
    4,380
    
    
    
    2,843
    
    
    
    4,175
    
    
    
    2,964Net income
    
    
    7,100
    
    
    
    1,923
    
    
    
    1,748
    
    
    
    1,697
    
    
    
    1,732
    
    
    
    6,427
    
    
    
    2,064
    
    
    
    1,093
    
    
    
    1,872
    
    
    
    1,398Basic EPS
    
    $
    1.37
    
    
    $
    0.37
    
    
    $
    0.34
    
    
    $
    0.33
    
    
    $
    0.33
    
    
    $
    1.26
    
    
    $
    0.40
    
    
    $
    0.22
    
    
    $
    0.37
    
    
    $
    0.27Diluted EPS
    
    
    1.36
    
    
    
    0.37
    
    
    
    0.34
    
    
    
    0.33
    
    
    
    0.33
    
    
    
    1.26
    
    
    
    0.40
    
    
    
    0.22
    
    
    
    0.37
    
    
    
    0.27Basic shares outstanding
    
    
    5,201
    
    
    
    5,203
    
    
    
    5,201
    
    
    
    5,200
    
    
    
    5,200
    
    
    
    5,095
    
    
    
    5,200
    
    
    
    5,062
    
    
    
    5,034
    
    
    
    5,084Diluted shares outstanding
    
    
    5,211
    
    
    
    5,211
    
    
    
    5,211
    
    
    
    5,210
    
    
    
    5,210
    
    
    
    5,115
    
    
    
    5,206
    
    
    
    5,074
    
    
    
    5,057
    
    
    
    5,124
 F-30




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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, 2006
    
    $
    300
    
    
    $
    80
    
    
    $
    
    
    
    $
    (87
    ) (a)
    
    $
    293June 30, 2005
    
    
    150
    
    
    
    223
    
    
    
    116
    
    
    
    (189
    ) (a)
    
    
    300June 30, 2004
    
    
    150
    
    
    
    69
    
    
    
    
    
    
    
    (69
    ) (a)
    
    
    150Allowance for inventory obsolescence as of:June 30, 2006
    
    $
    717
    
    
    $
    484
    
    
    $
    
    
    
    $
    (267
    ) (b)
    
    $
    934June 30, 2005
    
    
    1,171
    
    
    
    481
    
    
    
    
    
    
    
    (935
    ) (b)
    
    
    717June 30, 2004
    
    
    1,641
    
    
    
    1,070
    
    
    
    
    
    
    
    (1,548
    ) (b)
    
    
    1,171
 
 (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-31




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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 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) 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-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, 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.4.3
    
    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.4.4
    
    Rights Agreement, dated as of June 23, 1999, between Craftmade International, Inc. and Harris
Trust and Savings Bank, as Rights Agent, previously filed as an exhibit 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 an exhibit in Form 10Q for the quarter ended December 31, 1995, and herein
incorporated by reference.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 an exhibit in Form 10Q for
the quarter ended December 31, 1995, and herein incorporated by reference.10.3
    
    Craftmade International, Inc. 1999 Stock Option Plan, filed as Exhibit A to the
Companys Proxy Statement on Schedule 14A filed October 4, 2000 (File No. 000-26667) and
herein incorporated by reference.10.4
    
    Craftmade International, Inc. 2000 Non-Employee Director Stock Plan, filed as Exhibit B to
the Companys Proxy Statement on Schedule 14A filed October 4, 2000 (File No. 000-26667) and
herein incorporated by reference.10.5
    
    Modification, Renewal and Extension Agreement dated October 31, 2005 by and between
Craftmade International, Inc. and The Frost National Bank, filed as Exhibit 10.1 to the
Companys Form 10-Q/A dated November 9, 2005 (File No. 000-26667), and incorporated by
reference herein.10.6
    
    Amended and Restated Loan Agreement dated October 31, 2005 by and between Craftmade
International, Inc. and The Frost National Bank, filed as Exhibit 10.2 to the Companys Form
10-Q/A dated November 9, 2005 (File No. 000-26667), and incorporated by reference herein.10.7
    
    Arbitration and Notice of Final Agreement dated October 31, 2005 by and between Craftmade
International, Inc. and The Frost National Bank, filed as Exhibit 10.3 to the Companys Form
10-Q/A dated November 9, 2005 (File No. 000-26667), and incorporated by reference herein.21.0*
    
    List of the subsidiaries of Craftmade International, Inc., a Delaware corporation, as of June 30, 2006.




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##### Table of Contents



ExhibitNumber
    
    Description23.1*
    
    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 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 302 of the Sarbanes-Oxley Act of 2002.
 
 *

    Each document marked with an asterisk is filed herewith.