##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission file number 000-26667
 Craftmade International, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    75-2057054(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)650 South 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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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




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##### 



TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    10Item 1B. Unresolved Staff Comments
    
    
    18Item 2. Properties
    
    
    18Item 3. Legal Proceedings
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    19Item 6. Selected Financial Data
    
    
    20Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    21Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 8. Financial Statements and Supplementary Data
    
    
    35Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    35Item 9A. Controls and Procedures
    
    
    35Item 9B. Other Information
    
    
    36PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    36Item 11. Executive Compensation
    
    
    36Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    36Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    37Item 14. Principal Accountant Fees and Services
    
    
    37PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    37Signatures
    
    
    38List of SubsidiariesConsent of BDO Seidman, LLPCertification of J. Marcus Scrudder, CEO, Pursuant to Section 302Certification of C. Brett Burford, CFO, Pursuant to Section 302Certification of J. Marcus Scrudder, CEO, Pursuant to Section 906Certification of C. Brett Burford, CFO, Pursuant to Section 906




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PART I
 
 Item 1. Business.
 (a)
    
    General Development of BusinessAcquisition of Certain Assets of Woodard, LLC .On January 2, 2008, Woodard  CM, LLC, a wholly owned subsidiary of Craftmade
(Woodard),completed the purchase of substantially all of the net assets of Woodard, LLC a
leading Chicago-based designer, manufacturer and distributor of a broad line of outdoor
furniture products and related accessories pursuant to the Asset Purchase Agreement, dated as
of December 18, 2007 (the Agreement), by and among Craftmade, Woodard and Henry Crown and
Company d/b/a CC Industries, Inc. In the acquisition, the Company initially paid Woodard
$19,265,000 plus a working capital adjustment of $954,000 and warrants (the Warrants) to
purchase up to 200,000 shares of Craftmade International, Inc. common stock (the Common
Stock) for 10 years from the date of issuance at a purchase price of $8.10 per share, valued
at $279,000. The purchase price consideration included 500,000 shares of Common Stock valued at
$8.10 per share based on the average closing price of the Common Stock for the three days prior
to signing the Agreement for an aggregate price of $4,050,000 (price of Common Stock for
financial reporting is $8.00 per share based on the average closing price of the Common Stock
on the two days prior, two days after and day of the announcement of the signing of the
Agreement, for an aggregate price of $4,000,000), with the remaining purchase price paid in
cash at closing. The Agreement allowed the parties to adjust the purchase price to accurately
reflect the working capital up to 60 days after the closing of the acquisition, resulting in a
working capital adjustment of $1,272,000 due the Company. Including the working capital
adjustment, the total adjusted cash consideration for the acquisition was $14,896,000.Acquired assets included $23,370,000 in current assets, a long-term receivable valued at
approximately $1.5 million, manufacturing equipment and Woodards 306,000 square foot facility
in Owosso, Michigan. Craftmade also assumed certain payables and other liabilities totaling
$7,396,000. Additionally, the Company incurred approximately $655,000 in professional fees
associated with the transaction and has reserved $692,000 for expected restructuring expense.
The Company is exploring financing options related to the Owosso, Michigan facility, which
management believes has a fair market value that significantly
exceeds its allocated costs.Current Market ConditionsAt the beginning of the 2007 fiscal year, the slowing of housing-related demand affected our
business, and this impact continued through the 2008 fiscal year. The decline in housing
turnover was compounded by a broad economic downturn in 2008, which negatively impacted both
consumer confidence and discretionary spending. This economic environment and the corresponding
decline in home improvement demand have impacted both our specialty and mass retail segments.
Management believes that consumers chose to delay home improvement projects due to
well-publicized reports of economic weakness, a slowing housing market and declining home
values.Despite the housing related pressures, the Company has continued to introduce innovative and
distinctive products that reflect emerging consumer trends, including new lines of interior
lighting fixtures (e.g., chandeliers) and the expansion of clocks and weather gauges marketed
under the Durocraft brand name through a new distribution channel of independent lawn and
garden retailers. The acquisition of certain assets of Woodard LLC has also broadened the
Companys offering to include outdoor patio furniture, opened up new channels and outlets for
existing Craftmade products, and created avenues for cross selling both existing and new
products.Additional information regarding current market conditions are detailed in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operation.Relationship with Mass MerchandisersThe Company sells its products to mass merchandisers including but not limited to Bed, Bath and
Beyond,
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Costco, Lowes and Wal-Mart, through the Companys subsidiaries Woodard and Prime/Home
Impressions, Inc. (PHI) and through Design Trends, LLC (Design Trends), the Companys
50%-owned subsidiary.Management believes that, based on the amount of product currently shipped to Lowes, Design
Trends and PHI continue to be a primary vendors for Lowes mix and match portable lamp and fan
accessory/ceiling medallion programs, respectively. The acquisition of certain net assets of
Woodard, LLC, has also increased Craftmades presence at Lowes, as Woodard sold over $6
million in outdoor patio furniture through Lowes stores in fiscal 2008. Management believes
that Craftmade will continue to be invited to participate in each of Lowes scheduled line
reviews for its existing and new product lines. The line reviews occur on an annual basis for
each product category and give Craftmade the potential to add new SKUs to the Lowes program.
However, participation in line reviews could also result in a partial or complete reduction of
existing SKUs in the product lines currently offered to Lowes.Management believes that the future growth of the Mass segment (as described in Section (b)
below) is contingent upon the success of the Companys ongoing efforts to introduce new
products, product lines and marketing concepts to existing customers and the expansion of the
business to new customers.Exploration of Strategic AlternativesOn May 9, 2007, the Company announced that it had retained Mazzone & Associates to assist the
Company in evaluating its strategic alternatives to enhance shareholder value. With input from
management, a committee of independent directors performed a comprehensive review of our
strategic alternatives. On August 23, 2007 the Board of Directors determined that at that time
the best alternative to maximize shareholder value was to continue to implement the Companys
strategic plan for growth. This plan includes the pursuit of selective and opportunistic
acquisitions with the potential to expand into adjacent product categories and sales channels.
The acquisition of certain net assets of Woodard, LLC in January of 2008 is a result of
pursuing the strategic growth plan, and the Company continues to evaluate other strategic
acquisition candidates that would enhance shareholder value. There can be no assurances,
however, that any appropriate candidates will be identified, or that any transaction will be
consummated on terms acceptable to the Company.(b)
    
    Financial Information About Reportable SegmentsAlthough the Company continues to be organized by customer base into two operating segments, as
of June 30, 2008, these segments have been re-named to be more descriptive. The segment
formerly identified as Craftmade International, Inc. or Craftmade will be referred to as
Specialty and the segment formerly identified as Trade Source International, Inc. or TSI
will be referred to as Mass. Hereafter, Craftmade International, Inc. and Craftmade refer
to the Company and Craftmade ceiling fans refers to ceiling fan products sold primarily
within the Specialty segment under the Craftmade trade name. Hereafter TSI refers
specifically to the Trade Source International subsidiary rather than the entire Mass segment.The Specialty segment primarily derives its revenue from home furnishings, including ceiling
fans, light kits, bath-strip lighting, lamps, light bulbs, door chimes, ventilation systems,
outdoor patio furniture and other accessories offered primarily through lighting showrooms,
patio dealers, hospitality customers and catalog houses. The Mass segment derives its revenue
from outdoor lighting, outdoor patio furniture, portable lamps, indoor lighting and fan
accessories marketed solely to mass retailers and certain major retail chains.The additional sales from the acquisition of certain net assets of Woodard, LLC come from
independent patio dealers, hospitality customers and mass retailers. Sales with the independent
patio dealers and hospitality customers are included in the Specialty segment and sales to mass
merchants are included in the Mass segment.The Company evaluates the performance of its segments and allocates resources to them based on
their income from operations and cash flows. Financial information with respect to the
Companys segments is found in Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations and Note
11  Segment Information in the Companys Consolidated Financial Statements. All prior year
financial information has been renamed to be consistent with the current year disclosure.
 2




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(c)
    
    Narrative Description of BusinessCraftmade International, Inc. was incorporated in the state of Texas in July 1985 and
reincorporated in the state of Delaware in December 1991.Specialty Specialty is the reporting segment for the portion of the business principally
engaged in the design, distribution and marketing of ceiling fans, light kits, bath-strip
lighting, interior lighting fixtures, light bulbs, door chimes, ventilation systems, outdoor
patio furniture and related accessories to a nationwide network of over 1,600 lighting
showrooms, 500 patio dealers, and numerous electrical wholesalers specializing in sales to the
remodeling, new home construction and replacement markets.The Specialty ceiling fan product line consists of over 60 premium priced to lower priced
ceiling fans and is distributed under the Craftmade® trade name. The combination of
design and functional features which characterize Craftmade ceiling fans have made them, in
managements judgment, one of the most reliable, durable, energy efficient and cost effective
ceiling fans in the marketplace.The Specialty segment also includes nearly 80 light kit models in various colors for attachment
and use with its ceiling fans or other ceiling fans, along with parts and accessories for its
ceiling fans and light kits. In addition, nearly two dozen styles of bath-strip lighting and
over 40 designs of outdoor lighting are marketed under its Accolade®trade name.With the acquisition of certain assets of Woodard, LLC, the Specialty segment also includes
sales of over 100 families of outdoor patio furniture under the Woodard, Woodard Landgrave and
Lyon Shaw trade names to independent patio dealers, hospitality customers and catalogue houses.Mass Mass is the reporting segment for the portion of the Company that is principally engaged
in the design, distribution and marketing of outdoor and indoor lighting, outdoor patio
furniture, various fan accessories and lamp parts, and home décor items to mass merchandisers.
The Mass segments outdoor lighting consists of numerous lighting programs distributed to mass
merchandisers in a variety of designs and decorative finishes. The indoor lighting product
line primarily includes portable lamps.The Mass segment includes sales from four Craftmade subsidiaries: Trade Source International
(Trade Source or TSI), PHI, Design Trends and Woodard-CM, LLC. Trade Source, PHI and
Woodard are wholly-owned and Design Trends is 50% owned by Craftmade.50% Owned Limited Liability Company The Company has a 50% ownership interest in Design
Trends, a Delaware limited liability company, which is part of the Mass segment. Design Trends
was formed in 1999 to market indoor lighting, including portable table lamps, floor lamps,
chandeliers and wall sconces designed by Patrick Dolan of Dolan Northwest, LLC, an unaffiliated
Oregon limited liability company, which owns the remaining 50% of Design Trends. Substantially
all of Design Trends sales are to mass merchandisers. As a part of the operating agreement,
Patrick Dolan is responsible for designing and sourcing Design Trends products and the Company
is responsible for sales, distribution and accounting for Design Trends.
 3




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Products
  Net Sales by Product Category
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2008
    
    2007
    
    2006SpecialtyCeiling fans, light kits and blades
    
    
    23
    %
    
    
    37
    %
    
    
    36
    %Outdoor patio furniture
    
    
    16
    %
    
    
    0
    %
    
    
    0
    %Teiber lighting products
    
    
    6
    %
    
    
    10
    %
    
    
    8
    %Durocraft clocks and weather gauges
    
    
    2
    %
    
    
    3
    %
    
    
    1
    %Accolade lighting
    
    
    7
    %
    
    
    8
    %
    
    
    8
    %54
    %
    
    
    58
    %
    
    
    53
    %MassIndoor lighting
    
    
    13
    %
    
    
    23
    %
    
    
    29
    %Outdoor lighting
    
    
    2
    %
    
    
    2
    %
    
    
    6
    %Outdoor patio furniture
    
    
    22
    %
    
    
    0
    %
    
    
    0
    %Accessories
    
    
    9
    %
    
    
    17
    %
    
    
    12
    %46
    %
    
    
    42
    %
    
    
    47
    %100
    %
    
    
    100
    %
    
    
    100
    %
 Specialty Segment Products
  Craftmade Family of Products
 Craftmade®
    
    Woodard®
    
    TeiberDecorative ceiling fans
    
    Wrought iron patio furniture
    
    Light bulbsBuilder ceiling fans
    
    Aluminum patio furniture
    
    Door chimesLight kits and blades
    
    All seasons wicker patio furniture
    
    Smoke alarmsChandeliers and flushmounts
    
    Patio umbrellas
    
    Ventilation systemsCeiling fan accessories
    
    Outdoor lighting
 Durocraft®
    
    Accolade®Clocks
    
    Bath-strip lightingWeather gauges
    
    Outdoor lightingInterior lighting fixtures
 Craftmade ®
 4




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Woodard ®
 Teiber
 Durocraft ®
 Accolade ® ®
 Mass Segment Products
  Indoor Lighting
 Outdoor Lighting
 Outdoor Patio Furniture
 Accessories
 Product Sourcing
 Specialty.
 5




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®
   Mass.
     Distribution
 Specialty.
   6




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Mass.
   Marketing
 Specialty.
   Mass.
 Product Expansion
  7




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Seasonality
  Backlog
  Competition
   Product Warranties
  Product Warranty Costs
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2006Ceiling Fans & Lighting
    
    $
    1,179
    
    
    $
    1,147
    
    
    $
    1,037Outdoor Patio Furniture
    
    
    541
    
    
    
    
    
    
    
    $
    1,720
    
    
    $
    1,147
    
    
    $
    1,037
 8




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Research and Development
  Research and Development
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2008
    
    2007
    
    2006Research and development
    
    $
    184
    
    
    $
    265
    
    
    $
    217
 Independent Safety Testing
  Product Liability
  Patents and Trademarks
 ® ® ® ®
 9




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EmployeesAs of June 30, 2008, the Company employed a total of 320 full-time employees, compared to 141
employees as of June 30, 2007. This increase is primarily due to the acquisition of certain
assets of Woodard, LLC. Substantially all employees are based in the United States and are
located at the Companys headquarters and distribution center in Coppell, Texas, office space
in Chicago, Illinois, that was formerly the headquarters of Woodard, LLC, and at the Woodard
factory in Owosso, Michigan. The Company is currently undergoing a phased transition of many
Woodard functions currently performed in Chicago to other Company locations, primarily Coppell,
Texas. This transition will ultimately result in a net reduction of employees, and a reduction
or elimination of the office space in Chicago, Illinois. As of June 30, 2008, there were six
employees based in Hong Kong. The Company believes that its relationship with its employees is
excellent. None of the Companys employees is represented by a labor union or is a member of a
collective bargaining unit.(d)
    
    Financial Information by Geographic AreaNet sales are attributed to geographic areas based on the location of the customer to which
products are shipped. Substantially all of the Companys net sales are to customers in North
America, principally the United States. In addition, substantially all of the Companys assets
are attributable to its operations in the United States with the exception of a small product
sourcing and international sales office in Hong Kong.(e)
    
    Available InformationOur Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and amendments to those reports filed with or furnished to the Securities and Exchange
Commission (the SEC) pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934, as amended (the Exchange Act), are available on the investor relations section
of our website at www.craftmade.com under the caption SEC promptly after we electronically
file such materials with, or furnish such materials to, the SEC. The Investor Relations
section of our website also contains corporate governance documentation, including the Audit
Committee Charter, Compensation Committee Charter, Disclosure Review Committee Charter,
Nominating and Corporate Governance Committee Charter, and our Business Ethics Policy.We will provide a copy of our Form 10-K annual report upon written request of any stockholder.
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.
 
 Item 1A. Risk Factors.
   10




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Strategic Risks and Strategy Execution Risks
 The industries we operate in are highly competitive, and we may not be able to compete
successfully.
  If we fail to gain customer acceptance of our existing and new products, our operating results
could suffer.
  Our failure in pursuing or executing any of our new business ventures, strategic alliances and
acquisitions could have a material adverse impact on our business.
  Our revenues depend on our relationships with capable sales personnel as well as key customers,
vendors, and manufacturers of the products that we distribute to our customers.
  Our future success is substantially dependent upon our senior management and retention of key
personnel.
  11




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Risks Associated with International Trade
 As we do not manufacture most of the products that we distribute, we are dependent upon third
parties for the manufacture and supply of high quality competitive products on a timely basis.
  Risks Related to Profitable Growth
 A decline in general economic condition, particularly the housing, home construction, and remodel
sectors, could lead to reduced demand for our products.
  The loss of certain of our customers that represent a significant percentage of our net sales could
adversely affect our results of operations.
    12




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Our mass merchandise customers may pressure us to lower our prices or take other actions that may
adversely impact our results of operations.
  Our mass merchandise customers may choose to directly source many of the products we currently
provide.
  To the extent our mass merchandiser customers purchase products in excess of consumer consumption
in any period, our net sales in a subsequent period may be adversely affected as mass merchandisers
seek to reduce their inventory levels.
  Increases in our shipping costs or service trouble with our third-party shippers could harm our
business.
  We experience fluctuations in our quarterly earnings. As a result, we may fail to meet or exceed
the expectations of securities analysts and investors, which could cause our stock price to decline
or be highly volatile.
  
    
    the timing of our new product releases;
    
    costs related to our acquisitions and/or integrations of businesses that we may
acquire;
    
    timing and amount of our sales and marketing expenditures;
    
    timing of our orders from mass merchandisers;
    
    our commitments to mass merchandisers, including charge-backs for returns and defective
merchandise;
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
    
    loss of any of our sales representatives;
    
    general economic conditions that may affect us, including those in the housing sector;
    
    establishing or maintaining our business relationships; and
    
    changes in our accounting principles.
  Our common stock may be affected by limited trading volume and price fluctuations, each of which
could adversely impact the value of our common stock.
  Risks Relating to Liquidity
 Our inability to meet financial covenants contained in our credit facilities could adversely impact
our ability to fund our operations.
    14




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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.
  Risks Associated with Dependence on Technology
 We rely heavily on our management information systems for manufacturing, inventory management,
distribution and other functions. If our systems fail to perform these functions adequately or if
we experience an interruption in our operations, we could be materially adversely affected.
  Regulatory Risks
 Tax legislation initiatives could adversely affect our net earnings and tax liabilities.
  We are subject to increasingly complex corporate governance, public disclosure, accounting, and tax
requirements that have increased our costs and the risk of our not being in compliance with these
requirements.
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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.
  Risks Associated with Labor
 Employees could seek coverage under collective bargaining agreements, and drive significant
increases in salaries and benefits.
  We are subject to inflation in labor costs if economic conditions impact prevailing wages in the
geographic regions in which we operate.
  Risks Associated with Insurance / Product Liability
 Failure or flaws in our products could lead to product liability claims and payment of associated
financial damages or penalties.
  Risks Associated with Balancing Inventory
 The Company could suffer financial losses due to carrying excessive inventory, or conversely due to
having insufficient inventory on hand to meet the needs of our customers.
  16




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17




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Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  Summary of Properties
 CurrentApproximate
    
    LeaseSquare
    
    TermLocation
    
    Use
    
    Feet
    
    ExpirationCoppell, Texas
    
    Headquarters, warehouse and distribution facility
    
    
    378,000
    
    
    OwnedChicago, Illinois
    
    Office space, former Woodard headquarters
    
    
    20,000
    
    
    February 28, 2009Owosso, Michigan
    
    Manufacturing and warehouse facility for Woodard
    
    
    306,000
    
    
    OwnedOwosso, Michigan
    
    Warehouse storage for manufacturing facility
    
    
    75,000
    
    
    Month to monthDallas, Texas
    
    Dallas Trade Mart Showroom  Craftmade and TSI
    
    
    5,656
    
    
    April 30, 2012Kowloon, Hong Kong
    
    Product sourcing and international sales office
    
    
    2,534
    
    
    February 11, 2009Chicago, Illinois
    
    Chicago Merchandise Mart  Woodard
    
    
    11,000
    
    
    August 31, 2013
     
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  18




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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, 2008Fourth Quarter
    
    $
    8.34
    
    
    $
    6.24
    
    
    $
    Third Quarter
    
    
    9.99
    
    
    
    7.33
    
    
    
    0.12Second Quarter
    
    
    12.18
    
    
    
    7.11
    
    
    
    0.12First Quarter
    
    
    17.63
    
    
    
    11.52
    
    
    
    0.12Fiscal Year Ended June 30, 2007Fourth Quarter
    
    $
    18.18
    
    
    $
    14.63
    
    
    $
    0.12Third Quarter
    
    
    18.48
    
    
    
    14.86
    
    
    
    0.12Second Quarter
    
    
    19.95
    
    
    
    17.00
    
    
    
    0.12First Quarter
    
    
    18.29
    
    
    
    14.51
    
    
    
    0.12
   Holders
  Issuer Purchases of Equity Securities
  Equity Compensation Plans
  19




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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 30,2008
    
    2007
    
    2006
    
    2005
    
    2004(1)
    
    (2)
    
    
    
    
    
    (3)Selected Operating ResultsNet sales
    
    $
    137,590
    
    
    $
    103,350
    
    
    $
    118,054
    
    
    $
    118,806
    
    
    $
    121,238Gross profit
    
    
    34,913
    
    
    
    32,291
    
    
    
    35,469
    
    
    
    35,446
    
    
    
    35,910Gross profit as a percentage of net sales
    
    
    25.4
    %
    
    
    31.2
    %
    
    
    30.0
    %
    
    
    29.8
    %
    
    
    29.6
    %Selling, general and administrative
    
    
    28,117
    
    
    
    21,151
    
    
    
    19,895
    
    
    
    20,503
    
    
    
    18,580Income from operations
    
    
    5,927
    
    
    
    10,341
    
    
    
    14,980
    
    
    
    14,362
    
    
    
    16,682Income before minority interest
    
    
    3,404
    
    
    
    7,418
    
    
    
    10,530
    
    
    
    10,202
    
    
    
    11,365Minority interest
    
    
    1,292
    
    
    
    1,507
    
    
    
    3,430
    
    
    
    3,775
    
    
    
    3,719Net income
    
    
    2,112
    
    
    
    5,911
    
    
    
    7,100
    
    
    
    6,427
    
    
    
    7,646Income from operations per share
    
    
    1.09
    
    
    
    1.99
    
    
    
    2.88
    
    
    
    2.82
    
    
    
    3.13Income before minority interest
    
    
    0.62
    
    
    
    1.43
    
    
    
    2.02
    
    
    
    2.00
    
    
    
    2.13Basic earnings per common share
    
    
    0.39
    
    
    
    1.14
    
    
    
    1.37
    
    
    
    1.26
    
    
    
    1.43Diluted earnings per common share
    
    
    0.39
    
    
    
    1.14
    
    
    
    1.36
    
    
    
    1.26
    
    
    
    1.42Cash dividends declared per common share
    
    
    0.36
    
    
    
    0.48
    
    
    
    0.48
    
    
    
    0.40
    
    
    
    0.40Basic common shares outstanding
    
    
    5,450
    
    
    
    5,204
    
    
    
    5,201
    
    
    
    5,095
    
    
    
    5,336Diluted common shares outstanding
    
    
    5,451
    
    
    
    5,206
    
    
    
    5,211
    
    
    
    5,115
    
    
    
    5,383Summary Balance SheetCurrent assets
    
    $
    52,724
    
    
    $
    41,216
    
    
    $
    45,291
    
    
    $
    50,595
    
    
    $
    41,454Total assets
    
    
    81,960
    
    
    
    64,751
    
    
    
    65,061
    
    
    
    70,815
    
    
    
    55,254Current liabilities
    
    
    12,429
    
    
    
    8,687
    
    
    
    15,020
    
    
    
    39,714
    
    
    
    31,768Long-term debt
    
    
    27,759
    
    
    
    18,938
    
    
    
    16,204
    
    
    
    1,551
    
    
    
    2,949Total liabilities
    
    
    41,305
    
    
    
    28,732
    
    
    
    32,362
    
    
    
    42,351
    
    
    
    34,931Stockholders equity
    
    
    37,093
    
    
    
    32,524
    
    
    
    29,037
    
    
    
    24,373
    
    
    
    18,339Book value per common share
    
    
    6.81
    
    
    
    6.25
    
    
    
    5.58
    
    
    
    4.78
    
    
    
    3.44
 
 (1)
    
    Effective January 2, 2008, Woodard-CM, LLC, a wholly owned subsidiary of Craftmade
(Woodard), completed the purchase of substantially all of the net assets of Woodard, LLC.
Fiscal year 2008 financial data includes results of operations of Woodard for the period
subsequent to the acquisition date.(2)
    
    Effective July 1, 2006, the Company acquired Marketing Impressions, Inc., a Georgia
corporation (Marketing Impressions). This acquisition increased the Companys effective
ownership of PHI to 100%. The results of operations of PHI have always been included in
the consolidated income before minority interest of the Company. Prior to the acquisition,
the minority interest in PHI income was excluded from the Companys consolidated net
income. Since the effective date of the acquisition on July 1, 2006, no minority interest
exists in PHI, and accordingly, the consolidated net income will include the full amount of
PHI results from this date.(3)
    
    Fiscal year 2005 results include net assets acquired and four months of the results of
operations of Bill Teiber Co., Inc. (Teiber) effective March 1, 2005. 20




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation.
 The following discussion should be read in conjunction with the information contained in our
consolidated financial statements, including the notes thereto. Statements regarding future
economic performance, managements plans and objectives, and any statements concerning assumptions
related to the foregoing contained in Managements Discussion and Analysis of Financial Condition
and Results of Operation constitute forward-looking statements. Certain factors, which may cause
actual results to vary materially from these forward-looking statements, accompany such statements
or appear elsewhere in this Form 10-K, including the factors disclosed under Item 1A. Risk
Factors.
 Critical Accounting Policies and Estimates
  Revenue Recognition
     21




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Allowance for Doubtful Accounts
  Inventories
  Goodwill
  Income Taxes
  Variable Interest Entities
  22




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##### Table of Contents



before
 Overview
  Fiscal year ended June 30, 2008 compared to fiscal year ended June 30, 2007
 Income Statement by Segment(Dollars in thousands)Fiscal Year Ended
    
    
    Fiscal Year EndedJune 30, 2008
    
    
    June 30, 2007Specialty
    
    
    Mass
    
    
    Total
    
    
    Specialty
    
    
    Mass
    
    
    TotalNet sales
    
    $
    74,878
    
    
    $
    62,712
    
    
    $
    137,590
    
    
    $
    59,925
    
    
    $
    43,425
    
    
    $
    103,350Cost of goods sold
    
    
    (51,203
    )
    
    
    (51,474
    )
    
    
    (102,677
    )
    
    
    (38,745
    )
    
    
    (32,314
    )
    
    
    (71,059
    )Gross profit
    
    
    23,675
    
    
    
    11,238
    
    
    
    34,913
    
    
    
    21,180
    
    
    
    11,111
    
    
    
    32,291Gross profit as a % of net sales
    
    
    31.6
    %
    
    
    17.9
    %
    
    
    25.4
    %
    
    
    35.3
    %
    
    
    25.6
    %
    
    
    31.2
    %Selling, general and administrative expenses
    
    
    (19,539
    )
    
    
    (8,578
    )
    
    
    (28,117
    )
    
    
    (14,900
    )
    
    
    (6,251
    )
    
    
    (21,151
    )As a % of net sales
    
    
    26.1
    %
    
    
    13.7
    %
    
    
    20.4
    %
    
    
    24.9
    %
    
    
    14.4
    %
    
    
    20.5
    %Depreciation and amortization
    
    
    (600
    )
    
    
    (269
    )
    
    
    (869
    )
    
    
    (548
    )
    
    
    (251
    )
    
    
    (799
    )Total operating expenses
    
    
    (20,139
    )
    
    
    (8,847
    )
    
    
    (28,986
    )
    
    
    (15,448
    )
    
    
    (6,502
    )
    
    
    (21,950
    )Income from operations
    
    
    3,536
    
    
    
    2,391
    
    
    
    5,927
    
    
    
    5,732
    
    
    
    4,609
    
    
    
    10,341Interest expense, net
    
    
    (1,495
    )
    
    
    6
    
    
    
    (1,489
    )
    
    
    (1,416
    )
    
    
    (25
    )
    
    
    (1,441
    )Other income (expenses)
    
    
    140
    
    
    
    
    
    
    
    140
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
and minority interests
    
    
    2,181
    
    
    
    2,397
    
    
    
    4,578
    
    
    
    4,316
    
    
    
    4,584
    
    
    
    8,900Provision for income taxes
    
    
    (797
    )
    
    
    (377
    )
    
    
    (1,174
    )
    
    
    (1,469
    )
    
    
    (13
    )
    
    
    (1,482
    )Income before minority interests
    
    
    1,384
    
    
    
    2,020
    
    
    
    3,404
    
    
    
    2,847
    
    
    
    4,571
    
    
    
    7,418Minority interests
    
    
    
    
    
    
    (1,292
    )
    
    
    (1,292
    )
    
    
    
    
    
    
    (1,507
    )
    
    
    (1,507
    )Net income
    
    $
    1,384
    
    
    $
    728
    
    
    $
    2,112
    
    
    $
    2,847
    
    
    $
    3,064
    
    
    $
    5,911
 Net Sales.
  23




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##### Table of Contents



Net Sales of Specialty Segment
(Dollars in thousands)
 Fans
    
    
    WoodardLighting &
    
    
    Outdoor
    
    
    SegmentFiscal Year Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalJune 30, 2008
    
    $
    50,768
    
    
    $
    24,110
    
    
    $
    74,878June 30, 2007
    
    
    59,925
    
    
    
    
    
    
    
    59,925Dollar increase (decrease)
    
    $
    (9,157
    )
    
    $
    24,110
    
    
    $
    14,953Percent increase (decrease)
    
    
    (15.3
    %)
    
    
    100.0
    %
    
    
    25.0
    %
   
 Net Sales of Mass Segment
(Dollars in thousands)
 WoodardLighting &
    
    
    Outdoor
    
    
    SegmentFiscal Year Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalJune 30, 2008
    
    $
    31,461
    
    
    $
    31,251
    
    
    $
    62,712June 30, 2007
    
    
    43,425
    
    
    
    
    
    
    
    43,425Dollar increase (decrease)
    
    $
    (11,964
    )
    
    $
    31,251
    
    
    $
    19,287Percent increase (decrease)
    
    
    (27.6
    %)
    
    
    100.0
    %
    
    
    44.4
    %
    24




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##### Table of Contents



Gross Profit.
  Gross Profit as a Percentage of Net Sales of Specialty Segment
 Fans
    
    
    WoodardLighting &
    
    
    Outdoor
    
    
    SegmentFiscal Year Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalJune 30, 2008
    
    
    35.2
    %
    
    
    24.2
    %
    
    
    31.6
    %June 30, 2007
    
    
    35.3
    %
    
    
    
    
    
    
    35.3
    %Percent decrease
    
    
    (0.1
    %)
    
    na
    
    
    
    (3.7
    %)
   Gross Profit as a Percentage of Net Sales of Mass Segment
 WoodardLighting &
    
    
    Outdoor
    
    
    SegmentFiscal Year Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalJune 30, 2008
    
    
    26.2
    %
    
    
    9.6
    %
    
    
    17.9
    %June 30, 2007
    
    
    25.6
    %
    
    
    
    
    
    
    25.6
    %Percent increase/(decrease)
    
    
    0.6
    %
    
    na
    
    
    
    (7.7
    %)
   25




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##### Table of Contents



Selling, General and Administrative Expenses.
 Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/Fiscal Year Ended
    
    
    (Decrease)June 30,
    
    
    June 30,
    
    
    Over Prior2008
    
    
    2007
    
    
    Year PeriodHistorical Craftmade
    
    $
    21,216
    
    
    $
    21,151
    
    
    $
    65Woodard Incremental
    
    
    6,901
    
    
    
    
    
    
    
    6,901$
    28,117
    
    
    $
    21,151
    
    
    $
    6,966
  Historical Craftmade
Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/Fiscal Year Ended
    
    
    (Decrease)June 30,
    
    
    June 30,
    
    
    Over Prior2008
    
    
    2007
    
    
    Year PeriodCommissions
    
    $
    2,754
    
    
    $
    3,326
    
    
    $
    (572
    )Bad Debt Expense
    
    
    329
    
    
    
    33
    
    
    
    296Accounting, legal and consulting
    
    
    2,468
    
    
    
    2,237
    
    
    
    231Health Insurance
    
    
    1,102
    
    
    
    789
    
    
    
    313Rent
    
    
    246
    
    
    
    393
    
    
    
    (147
    )Other
    
    
    14,317
    
    
    
    14,373
    
    
    
    (56
    )$
    21,216
    
    
    $
    21,151
    
    
    $
    65
   Depreciation and Amortization.
 26




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##### Table of Contents



Interest Expense. ,
 Other income.
 Minority interest.
 Provision for Income Taxes.
 27




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##### Table of Contents



Fiscal year ended June 30, 2007 compared to fiscal year ended June 30, 2006
 Income Statement by Segment
(Dollars in thousands)
 Fiscal Year Ended
    
    
    Fiscal Year EndedJune 30, 2007
    
    
    June 30, 2006Specialty
    
    
    Mass
    
    
    Total
    
    
    Specialty
    
    
    Mass
    
    
    TotalNet sales
    
    $
    59,925
    
    
    $
    43,425
    
    
    $
    103,350
    
    
    $
    62,902
    
    
    $
    55,152
    
    
    $
    118,054Cost of goods sold
    
    
    (38,745
    )
    
    
    (32,314
    )
    
    
    (71,059
    )
    
    
    (40,361
    )
    
    
    (42,224
    )
    
    
    (82,585
    )Gross profit
    
    
    21,180
    
    
    
    11,111
    
    
    
    32,291
    
    
    
    22,541
    
    
    
    12,928
    
    
    
    35,469Gross profit as a % of net sales
    
    
    35.3
    %
    
    
    25.6
    %
    
    
    31.2
    %
    
    
    35.8
    %
    
    
    23.4
    %
    
    
    30.0
    %Selling, general and administrative expenses
    
    
    (14,900
    )
    
    
    (6,251
    )
    
    
    (21,151
    )
    
    
    (13,449
    )
    
    
    (6,446
    )
    
    
    (19,895
    )As a % of net sales
    
    
    24.9
    %
    
    
    14.4
    %
    
    
    20.5
    %
    
    
    21.4
    %
    
    
    11.7
    %
    
    
    16.9
    %Depreciation and amortization
    
    
    (548
    )
    
    
    (251
    )
    
    
    (799
    )
    
    
    (575
    )
    
    
    (19
    )
    
    
    (594
    )Total operating expenses
    
    
    (15,448
    )
    
    
    (6,502
    )
    
    
    (21,950
    )
    
    
    (14,024
    )
    
    
    (6,465
    )
    
    
    (20,489
    )Income from operations
    
    
    5,732
    
    
    
    4,609
    
    
    
    10,341
    
    
    
    8,517
    
    
    
    6,463
    
    
    
    14,980Interest expense, net
    
    
    (1,416
    )
    
    
    (25
    )
    
    
    (1,441
    )
    
    
    (1,104
    )
    
    
    (80
    )
    
    
    (1,184
    )Other expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )
    
    
    35
    
    
    
    Income before income taxes
and minority interests
    
    
    4,316
    
    
    
    4,584
    
    
    
    8,900
    
    
    
    7,378
    
    
    
    6,418
    
    
    
    13,796Provision for income taxes
    
    
    (1,469
    )
    
    
    (13
    )
    
    
    (1,482
    )
    
    
    (2,501
    )
    
    
    (765
    )
    
    
    (3,266
    )Income before minority interests
    
    
    2,847
    
    
    
    4,571
    
    
    
    7,418
    
    
    
    4,877
    
    
    
    5,653
    
    
    
    10,530Minority interests
    
    
    
    
    
    
    (1,507
    )
    
    
    (1,507
    )
    
    
    
    
    
    
    (3,430
    )
    
    
    (3,430
    )Net income
    
    $
    2,847
    
    
    $
    3,064
    
    
    $
    5,911
    
    
    $
    4,877
    
    
    $
    2,223
    
    
    $
    7,100
 Net Sales.
  
 Net Sales of Mass Segment
(Dollars in thousands)
 Trade
    
    
    Design
    
    
    
    
    
    
    SegmentFiscal Year Ended
    
    Source
    
    
    Trends
    
    
    Woodard
    
    
    TotalJune 30, 2007
    
    $
    26,160
    
    
    $
    17,265
    
    
    $
    
    
    
    $
    43,425June 30, 2006
    
    
    33,372
    
    
    
    21,780
    
    
    
    
    
    
    
    55,152Dollar decrease
    
    $
    (7,212
    )
    
    $
    (4,515
    )
    
    $
    
    
    
    $
    (11,727
    )Percent decrease
    
    
    (21.6
    %)
    
    
    (20.7
    %)
    
    
    0.0
    %
    
    
    (21.3
    %)
  28




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##### Table of Contents



Gross Profit.
   Gross Profit as a Percentage of Net Sales of Mass Segment
 Trade
    
    Design
    
    
    
    
    
    SegmentFiscal Year Ended
    
    Source
    
    Trends
    
    Woodard
    
    TotalJune 30, 2007
    
    
    25.6
    %
    
    
    25.5
    %
    
    
    0.0
    %
    
    
    25.6
    %June 30, 2006
    
    
    21.4
    %
    
    
    26.6
    %
    
    
    0.0
    %
    
    
    23.4
    %Percent increase/(decrease)
    
    
    4.2
    %
    
    
    (1.1
    %)
    
    
    0.0
    %
    
    
    2.2
    %
  Selling, General and Administrative Expenses.
 29




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##### Table of Contents



Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/Fiscal Year
    
    
    (Decrease)June 30,
    
    
    June 30,
    
    
    Over Prior2007
    
    
    2006
    
    
    Year PeriodAdvertising
    
    $
    2,161
    
    
    $
    1,514
    
    
    $
    647Salaries and wages
    
    
    7,135
    
    
    
    6,821
    
    
    
    314Accounting, legal and consulting
    
    
    2,237
    
    
    
    2,065
    
    
    
    172Other
    
    
    9,618
    
    
    
    9,495
    
    
    
    123$
    21,151
    
    
    $
    19,895
    
    
    $
    1,256
   Depreciation and Amortization.
 Interest Expense.
 Minority Interests.
 Provision for Income Taxes.
 Liquidity and Capital Resources
 Fiscal year ended June 30, 2008
  30




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##### Table of Contents



Fiscal year ended June 30, 2007
    Fiscal year ended June 30, 2006
  31




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##### Table of Contents



Contractual Obligations
  Summary of Contractual Obligations
At June 30, 2008
(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
    
    $
    17,374
    
    
    $
    
    
    
    $
    17,374
    
    
    $
    
    
    
    $
    Note payable
    
    
    10,779
    
    
    
    463
    
    
    
    1,021
    
    
    
    1,162
    
    
    
    8,133Operating lease obligations
    
    
    2,960
    
    
    
    924
    
    
    
    1,580
    
    
    
    456
    
    
    
    Capital lease obligations
    
    
    113
    
    
    
    44
    
    
    
    69
    
    
    
    
    
    
    
    Guaranteed royalties
    
    
    199
    
    
    
    109
    
    
    
    90
    
    
    
    
    
    
    
    Assumed interest(1)
    
    
    6,578
    
    
    
    1,396
    
    
    
    2,036
    
    
    
    1,208
    
    
    
    1,938Woodard Restructuring
    
    
    692
    
    
    
    425
    
    
    
    267
    
    
    
    
    
    
    
    James Ridings Employment Agreement(2)
    
    
    240
    
    
    
    240
    
    
    
    
    
    
    
    
    
    
    
    Contingent consideration(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    38,935
    
    
    $
    3,601
    
    
    $
    22,437
    
    
    $
    2,826
    
    
    $
    10,071
 
 (1)
    
    Assumed interest calculated at the interest rate in effect at June 30, 2008 for each obligation.(2)
    
    Effective July 1, 2008 the Company enterered into a one-year employment agreement with James R. Ridings pursuant to which he will serve as Senior Executive Advisor to the Companys Board of Directors and Chief Executive Officer.(3)
    
    The Company is contractually obligated to pay contingent consideration based on future levels of
adjusted gross profit in connection with its acquisition of Marketing Impressions.
We have not estimated the amounts of these payments given their contingent nature. Lines of Credit and Notes Payable
  32




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##### Table of Contents



Summary of Long Term Obligations
 (Dollars in thousands)
 Outstanding
    
    
    OutstandingBalance
    
    
    Balance
    
    
    CurrentCommitment
    
    
    June 30, 2008
    
    
    June 30, 2007
    
    
    Interest Rate
    
    
    MaturityRevolving line of credit
    
    $
    50,000
    
    
    $
    17,374
    
    
    $
    18,825
    
    
    LIBOR plus 1.50%
    
    December 31, 2009Note payable  facility
    
    
    
    
    
    
    10,779
    
    
    
    223
    
    
    
    6.5
    %
    
    December 10, 2017Capital lease obligation
    
    
    
    
    
    
    113
    
    
    
    154
    
    
    
    
    
    
    November 5, 2010Sub-total
    
    
    
    
    
    
    28,266
    
    
    
    19,202Less: current amounts due
    
    
    
    
    
    
    (507
    )
    
    
    (264
    )Long-term obligations
    
    
    
    
    
    $
    27,759
    
    
    $
    18,938
     Operating and Capital Lease Obligations
  Guaranteed Royalties
  Inflation
  33




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##### Table of Contents



Effects of Recent Accounting Pronouncements
       Related Party Transactions
  34




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 Foreign Currency Risk
  Interest Rate Exposure
  
 Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A(T). 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
 35




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##### Table of Contents



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, 2008.(c)
    
    This annual report does not include an attestation report of the Companys registered
public accounting firm regarding internal control over financial reporting. Managements
report was not subject to attestation by the Companys registered public accounting firm
pursuant to the delaying of current rules of the SEC that permit the Company to provide
only managements report in this annual report.(d)
    
    Changes in Internal Control Over Financial ReportingDuring the quarter ended June 30, 2008, there were no changes in our internal control over
financial reporting identified in connection with the evaluation described above that have
materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
 
 Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
  
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  36




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##### Table of Contents



Equity Compensation Plan Information
 Number ofSecuritiesNumber of
    
    
    
    
    
    
    RemainingSecurities
    
    
    Weighted-
    
    
    Availableto be Issued
    
    
    Average
    
    
    for FutureUpon
    
    
    Exercise
    
    
    IssuanceExercise of
    
    
    Price of
    
    
    Under EquityOutstanding
    
    
    Outstanding
    
    
    CompensationPlan Category
    
    Options (#)
    
    
    Options ($)
    
    
    Plans (#)1999 Stock Option Plan
    
    
    3,500
    
    
    $
    6.75
    
    
    
    2000 Non-Employee Director Plan
    
    
    15,000
    
    
    
    18.48
    
    
    
    2007 Long-Term Incentive Plan
    
    
    143,900
    
    
    
    13.29
    
    
    
    239,500Total
    
    
    162,400
    
    
    $
    13.63
    
    
    
    239,500
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accountant Fees and Services.
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a)
    
    The following documents are filed as part of this report:
 1.
    
    Consolidated Financial Statements  The consolidated financial statements
listed in the Index to Consolidated Financial Statements described at F-1 are
incorporated by reference herein.2.
    
    Financial Statement Schedule  The financial statement schedule Schedule II
 Valuation and Qualifying Accounts on page F-34 is incorporated by reference herein.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.3.
    
    Exhibits  Certain of the exhibits to this Annual Report are hereby
incorporated by references, as summarized in (b) below.
 (b)
    
    ExhibitsA list of exhibits required to be filed as part of this report is set forth in the Exhibit
Index immediately following the Consolidated Financial Statements filed as part of this
report on Form 10-K and is incorporated herein by reference.(c)
    
    All other financial statement schedules have been omitted since they are either not
required, not applicable or the required information is shown in the financial statements
or related notes.
 37




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##### Table of Contents



SIGNATURES
  CRAFTMADE INTERNATIONAL, INC.By:
    
    /s/ J. Marcus Scrudder

J. Marcus ScrudderChief Executive Officer
  Signatures
    
    Capacity
    
    Date/s/ James R. Ridings

James R. Ridings
    
    Chairman of the Board
    
    September 25, 2008/s/ J. Marcus Scrudder

J. Marcus Scrudder
    
    Chief Executive Officer(Principal Executive Officer)
    
    September 25, 2008/s/ C. Brett Burford

C. Brett Burford
    
    Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    September 25, 2008/s/ William E. Bucek

William E. Bucek
    
    Director
    
    September 25, 2008/s/ L. Dale Griggs

L. Dale Griggs
    
    Director
    
    September 25, 2008/s/ A. Paul Knuckley

A. Paul Knuckley
    
    Director
    
    September 25, 2008/s/ R. Don Morris

R. Don Morris
    
    Director
    
    September 25, 2008/s/ Lary Snodgrass

Lary Snodgrass
    
    Director
    
    September 25, 2008
 38




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Statements of Income
    
    F-3Consolidated Balance Sheets
    
    F-4Consolidated Statements of Cash Flows
    
    F-5Consolidated Statements of Changes in Stockholders Equity
    
    F-7Notes to Consolidated Financial Statements
    
    F-9Financial Statement Schedule: II  Valuation and Qualifying Accounts
    
    F-38
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 
 F-2




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (In thousands, except per share data)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2006Net sales
    
    $
    137,590
    
    
    $
    103,350
    
    
    $
    118,054Cost of goods sold
    
    
    (102,677
    )
    
    
    (71,059
    )
    
    
    (82,585
    )Gross profit
    
    
    34,913
    
    
    
    32,291
    
    
    
    35,469Selling, general and administrative expenses
    
    
    (28,117
    )
    
    
    (21,151
    )
    
    
    (19,895
    )Depreciation and amortization
    
    
    (869
    )
    
    
    (799
    )
    
    
    (594
    )Total operating expenses
    
    
    (28,986
    )
    
    
    (21,950
    )
    
    
    (20,489
    )Income from operations
    
    
    5,927
    
    
    
    10,341
    
    
    
    14,980Interest expense, net
    
    
    (1,489
    )
    
    
    (1,441
    )
    
    
    (1,184
    )Other income
    
    
    140
    
    
    
    
    
    
    
    Income before income taxes and minority interest
    
    
    4,578
    
    
    
    8,900
    
    
    
    13,796Provision for income taxes
    
    
    (1,174
    )
    
    
    (1,482
    )
    
    
    (3,266
    )Income before minority interests
    
    
    3,404
    
    
    
    7,418
    
    
    
    10,530Minority interests
    
    
    (1,292
    )
    
    
    (1,507
    )
    
    
    (3,430
    )Net income
    
    $
    2,112
    
    
    $
    5,911
    
    
    $
    7,100Earnings per share data:Basic weighted average common shares outstanding
    
    
    5,450
    
    
    
    5,204
    
    
    
    5,201Diluted weighted average common shares outstanding
    
    
    5,451
    
    
    
    5,206
    
    
    
    5,211Basic Earnings per share
    
    $
    0.39
    
    
    $
    1.14
    
    
    $
    1.37Diluted Earnings per share
    
    $
    0.39
    
    
    $
    1.14
    
    
    $
    1.36Cash dividends declared per common share
    
    $
    0.36
    
    
    $
    0.48
    
    
    $
    0.48
  F-3




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share data)
 June 30,
    
    
    June 30,2008
    
    
    2007ASSETSCurrent assetsCash
    
    $
    1,269
    
    
    $
    928Accounts receivable, net
    
    
    23,644
    
    
    
    18,082Inventories, net
    
    
    22,420
    
    
    
    18,076Income taxes receivable
    
    
    1,485
    
    
    
    1,376Deferred income taxes
    
    
    1,332
    
    
    
    1,251Prepaid expenses and other current assets
    
    
    2,574
    
    
    
    1,003Total current assets
    
    
    52,724
    
    
    
    40,716Property and equipment, net
    
    
    11,060
    
    
    
    8,379Goodwill
    
    
    14,419
    
    
    
    13,644Other intangibles, net
    
    
    1,300
    
    
    
    1,502Other assets
    
    
    2,457
    
    
    
    510Total non-current assets
    
    
    29,236
    
    
    
    24,035Total assets
    
    $
    81,960
    
    
    $
    64,751LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS EQUITYCurrent liabilitiesBook overdrafts
    
    $
    182
    
    
    $
    48Accounts payable
    
    
    8,411
    
    
    
    5,903Other accrued expenses
    
    
    3,329
    
    
    
    2,472Current portion of long-term obligations
    
    
    507
    
    
    
    264Total current liabilities
    
    
    12,429
    
    
    
    8,687Non-current liabilitiesLong-term obligations
    
    
    27,759
    
    
    
    18,938Deferred income taxes
    
    
    1,117
    
    
    
    1,107Total non-current liabilities
    
    
    28,876
    
    
    
    20,045Total liabilities
    
    
    41,305
    
    
    
    28,732Minority interests
    
    
    3,562
    
    
    
    3,495Commitments and contingencies (Note 9)Stockholders equityPreferred stock, $1.00 par value, 2,000,000 shares authorized; nil shares issued
    
    
    
    
    
    
    Common stock, $0.01 par value, 15,000,000 shares authorized; 9,704,420 and
9,703,420 shares issued, respectively
    
    
    102
    
    
    
    97Additional paid-in capital
    
    
    22,215
    
    
    
    17,831Retained earnings
    
    
    52,902
    
    
    
    52,722Less: treasury stock, 4,499,920 common shares at cost
    
    
    (38,126
    )
    
    
    (38,126
    )Total stockholders equity
    
    
    37,093
    
    
    
    32,524Total liabilities, minority interests and stockholders equity
    
    $
    81,960
    
    
    $
    64,751
  F-4




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    2,112
    
    
    $
    5,911
    
    
    $
    7,100Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization, including amounts in Cost of Sales
    
    
    953
    
    
    
    799
    
    
    
    594Provision for bad debt and inventories
    
    
    203
    
    
    
    136
    
    
    
    564(Gain)/loss on sale of property and equipment
    
    
    (6
    )
    
    
    7
    
    
    
    63Stock compensation expense
    
    
    110
    
    
    
    64
    
    
    
    23Deferred income taxes
    
    
    (71
    )
    
    
    763
    
    
    
    91Minority interest
    
    
    1,292
    
    
    
    1,507
    
    
    
    3,430Change in assets and liabilities, net of a business
acquired, providing/(using) cashAccounts receivable
    
    
    6,924
    
    
    
    1,854
    
    
    
    1,809Inventories
    
    
    3,888
    
    
    
    2,908
    
    
    
    (3,527
    )Prepaid expenses and other current assets
    
    
    460
    
    
    
    (300
    )
    
    
    (469
    )Accounts payable
    
    
    (3,316
    )
    
    
    (2,882
    )
    
    
    (322
    )Other accrued expenses
    
    
    (771
    )
    
    
    (3,725
    )
    
    
    (1,522
    )Net cash provided by operating activities
    
    
    11,778
    
    
    
    7,042
    
    
    
    7,834Cash flows from investing activities:Acquisition of assets of Woodard, LLC.
    
    
    (15,498
    )
    
    
    
    
    
    
    Acquisition of Marketing Impressions, Inc.Initial payment and acquisition related costs, net of cash acquired
    
    
    
    
    
    
    (1,507
    )
    
    
    Additional contingent consideration
    
    
    (698
    )
    
    
    (1,601
    )
    
    
    Additions to
property, equipment and tooling
    
    
    (655
    )
    
    
    (499
    )
    
    
    (233
    )Net cash used in investing activities
    
    
    (16,851
    )
    
    
    (3,607
    )
    
    
    (233
    )Cash flows from financing activities:Cash dividends
    
    
    (2,560
    )
    
    
    (2,498
    )
    
    
    (2,404
    )Distributions to minority interest members
    
    
    (1,225
    )
    
    
    (1,674
    )
    
    
    (3,859
    )Proceeds from note payable  facility
    
    
    11,000
    
    
    
    
    
    
    
    Payments on notes
    
    
    (443
    )
    
    
    (1,134
    )
    
    
    (1,512
    )Increase/(decrease) in book overdrafts
    
    
    134
    
    
    
    (22
    )
    
    
    (450
    )Proceeds from exercise of employee stock options
    
    
    
    
    
    
    10
    
    
    
    37Principal payments on capital lease
    
    
    (41
    )
    
    
    (24
    )
    
    
    Net proceeds from lines of credit
    
    
    73,355
    
    
    
    18,252
    
    
    
    8,989Net payments on lines of credit
    
    
    (74,806
    )
    
    
    (17,581
    )
    
    
    (15,383
    )Net cash provided by/(used in) financing activities
    
    
    5,414
    
    
    
    (4,671
    )
    
    
    (14,582
    )Net increase/(decrease) in cash
    
    
    341
    
    
    
    (1,236
    )
    
    
    (6,981
    )Cash at beginning of year
    
    
    928
    
    
    
    2,164
    
    
    
    9,145Cash at end of year
    
    $
    1,269
    
    
    $
    928
    
    
    $
    2,164
  F-5




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTINUED
(In thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2008
    
    2007
    
    2006Supplemental disclosures of cash flow information:Cash paid during the fiscal year for:Interest
    
    $
    1,557
    
    
    $
    1,316
    
    
    $
    1,202Income taxes
    
    
    1,518
    
    
    
    2,719
    
    
    
    3,033Supplemental disclosures of non-cash investing and financing activities:Additional contingent consideration not paid
    
    $
    77
    
    
    $
    
    
    
    $
    Dividends declared but not paid
    
    
    
    
    
    
    625
    
    
    
    624Property and equipment financed under capital lease
    
    
    
    
    
    
    177
    
    
    
    Common stock and warrants
issued in conjunction with acquisition
    
    $
    4,279
    
    
    $
    
    
    
    $
    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-6




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 FOR THE THREE YEARS ENDED JUNE 30, 2008
 (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
    
    
    
    4,532
    
    
    $
    (40,007
    )
    
    $
    24,373Comprehensive income:Net income for the fiscal year ended June 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,100
    
    
    
    
    
    
    
    
    
    
    
    7,100Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,100
    
    
    
    
    
    
    
    
    
    
    
    7,100Exercise of stock options, net of tax benefit
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Stock-based compensation charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,496
    )
    
    
    
    
    
    
    
    
    
    
    (2,496
    )Retirement of preferred stock
    
    
    
    
    
    
    
    
    
    
    (32
    )
    
    
    (956
    )
    
    
    (893
    )
    
    
    (32
    )
    
    
    1,881
    
    
    
    Balance as of June 30, 2006
    
    
    9,703
    
    
    $
    97
    
    
    $
    
    
    
    $
    17,757
    
    
    $
    49,309
    
    
    
    4,500
    
    
    $
    (38,126
    )
    
    $
    29,037Comprehensive income:Net income for the fiscal year ended June 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,911
    
    
    
    
    
    
    
    
    
    
    
    5,911Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,911
    
    
    
    
    
    
    
    
    
    
    
    5,911Exercise of stock options, net of tax benefit
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Stock-based compensation charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,498
    )
    
    
    
    
    
    
    
    
    
    
    (2,498
    )Balance as of June 30, 2007
    
    
    9,704
    
    
    $
    97
    
    
    $
    
    
    
    $
    17,831
    
    
    $
    52,722
    
    
    
    4,500
    
    
    $
    (38,126
    )
    
    $
    32,524
  F-7




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY  CONTINUED
FOR THE THREE YEARS ENDED JUNE 30, 2008  CONTINUED
(In thousands)
 Series A
    
    
    AdditionalCommon Stock
    
    
    Preferred
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury StockShares
    
    
    Amount
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    Total(In thousands)Balance as of June 30, 2007
    
    
    9,704
    
    
    $
    97
    
    
    $
    
    
    
    $
    17,831
    
    
    $
    52,722
    
    
    
    4,500
    
    
    $
    (38,126
    )
    
    $
    32,524Comprehensive income:Net income for the fiscal year ended June 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,112
    
    
    
    
    
    
    
    
    
    
    
    2,112Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,112
    
    
    
    
    
    
    
    
    
    
    
    2,112Stock and warrants issued to Forwoodco, LLC
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    4,274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,279Exercise of stock options, net of tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,932
    )
    
    
    
    
    
    
    
    
    
    
    (1,932
    )Balance as of June 30, 2008
    
    
    9,704
    
    
    $
    102
    
    
    $
    
    
    
    $
    22,215
    
    
    $
    52,902
    
    
    
    4,500
    
    
    $
    (38,126
    )
    
    $
    37,093
  F-8




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Organization and Nature of the Company
     Note 2  Summary of Significant Accounting Policies
 Basis of presentation 
 Accounts receivable 
 Summary of Accounts Receivable
(Dollars in thousands)
 June 30,
    
    
    June 30,2008
    
    
    2007Accounts receivable
    
    $
    21,623
    
    
    $
    17,780Other receivables
    
    
    2,405
    
    
    
    553Allowance for doubtful accounts
    
    
    (384
    )
    
    
    (251
    )Net accounts receivable
    
    $
    23,644
    
    
    $
    18,082
   F-9




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Concentration of credit risk 
 Lowes
    
    CostcoPercent of
    
    Percent of
    
    Percent of
    
    Percent ofMass
    
    Consolidated
    
    Mass
    
    ConsolidatedFiscal Year Ended
    
    Net Sales
    
    Net Sales
    
    Net Sales
    
    Net SalesJune 30, 2008
    
    
    41
    %
    
    
    19
    %
    
    
    14
    %
    
    
    6
    %June 30, 2007
    
    
    70
    %
    
    
    29
    %
    
    
    0
    %
    
    
    0
    %June 30, 2006
    
    
    87
    %
    
    
    41
    %
    
    
    0
    %
    
    
    0
    %
 Inventories 
 Property and equipment 
 F-10




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Summary of Property and Equipment
(Dollars in thousands)
 June 30,
    
    
    June 30,2008
    
    
    2007Land
    
    $
    1,761
    
    
    $
    1,535Buildings
    
    
    10,341
    
    
    
    7,796Office furniture and equipment
    
    
    4,841
    
    
    
    4,203Leasehold improvements
    
    
    211
    
    
    
    194Gross property and equipment
    
    
    17,154
    
    
    
    13,728Accumulated depreciation
    
    
    (6,094
    )
    
    
    (5,349
    )Net property and equipment
    
    $
    11,060
    
    
    $
    8,379
  Buildings
    
    40 yearsOffice furniture and equipment
    
    2 to 7 years
   June 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2006Depreciation of property and equipment
    
    $
    751
    
    
    $
    601
    
    
    $
    564Amortization of intangibles
    
    
    202
    
    
    
    198
    
    
    
    30$
    953
    
    
    $
    799
    
    
    $
    594
  Impairment of long-lived assets 
 Goodwill and other intangible assets 
 F-11




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands)
 Speciality
    
    
    Mass
    
    
    TotalJune 30, 2007
    
    $
    6,745
    
    
    $
    6,899
    
    
    $
    13,644Acquisition of Marketing Impressions
    
    
    
    
    
    
    775
    
    
    
    775June 30, 2008
    
    $
    6,745
    
    
    $
    7,674
    
    
    $
    14,419
   Summary of Intangible Assets
(Dollars in thousands)
 June 30,
    
    
    June 30,
    
    
    Life2008
    
    
    2007
    
    
    in YearsNon-compete covenants
    
    $
    1,020
    
    
    $
    1,020
    
    
    
    7Patents and trademarks
    
    
    720
    
    
    
    720
    
    
    15 to 17Gross intangible assets
    
    
    1,740
    
    
    
    1,740Accumulated amortization
    
    
    (440
    )
    
    
    (238
    )Net intangible assets
    
    $
    1,300
    
    
    $
    1,502
  Summary of Future Amortization Expense
(Dollars in Thousands)
 Fiscal Year EndingJune 30, 2009
    
    $
    203June 30, 2010
    
    
    187June 30, 2011
    
    
    187June 30, 2012
    
    
    179June 30, 2013
    
    
    164Thereafter
    
    
    380$
    1,300
 Other accrued expenses
 F-12




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Summary of Other Accrued Expenses
(Dollars in Thousands)
 June 30,
    
    
    June 30,2008
    
    
    2007Accrued customer allowances
    
    $
    834
    
    
    $
    947Accrued dividend payable
    
    
    
    
    
    
    625Commissions payable
    
    
    611
    
    
    
    287Accrued payroll
    
    
    752
    
    
    
    217Restructuring reserve
    
    
    443
    
    
    
    Co-op advertising allowance
    
    
    353
    
    
    
    142Other current liabilities
    
    
    336
    
    
    
    254Other accrued expenses
    
    $
    3,329
    
    
    $
    2,472
 Returns
 Sales Returns Allowance
(Dollars in thousands)
 June 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2006Beginning of year balance
    
    $
    91
    
    
    $
    87
    
    
    $
    85Provision for estimated returns
    
    
    909
    
    
    
    1,025
    
    
    
    939Return credits issued
    
    
    (923
    )
    
    
    (1,021
    )
    
    
    (937
    )End of year balance
    
    $
    77
    
    
    $
    91
    
    
    $
    87
 Product warranties 
 Product Warranty Reserves
(Dollars in thousands)
 June 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2006Beginning of year balance
    
    $
    177
    
    
    $
    169
    
    
    $
    171Woodard Opening Reserve
    
    
    584
    
    
    
    
    
    
    
    Provision for estimated expenses
    
    
    1,720
    
    
    
    1,147
    
    
    
    1,037Warranty claims paid
    
    
    (1,707
    )
    
    
    (1,139
    )
    
    
    (1,039
    )End of year balance
    
    $
    774
    
    
    $
    177
    
    
    $
    169
 Income taxes 
 F-13




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Revenue recognition 
     F-14




---



##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Variable interest entities
  before
 F-15




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2008
(Dollars in thousands)
 Craftmade
    
    
    DesignWholly Owned
    
    
    Trends
    
    
    ConsolidatedTotal assets
    
    $
    65,815
    
    
    $
    16,145
    
    
    $
    81,960Total liabilities
and minority interests
    
    $
    44,346
    
    
    $
    521
    
    
    $
    44,867Total stockholders equity
    
    
    21,469
    
    
    
    15,624
    
    
    
    37,093Total liabilities
and stockholders equity
    
    $
    65,815
    
    
    $
    16,145
    
    
    $
    81,960
 AS OF JUNE 30, 2007
(Dollars in thousands)
 Craftmade
    
    
    DesignWholly Owned
    
    
    Trends
    
    
    ConsolidatedTotal assets
    
    $
    48,687
    
    
    $
    16,064
    
    
    $
    64,751Total liabilities
and minority interests
    
    $
    30,495
    
    
    $
    1,732
    
    
    $
    32,227Total stockholders equity
    
    
    18,192
    
    
    
    14,332
    
    
    
    32,524Total liabilities
and stockholders equity
    
    $
    48,687
    
    
    $
    16,064
    
    
    $
    64,751
 Advertising costs 
 F-16




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Advertising
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2008
    
    2007
    
    2006Advertising expense
    
    $
    3,484
    
    
    $
    2,161
    
    
    $
    1,514Prepaid advertising costs
    
    
    656
    
    
    
    407
    
    
    
    164
 Research and development 
 Research and Development
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2008
    
    2007
    
    2006Research and development
    
    $
    184
    
    
    $
    265
    
    
    $
    217
 Stock-based compensation
  Stock-Based Compensation Expense
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2008
    
    2007
    
    2006Stock-based compensation expense recognized:Selling, general & administrative
    
    $
    110
    
    
    $
    64
    
    
    $
    23
  F-17




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Future Stock-Based Compensation Expense
(Dollars in thousands)
 ExpectedFutureCompensationFiscal Year Ending
    
    CostJune 30, 2009
    
    $
    121June 30, 2010
    
    
    121June 30, 2011
    
    
    69June 30, 2012
    
    
    17$
    328
 Use of estimates 
 Effects of recent accounting pronouncements
     F-18




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Dividend Policy
  Related Party Transactions
   Fair Value of Financial Instruments
  F-19




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Earnings Per Share
  Reclassifications
  Note 3  Acquisitions
 Acquisition of Certain Assets of Woodard LLC.
   F-20




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 Cash paid at closing
    
    $
    16,168GAAP value of 500,000 shares issued
    
    
    4,000
    (1)Value of 200,000 Warrants
    
    
    279
    (2)Purchase price adjustment (Settled April, 2008)
    
    
    (1,272
    )Total consideration
    
    $
    19,175
 
 (1)
    
    The value of the 500,000 shares of common stock was based on the average
closing prices of Craftmades common stock, $0.01 par value per share, for
the two days before, the day of, and the two days after the date of the
announcement of the merger or $8.00 per share.(2)
    
    The 200,000 common stock warrants were valued using the Black-Scholes
calculation at a warrant price of $1.39 per share using the following
assumptions: Expected volatility
    
    
    33
    %Risk-free interest rate
    
    
    3.81
    %Expected lives
    
    10 yearsDividend yield
    
    
    5.8
    %
   F-21




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Preliminary Purchase Price AllocationInitial estimated purchase price
    
    
    
    
    
    $
    20,168Less: Working capital adjustment
    
    
    
    
    
    
    (1,272
    )Value of warrants
    
    
    
    
    
    
    279Total Purchase Consideration
    
    
    
    
    
    
    19,175Acquired Assets (Adjusted to estimated fair value)Accounts receivable, net
    
    $
    12,708Inventories, net
    
    
    8,212Prepaid expenses and other current assets
    
    
    2,450Plant, property and equipment
    
    
    2,771Other assets
    
    
    1,528Total Assets
    
    
    
    
    
    
    27,669Assumed LiabilitiesAccounts payable
    
    $
    5,694Other accrued expenses
    
    
    1,702Other liabilities incurred during transactionProfessional fees associated with acquisition
    
    
    655Restructuring reserve
    
    
    692Deferred tax asset for restructuring reserve
    
    
    (249
    )Total Liabilities
    
    
    
    
    
    
    8,494Total Purchase Price
    
    
    
    
    
    $
    19,175
   F-22




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Unaudited Pro Forma Results
(In thousands, except per share data)
 Fiscal Year EndedJune 30,
    
    June 30,2008
    
    2007Net salesAs reported
    
    $
    137,590
    
    
    $
    103,350Pro forma
    
    
    164,590
    
    
    
    192,060Net incomeAs reported
    
    $
    2,112
    
    
    $
    5,911Pro forma
    
    
    860
    
    
    
    7,230Basic earnings per shareAs reported
    
    $
    0.39
    
    
    $
    1.14Pro forma
    
    $
    0.14
    
    
    $
    1.27Diluted earnings per shareAs reported
    
    $
    0.39
    
    
    $
    1.14Pro forma
    
    $
    0.14
    
    
    $
    1.27
   Acquisition of Marketing Impressions, Inc.
   before
 F-23




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Purchase Price Summary
(Dollars in thousands)
 As of June 30, 2008:Amount paid at closing, net of cash acquired
    
    $
    1,287Contingent payments earned
    
    
    2,366Acquisition-related costs
    
    
    220Total consideration as of June 30, 2008
    
    $
    3,873Percent of Adjusted Gross Profit
July 1, 2006 to August 31, 2011
    
    
    22
    %Additional Percent of Adjusted Gross Profit
July 1, 2006 to June 30, 2007 (not to exceed $
750)
    
    
    15
    %
 Business Combinations
  Purchase Price Allocation
(Dollars in thousands)
 Assets:Accounts receivable
    
    $
    368Inventory
    
    
    2Property and equipment
    
    
    214Deferred tax assets
    
    
    70Acquired intangibles
    
    
    1,530Goodwill
    
    
    2,1644,348Liabilities:Accounts payable
    
    
    1,120Note payable and other liabilities
    
    
    241,144Total purchase price as of June 30, 2007
    
    $
    3,204
 F-24




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Summary of Acquired Intangibles
(Dollars in thousands)
 Life
    
    
    Grossin Years
    
    
    AmountPatents and trademarks
    
    15
    
    
    $
    710Non-compete covenants
    
    7
    
    
    
    820$
    1,530
   Unaudited Pro Forma Results
(In thousands, except per share data)
 FiscalYearEndedJune 30,2006Net sales(1)As reported
    
    $
    118,054Pro forma
    
    
    118,054Net income(2)As reported
    
    $
    7,100Pro forma
    
    
    8,224Diluted earnings per shareAs reported
    
    $
    1.36Pro forma
    
    
    1.58
 
 (1)
    
    Since net sales of Marketing Impressions represent sales to Craftmade, they
eliminate in consolidation. Net sales of PHI have historically been included in
consolidated net sales of the Company in
accordance with FIN 46R. Accordingly, pro forma net sales equal actual net sales.(2)
    
    Pro forma net income includes the remaining 50% net income of PHI (minority
interest portion) plus additional gross margin for certain products, less interest,
depreciation, amortization, and consulting fees. F-25




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 4  Long-Term Obligations
  Summary of Long Term Obligations  (Dollars in thousands)
 Outstanding
    
    
    OutstandingBalance
    
    
    Balance
    
    
    CurrentCommitment
    
    
    June 30, 2008
    
    
    June 30, 2007
    
    
    Interest Rate
    
    
    MaturityRevolving line of credit
    
    $
    50,000
    
    
    $
    17,374
    
    
    $
    18,825
    
    
    LIBOR plus 1.50%
    
    December 31, 2009Note payable  facility
    
    
    n/a
    
    
    
    10,779
    
    
    
    223
    
    
    
    6.5
    %
    
    December 10, 2017Capital lease obligation
    
    
    n/a
    
    
    
    113
    
    
    
    154
    
    
    
    
    
    
    November 5, 2010Sub-total
    
    
    
    
    
    
    28,266
    
    
    
    19,202Less: current amounts due
    
    
    
    
    
    
    (507
    )
    
    
    (264
    )Long-term obligations
    
    
    
    
    
    $
    27,759
    
    
    $
    18,938
     F-26




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Schedule of Maturities
(Dollars in thousands)
 Line of
    
    
    Note
    
    
    CapitalFiscal Year Ended
    
    Credit
    
    
    Payable
    
    
    Lease
    
    
    TotalJune 30, 2009
    
    
    
    
    
    
    463
    
    
    
    44
    
    
    
    507June 30, 2010
    
    
    17,374
    
    
    
    494
    
    
    
    48
    
    
    
    17,916June 30, 2011
    
    
    
    
    
    
    527
    
    
    
    21
    
    
    
    548June 30, 2012
    
    
    
    
    
    
    562
    
    
    
    
    
    
    
    562June 30, 2013
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    600Thereafter
    
    
    
    
    
    
    8,133
    
    
    
    
    
    
    
    8,133$
    17,374
    
    
    $
    10,779
    
    
    $
    113
    
    
    $
    28,266
 Note 5  Income Taxes
  Provision for Income Taxes
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2006Current expense/(benefit):Federal
    
    $
    1,246
    
    
    $
    1,003
    
    
    $
    3,309State
    
    
    57
    
    
    
    (427
    )
    
    
    (243
    )Foreign
    
    
    42
    
    
    
    143
    
    
    
    109Total current expense
    
    
    1,345
    
    
    
    719
    
    
    
    3,175Deferred expense/(benefit)
    
    
    (171
    )
    
    
    763
    
    
    
    91Provision for income tax expense
    
    $
    1,174
    
    
    $
    1,482
    
    
    $
    3,266
  F-27




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Summary of Deferred Taxes
(Dollars in thousands)
 June 30,
    
    
    June 30,2008
    
    
    2007Inventories
    
    $
    403
    
    
    $
    346Investment in 50% owned LLCs
    
    
    186
    
    
    
    181Reserves and accruals
    
    
    216
    
    
    
    158Accounts receivable reserves
    
    
    131
    
    
    
    85State refund claims, net of federal tax
    
    
    100
    
    
    
    100Net operating loss carryforwards
    
    
    24
    
    
    
    24Other
    
    
    83
    
    
    
    88Valuation allowance
    
    
    (100
    )
    
    
    (100
    )Total deferred tax assets
    
    
    1,043
    
    
    
    882Depreciation and amortization
    
    
    (671
    )
    
    
    (580
    )Foreign taxes
    
    
    (157
    )
    
    
    (158
    )Other
    
    
    
    
    
    
    Total deferred tax liabilities
    
    
    (828
    )
    
    
    (738
    )Net deferred tax asset/(liability)
    
    $
    215
    
    
    $
    144
   Reconciliation of Federal Tax Rate to Effective Tax Rate
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2006Tax at the statutory corporate rate
    
    $
    1,557
    
    
    $
    3,026
    
    
    $
    4,691Less: federal income tax attributable to minority interest
    
    
    (439
    )
    
    
    (459
    )
    
    
    (1,158
    )Foreign tax rate under federal statutory rate(1)
    
    
    (40
    )
    
    
    (905
    )
    
    
    (156
    )Federal taxes on anticipated repatriation of foreign earnings
    
    
    40
    
    
    
    147
    
    
    
    (157
    )State income taxes, net of federal benefit(2)
    
    
    28
    
    
    
    (314
    )
    
    
    22Other
    
    
    28
    
    
    
    (13
    )
    
    
    24Provision for income taxes
    
    $
    1,174
    
    
    $
    1,482
    
    
    $
    3,266
 
 (1)
    
    The foreign tax rate under the federal statutory rate for the fiscal year
ended June 30, 2007 includes benefits obtained from a reduction in amounts set aside
for tax contingencies of $793,000 recorded in
the quarter ended June 30, 2007 and a lower foreign tax rate of approximately $112,000.(2)
    
    State income taxes, net of federal benefit, includes the benefit resulting
from lower state apportionment rates applied to prior periods as a result of a change
in the state tax law totaling $516,000, offset by increases in amounts set aside for
tax contingencies totaling $231,000. F-28




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Reconciliation of Unrecognized Tax Benefits
(Dollars in thousands)
 Increases/(Decreases) in UnrecognizedTax Benefits As a Result ofTax Positions from
    
    
    
    
    
    Lapse inJuly 1,
    
    Prior
    
    Current
    
    
    
    
    
    Statute of
    
    June 30,2007
    
    Periods
    
    Period
    
    Settlements
    
    Limitations
    
    2008Unrecognized tax benefits
    
    $
    290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    290
   Note 6  Stockholders Equity
 Stock Option Plans
   F-29




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Summary of Stock Options
 Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Exercise
    
    
    AverageExercise
    
    
    Price
    
    
    RemainingShares
    
    
    Price
    
    
    Range
    
    
    Life (Years)Outstanding at June 30, 2005
    
    
    20,000
    
    
    $
    13.94Granted
    
    
    3,000
    
    
    
    17.48Exercised
    
    
    (3,500
    )
    
    
    6.75Outstanding at June 30, 2006
    
    
    19,500
    
    
    
    15.78Granted
    
    
    85,000
    
    
    
    18.49Exercised
    
    
    (1,000
    )
    
    
    6.75Forfeited
    
    
    (4,400
    )
    
    
    18.85Outstanding at June 30, 2007
    
    
    99,100
    
    
    
    18.06Granted
    
    
    75,500
    
    
    
    8.01Exercised
    
    
    
    
    
    
    0.00Forfeited
    
    
    (12,200
    )
    
    
    14.79$
    6.75-Outstanding at June 30, 2008
    
    
    162,400
    
    
    $
    13.63
    
    
    $
    25.20
    
    
    
    8.6$
    6.75-Exercisable at June 30, 2008
    
    
    36,600
    
    
    $
    17.37
    
    
    $
    25.20
    
    
    
    6.6
  Weighted-Average Stock Option Assumptions
 Fiscal
    
    Fiscal
    
    Fiscal2008
    
    2007
    
    2006Expected volatility
    
    
    33
    %
    
    
    36
    %
    
    
    45
    %Risk-free interest rate
    
    
    3.7
    %
    
    
    4.9
    %
    
    
    4.5
    %Expected lives
    
    4 years
    
    4 years
    
    4 yearsDividend yield
    
    
    6.0
    %
    
    
    2.6
    %
    
    
    2.7
    %Weighted average fair value of options granted per share
    
    $
    1.39
    
    
    $
    5.31
    
    
    $
    5.88Total fair value of options granted
    
    $
    485,000
    
    
    $
    451,000
    
    
    $
    18,000Total fair value of options vested
    
    $
    156,000
    
    
    $
    105,000
    
    
    $
    93,000Total intrinsic value of stock options exercised(1)
    
    $
    
    
    
    $
    9,000
    
    
    $
    34,000
 
 (1)
    
    Intrinsic value of stock options is calculated using the difference
between the common
share price on the date of exercise and the strike price times the number of stock
options exercised.  F-30




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Stock Option Exercise Prices
 Number of SharesUnder Stock Options
    
    
    ExerciseExpiration Date
    
    Outstanding
    
    
    Exercisable
    
    
    Price10/28/2009
    
    
    3,500
    
    
    
    3,500
    
    
    $
    6.752/15/2012
    
    
    3,000
    
    
    
    3,000
    
    
    
    14.852/15/2013
    
    
    3,000
    
    
    
    3,000
    
    
    
    14.152/15/2014
    
    
    3,000
    
    
    
    3,000
    
    
    
    25.202/15/2015
    
    
    3,000
    
    
    
    3,000
    
    
    
    20.742/15/2016
    
    
    3,000
    
    
    
    3,000
    
    
    
    17.4811/27/2016
    
    
    52,400
    
    
    
    13,100
    
    
    
    18.852/4/2017
    
    
    20,000
    
    
    
    5,000
    
    
    
    17.622/5/2018
    
    
    71,500
    
    
    
    
    
    
    
    8.01162,400
    
    
    
    36,600
    
    
    $
    13.63
 Retirement of Preferred Stock
  Stockholder Rights Plan
  F-31




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 7  Earnings Per Share
  Earnings Per Common Share
(In thousands, except per share data)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2006Basic and diluted earnings per share:NumeratorNet income
    
    $
    2,112
    
    
    $
    5,911
    
    
    $
    7,100Denominator for basic EPSWeighted average common shares outstanding
    
    
    5,450
    
    
    
    5,204
    
    
    
    5,201Denominator for diluted EPSWeighted average common shares outstanding
    
    
    5,450
    
    
    
    5,204
    
    
    
    5,201Incremental shares for stock options
    
    
    1
    
    
    
    2
    
    
    
    10Potentially dilutive weighted average common shares
    
    
    5,451
    
    
    
    5,206
    
    
    
    5,211Basic earnings per common share
    
    $
    0.39
    
    
    $
    1.14
    
    
    $
    1.37Diluted earnings per common share
    
    $
    0.39
    
    
    $
    1.14
    
    
    $
    1.36
 Note 8  Commitments and Contingencies
  Rental Expense Under Operating Leases
(Dollars in thousands)
 Fiscal Year Ended
    
    AmountJune 30, 2008
    
    $
    628June 30, 2007
    
    
    393June 30, 2006
    
    
    438
  F-32




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Future Minimum Lease and Royalty Payments
(Dollars in thousands)
 Operating
    
    
    GuaranteedFiscal Year Ended
    
    Leases
    
    
    Royalties
    
    
    TotalJune 30, 2009
    
    $
    924
    
    
    $
    109
    
    
    $
    1,033June 30, 2010
    
    
    563
    
    
    
    90
    
    
    
    653June 30, 2011
    
    
    520
    
    
    
    
    
    
    
    520June 30, 2012
    
    
    497
    
    
    
    
    
    
    
    497June 30, 2013
    
    
    391
    
    
    
    
    
    
    
    391Thereafter
    
    
    65
    
    
    
    
    
    
    
    65$
    2,960
    
    
    $
    199
    
    
    $
    3,159
   F-33




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 9  401(k) Defined Contribution Plan
  Contributions to 401(k) Retirement Plan
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    June 30,
    
    June 30,2008
    
    2007
    
    2006Contributions to 401(k)
    
    $
    169
    
    
    $
    110
    
    
    $
    101
 Note 10  Segment Information
 
   F-34




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Summary of Reportable Segments
(Dollars in thousands)
 Specialty
    
    Mass
    
    TotalFiscal year ended June 30, 2008:Net sales
    
    $
    74,878
    
    
    $
    62,712
    
    
    $
    137,590Gross profit
    
    
    23,675
    
    
    
    11,238
    
    
    
    34,913Income from operations
    
    
    3,536
    
    
    
    2,391
    
    
    
    5,927Interest expense, net
    
    
    1,495
    
    
    
    (6
    )
    
    
    1,489Minority interest
    
    
    
    
    
    
    1,292
    
    
    
    1,292Provision for income taxes
    
    
    797
    
    
    
    377
    
    
    
    1,174Depreciation and amortization
    
    
    600
    
    
    
    269
    
    
    
    869Net income
    
    
    1,384
    
    
    
    728
    
    
    
    2,112Total assets
    
    
    60,453
    
    
    
    21,507
    
    
    
    81,960Fiscal year ended June 30, 2007:Net sales
    
    $
    59,925
    
    
    $
    43,425
    
    
    $
    103,350Gross profit
    
    
    21,180
    
    
    
    11,111
    
    
    
    32,291Income from operations
    
    
    5,732
    
    
    
    4,609
    
    
    
    10,341Interest expense, net
    
    
    1,416
    
    
    
    25
    
    
    
    1,441Minority interest
    
    
    
    
    
    
    1,507
    
    
    
    1,507Provision for income taxes
    
    
    1,469
    
    
    
    13
    
    
    
    1,482Depreciation and amortization
    
    
    548
    
    
    
    251
    
    
    
    799Net income
    
    
    2,847
    
    
    
    3,064
    
    
    
    5,911Total assets
    
    
    53,579
    
    
    
    11,172
    
    
    
    64,751Fiscal year ended June 30, 2006:Net sales
    
    $
    62,902
    
    
    $
    55,152
    
    
    $
    118,054Gross profit
    
    
    22,541
    
    
    
    12,928
    
    
    
    35,469Income from operations
    
    
    8,517
    
    
    
    6,463
    
    
    
    14,980Interest expense, net
    
    
    1,104
    
    
    
    80
    
    
    
    1,184Minority interest
    
    
    
    
    
    
    3,430
    
    
    
    3,430Provision for income taxes
    
    
    2,501
    
    
    
    765
    
    
    
    3,266Depreciation and amortization
    
    
    575
    
    
    
    19
    
    
    
    594Net income
    
    
    4,877
    
    
    
    2,223
    
    
    
    7,100Total assets
    
    
    52,833
    
    
    
    12,228
    
    
    
    65,061
 F-35




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Net Sales by Product Category
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2006SpecialtyCeiling fans, light kits and blades
    
    
    23
    %
    
    
    37
    %
    
    
    36
    %Outdoor patio furniture
    
    
    16
    %
    
    
    0
    %
    
    
    0
    %Teiber lighting products
    
    
    6
    %
    
    
    10
    %
    
    
    8
    %Durocraft clocks and weather gauges
    
    
    2
    %
    
    
    3
    %
    
    
    1
    %Accolade lighting
    
    
    7
    %
    
    
    8
    %
    
    
    8
    %54
    %
    
    
    58
    %
    
    
    53
    %MassIndoor lighting
    
    
    13
    %
    
    
    23
    %
    
    
    29
    %Outdoor lighting
    
    
    2
    %
    
    
    2
    %
    
    
    6
    %Outdoor patio furniture
    
    
    22
    %
    
    
    0
    %
    
    
    0
    %Accessories
    
    
    9
    %
    
    
    17
    %
    
    
    12
    %46
    %
    
    
    42
    %
    
    
    47
    %100
    %
    
    
    100
    %
    
    
    100
    %
 F-36




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 11  Quarterly Data (Unaudited)
   Quarterly Data (Unaudited)
(In thousands, except per share data)
 Fiscal Year Ended June 30, 2008(1)
    
    Fiscal Year Ended June 30, 2007Fourth
    
    Third
    
    Second
    
    First
    
    
    
    
    
    Fourth
    
    Third
    
    Second
    
    FirstTotal
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Total
    
    Quarter(2)
    
    Quarter
    
    Quarter
    
    QuarterNet sales
    
    $
    137,590
    
    
    $
    39,122
    
    
    $
    54,918
    
    
    $
    20,812
    
    
    $
    22,738
    
    
    $
    103,350
    
    
    $
    26,169
    
    
    $
    22,492
    
    
    $
    26,563
    
    
    $
    28,126Gross profit
    
    
    34,913
    
    
    
    10,177
    
    
    
    10,692
    
    
    
    6,534
    
    
    
    7,510
    
    
    
    32,291
    
    
    
    7,894
    
    
    
    7,091
    
    
    
    8,524
    
    
    
    8,782Income from operations
    
    
    5,927
    
    
    
    1,185
    
    
    
    1,634
    
    
    
    1,344
    
    
    
    1,764
    
    
    
    10,341
    
    
    
    2,242
    
    
    
    1,413
    
    
    
    3,188
    
    
    
    3,498Net income
    
    
    2,112
    
    
    
    373
    
    
    
    639
    
    
    
    482
    
    
    
    618
    
    
    
    5,911
    
    
    
    1,794
    
    
    
    733
    
    
    
    1,500
    
    
    
    1,884Basic EPS
    
    $
    0.39
    
    
    $
    0.07
    
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.12
    
    
    $
    1.14
    
    
    $
    0.34
    
    
    $
    0.14
    
    
    $
    0.29
    
    
    $
    0.36Diluted EPS
    
    
    0.39
    
    
    
    0.07
    
    
    
    0.11
    
    
    
    0.09
    
    
    
    0.12
    
    
    
    1.14
    
    
    
    0.34
    
    
    
    0.14
    
    
    
    0.29
    
    
    
    0.36Basic shares outstanding
    
    
    5,450
    
    
    
    5,704
    
    
    
    5,694
    
    
    
    5,205
    
    
    
    5,205
    
    
    
    5,204
    
    
    
    5,205
    
    
    
    5,204
    
    
    
    5,204
    
    
    
    5,204Diluted shares outstanding
    
    
    5,451
    
    
    
    5,705
    
    
    
    5,700
    
    
    
    5,205
    
    
    
    5,206
    
    
    
    5,206
    
    
    
    5,206
    
    
    
    5,206
    
    
    
    5,206
    
    
    
    5,215
 
 (1)
    
    Includes the results of Woodard LLC. effective January 2, 2008. See Note 3 -
Acquisitions.(2)
    
    See Note 5  Income Taxes regarding benefit obtained from a reduction in amounts
set aside for tax contingencies. F-37




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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, 2008
    
    $
    251
    
    
    $
    329
    
    
    $
    
    
    
    $
    (196
    )
    
    $
    384June 30, 2007
    
    
    293
    
    
    
    32
    
    
    
    
    
    
    
    (74
    ) (a)
    
    
    251June 30, 2006
    
    
    300
    
    
    
    80
    
    
    
    
    
    
    
    (87
    ) (a)
    
    
    293Allowance for inventory obsolescence as of:June 30, 2008
    
    $
    403
    
    
    $
    70
    
    
    $
    
    
    
    $
    (50
    )
    
    $
    423June 30, 2007
    
    
    934
    
    
    
    104
    
    
    
    
    
    
    
    (635
    ) (b)
    
    
    403June 30, 2006
    
    
    717
    
    
    
    484
    
    
    
    
    
    
    
    (267
    ) (b)
    
    
    934
 
 (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-38




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
EXHIBIT INDEX
 ExhibitNumber
    
    Description2.1
    
    Asset Purchase Agreement dated as of December 18, 2007, by and among Woodard, LLC, Henry
Crown and Company d/b/a CC Industries, Inc. and Craftmade International, Inc., previously
filed as Exhibit 2.1 to Form 8-K on January 4, 2008 (File No. 000-26667), and incorporated by
reference herein.Pursuant to Item 601(b)(2) of Regulation S-K, the Company has not filed herewith the
schedules and exhibits to the foregoing exhibit and agrees to furnish supplementally to
the Securities and Exchange Commission, upon request, any omitted schedules or similar
attachments to the foregoing exhibit.2.2
    
    Stock Purchase Agreement between Craftmade International, Inc., Trade Source International,
Inc., and Robert W. Lackey, dated September 15, 2006, previously filed as Exhibit 10.1 to
Form 8-K dated September 15, 2006 (File No. 000-26667), and incorporated by reference herein.Pursuant to Item 601(b)(2) of Regulation S-K, the Company has not filed herewith the
schedules and exhibits to the foregoing exhibit and agrees to furnish supplementally to
the Securities and Exchange Commission, upon request, any omitted schedules or similar
attachments to the foregoing exhibit.2.3
    
    Agreement for the Purchase and Sale of Personal Goodwill between Trade Source
International, Inc. and Robert Lackey, dated September 15, 2006, previously filed as
Exhibit 10.2 to Form 8-K dated September 15, 2006 (File No. 000-26667), and incorporated by
reference herein.2.4
    
    Agreement for the Purchase and Sale of Personal Goodwill between Trade Source
International, Inc. and Robert Lackey, Jr., dated September 15, 2006, previously filed as
Exhibit 10.3 to Form 8-K dated September 15, 2006 (File No. 000-26667), and incorporated by
reference herein.2.5
    
    Intellectual Property Assignment by and between Trade Source International, Inc., Robert W.
Lackey, Robert W. Lackey, Jr., RWL Incorporated f/k/a Robert W. Lackey Corporation and R.L.
Products Corporation, dated September 15, 2006, previously filed as Exhibit 10.4 to Form 8-K
dated September 15, 2006 (File No. 000-26667), and incorporated by reference herein.2.6
    
    Non-Competition Agreement between Trade Source International, Inc. and Robert W. Lackey,
dated September 15, 2006, previously filed as Exhibit 10.5 to Form 8-K dated September 15,
2006 (File No. 000-26667), and incorporated by reference herein.2.7
    
    Non-Competition Agreement between Trade Source International and Robert W. Lackey, Jr.,
dated September 15, 2006, previously filed as Exhibit 10.6 to Form 8-K dated September 15,
2006 (File No. 000-26667), and incorporated by reference herein.2.8
    
    Consulting Agreement by and between Craftmade International, Inc., Trade Source
International, Inc. and Imagine One Resources, LLC, dated September 15, 2006, previously
filed as Exhibit 10.7 to Form 8-K dated September 15, 2006 (File No. 000-26667), and
incorporated by reference herein.2.9
    
    Partially Subordinate Security Agreement among Trade Source International, Inc., Marketing
Impressions, Inc., Prime Home Impressions, LLC, and Robert Lackey, (Lackey), as collateral
agent for Lackey, Robert W. Lackey, Jr., Imagine One Resources, LLC, RWL Corporation and R.L.
Products Corporation, dated September 15, 2006, previously filed as Exhibit 10.8 to Form 8-K
dated September 15, 2006 (File No. 000-26667), and incorporated by reference herein.2.10
    
    Subordination Agreement by and among Robert W. Lackey (Lackey), as collateral agent for
Lackey, Robert W. Lackey, Jr., Imagine One Resources, LLC, RWL Corporation, R.L. Products
Corporation, and The Frost National Bank, Trade Source International, Inc., Marketing
Impressions, Inc.,




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##### Table of Contents



ExhibitNumber
    
    DescriptionPrime/Home Impressions, LLC and Craftmade International, Inc., dated September 15, 2006,
previously filed as Exhibit 10.9 to Form 8-K dated September 15, 2006 (File
No. 000-26667), and incorporated by reference herein.2.11
    
    Agreement and Plan of Merger by and among Craftmade International, Inc., Bill Teiber Co.,
Inc., Teiber Lighting Products, Inc., Todd Teiber and Edward Oberstein dated March 1, 2005,
previously filed as Exhibit 10.1 to Form 8-K dated March 1, 2005 (File No. 000-26667), and
incorporated by reference herein.2.12
    
    Agreement and Plan of Merger, dated as of July 1, 1998, by and among Craftmade
International, Inc., Trade Source International, Inc. a Delaware corporation, Neall and
Leslie Humphrey, John DeBlois, the Wiley Family Trust, James Bezzerides, the Bezzco Inc.
Employee Retirement Trust and Trade Source International, Inc, a California corporation,
filed as Exhibit 2.1 to Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and incorporated
by reference herein.3.1
    
    Certificate of Incorporation of the Company, filed as Exhibit 3(a)(2) to the Companys Post
Effective Amendment No. 1 to Form S-8 (File No. 33-33594-FW), and incorporated by reference
herein.3.2
    
    Certificate of Amendment of Certificate of Incorporation of the Company, dated March 24,
1992, and filed as Exhibit 4.2 to the Companys Form S-8 (File No. 333-44337), and
incorporated by reference herein.3.3
    
    Amended and Restated Bylaws of the Company, filed as Exhibit 3(b)(2) to the Companys Post
Effective Amendment No. 1 to Form S-8 (File No. 33-33594-FW), and incorporated by reference
herein.4.1
    
    Specimen Common Stock Certificate, filed as Exhibit 4.4 to the Companys registration
statement on Form S-3 (File No. 333-70823), and incorporated by reference herein.4.2
    
    Rights Agreement, dated as of June 23, 1999, between Craftmade International, Inc. and
Harris Trust and Savings Bank, as Rights Agent, previously filed as Exhibit 4 to Form 8-K
dated July 9, 1999 (File No. 000-26667), and incorporated by reference herein.10.1
    
    Assignment of Rents and Leases dated December 21, 1995, between Craftmade International,
Inc. and Allianz Life Insurance Company of North America (including exhibits), previously
filed as Exhibit 10.2 to Form 10-Q for the quarter ended December 31, 1995, and incorporated
by reference herein.10.2
    
    Deed of Trust, Mortgage and Security Agreement made by Craftmade International, Inc., dated
December 21, 1995, to Patrick M. Arnold, as trustee for the benefit of Allianz Life Insurance
Company of North America (including exhibits), previously filed as Exhibit 10.3 to Form 10-Q
for the quarter ended December 31, 1995, and incorporated by reference herein.10.3
    
    Second Amended and Restated Loan Agreement with Frost National Bank dated September 18,
2006, previously filed as Exhibit 10.1 to Form 8-K dated September 18, 2006 (File
No. 000-26667), and incorporated by reference herein.10.4
    
    Revolving Promissory Note with Frost National Bank dated September 18, 2006, previously
filed as Exhibit 10.2 to Form 8-K dated September 18, 2006 (File No. 000-26667), and
incorporated by reference herein.10.5
    
    Craftmade International, Inc. 2006 Long-Term Incentive Plan, previously filed as Exhibit
10.1 to Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by reference
herein.10.6
    
    Incentive Stock Option Agreement, previously filed as Exhibit 10.2 to Form 8-K dated
November 28, 2006 (File No. 000-26667), and incorporated by reference herein.10.7
    
    Non-qualified Stock Option Agreement, previously filed as Exhibit 10.3 to Form 8-K dated
November




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##### Table of Contents



ExhibitNumber
    
    Description28, 2006 (File No. 000-26667), and incorporated by reference herein.10.8
    
    Stock Appreciation Rights Agreement, previously filed as Exhibit 10.4 to Form 8-K dated
November 28, 2006 (File No. 000-26667), and incorporated by reference herein.10.9
    
    Restricted Stock Award Agreement, previously filed as Exhibit 10.5 to Form 8-K dated
November 28, 2006 (File No. 000-26667), and incorporated by reference herein.21.1*
    
    List of the subsidiaries of Craftmade International, Inc.23.1*
    
    Consent of BDO Seidman, LLP.31.1*
    
    Certification of J. Marcus Scrudder, Chief Executive Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of C. Brett Burford, Chief Financial Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of J. Marcus Scrudder, 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 C. Brett Burford, 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 or furnished herewith.