UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DCD.C. 20549

~~Form~~ FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR I515(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, ~~2004 Or~~2009

~~o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934~~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
Delaware (Incorporation or Organization)		75-2057054 (I.R.S. Employer Identification No.)
(State or Other Jurisdiction of		(I.R.S. Employer
650 South Royal Lane, Suite 100 Coppell, Texas (Address of Principal Executive Offices)		75019 (Zip Code)
Incorporation or Organization)		Identification No.)
650 S. Royal Lane, Suite 100		75019
Coppell, Texas		(Zip Code)
(Address of Principal Executive Offices)

(972) 393-3800
(Registrant’s Telephone Number, Including Area Code)

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

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


Title of Each Class		Name of each exchange on which registered

Common Stock, par value $0.01		NASDAQ Global Market

Title of Each Class		Name of each exchange on which
		registered
Common Stock, par value		NASDAQ National Market
$0.01		System

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, ~~(as~~a ~~defined~~non-accelerated infiler ~~Exchange~~or ~~Act~~a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2). ~~Yes~~of þthe NoExchange oAct.

~~The~~Large ~~aggregate~~accelerated ~~market value~~filer ofo ~~the~~Accelerated ~~voting~~filer ~~stock~~o ~~held~~Non-accelerated byfiler ~~non-affiliates~~o of(Do ~~the~~not ~~registrant~~check asif ~~of December 31,~~a ~~2003~~smaller ~~was~~reporting ~~$118,802,998~~ company) Smaller reporting company þ

~~The~~Indicate ~~number~~by ofcheck ~~shares~~mark ~~outstanding~~whether of the registrant’s ~~$.01~~is ~~par~~a ~~value~~shell ~~common stock~~company (as ofdefined ~~September~~in Rule ~~24,~~12b-2 ~~2004~~of ~~was~~the Exchange ~~5,128,948~~Act). Yes o No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of December 31, 2008 was approximately $9,811,740 based upon the closing price of the common stock on the NASDAQ Global Market reported for such date.

The number of shares outstanding of the registrant’s $.01 par value common stock as of September 18, 2009 was 5,704,500.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the ~~registrant~~Registrant’s ~~proxy~~Proxy ~~statement~~Statement ~~pertaining~~for toits ~~the~~2009 ~~Registrant’s~~Annual Meeting of Stockholders (the ~~2004~~“Proxy ~~annual~~Statement”) ~~meeting~~to ofbe ~~stockholders~~filed with the Securities and Exchange Commission are incorporated by ~~reference~~ reference into Part III of this ~~report~~Form 10-K.

Disclosure Regarding Forward-Looking Statements

In this Form 10-K, references to “Craftmade,” “ourselves,” “we,” “our,” “us,” “its,” “itself,” and the “Company” refer to Craftmade International, Inc., Trade Source International, Inc., Woodard-CM, LLC, Prime/Home Impressions, Inc., their wholly-owned subsidiaries, and Design Trends, LLC, the Company’s 50%-owned limited liability company, unless the context requires otherwise.

Various statements in this Form 10-K or incorporated by reference into this Form 10-K, in future filings with the Securities and Exchange Commission, in press releases, and in oral statements made by or with the approval of authorized personnel constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and are indicated by words or phrases such as “may,” “will,” “should,” “could,” “might,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “forecasts,” “intends,” “potential,” “continue,” and similar words or phrases and involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from the future results, performance or achievements expressed in or implied by such forward-looking statements. These forward-looking statements include statements or predictions regarding among other items:

	•		Revenues and profits;

	•		Gross margin;

	•		Customer concentration;

	•		Customer buying patterns;

	•		Sales and marketing expenses;

	•		General and administrative expenses;

	•		Pricing and cost reduction activities;

	•		Income tax provision and effective tax rate;

	•		Realization of deferred tax assets;

	•		Liquidity and sufficiency of existing cash, cash equivalents, and investments for near-term requirements;

	•		Purchase commitments;

	•		Product development and transitions;

	•		Competition and competing technology;

	•		Outcomes of pending or threatened litigation; and

	•		Financial condition and results of operations as a result of recent accounting pronouncements.

These forward-looking statements are based largely on expectations and judgments and are subject to a number of risks and uncertainties, many of which are beyond our control. Significant factors that cause our actual results to differ materially from our expectations are described in this Form 10-K under the heading of “Risk Factors.” We undertake no obligation to publicly update or revise these Risk Factors or any forward-looking statements, whether as a result of new information, future events or otherwise.

TABLE OF CONTENTS

PART I		3
	Page
ITEM 1. BUSINESS		3
PART I
ITEM 2. PROPERTIES		9
Item 1. Business		1
ITEM 3. LEGAL PROCEEDINGS		9
Item 1A. Risk Factors		10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		10
Item 1B. Unresolved Staff Comments		16
PART II		11
Item 2. Properties		16
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		11
Item 3. Legal Proceedings		17
ITEM 6. SELECTED FINANCIAL DATA		12
Item 4. Submission of Matters to a Vote of Security Holders		17
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION		13
PART II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		21
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		22
Item 6. Selected Financial Data		18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation		20
ITEM 9A. CONTROLS AND PROCEDURES		22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		38
ITEM 9B. OTHER INFORMATION		22
Item 8. Financial Statements and Supplementary Data		38
PART III		23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		38
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT		23
Item 9A. Controls and Procedures		38
ITEM 11. EXECUTIVE COMPENSATION		23
Item 9B. Other Information		39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		23
PART III
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		23
Item 10. Directors, Executive Officers and Corporate Governance		39
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES		23
Item 11. Executive Compensation		39
PART IV		24
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		40
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		24
Item 13. Certain Relationships and Related Transactions, and Director Independence		40
SIGNATURES		28
Item 14. Principal Accounting Fees and Services		40
Business Loan Agreement
PART IV
Second Amendment to Loan Agreement
Item 15. Exhibits and Financial Statement Schedules		40
Subsidiaries of the Registrant
Exhibit 21.1
Certification of James R. Ridings, Pursuant to Section 302
Exhibit 23.1
Certification of Kathleen B. Oher, Pursuant to Section 302
Exhibit 31.1
Certification of James R. Ridings, Pursuant to Section 906
Exhibit 31.2
Certification of Kathleen B. Oher, Pursuant to Section 906
Exhibit 32.1
Exhibit 32.2

PART I

~~ITEM~~ Item 1. ~~BUSINESS~~Business.

The Company

	(a)		General Development of Business

			Current Market Conditions

			At the beginning of the 2007 fiscal year, the slowing of housing-related demand affected our business, and this impact continued through the 2008 and 2009 fiscal years. The decline in housing turnover was compounded by a broad economic downturn which began in 2008 and has continued into 2009, which negatively impacted both consumer confidence and discretionary spending. This economic downturn is widely viewed as one of the worst since the Great Depression, and its impact has affected all sectors of the economy. This economic environment and the corresponding decline in home-related spending have significantly impacted both our Specialty and Mass retail segments. In addition to historically low levels of new home construction, management believes that consumers also chose to delay home improvement projects and renovations due to well-publicized reports of economic weakness, job losses 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 and exterior lighting fixtures, ceiling fans and vent fans. The 2008 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 to our customers. Following this acquisition, the Company has also focused on the design and development of new and innovative outdoor furniture lines, and has expanded the distribution of clocks and weather gauges through the new distribution channel of independent lawn and garden retailers.

			Additional information regarding current market conditions are detailed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

			Acquisition 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 (the “Woodard Asset Acquisition”) pursuant to the Asset Purchase Agreement, dated as of December 18, 2007 (the “Woodard Agreement”), 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 common stock, $0.01 par value per share, of the Company (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 Woodard Agreement for an aggregate price of $4,050,000 (purchase price per share of Common Stock for financial reporting is $8.00 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 Woodard Agreement, for an aggregate price of $4,000,000), with the remaining purchase price paid in cash at closing. The Woodard 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, which was due to 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.

~~Craftmade International, Inc. was incorporated in the state of Texas in July~~1 1985 and reincorporated in the state of Delaware in December 1991 and is organized into two operating segments: Craftmade International, Inc. (“Craftmade”) and Trade Source International, Inc. (“TSI”). See Note 13 – Segment Information in the Notes to Consolidated Financial Statements for certain financial information about the Company’s two segments. Craftmade, TSI, their wholly-owned subsidiaries, and its two 50% owned limited liability companies (“LLCs”) are collectively referred to as the “Company”.

CraftmadeTable – Craftmade is principally engaged in the design, distribution and marketing of ceiling fans, light kits, outdoor lighting, bath-strip lighting and related accessories to a nationwide network of over 1,600 lighting showrooms and electrical wholesalers specializing in sales to the remodeling, new home construction and replacement markets. Craftmade completed an arrangement with Fanthing Electrical Corp. (“Fanthing”), which is located in Taichung, Taiwan, in August 1986 for the manufacture of ceiling fans designed to Craftmade’s specifications. Craftmade’s ceiling fan product line consists of over two dozen series of premium priced to lower priced ceiling fans and is distributed under the Craftmade® trade name. Craftmade also markets nearly eighty light kit models in various colors for attachment and use with its ceiling fans or other ceiling fans, along with parts and accessories for its ceiling fans and light kits. In addition, nearly two dozen styles of bath-strip lighting and over forty designs of outdoor lighting are marketed under its Accolade® trade name. Craftmade purchases substantially all of its light kits from Sunlit Industries (“Sunlit”), in Taipei, Taiwan. 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. Craftmade’s national sales organization, which consists of 33 independent sales groups employing approximately 65 sales representatives, markets its products to its distribution network of lighting showrooms and electrical wholesalers. Contents

TSI - TSI is principally engaged in the design, distribution and marketing of outdoor and indoor lighting, selected ceiling fans and various fan accessories to mass merchandisers. TSI’s outdoor lighting consists of over one-hundred designs in different decorative finishes. The indoor lighting product line includes ceiling mount lighting fixtures and bath-strip lighting. TSI purchases substantially all of its products from manufacturers located in China.

			Relationship with Mass Merchandisers

			The Company sells its products to mass merchandisers including but not limited to Bed, Bath and Beyond, 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.

			Lowe’s remains the Company’s largest customer, and management believes that, based on the amount of product currently shipped to Lowe’s, the Company continues to be a primary vendor for Lowe’s mix and match portable lamps, lamp accessory and ceiling medallion programs. The Woodard Asset Acquisition also significantly increased the Company’s presence at Lowe’s. While 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 Company has no long-term supply contracts with Lowe’s and vendor commitments are revisited at each line review. The line reviews occur approximately on an annual basis for each product category and give Craftmade the opportunity 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.

			In addition to Lowe’s, the Company sells a variety of products to many other mass retailers and continues to focus its efforts on this channel in order to grow sales and diversify its customer base. 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.

	(b)		Financial Information About Reportable Segments

			The Company is organized by customer base into two operating segments referred to as Specialty and Mass. Prior to June 30, 2008, these segments were referred to as Craftmade and TSI, respectively. Subsequent to that date, “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. “TSI” now 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 and lamp accessories marketed solely to mass retailers and certain major retail chains.

			The additional sales that have resulted from the Woodard Asset Acquisition 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 retailers 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 10 – 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.

	(c)		Narrative Description of Business

			Craftmade International, Inc. was incorporated in the state of Texas in 1985 and reincorporated in the state of Delaware in 1991. Based in Coppell, Texas, the Company has expanded over the years through a combination of organic growth and acquisition of new product lines and customers. The Company currently sells a wide variety of home-related furnishings and products to both specialty retailers and mass merchandisers.

			Specialty – Specialty is the reporting segment for the portion of the Company’s 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 2000 lighting showrooms, patio dealers, and electrical wholesalers specializing in sales to the remodeling, new home construction and replacement markets.

~~50%~~2 Owned Limited Liability Companies - The Company has a 50% ownership interest in each of two entities, Design Trends, LLC (“Design Trends”) and Prime/Home Impressions, LLC (“PHI”), which are part of the TSI segment:

DesignTable Trends- Design Trends markets indoor lighting, including portable table lamps, floor lamps, chandeliers and wall sconces designed by Patrick Dolan. Substantially all of Design Trends’ sales are to mass merchandisers. PHI- PHI markets various fan accessories including decorative pull-chains, replacement switches, blade arms, blades and ceiling medallions. All of PHI’s sales are to mass merchandisers.Contents

~~Our~~The ~~Annual~~Specialty ~~Report~~ceiling onfan ~~Form~~product 10line consists of over 60 premium-Kpriced 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, ~~quarterly~~in ~~reports~~management’s onjudgment, ~~Form~~one ~~10-Q~~of the most reliable, ~~current~~durable, ~~reports on~~energy ~~Form~~efficient 8and 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, the Company offers nearly two dozen styles of bath-Kstrip lighting and ~~all~~over ~~amendments~~40 designs of outdoor lighting to ~~these~~its ~~reports~~Specialty ~~will~~customers. 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. The Company offers molded aluminum, extruded aluminum, wrought iron and woven furniture lines in a wide variety of styles, finishes and fabrics, which can be ~~made~~produced ~~available~~in ~~free~~a significant number of ~~charge~~ ~~through~~combinations for the ~~Investor~~end ~~Relations~~consumer. ~~section~~Mass – Mass is the reporting segment for the portion of ~~our~~the ~~Internet~~Company ~~website~~that is principally engaged in the design, ~~http://www~~ distribution and marketing of outdoor and indoor lighting, outdoor patio furniture, various fan accessories and lamp parts, and home décor items to mass merchandisers. ~~craftmade~~The Mass segment’s outdoor lighting consists of numerous lighting programs distributed to mass merchandisers in a variety of designs and decorative finishes.~~com~~ The indoor lighting product line primarily includes portable lamps. Craftmade strives to offer its Mass customers high quality products at value prices, and these products are typically sold under the retailers’ own trade names. The Mass segment includes sales from four Craftmade subsidiaries: Trade Source International (“Trade Source” or ~~craftmade~~“TSI”), PHI, Design Trends and Woodard.~~com~~ Trade Source, asPHI ~~soon~~and asWoodard ~~practicable~~are ~~after~~wholly-owned ~~such material~~subsidiaries and Design Trends is ~~electronically~~50% ~~filed~~owned ~~with~~by Craftmade. 50% Owned Limited Liability Company – The Company has a 50% ownership interest in Design Trends, ora ~~furnished~~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 ~~Securities~~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 ~~Exchange~~ ~~Commission~~sourcing Design Trends’ products and the Company is responsible for sales, distribution and accounting for Design Trends.

~~Craftmade Products~~3

CeilingTable Fans – Craftmade’s ceiling fan product line consists of over two dozen fan series for sale to the new home construction, remodeling and replacement markets. These series are differentiated on the basis of cost, air movement and appearance. Craftmade’s fans Contents

3 Products The following table summarizes net sales by product category (defined below) as a percentage of consolidated net sales:

~~Table~~Net ofSales ~~Contents~~by Product Category

are manufactured and assembled in a variety of colors, styles and finishes and can be used either in conjunction with or independent of Craftmade’s light kits. Series lines include Early American, Traditional and Modern High-Tech Decor and, depending on the size, finish and other features, range in price from the premium Cameo, Constantina, Crescent and Presidential series to various low-end builder series. Craftmade’s fans come in five motor sizes, five blade sizes and over two dozen different decorative finishes. The range of styles and colors gives consumers the ability to select ceiling fans for any style of house, interior decoration or living and working area, including outdoor patios. Ceiling fans accounted for 29%, 30% and 29% of the Company’s sales for fiscal years 2004, 2003 and 2002, respectively.


	Fiscal Year Ended
	June 30,			June 30,			June 30,
	2009			2008			2007
Specialty
Ceiling fans, light kits and blades		16	%		23	%		37	%
Outdoor patio furniture		20	%		16	%		0	%
Ventilation, chimes and bulbs		4	%		6	%		10	%
Clocks and weather gauges		1	%		2	%		3	%
Bath and outdoor lighting		5	%		7	%		8	%

		46	%		54	%		58	%


Mass
Indoor lighting		10	%		13	%		23	%
Outdoor lighting		1	%		2	%		2	%
Outdoor patio furniture		37	%		22	%		0	%
Accessories		6	%		9	%		17	%

		54	%		46	%		42	%

		100	%		100	%		100	%

~~Light~~Specialty ~~Kits~~Segment -Products ~~Craftmade~~The ~~markets~~Specialty ~~nearly~~segment ~~eighty~~is ~~models~~made up of ~~light~~products ~~kits,~~organized ~~which consist~~around oftwo ~~glass~~distinctive ~~shades and filters~~brands, in ~~various~~each ~~colors~~of ~~that~~which ~~may~~have benumerous ~~utilized~~product ~~with Craftmade’s ceiling fans or other ceiling fans.~~ offerings:

~~Bath-strip Lighting -~~ Craftmade ~~markets~~Family ~~nearly two dozen series~~ of ~~bath-strip~~Products ~~lighting in different lengths and decorative finishes under the Accolade® trade name. Craftmade plans to add finishes and series from time to time based on customer demand.~~

~~Outdoor Lighting –~~ Craftmade® ~~markets~~Woodard® ~~over~~Decorative ~~forty~~ceiling ~~designs~~fans ofWrought ~~outdoor~~iron ~~lighting~~patio ~~in different~~furniture ~~decorative~~Builder ~~finishes~~ceiling ~~under~~fans ~~the~~Aluminum ~~Accolade®~~patio ~~trade~~furniture ~~name.~~Light ~~Other~~kits ~~outdoor products~~and ~~are~~blades ~~also~~All ~~marketed~~seasons ~~under~~wicker ~~the~~patio ~~TSI~~furniture ~~Prime~~Chandeliers ~~brand,~~and orflushmounts ~~under~~Patio ~~the~~umbrellas ~~retailers’ private~~Ceiling ~~label.~~fan ~~Styles~~accessories ofOutdoor ~~outdoor~~ lighting ~~fixtures include wall~~Bath-~~mount,~~strip ~~pendant~~lighting ~~and~~Outdoor ~~post-mount.~~Clocks ~~Craftmade plans~~Outdoor tolighting ~~add~~Weather ~~finishes~~gauges ~~and~~Interior ~~designs~~lighting ~~from~~fixtures ~~time~~Door tochimes ~~time~~Smoke ~~based~~alarms onVentilation ~~customer~~systems ~~demand.~~ Light bulbs

~~Accessories~~During -fiscal ~~Craftmade~~2009 ~~also~~the ~~markets~~Company are-branded ~~variety~~many of ~~designer~~its ~~and~~product ~~standard~~lines ~~wall controls~~to leverage on its two flagship trademarks. Prior to ~~regulate~~this time the ~~speed~~Company’s bath-strip lighting, outdoor lighting and ~~intensity~~much of ~~ceiling~~its ~~fans~~interior lighting were branded under the Accolade® trade name, and its door chimes, smoke alarms, ventilation systems and light bulbs were branded as Teiber, all of which now bear the Craftmade brand. The Company’s outdoor lighting ~~fixtures~~, outdoor clocks and ~~universal~~weather ~~down-rods~~gauges ~~for~~were ~~use~~sold ~~with~~under ~~ceiling~~the ~~fans~~Durocraft® brand name, and are now sold under the Woodard brand name.

~~TSI Products~~4

Outdoor LightingTable - TSI markets over sixty designs of outdoor lighting in a variety of decorative finishes, colors and sizes to various mass merchandisers under the TSI Prime brand, as well as the retailers’ private label brands. The outdoor lighting is designed for either wall mounting or as a post-mounted fixture. TSI’s sales of outdoor lighting represented less than 10% of the Company’s sales in fiscal year 2004, and 11% and 14% of the Company’s sales in fiscal year 2003 and 2002, respectively. Contents

~~Indoor Lighting~~Craftmade® -– ~~During~~The ~~fiscal~~Craftmade ~~year~~ceiling ~~2000~~fan product line consists of over 70 premium fan series for sale to the new home construction, remodeling and replacement markets. These series are differentiated on the ~~Company~~basis ~~began~~of ~~marketing floor~~cost, air movement and ~~table~~appearance. ~~lamps~~Craftmade ceiling fans are manufactured and assembled in a variety of colors, ~~chandeliers~~styles and ~~wall~~finishes ~~sconces~~and ~~designed~~can bybe ~~Pat Dolan~~used either in conjunction with or independent of Craftmade’s light kits. Series lines include Causal, Modern, Outdoor, Traditional and Youth, depending on the size, finish and other features, and range in price from the premium Chalice, Constantina, Quest and Amphora series to various ~~mass~~lower-end ~~merchandisers~~builder ~~through~~series. ~~Design~~Craftmade ~~Trends~~ceiling fans come in five motor sizes, five blade sizes and over two dozen different decorative finishes. The range of styles and colors gives consumers the ability to select ceiling fans for any style of house, interior decoration or living and working area, including outdoor patios. Craftmade also markets 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. The Specialty segment includes more than 30 series of bath-strip lighting in different lengths and decorative finishes now sold under the Craftmade® trade name (formerly Accolade®). In addition, Craftmade offers more than 30 designs of outdoor lighting in different decorative finishes, and adds new finishes and designs from time to time based on customer demand. The Company also offers 2,000 different light bulbs and complementary lighting products as well as an extensive line of door chimes, pushbuttons, ventilation systems and smoke alarms, which were formerly sold under the Teiber name. These products are typically offered via a ~~50% owned~~proprietary ~~limited~~display ~~liability~~that ~~company~~displays numerous Craftmade products and consumes a minimal amount of floor space. ~~TSI’s~~Woodard® ~~sales~~– As a result of ~~indoor~~ the Woodard Asset Acquisition, the Company offers a wide range of outdoor patio furniture and related products such as umbrellas and patio lighting. ~~represented~~Product ~~39%~~lines include approximately 20 cast iron, ~~37%~~over 30 cast and ~~32%~~extruded aluminum and several collections of all-weather wicker products, and they range from the premium Woodard Landgrave collection to the more affordable Lyon Shaw series. Woodard items are primarily distributed to independent patio and garden retailers. The Company also cross-markets numerous decorative clocks and weather gauges, mini-post lanterns, tabletop and freestanding candle lanterns, oil lanterns and special order items under the Woodard and Lyon Shaw names, which were formerly branded as Durocraft. Mass Segment Products The Mass segment’s ~~sales in~~products ~~fiscal~~are ~~year~~organized ~~2004~~into three groups: lighting, ~~2003~~patio furniture, and ~~2002~~accessories. Lighting – The Company markets floor and table lamps, ~~respectively~~chandeliers and wall sconces designed by Patrick Dolan to various mass merchandisers through its Design Trends subsidiary. ~~TSI~~Design Trends’s portable lamp program, which is a significant part of the ~~TSI’s~~Mass indoor lighting program, is merchandised in a mix and match system that enables the consumer to customize a lamp base and shade combination. ~~Lamp~~Selections ~~shades are~~of ~~displayed~~lamp ~~separately~~bases oninclude large, medium, buffet, small and mini lamps and are offered in a ~~revolving~~variety ~~carousel~~of ~~that~~styles ~~economizes space~~and finishes. The ~~smaller~~Company ~~packaging~~also markets outdoor lighting in a variety of ~~the~~decorative ~~lamp~~finishes, ~~bases~~colors ~~enables~~and ~~the~~sizes ~~retailer~~ to ~~display~~various amass ~~greater~~merchandisers ~~number~~under ofthe ~~SKUs~~TSI inPrime brand, as well as the ~~same~~retailers’ ~~amount~~private oflabel ~~space~~brands. ~~Selections~~ ofPatio ~~lamp~~Furniture ~~bases~~– ~~include~~The ~~large~~Company offers a broad line of patio furniture, ~~medium~~tables, ~~buffet~~and umbrellas under Woodard Worldwide, ~~small~~Carolina Forge and ~~mini~~ ~~lamps~~various private label trade names. Product categories include cast iron, extruded aluminum and ~~are~~all-weather ~~offered~~wicker infurniture, aas ~~variety~~well as patio umbrellas and lighting. Accessories – The Mass segment also markets programs of ~~styles~~fan accessories and ~~finishes~~lamp parts, including universal down rods, pull-chains and ceiling medallions, to various mass merchandisers through PHI. Accessories also include non-core products such as decorative ceiling medallions and adjustable window cornices.

~~Accessories~~5 - TSI also markets various fan accessories, including universal downrods, pull-chains and ceiling medallions, to various mass merchandisers through PHI. TSI’s accessories sales represented less than 10% of the Company’s sales in fiscal year 2004, 2003 and 2002.

Manufacturing Table of Contents

Product Sourcing Specialty. Craftmade’s ceiling fans, ~~bathstrip~~bath-strip lighting, ~~and~~ substantially all ~~of its~~ light kits and certain accessories are produced by ~~Fanthing~~multiple manufacturers in China. Light kit and ~~Sunlit~~other product orders are typically placed independently of ceiling fan orders, and all are received in container-sized lots. ~~Craftmade selected~~The ~~Fanthing~~Specialty segment includes a variety of light kits in ~~August 1986~~various tofinishes ~~manufacture~~and ~~all~~colors, as well as a variety of ~~its~~fixtures designed for ceiling fans. ~~and certain~~The ~~fan~~Company ~~accessories~~also ~~based~~offers ona variety of glass selections for the ~~Company’s~~various ~~belief~~light ~~that~~fixtures, ~~Fanthing~~including ~~has~~blown glass, beveled glass and crystal. Fixtures and glass are shipped in the ~~capability~~ tolight ~~produce~~kit containers. Wall controls, timers and ~~ship~~switches aare ~~wide~~manufactured by companies based in the United States. The Company also offers a variety of ~~product~~custom onblade asets ~~cost~~in ~~effective basis~~various ~~while~~sizes ~~maintaining~~and ~~excellent~~finishes. ~~quality~~The ~~control~~finished products are packaged and labeled under the Craftmade brand name. Woodard® branded outdoor patio furniture sold in the Specialty segment is sourced primarily from the Woodard manufacturing ~~process~~facility in Owosso, Michigan and consists primarily of wrought iron and extruded aluminum styles. In ~~1989~~These products are sold through specialty outdoor patio dealers, ~~Craftmade~~catalogue houses and ~~Fanthing~~hospitality ~~entered~~suppliers. ~~into~~The aWoodard ~~formal~~Landgrave ~~written~~line ~~agreement~~is ~~that~~sourced through an exclusive relationship with the Mexican producer of Landgrave outdoor patio furniture and is ~~terminable~~ ononly ~~180 days~~offered ~~prior~~in ~~notice~~the United States through Woodard. The ~~written~~Specialty ~~agreement~~segment also includes light bulbs, door chimes, pushbuttons, ventilation systems, smoke alarms and complementary lighting products as well as clocks and weather gauges sourced from several manufacturers located in China and the United States. The Company also offer a wide variety of outdoor lighting styles in various finishes, colors and sizes and are designed for either wall mounting or as post-mounted fixtures. The Specialty and Mass segments purchase outdoor lighting from several manufacturers located in China. All of the Company’s foreign vendors require payment 30 to 60 days after notification of shipment of product from Asia. While the Company does not ~~obligate Fanthing~~typically sign long term supply contracts, it works closely with its vendors and attempts to foster long lasting supply partnerships. Mass. The Mass segment purchases indoor lighting products, including flush mounts and bath-strip lights from many of the same manufacturers that produce outdoor lighting for Specialty. PHI purchases most of its ceiling fan accessories and ~~sell~~all ~~fans~~of toits ~~Craftmade~~lamp replacement parts from multiple manufacturers located in ~~any~~China, ~~specified~~with ~~quantity~~the exception of ceiling medallions, ~~nor does~~which itare ~~obligate~~purchased ~~Fanthing~~from a distributor located in the United States. Design Trends purchases its lamps and shades from multiple manufacturers located in China. Design Trends offers several different styles and sizes of table and floor lamps, either pre-packaged with shades or glass, or with shades sold separately, allowing customers to ~~sell~~mix and match components. These products are also shipped on containers, either to ~~Craftmade~~the atCompany’s afacility ~~fixed~~in ~~price~~Coppell, Texas or directly to the customer. ~~Fanthing~~ The Company purchases much of its outdoor patio furniture for the Mass segment from a Chinese factory that is ~~permitted~~50% ~~under~~owned by CCI, Inc., former owners of the ~~arrangement~~Woodard toline, ~~manufacture~~and ~~ceiling~~the ~~fans~~remainder ~~for~~ is purchased from various other ~~distributors~~Chinese ~~provided~~manufacturers. ~~such~~Distribution Specialty. The Specialty segment includes ceiling fans, light kits and accessories which are ~~not~~primarily asold ~~replication~~through ~~of Craftmade’s~~more ~~series~~than or1,600 ~~models~~lighting showrooms and electrical wholesaler locations specializing in sales to the new home construction, remodeling and replacement markets. ~~Fanthing~~The segment also ~~manufactures~~includes ~~certain~~outdoor patio furniture sold primarily through more than 500 specialty patio and garden dealers. Craftmade and Woodard products sold to catalogue houses and hospitality accounts are also included in the Specialty segment. The Company’s ceiling ~~fan accessories~~fans, ~~such~~light askits, ~~downrods~~bath strips, ~~that~~outdoor lighting and accessories are sold bythrough 35 independent sales groups on a national basis. Each sales group is selected to represent Craftmade ~~independently~~in a specific market area. The independent sales groups comprise a sales force of ~~its~~ approximately 54 sales representatives, who represent Craftmade exclusively in the sale of ceiling fans in return for commissions on such sales. During each of the three fiscal years ended June 30, 2009, no single lighting showroom or electrical wholesaler accounted for more than 3% of Specialty segment net sales or 1.5% of consolidated net sales.

~~Fanthing~~The ~~has~~Company’s ~~provided~~outdoor ~~Craftmade~~patio ~~with~~furniture products are distributed on a ~~$1,000,000~~national ~~credit~~basis ~~limit,~~and ~~pursuant~~are represented by a network of independent sales representatives. Each sales representative is selected to ~~which~~ ~~Fanthing~~cover ~~will~~a ~~manufacture~~specific market area and ~~ship~~represents ~~ceiling~~the ~~fans~~Company ~~prior~~exclusively toin ~~receipt~~the sale of ~~payment~~ ~~from~~outdoor ~~Craftmade~~patio furniture in return for commissions on such sales. ~~Accordingly~~During the fiscal year ended June 30, ~~payment~~2009, ~~can~~no besingle ~~deferred~~patio ~~until~~dealer, ~~delivery~~hospitality customer or catalogue house accounted for more than 3% of ~~such~~ ~~products~~Specialty segment net sales or 1.5% Atof ~~present~~consolidated ~~levels,~~net ~~this~~sales. ~~credit~~Sales ~~limit~~representatives isare ~~equivalent~~carefully selected and continually evaluated in order to ~~approximately~~ ~~three~~promote ~~weeks’~~high-level ~~supply~~representation of ~~ceiling~~our ~~fans~~products. Craftmade employees provide initial field training to new sales representatives covering features, styles, operation and ~~represents~~other attributes of Craftmade products to enable representatives to more effectively market them. Additional training, especially for a ~~supplier commitment~~new ~~that~~product series, is provided on a regular basis at semi-annual trade shows held at the Company’s ~~management~~showrooms. Management believes isthat ~~unusual~~it ~~for~~has ~~the~~assembled ~~industry~~ a highly motivated and ~~favorable~~effective sales representative organization that has demonstrated a strong commitment to the Company and its products. ~~Fanthing~~Management further believes that the strength of its sales representative organization is ~~not~~primarily ~~required~~attributable to ~~provide~~the ~~this~~quality ~~credit facility~~and ~~under~~competitive ~~its~~pricing ~~agreement~~of ~~with~~our ~~Craftmade~~products, as well as the ongoing administrative and ~~Fanthing~~marketing ~~may~~support ~~discontinue~~that ~~this credit~~the ~~facility~~Company atprovides ~~any~~to ~~time~~its sales representatives. ~~Craftmade~~Mass. ~~places~~Substantially ~~orders~~all of the Mass segment’s sales are to mass merchandisers, with ~~Fanthing~~Lowe’s ~~in anticipation~~comprising 44% and 24% of ~~normally~~the ~~recurring~~sales ~~orders.~~of Inthe Mass segment and the ~~ordinary~~Company’s ~~course~~net sales, respectively, and Costco Wholesale Corporation (“Costco”) comprising 9% and 5% of ~~business~~the sales of the Mass segment and the Company’s net sales, ~~orders~~ respectively. Mass sales are ~~filled~~primarily ~~within~~delivered ~~60 days,~~to ~~which~~customers ~~includes~~through ~~approximately~~a ~~20 days~~mixture ~~for transport.~~of ~~While~~direct ~~Craftmade~~shipment and shipments from the Company’s ~~agreement~~378,000 ~~with~~square ~~Fanthing~~foot ~~does~~warehouse ~~not~~and ~~contain provisions~~distribution ~~relating~~facility in Coppell, Texas. The Mass segment utilizes an internal sales force to ~~adjustments~~market orits ~~returns~~products asto aservice ~~result~~specific ofmass ~~product~~merchandiser ~~defects~~locations. In general, ~~Fanthing~~ the Company has ~~historically~~a ~~extended~~48-hour ~~Craftmade~~product ~~full~~shipment ~~credit~~policy for ~~any~~products ~~product returns~~warehoused at its Coppell facility. ~~Ceiling~~In ~~fans~~order ~~are~~to ~~shipped~~meet inthese ~~container-size~~policy ~~lots~~delivery requirements and to ensure that it has sufficient goods on hand from its overseas suppliers, ~~generally~~the ~~consisting~~ Company maintains a significant level of 1inventory. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.” Marketing Specialty. Craftmade relies primarily on the reputation of its products for high quality and competitive prices,~~600~~ and the efforts of its sales representative organization in order to promote the sales of its products in the Specialty segment. The principal markets for our ceiling fan ~~units~~and lighting products are the new home construction, remodeling and replacement markets. ~~Delivery~~The isprinciple ~~made~~markets for our outdoor living products are retail outlets. Craftmade utilizes advertising in ~~Dallas~~home lighting magazines and outdoor living magazines, ~~Texas~~and ~~upon~~broadly ~~presentment~~distributes ~~of documents~~its byproduct ~~Craftmade~~catalogs. Woodard introduced its first hand-crafted wrought iron furniture collection in the 1930’s. ~~designated~~It ~~freight~~been ~~forwarder~~noted ~~following~~for ~~payment~~superior craftsmanship and a high standard of excellence in design ever since. Like Craftmade, Woodard also utilizes the efforts of its sales representative organization to promote its products in the Specialty segment. Key placement for ~~such~~ ~~containers~~outdoor furniture can occur along with new construction or when the consumer moves their living space outdoors. Woodard places advertisements in outdoor living and décor magazines along with various trade publications. Craftmade and Woodard also promote the lighting and outdoor product at ~~Fanthing’s~~semi-annual ~~bank~~trade shows in ~~Taiwan~~Dallas (in January and June) and Chicago (July and September) respectively at company maintained showrooms. The Craftmade showroom is at the Dallas Trade Mart, and the Woodard showroom, which is open year-round, is at the Chicago Merchandise Mart.

~~The Company’s management believes that Craftmade’s relationship with Fanthing~~7 and its ability to supply quality ceiling fans at competitive prices have been critical to the success of Craftmade. The Company’s management currently believes Craftmade’s relationship with Fanthing is excellent and foresees no reason, based on its association to date, for such relationship to deteriorate. If for any reason Fanthing were to discontinue its relationship with Craftmade in the future or should it be unable to continue to supply sufficient amounts of Craftmade products, Craftmade would be required to seek alternative sources of supply. The Company’s management currently believes Craftmade could secure alternative sources of supply with minimal business disruption.

CraftmadeTable purchases its bathstrip lighting and substantially all of its light kits from Sunlit. Light kit orders are placed independently of ceiling fan orders, but are also received in container-size lots generally consisting of up to 4,500 light kit units under payment and delivery arrangements similar to those for ceiling fans. Craftmade offers a variety of light kits in various finishes and colors, as well as a variety of fixtures designed for ceiling fans. Craftmade also offers a variety of glass selections for the various light fixtures, including blown glass, beveled glass and crystal. Fixtures and glass are shipped from Sunlit in the light kit containers. Contents

Craftmade provides warranties ranging from 10 years to lifetime on the fan motor of its ceiling fans, and includes a one-year limited warranty against defects in workmanship and materials to cover the entire ceiling fan. Craftmade provides a limited lifetime warranty on its higher-end series of fans. The Company offers up to a 15-year warranty on its outdoor patio furniture lines. The Company’s ~~wall~~management ~~controls~~believes these warranties are highly attractive to both dealers and consumers. Mass. The Mass segment relies primarily on the reputation of its products, ~~timers~~merchandising concepts and ~~switches~~the relationships it has with mass merchandisers with respect to its sales. From time to time the Company participates in advertising programs and special promotions conducted by its customers. The Company also promotes its product line at select trade shows and line reviews held by its customers. Product Expansion Craftmade continually expands its product lines, providing proprietary products to its customer base in order to meet current and anticipated demands for unique, innovative products. During the fiscal year ended June 30, 2009, the Company introduced 14 new ceiling fans and 5 complete interior lighting families of products, including chandeliers, pendants and sconces, as well as ~~certain~~6 new outdoor lighting collections and 9 new families of outdoor furniture. Each lighting family consists of 6 to 11 individual fixtures and outdoor patio furniture families generally consist of 5 to 12 pieces. Management believes that these new offerings have been well accepted by the Specialty dealers. In addition, the Company increased its selections of complementary products such as specialty light fixtures, including bath bars and outdoor lighting, as well as outdoor accessories such as clocks and gauges. The Company’s management will continue to search for opportunities for product expansion that it considers complementary to the Company’s existing product lines. Seasonality Historically, sales of the Company’s products, particularly ceiling ~~fan~~fans ~~blades~~and lighting kits, have been somewhat seasonal with sales in the warmer first and fourth quarters being higher than in the two other fiscal quarters. The acquisition of the Woodard furniture line has shifted the overall seasonality of the business, as the majority of outdoor furniture sales occur between January and April. Woodard customers also are ~~manufactured~~allowed byto ~~companies~~participate ~~based~~in an early buy program, which allows them to purchase and take receipt of product in the ~~United~~fall ~~States~~but provides extended payment terms allowing them to pay during the selling season. ~~Craftmade~~ ~~offers~~This program is intended to help offset the Woodard production peak, and take advantage of production capacity during the off-season. Backlog Backlog is not a ~~variety~~significant issue to the Company’s operations. Substantially all products distributed from the Coppell, Texas facility are shipped to customers within 48 hours following receipt of ~~custom~~orders. ~~blade~~While ~~sets~~lead times are longer in ~~various~~relation ~~sizes~~to ~~and~~outdoor ~~finishes~~furniture distributed from the Owosso, ~~including~~ ~~unfinished~~Michigan ~~oak~~production facility, ~~ash~~many orders are shipped within two weeks of being placed and ~~other~~the ~~wood~~vast ~~grains~~majority ship within six weeks. Competition The markets for ceiling fans, lighting fixtures and outdoor patio furniture are highly competitive at all levels of operation and across both mass and specialty retailers. Some of the major companies in ~~clear~~the ceiling fan industry include Casablanca, ~~mirror~~Hunter, ~~gold mirror~~Minka, ~~black~~Generation Brands companies, ~~smoke~~Quorum, Litex Industries, Emerson Electric and ~~antique~~Taconi. ~~white~~Some ~~acrylic~~of the major companies in the lighting fixture industry include Designer’s Fountain, Generation Brands, Catalina, Jimco Lamps, J. ~~The~~Hunt, ~~finished~~Westinghouse, Kichler and Minka. Some of the many patio furniture competitors include Agio, Brown Jordan and Tropitone. A number of other well-established companies also are currently engaged in activities that compete directly with Craftmade. In addition, mass merchandisers themselves will, at times, compete with the Company by purchasing private label products directly from Asian factories. Some of the Company’s competitors are ~~packaged~~ better established and ~~labeled~~have ~~under~~longer operating histories, substantially greater financial resources or greater name recognition. However, the Company’s management believes that the quality of our products, the strength of our marketing organization and the growing recognition of our brands will enable Craftmade ~~brand~~to ~~name~~compete successfully in these highly competitive markets.

~~Craftmade and TSI purchase outdoor lighting from several manufacturers located~~8 in Asia. Outdoor lighting orders are received in container-size lots, similar to light kit and ceiling fan orders. Craftmade and TSI offer a wide variety of outdoor lighting styles in various finishes, colors and sizes and are designed for either wall mounting or as post-mounted fixtures.

TSITable purchasesof indoor lighting products, including flush mounts and bathstrip lights from the same manufacturers that produce outdoor lighting for Craftmade. Contents

~~PHI~~More ~~purchases~~detail ~~most~~on the impact of ~~its~~competition ~~ceiling~~on ~~fan~~the ~~accessories~~Company’s business is set forth in “Item 1A. Risk Factors.”` Product Warranties Craftmade’s products are warranted against defects in workmanship and ~~all~~materials under warranties of ~~its~~various ~~lamp replacement~~lengths ~~parts~~and ~~from~~terms ~~several~~dependent ~~manufacturers~~on ~~located~~the inproduct. ~~Asia,~~Provisions ~~with~~for estimated expenses related to product warranties are made at the ~~exception~~ oftime ~~ceiling~~products ~~medallions,~~are ~~which~~sold. These estimates are ~~purchased~~established ~~from~~using ahistorical ~~manufacturer located~~information inon the ~~United~~nature, ~~States~~frequency, and average cost of warranty claims.

~~Design~~Product ~~Trends~~Warranty ~~purchases its lamps and shades from multiple manufacturers~~Costs ~~located~~(Dollars in ~~Asia. Design Trends offers several different styles and sizes of~~thousands) table and floor lamps, either pre-packaged with shades or glass, or with shades sold separately, allowing customers to mix and match components. These products are also shipped on containers, either to the Company’s facility in Coppell, Texas or directly to the customer.

All of TSI, PHI and Design Trends’ foreign vendors require payment seven days after notification of shipment of product from Asia.


	Fiscal Year Ended
	June 30,		June 30,		June 30,
	2009		2008		2007
Ceiling Fans & Lighting	$	980	$	1,179	$	1,147
Outdoor Patio Furniture		910		541		—

	$	1,890	$	1,720	$	1,147

~~Distribution~~ Research and Development Research, development and engineering expenditures for the creation and application of new products and processes, are summarized in the following table (excluding related salaries and legal expenses):

~~Craftmade’s~~Research ~~products are marketed through more than 1,600 lighting showrooms~~ and ~~electrical wholesaler locations specializing in sales to the new home~~Development ~~construction,~~(Dollars remodeling and replacement markets. Its ceiling fans, light kits, outdoor lighting and accessories are distributed through 33 independent sales groups on a national basis. Each sales group is selected to represent Craftmade in ~~a specific market area. The independent sales groups comprise a~~thousands) sales force of approximately 65 sales representatives, who represent Craftmade exclusively in the sale of ceiling fans in return for commissions on such sales. During fiscal years 2004, 2003 and 2002, no single lighting showroom or electrical wholesaler accounted for more than 2% of Craftmade’s sales.


	Fiscal Year Ended
	June 30,		June 30,		June 30,
	2009		2008		2007
Research and development	$	221	$	184	$	265

~~Table~~Independent Safety Testing All of ~~Contents~~the ceiling fans, outdoor lighting, light kits and lamps sold by the Company in the United States and Canada are tested by independent laboratories such as Underwriter’s Laboratories (“UL”) and Intertek ETL (“ETL”), which are independent corporations that test consumer products, including ceiling fans and lighting fixtures, for public safety. Under its agreement with these labs, the Company voluntarily submits its products for testing, and the labs test the products for safety. If the product is acceptable, the testing lab issues a listing report that provides a technical description of the product. These labs also provide the manufacturers with procedures to follow in manufacturing the products. Electrical products that are manufactured in accordance with the designated procedures display a listing mark from the lab, which is generally recognized by consumers as an indication of a safe product and which is often required by various governmental authorities to comply with local codes and ordinances. Product Liability The Company is engaged in businesses that could expose it to possible claims for injury resulting from the failure of its products. While no material claims have been made against the Company since its inception and the Company maintains product liability insurance, there can be no assurance that claims will not arise in the future or that the coverage of the policy will be sufficient to pay any claims.

~~Sales representatives are carefully selected and continually evaluated in order~~9 to promote high-level representation of Craftmade’s products. Craftmade employees provide initial field training to new sales representatives covering features, styles, operation and other attributes of Craftmade products to enable representatives to more effectively market Craftmade’s products. Additional training, especially for a new product series, is provided on a regular basis at semi-annual trade shows held throughout the United States. Management believes it has assembled a highly motivated and effective sales representative organization that has demonstrated a strong commitment to Craftmade and its products. Management further believes that the strength of its sales representative organization is primarily attributable to the quality and competitive pricing of Craftmade’s products as well as the ongoing administrative and marketing support that Craftmade provides to its sales representatives.

AllTable of TSI’s sales are to mass merchandisers with two customers comprising the most significant portion of TSI’s and the Company’s sales, as follows: Contents

		Lowes Companies						Walmart
			Patents and Trademarks
					Percent of						Percent of
			The Company has patented certain of its product designs and the functional features of some of its products. The expiration dates of Craftmade’s patents (excluding pending applications) currently range from 2009 to 2024. From time to time, the Company also enters into license agreements with various designers of the Company’s products, including license agreements concerning licenses on patents for certain fans and certain other license agreements entered into in the ordinary course of its business. The Company has registered the trademarks Craftmade®, Woodard®, Accolade® and Durocraft®, along with the product names of certain of its designs, with the United States Patent and Trademark Office.
		Percent of TSI’s			Consolidated			Percent of			Consolidated
			Employees
Fiscal Year		Sales			Sales			TSI’s Sales			Sales
			As of June 30, 2009, the Company employed a total of 255 full-time employees, compared to 320 employees as of June 30, 2008. Substantially all employees are based in the United States and are located primarily at the Company’s headquarters and distribution center in Coppell, Texas, and at the Woodard factory in Owosso, Michigan. During fiscal 2009, the Company transitioned many functions previously performed at the former Woodard headquarters in Chicago, Illinois to other Company locations, primarily Coppell, Texas. This transition resulted in a significant net reduction of employees and the elimination of the Woodard headquarters in Chicago. Currently, four key sales and marketing personnel remain based in a satellite office in Chicago. As of June 30, 2009, two employees were 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.
2004			75	%		42	%		15	%		8	%
	(d)		Financial Information by Geographic Area
2003			70	%		39	%		17	%		9	%
			Net 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.
2002			70	%		37	%		18	%		10	%
	(e)		Available Information
			Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed 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 Annual Report on 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.

~~The majority of TSI’s sales are by direct shipment~~Item 1A. ~~The~~Risk ~~remaining sales are shipped from the Company’s Coppell, Texas facility~~Factors. ~~TSI utilizes an internal~~ ~~sales force to market its products and sales representatives to service specific mass merchandiser locations.~~

~~Marketing~~ Described below are certain risks that we believe are applicable to our business and the industry in which we operate. There may be additional risks applicable to our business that are not presently material or known. There are also risks within the economy and the capital markets, both domestically and internationally, that affect business generally, including us and other companies in our industry, such as: the effects of terrorist attacks or other acts of war, including conflicts or war involving the United States or its allies or trading partners; the general strength of the economy, levels of consumer spending and consumer confidence; inflation; higher interest rates; higher fuel and other energy costs; higher transportation, fuel and utility costs; higher costs of labor, insurance and healthcare; labor strikes, weather conditions or natural disasters; foreign exchange rate fluctuations; and higher levels of unemployment, which have not been described. You should carefully consider each of the following risks and all other information set forth in this Annual Report on Form 10-K.

Craftmade relies primarily on the reputation of its ceiling fans, outdoor lighting and light kits for high quality and competitive prices and the efforts of its sales representative organization in order to promote the sales of its products. The principal markets for Craftmade’s products are the new home construction, remodeling and replacement markets. Craftmade utilizes advertising in home lighting magazines, particularly in special editions devoted to ceiling fans and lighting fixtures, and broadly distributes its product catalog. Craftmade also promotes its ceiling fans and light kits at semi-annual trade shows in Dallas (in January and June) and maintains a showroom at the Dallas Trade Mart. Craftmade provides warranties ranging from 10 ~~years to lifetime on the fan motor of its ceiling fans, and includes a one~~ year limited warranty against defects in workmanship and materials to cover the entire ceiling fan. Craftmade also provides a limited lifetime warranty on its higher-end series of fans. The Company’s management believes these warranties are highly attractive to both dealers and consumers.

TSITable relies primarily on the reputation of its products and the relationship it has with its mass merchandiser Contents

6 If any of the events described below occur, our business, financial condition, results of operations, liquidity or access to the capital markets could be materially adversely affected. The following risks could cause our actual results to differ materially from our historical experience and from results predicted by forward-looking statements made by us related to conditions or events that we anticipate may occur in the future. All of the forward-looking statements made by us are qualified by the risks described below. The following should not be construed as an exhaustive list of all factors that could cause our actual results to differ materially from those expressed in our forward-looking statements.

~~Table~~Strategic ofRisks ~~Contents~~and Strategy Execution Risks

~~customers~~Our ~~with~~primary ~~respect~~markets, particularly the housing, home construction, and remodel sectors, and retail business are subject to ~~its~~business ~~sales~~cycles which could lead to reduced short and long-term demand for our products. ~~TSI participates~~General economic conditions in ~~advertising~~the ~~programs~~United States, including the housing and ~~special~~home ~~promotions~~construction ~~performed~~sectors, are affected by, ~~its~~ among other things, consumer spending habits, levels of employment, salary and wage rates, prevailing interest rates, income tax rates and policies, consumer confidence and consumer perception of economic conditions. A decline in general economic conditions in the United States could lead to a reduced demand for our products. The United States has experienced a historic downturn in both new home construction and existing home sales in the past 36 months, and over the past 12 months the entire global economy has suffered a historic downturn. This recent broad downturn and the longer term housing collapse has negatively affected the Company’s business. The industries we operate in are highly competitive, and we may not be able to compete successfully. We compete with numerous companies, including several major manufacturers and distributors. Some of our competitors have greater financial and other resources than we have, which could allow them to compete more successfully than us. Most of our products are available from several other sources, and our customers tend to have relationships with several distributors. ~~TSI~~Manufacturers could also ~~promotes~~increase ~~its~~their ~~product~~efforts ~~line~~to atsell ~~semi~~directly to our customers and end-~~annual~~users and bypass distributors like us. To address these challenges, we must be able to successfully respond to competitive factors, including pricing, promotional incentives and trade ~~shows~~terms. ~~in Dallas~~In (the future, we may be unable to compete successfully, and competitive pressures may reduce our revenues. If we fail to gain customer acceptance of our existing and new products, our operating results could suffer. We sell our products primarily to specialty showrooms and mass merchandisers. If we fail to successfully introduce new products that are accepted by our customers, our operating results may be adversely affected. Our failure in ~~January~~pursuing or executing any of our new business ventures, strategic alliances and ~~June)~~acquisitions could have a material adverse impact on our business. Our growth strategy includes expansion through new business ventures, strategic alliances and ~~utilizes~~acquisitions. ~~Craftmade~~While we employ several different valuation methodologies to assess a potential growth opportunity, and structure favorable payout strategies to lower risk, we can give no assurance that any of our new business ventures and strategic alliances will positively affect our financial performance. Any acquisitions that we make may result in difficulties in assimilating acquired companies, and may result in the diversion of our capital and management’s ~~showroom~~attention atfrom our other business issues and opportunities. We may not be able to successfully integrate companies that we acquire, including their personnel, financial systems, distribution, operations and general operating procedures. If we fail to successfully integrate companies that we acquire, our business could suffer materially. We may also encounter challenges in achieving appropriate internal control over our financial reporting in connection with our integration of an acquired company. In addition, our efforts to integrate any acquired company, and its financial results, into the ~~Dallas Trade~~Company ~~Mart~~may have a material adverse effect on our operating results.

~~The Company has a 48-hour product shipment policy. In order to meet these~~11 policy delivery requirements and to ensure that it has sufficient goods on hand from its overseas suppliers, the Company maintains a significant level of inventory. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.”

ForTable information concerning revenues of the Company attributable to foreign and domestic customers, along with information concerning foreign and domestic long-lived assets of the Company, see Note 13 – Segment Information in the Notes to Consolidated Financial Statements. Contents

~~Product~~Our ~~Expansion~~ 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 operating results depend on our ability to maintain satisfactory relationships with qualified sales personnel as well as key customers, vendors and manufacturers. Given the importance of a strong sales team to our success, we endeavor to hire capable sales people, compensate them appropriately and provide them with the training and tools necessary for them to succeed in their roles. If we fail to maintain our existing relationships with these parties or fail to acquire relationships with others like them in the future, our business may suffer. Our future success is substantially dependent upon our senior management and retention of key personnel. Our success depends upon our ability to attract, motivate, and retain key management and personnel. We depend upon the continued services of our key executive officers, including our chief executive officer. The loss of services of any of our key personnel could have a negative impact on our business.

~~Craftmade~~Risks ~~continually~~Associated ~~expands~~with ~~its~~International ~~ceiling fan product line, providing~~Trade proprietary products to its customer base in order to meet current and anticipated demands for unique, innovative products. During fiscal year 2004, Craftmade introduced four new series of fans: Ceylon, Sentry, American Tradition and Universal Hugger. Craftmade also added two new custom finishes – English Toffee and Oiled Bronze. In addition, Craftmade increased its selections of complimentary products such as specialty light fixtures, glass and accessories. The Company’s management will continue to search for opportunities for product expansion that it considers complementary to the Company’s existing product lines.

InAs ~~fiscal~~we ~~year~~do ~~2004~~not manufacture most of the products that we distribute, we are dependent upon third parties for the ~~Company~~manufacture ~~enlarged~~and ~~its~~supply ~~presence~~of high quality competitive products on a timely basis. We obtain over 80% of our products from third-party suppliers in China and Mexico with the ~~mass~~remainder ~~merchandiser market~~supplied byfrom ~~continuing~~vendors, or self-manufactured in the United States. We do not have any material long-term contracts with our suppliers committing them to ~~develop~~supply ~~and~~products ~~roll~~to ~~out~~us. ~~its~~Most ~~mix~~of ~~and~~our ~~match~~products ~~ceiling~~are ~~fan program~~imported from suppliers under short-term purchase orders that we place with them. Therefore, our suppliers may not provide us with the products we need in the quantities that we request. Because we do not control the actual production of the products that we sell, we may be subject to ~~TSI’s~~delays ~~customer~~caused ~~base~~by interruption in production based on conditions outside of our control. ~~This~~Political ~~program~~or ~~features~~financial ~~interchangeable~~instability, ~~fan motors~~merchandise quality issues, ~~blade~~trade ~~arms~~restrictions, ~~blades~~tariffs, ~~light~~currency ~~kits~~exchange rates, transportation capacity and ~~glass~~costs, –inflation, ~~all~~outbreak ~~available~~of pandemics and other factors relating to foreign trade are beyond our control. In the event that any of our third-party suppliers become unable or unwilling to continue to provide us with products in ~~multiple finishes~~the ~~and~~volumes ~~styles~~that we require, ~~allowing~~we ~~customers~~would need to ~~create~~identify ~~their~~and ~~own~~obtain ~~fan~~acceptable ~~design~~replacement sources on a timely basis. ~~The Company~~There ~~also~~is ~~introduced~~no aguarantee ~~line~~that we will be able to obtain such alternative sources of ~~lamp~~supply ~~replacement~~on ~~and~~a ~~repair~~timely ~~parts~~basis, if at all, or at costs acceptable to us. An extended interruption in the ~~home center~~supply ~~channel~~of ~~through~~our ~~its~~products ~~PHI~~would ~~partnership~~have a materially adverse effect on our results of operations, which most likely would adversely affect the value of our Common Stock.

~~Seasonality~~Risks Related to Profitable Growth

~~The~~A ~~Company~~decline in our customer’s ~~product~~willingness ~~sales~~or ability to pay for goods in a timely manner, ~~particularly~~or ~~ceiling~~at ~~fans~~all, could lead to increased working capital costs, higher bad debt expense or lack of liquidity. All segments of our business are ~~somewhat~~highly ~~seasonal~~ competitive and the extension of credit terms to our customers is a critical part of our business offering, and must compare favorably with ~~sales~~our competitors. The need to extend credit in order to gain sales must constantly be balanced with the ~~warmer~~risk ~~first~~of slow payments or payment defaults. Although the Company employs a credit team with years of experience in credit and ~~fourth~~collections, ~~quarters~~who ~~being~~carefully ~~historically~~weigh ~~higher than~~all credit decisions, it is not possible to completely mitigate all credit risk. Should we experience a significant increase in late payments or bad debt write offs, it could materially impact our cash flow, ability to borrow against receivables and net income. The loss of certain of our customers that represent a significant percentage of our net sales could adversely affect our results of operations. All of the ~~two~~Mass segment’s net sales, including the net sales of Woodard, TSI, PHI and Design Trends, are made to mass merchandisers, with Lowe’s comprising the most significant portion of Mass net sales. The loss of or reduction in our orders with this customer, or any other ~~fiscal~~significant ~~quarters~~customer, could have a material adverse effect on our business and financial results, as could disputes with our customers regarding shipments, fees, product condition or related matters. Our inability to collect accounts receivable from any of these customers also could have a material adverse affect on our financial condition and results of operations.

~~Backlog~~12

BacklogTable is not material to the Company’s operations as substantially all of the Company’s products are shipped to customers within 48 hours following receipt of orders. Contents

~~Competition~~ If net sales to these customers were at levels significantly lower than currently anticipated, we would be required to find other customers for existing inventory on hand. There can be no assurances that we would be able to obtain additional customers for this inventory or that any alternative sources would generate similar sales levels and profit margins as anticipated with our current mass merchandise customers. We do not have long-term sales agreements with or other contractual assurances as to future sales from any of our customers. Our customers make purchase decisions based on a combination of price, product quality, consumer demand, customer service performance and their desired inventory levels. Changes in our customers’ strategies, including a reduction in the number of brands they carry or a shift of shelf space to private label products (unless we provide such products) may adversely affect our net sales. Additionally, our customers may face financial or other difficulties that may impact their operations and their purchases from us, which could adversely affect our results of operations. If net sales to one or more of our customers are reduced, this reduction may have a material adverse effect on our business, financial condition and results of operations. 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 pressure us to lower our prices in addition to requiring various stipulations from us related to inventory practices, product reset costs, logistics or other aspects of the customer-supplier relationship. For example, Wal-Mart and other customers have indicated a desire to utilize Radio Frequency Identification (“RFID”) technology in an effort to improve tracking and management of product in their supply chain. Large-scale implementation of this technology would significantly increase our product manufacturing and distribution costs. Meeting these types of demands of customers may adversely affect our margins and results of operations. If we fail to effectively respond to these types of demands of our customers, our sales and profitability could be materially adversely affected. In addition, our mass merchandise customers hold line reviews throughout the year for each product category. Even though line reviews give us the potential to add new SKUs, participation in line reviews could result in a partial or complete reduction of our existing SKUs in the product lines currently offered which could have a materially adverse effect on our results of operations. Our mass merchandise customers may choose to directly source many of the products we currently provide. We compete against a wide variety of global and local competitors. As a result, there are ongoing competitive product and pricing pressures in the environments in, which we operate, as well as challenges in maintaining profit margins. To address these challenges, we must be able to successfully respond to competitive factors, including pricing, promotional incentives and trade terms. In particular, our mass merchandise customers may choose to source directly from manufacturers in Asia many of the products we currently provide. To the extent our mass merchandise 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. From time to time, our mass merchandise customers may purchase more products from us than they expect to sell to consumers during a particular time period. If mass merchandisers increase their inventory during a particular reporting period, then our sales during the subsequent reporting period may be adversely impacted as these mass merchandisers seek to reduce their inventory to usual levels. To the extent our customers seek to reduce their usual or customary inventory levels, the adverse impact of such “de-inventorying” on our sales and profitability would be even greater. Increases in our shipping costs or service trouble with our third-party shippers could harm our business. Shipping is a significant expense in our business for the products we import from manufacturers and the products we ship to customers. Any significant increase we experience in our shipping rates could have an adverse effect on our operating results. Similarly, strikes or other service interruptions by those shippers could cause our operating expenses to rise and adversely affect our ability to deliver products on a timely basis.

~~The ceiling fan and lighting fixture market is highly competitive at all levels~~13 of operation. Some of the major companies in the ceiling fan industry include Casablanca, Hunter, Monte Carlo, Quorum, Emerson Electric and Taconi. A number of other well-established companies are also currently engaged in activities that compete directly with Craftmade. Some of Craftmade’s competitors are better established and have longer operating histories, substantially greater financial resources or greater name recognition than Craftmade. However, the Company’s management believes that the quality of Craftmade’s products, the strength of its marketing organization and the growing recognition of the Craftmade name will enable Craftmade to compete successfully in these highly competitive markets.

TheTable mass merchandiser market is also highly competitive. TSI and Design Trends have numerous competitors, which are located both within the United States and outside of the country, particularly in Asia. Some of the major companies in the lighting fixture industry include Designer’s Fountain, Murray Feiss and Minka. In addition, mass merchandisers themselves will, at times, compete directly against TSI and Design Trends by purchasing private label products from TSI’s vendors. However, the Company’s management believes that TSI has positioned itself with its customers in a manner that reduces some of the risks involved with competing in the mass merchandiser market, primarily by offering unique display systems and packaging that the Company management believes other companies do not offer. Contents

7Risks Associated with Being Publicly Traded

~~Table~~Our Common Stock may be affected by limited trading volume and price fluctuations, each of ~~Contents~~which could adversely impact the value of our Common Stock. There has been limited trading in our Common Stock and there can be no assurance that an active trading market in our Common Stock will exist. Our Common Stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our Common Stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our Common Stock to fluctuate substantially. These fluctuations may also cause short sellers to enter the market from time to time in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our stock will be stable or that the price per share of the Common Stock will appreciate over time.

~~Independent~~Risks ~~Safety~~Relating ~~Testing~~to Liquidity

~~All~~Our ofinability ~~the~~to ~~ceiling~~meet ~~fans,~~financial ~~outdoor~~covenants ~~lighting~~contained in our credit facilities could adversely impact our ability to fund our operations. Our ability to make payments on and to refinance our indebtedness and to fund our working capital needs, ~~light~~planned ~~kits~~capital expenditures, acquisitions, and ~~lamps~~dividends ~~sold~~on byour ~~the Company~~Common inStock ~~the~~will ~~United~~depend ~~States~~on ~~are~~our ~~tested~~ability byto ~~Underwriter’s~~generate ~~Laboratories~~cash ~~(UL)~~in the future. This, ~~which~~ isto ansome ~~independent~~extent, ~~non-profit~~is ~~corporation~~subject ~~which~~to ~~tests~~general ~~certain~~economic, ~~products~~financial, ~~including~~ ~~ceiling~~competitive, ~~fans~~legislative, regulatory and ~~lighting~~other ~~fixtures,~~factors ~~for~~that ~~public~~are ~~safety~~beyond our control. ~~Under~~We ~~its agreement~~cannot ~~with~~provide ~~UL,~~assurance ~~the~~that ~~Company~~our ~~voluntarily~~business ~~submits~~will ~~its~~generate ~~products~~sufficient cash flow from our operating activities or that future borrowings will be available under our credit facility in amounts sufficient to ~~UL,~~enable ~~and~~us ~~UL tests~~to ~~the~~pay ~~products~~our ~~for~~indebtedness ~~safety~~or to fund our other liquidity needs. IfWe ~~the~~may ~~product~~need isto ~~acceptable,~~refinance ULall ~~issues~~or a ~~listing~~ ~~report~~portion of our indebtedness on or before maturity. We cannot provide assurance that ~~provides~~we awould ~~technical~~be ~~description~~able to refinance any of ~~the~~our ~~product~~indebtedness on commercially reasonable terms or at all. ~~UL provides~~Our ~~the~~credit ~~manufacturers~~facility ~~with~~contains ~~procedures~~restrictive covenants that can require us to ~~follow~~maintain specified financial ratios. Our ability to satisfy those financial ratios can be affected by events beyond our control, and we cannot provide assurance that we will satisfy those ratios. A breach by us of any of these financial ratio covenants or other covenants could result in ~~manufacturing~~our being in default under our credit facility. Upon the ~~products~~ occurrence of an event of default by us, our lenders could elect to declare the applicable outstanding indebtedness immediately due and payable and terminate all commitments to us to extend further credit. ~~Electrical~~We ~~products~~can offer no assurances that our lenders would waive a default or that we could pay the outstanding indebtedness in full under our credit facility if it were accelerated by our lenders. We are ~~manufactured~~exposed to the risk of an increase in ~~accordance~~interest rates. We do not have any agreements with ~~the designated~~third ~~procedures~~parties ~~display~~to hedge against the ULpotential ~~listing~~rising ~~mark~~of interest rates. The variable rates of interest on our credit facility are based on various index rates, ~~which~~including isLIBOR ~~generally recognized~~and bythe ~~consumers~~Prime Rate, plus the spread as andefined ~~indication~~by ofthe loan agreements. As a ~~safe~~result ~~product~~of our existing variable rate credit lines and ~~which~~loan isagreements, ~~often required~~we byare ~~various~~exposed ~~governmental~~to ~~authorities~~risk from fluctuations in interest rates. We are exposed to ~~comply~~the ~~with~~risk ~~local~~of ~~codes~~foreign ~~and ordinances~~currency appreciation. ~~The~~Generally, ~~contract~~we ~~between~~purchase our products in U.S. dollars. However, we source substantially all of our products from manufacturers in the ~~Company~~People’s ~~and~~Republic ULof ~~provides~~China. As a result, our costs for ~~automatic renewal~~these ~~unless~~products ~~either~~may ~~party cancels~~be asaffected by changes in the value of the U.S. dollar against the Chinese yuan. We cannot be assured that foreign currency fluctuations will not have a ~~result~~material adverse impact on our financial condition and results of ~~default~~operations. orSee ~~gives~~“Item ~~applicable~~7. ~~prior~~Management’s ~~notice~~Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources. ”

~~Product Liability~~14

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

~~Patents~~Risks ~~and~~Associated ~~Trademarks~~with Dependence on Technology

~~The~~We ~~Company~~rely ~~has~~heavily ~~patented~~on ~~certain~~our ofmanagement ~~its~~information ~~product~~systems ~~designs~~for ~~and~~manufacturing, ~~the~~inventory ~~functional features of some of its products~~management, ~~including~~distribution ~~a patent on its Cathedral Ceiling Adapter~~ and ~~the~~other ~~Carousel light kit~~functions. ~~The~~If ~~expiration~~our ~~dates~~systems offail ~~Craftmade’s patents~~to ~~(excluding~~perform ~~pending~~these ~~applications)~~functions ~~currently~~adequately ~~range~~or ~~from~~if ~~2008~~we toexperience ~~2014.~~an ~~In addition,~~interruption ~~Fanthing~~in ~~holds~~our ~~certain~~operations, ~~Taiwanese~~we ~~patents~~could ~~covering~~be ~~specific~~materially ~~technology employed~~adversely inaffected. ~~Craftmade~~The ~~ceiling~~efficient ~~fans,~~operation ~~but~~of the Company’s ~~management~~is ~~does~~dependent ~~not believe~~on ~~that~~our ~~such~~management ~~patents~~information ~~are~~systems. ~~material~~We torely ~~the~~heavily ~~production~~on ofour ~~Craftmade~~management ~~products. From~~information ~~time~~systems to ~~time,~~manage ~~the~~our ~~Company~~order ~~also~~entry, ~~enters~~order ~~into~~fulfillment, ~~license~~pricing, ~~agreements with various designers~~ point-of ~~the Company’s products~~-sale, ~~including~~and ~~license~~inventory ~~agreements concerning~~replenishment ~~licenses~~processes. onThe ~~patents~~failure ~~for eight series~~ of ~~fans~~our ~~and~~management ~~certain~~information ~~other license~~systems ~~agreements~~to ~~entered~~perform ~~into~~as inanticipated ~~the~~could ~~ordinary~~disrupt ~~course~~our ~~of its~~ business. ~~The Company~~and ~~has~~could ~~registered~~result ~~the~~in ~~trademarks~~decreased ~~Craftmade ®~~revenue, ~~Accolade~~increased ®overhead ~~and Durocraft ®~~costs, ~~along~~ ~~with~~and ~~the~~excess ~~product~~or ~~names~~ out-of-stock ~~certain~~inventory ~~of its designs~~levels, ~~with~~causing ~~the~~us ~~United~~to ~~States Patent~~suffer ~~and Trademark Office~~materially.

~~Design~~Regulatory ~~Trends merchandises its portable lamp program in a patented display~~Risks system that makes more efficient use of the retailer’s space than conventional lighting displays. The Company’s management believes that the display patent is material to Design Trends’ business.

~~Employees~~ Tax legislation initiatives could adversely affect our net earnings and tax liabilities. We are subject to the tax laws and regulations of the United States, state and local governments, as well as foreign jurisdictions. From time to time, various legislative initiatives may be proposed that could adversely affect our tax positions. There can be no assurance that our effective tax rate will not be adversely affected by these initiatives. In addition, tax laws and regulations are extremely complex and subject to varying interpretations. Although we believe that our historical tax positions are sound and consistent with applicable laws, regulations and existing precedent, we cannot give assurance that our tax positions will not be challenged by relevant tax authorities, or that we would be successful in any such challenge. 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. We are subject to rules and regulations of federal and state government as well as the stock exchange on which our Common Stock is listed. These entities, including the Public Company Accounting Oversight Board (“PCAOB”), the SEC, the Internal Revenue Service, and the NASDAQ Stock Market, have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations and requirements in response to laws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Our efforts to comply with these requirements have resulted in, and are likely to continue to result in, increased expenses and a diversion of our management’s time and attention from revenue-generating activities to compliance activities. We also are subject to periodic audits or other reviews by these governmental agencies and external auditors. These examinations or reviews frequently require management’s time and diversion of internal resources and, in the event of an unfavorable outcome to us, may result in additional liabilities or adjustments to our historical financial results. Changes in accounting rules could have a material impact on our reported business and financial results. U.S. generally accepted accounting principles are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the American Institute of Certified Public Accountants, the PCAOB, the SEC, and various governmental and regulatory bodies that promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results.

~~As of August 31, 2004, the Company employed a total of 122 full time employees,~~15 including 4 executive officers, (one of whom is a TSI officer), 20 managers, 21 clerical and administrative personnel, 21 marketing personnel, 44 warehouse personnel and 12 Design Trends/shipping/production personnel. The Company’s employees are not covered by any collective bargaining agreements, and the Company believes its employee relations are satisfactory.

8 Table of Contents

~~Table~~Risks ofAssociated ~~Contents~~with Insurance / Product Liability

~~ITEM~~Failure 2or flaws in our products could lead to product liability claims and payment of associated financial damages or penalties. ~~PROPERTIES~~The Company goes to great length to ensure that its products meet the highest standard for reliability and consumer safety. We work closely with our contract manufacturers to design, develop and produce products that are both attractive and highly functional, and that pose no threat to our customers when used in an appropriate manner. In the current highly litigious environment, any flaw or failure in our products that causes harm to an individual, property damage or simply consumer dissatisfaction could become the source of legal action, either on an individual or class action basis. Such legal actions could have wide ranging impact including distraction of senior management, adverse publicity, legal fees and financial damages or penalties. While no material claims have been made against the Company since its inception, and the Company maintains product liability insurance, there can be no assurance that claims will not arise in the future or that the coverage of our policy will be sufficient to pay any claims.

~~The~~Risks ~~Company’s~~Associated ~~headquarters~~with ~~are~~Balancing ~~located in Coppell, Texas. The facility consists~~Inventory of approximately 378,000 square feet of general office and warehouse space, which is owned by the Company and is used by both Craftmade and TSI. The Company’s management believes that this Company-owned facility will be sufficient for its purposes for the foreseeable future. See Note 4 – Note Payable in the Notes to Consolidated Financial Statements for a discussion of the Company’s term loan used to finance the Company’s acquisition of this facility.

The Company ~~also~~could ~~leases~~suffer ~~permanent~~financial ~~display~~losses ~~facilities~~due atto carrying excessive inventory, or conversely due to having insufficient inventory on hand to meet the ~~Dallas~~needs ~~Trade~~of ~~Mart, which~~our customers. Since over 80% of our sales are ~~used~~sourced byfrom ~~both~~China, ~~Craftmade~~the Company has to maintain high levels of inventory in order to meet customer needs and ~~TSI~~our own delivery policies. The ~~lease~~Company ~~provides~~seeks ~~for~~to ~~monthly rental~~minimize ~~payments~~inventory levels wherever possible because of $6the significant expense associated with the purchase,~~632~~ ~~per~~shipping ~~month~~and warehousing of our products. In order to gain and retain distribution of our products, we often need to produce specific product lines under customer-owned (“Private Label”) brands, which legally cannot be sold in any outlets other than those owned by that customer. Discontinued or overstocked products from ~~May 1~~the Private Label segment generally have to be destroyed or liquidated at highly discounted and unprofitable prices. Management believes that competing in the Private Label segment is essential to gaining market share and sales in the Mass segment and, ~~2003~~therefore, ~~through~~is ~~April 30~~willing to increase the Company’s inventory risk by producing and selling Private Label products. Our design, ~~2004~~sales, marketing and $6manufacturing teams have years of experience in each of the segments we operate in and work to maintain a strong knowledge of current consumer and retail trends,~~831~~ ~~from~~customer ~~May 1~~buying habits, ~~2004~~ and the general economic environment to ensure that we are ordering and stocking products that will sell through ~~April 30~~at a reliable and consistent rate. We also leverage our internal systems, ~~2005~~policies and controls to maintain the proper level of inventory, ~~with~~balancing ~~three~~economic ~~percent~~cost ~~annual~~with ~~increases~~customer ~~thereafter~~needs. ~~The~~ ~~lease~~We ~~expires~~cannot ~~April 30~~ensure that this balance is always maintained, ~~2007~~and any misjudgment in inventory management can have an adverse impact on the Company’s financial statements and results of operations.

~~ITEM 3~~Item 1B. ~~LEGAL~~Unresolved ~~PROCEEDINGS~~Staff Comments.

~~On August 8, 2001, Lamps Plus, Inc~~None. and Pacific Coast Lighting (collectively “Lamps Plus”) sued several defendants, including Patrick S. Dolan, Dolan Northwest, LLC, Design Trends, and Craftmade International, Inc. (collectively, the “Craftmade Parties”), for alleged patent infringement in the United States District Court for the Northern District of Texas. The suit alleged that the Craftmade Parties infringed two patents – a design patent and a utility patent – held by Lamps Plus related to a design for a free-standing torchiere lamp with attached sidelights. The suit sought a declaration that the two patents were infringed, treble damages, a preliminary and permanent injunction from further alleged infringement, attorneys’ fees, and other unspecified damages. The Craftmade Parties denied the allegations of patent infringement, asserting affirmative defenses, and counterclaimed for a declaration that the patents are invalid, not infringed, and unenforceable.

~~On November~~Item 3, 2003, the lawsuit went to trial and on November 20, 2003, the jury found that the Craftmade Parties directly and indirectly infringed the utility patent with four of the five lamp models, and that their infringement was willful2. ~~The jury found that the Craftmade Parties did not infringe the design patent for any of the five accused lamp models~~Properties. ~~The jury further found~~ that neither patent was invalid or unenforceable, and awarded damages against Dolan, Design Trends L.L.C., and Craftmade International, Inc., jointly and severally, in the amount of $143,385. On September 14, 2004, the Court entered a Judgment and Permanent Injunction and issued an Order Awarding Attorneys’ Fees. The Judgment awards Lamps Plus $143,385 in actual damages plus costs of court. The Order awards $600,000 in attorneys’ fees to Lamps Plus. Dolan, Design Trends, and Craftmade have been enjoined from selling infringing lamps including 4 of the 5 models at issue in the case. Management believes that the exclusion of these lamp models would not have a material adverse effect on the business of the Company. Dolan, Design Trends, and Craftmade intend to appeal the Judgment and Order. The outcome of this appeal is uncertain.

~~With~~The ~~regard~~following totable ~~the foregoing litigation (the “Lawsuit”), the Craftmade Parties entered into an agreement (the “Agreement”), that~~ sets forth ~~the responsibilities~~information ~~of the Craftmade Parties for payment of additional fees, costs and expenses of the Lawsuit, along~~ with ~~the~~respect ~~rights~~ to ~~any recovery that might be had by reason of~~ the ~~Lawsuit.~~Company’s ~~Pursuant~~key to the Agreement, Design Trends (which is owned jointly by Craftmade and Dolan Northwest, LLC) agreed to pay the first $150,000 of legal fees and expenses incurred by the Parties after February 21, 2003. On April 16, 2003, Dolan Northwest became responsible for all legal fees and expenses incurred by the Craftmade Parties in connection with the Lawsuit from that date forward, and agreed to indemnify and hold harmless Craftmade and Design Trends from and against any and all claims, liabilities, or losses arising out of the legal fees and expenses incurred in the defense of the Lawsuit after February 21, 2003. properties:

~~Pursuant~~Summary ~~to the Agreement, Dolan Northwest is solely responsible for the payment~~ of ~~any judgment which may be rendered in the Lawsuit against any of~~Properties the Craftmade Parties and has agreed to indemnify and hold harmless Craftmade and Design Trends from and against any and all liabilities, losses, damages, costs or other expenses associated with said judgment. Dolan Northwest is also responsible for all additional legal fees and expenses (including any supersedeas bond posted), which may be incurred in the prosecution or defense of any appeal, perfected by any party to the Lawsuit. Dolan Northwest has additionally agreed to assume and be responsible for all obligations of Design Trends to indemnify Lowe’s Companies, Inc. or any of its subsidiaries for any loss or damage incurred as a result of the Lawsuit. In the event of a recovery in the Lawsuit in favor of any or all of the Craftmade Parties, Dolan is entitled to retain all of the proceeds of such recovery.


				Current
		Approximate		Lease
		Square		Term
Location	Use	Feet		Expiration
Coppell, Texas	Headquarters, warehouse and distribution facility		378,000	Owned
Owosso, Michigan	Manufacturing and warehouse facility for Woodard		306,000	Owned
Owosso, Michigan	Warehouse storage for manufacturing facility		24,885	Month to month
Dallas, Texas	Dallas Trade Mart Showroom — Fans & Lighting		5,656	April 30, 2012
Chicago, Illinois	Chicago Merchandise Mart — Outdoor Furniture		11,000	August 31, 2013
Chicago, Illinois	Woodard Sales and Marketing office space		1,989	August 14, 2009
Kowloon, Hong Kong	Product sourcing and international sales office		1,147	October 14, 2010

~~Table of Contents~~16

AsTable an accommodation and convenience to Dolan Northwest, Design Trends has agreed to advance the funds necessary to pay the legal fees and expenses for which Dolan Northwest will be responsible as well as any final judgment that may be entered against any of the Craftmade Parties in the Lawsuit. Any such advances have been and will continue to be treated by Design Trends as loans and are charged against Dolan Northwest’s capital account in Design Trends. In the event that Dolan Northwest’s capital account is insufficient to pay any such fees and expenses for which Dolan Northwest is responsible under the Agreement, Design Trends shall notify in writing both Pat Dolan and Dolan Northwest of such deficiency and Dolan Northwest shall reimburse Design Trends for any such fees and expenses (including any final judgment) within ten days. Pat Dolan has agreed to unconditionally guarantee the obligations of Dolan Northwest under this Agreement. Contents

~~ITEM~~The Company’s headquarters facility is located in Coppell, Texas. The facility consists of approximately 378,000 square feet of general office and warehouse space, is owned by the Company and is used by both Specialty and Mass segments. The Company’s management believes that this Company-owned facility is well maintained, in good operating condition and will be sufficient to support operations for the near term. See “Note 4 – Long-Term Obligations” in the notes to the consolidated financial statements for a discussion of the Company’s term loans used to refinance the Coppell, Texas and Owosso, Michigan facilities. ~~SUBMISSION~~As OFpart ~~MATTERS~~of TOthe AWoodard ~~VOTE~~Asset OFAcquisition, ~~SECURITY~~the ~~HOLDERS~~Company acquired a 306,000 square-foot manufacturing and warehouse facility in Owosso, Michigan, that is engaged in the manufacture and distribution of its outdoor furniture lines. The Company currently has no plans to relocate or discontinue use of this facility. As part of the Woodard transaction, the Company also gained 20,000 square feet of office space in Chicago, Illinois, which had been the headquarters of Woodard, LLC, and was leased under terms that ended in February 2009. Upon integration of most Woodard functions in the Coppell headquarters, and expiration of the former Woodard headquarters lease, the Company leased a small office in Chicago for certain sales and marketing roles that remained in Chicago. The Company also formerly had sales offices in Bentonville, Arkansas and Dedham, Massachusetts which were closed in fiscal 2009.

NoItem 3. ~~matters~~Legal ~~were submitted to a vote of stockholders during the fourth quarter of fiscal year 2004~~Proceedings.

10 The Company is involved in various claims, lawsuits and proceedings arising in the ordinary course of business. There are uncertainties inherent in the ultimate outcome of such matters and it is difficult to determine the ultimate costs that we may incur. We believe the resolution of such uncertainties and the incurrence of such costs will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

~~Table~~Item 4. Submission of ~~Contents~~Matters to a Vote of Security Holders.

~~PART~~No II matters were submitted to a vote of stockholders during the fourth quarter of fiscal year 2009.

~~ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~17

TheTable initial public offering price of the Company’s common stock, $0.01 par value per share (“Common Stock”) in April 1990 was $1.55 per share, adjusted for the Company’s three-for-two stock splits effective October 30, 1998 and October 31, 1997. The Common Stock trades on Nasdaq National Market System under the symbol CRFT. Contents

~~The~~PART ~~following table sets forth, for the periods indicated, the high and low bid~~II ~~information per share of Common Stock on the Nasdaq National Market System, as reported by Nasdaq.~~

					Dividends
	High		Low		per share
Fiscal Year Ended June 30, 2003:
First Quarter	$	15.50	$	12.21	$	.07
Second Quarter		17.60		11.62		.07
Third Quarter		17.10		13.70		.07
Fourth Quarter		18.35		14.25		.07
Fiscal Year Ended June 30, 2004:
First Quarter	$	23.10	$	17.32	$	0.10
Second Quarter		27.75		22.03		0.10
Third Quarter		29.40		24.00		0.10
Fourth Quarter		27.57		19.79		0.10
Fiscal Year Ended June 30, 2005
First Quarter (Through September 8, 2004)	$	22.87	$	18.51


Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

~~Computershare~~The ~~Investor~~Common ~~Services,~~Stock ~~Two~~trades ~~North~~on ~~Lasalle~~the ~~Street,~~NASDAQ ~~Chicago~~Global ILMarket ~~60602~~under the symbol “CRFT.” The following table sets forth, is for the ~~transfer~~periods ~~agent~~indicated, the high and ~~registrar~~low ~~for~~sales price per share of Common Stock on the NASDAQ Global Market, and dividends paid per share of Common Stock. :

Holders


					Dividends
	Sales Price				Per
	High		Low		Share
Fiscal Year Ended June 30, 2009
Fourth Quarter	$	2.86	$	1.20	$	—
Third Quarter		2.20		0.89		—
Second Quarter		4.21		1.32		—
First Quarter		6.51		2.77		—

Fiscal Year Ended June 30, 2008
Fourth Quarter	$	8.34	$	6.24	$	—
Third Quarter		9.99		7.33		0.12
Second Quarter		12.18		7.11		0.12
First Quarter		17.63		11.52		0.12

OnThe ~~September 8~~Company announced in May of 2008, ~~2004~~that it had suspended its quarterly dividend. Any decision to declare and pay dividends in the future will be made at the discretion of the Company’s Board of Directors and will depend on, ~~there~~among other things, the Company’s results of operations, cash requirements, financial condition, availability of funds under its line of credit and other factors that the Board of Directors may deem relevant. In addition, the Company’s current credit facility restricts dividend payments in certain circumstances. Computershare Investor Services, 2 North LaSalle Street, Chicago, Illinois 60602, is the transfer agent and registrar for the Common Stock. Holders There were 9577 holders of record of the Common Stock on August 31, 2009. A number of the Company’s stockholders hold their shares in street name; therefore, the Company believes that there are substantially more beneficial owners of Common Stock. Issuer Purchases of Equity Securities There were no purchases of equity securities during the fiscal year ended June 30, 2009. Equity Compensation Plans See Part III, “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

~~ISSUER~~Item 6. ~~PURCHASES~~Selected OFFinancial ~~EQUITY SECURITIES~~Data.

					(c) Total Number of		(d) Maximum Number (or
	(a) Total		(b) Average		Shares (or Units)		Approximate Dollar Value) of
	Number of		Price Paid		Purchased as Part of		Shares (or Units) that May
	Shares (or Units		per Share		Publicly Announced		Yet Be Purchased Under the
Period	Purchased)		(or Unit)		Plans or Programs		Plans or Programs
April 1, 2004 to April 30, 2004		99,920	$	24.66		99,920		184,164
May 1, 2004 to May 31, 2004		15,474	$	23.41		15,474		168,690
June 1, 2004 to June 30, 2004		—		—		—		168,690
Total		115,394				115,394

The selected financial data in the tables below are for the five fiscal years ended June 30, 2009. The data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Consolidated Financial Statements included herein.

1118

OnSummary ~~December 9, 2003 the Company’s Board~~ of ~~Directors~~Selected ~~authorized~~Financial ~~the Company’s~~Data ~~management~~(In ~~to repurchase up to 500~~thousands,~~0000~~ ~~shares~~except ofpercentage ~~Common~~and ~~Stock.~~per Noshare ~~expiration date was specified for the repurchase program;~~data) ~~however, it is estimated to be completed within twelve months of the authorization. No shares were purchased by the Company other than through publicly announced plans or programs.~~

Management anticipates that future dividend increases will be implemented in keeping with anticipated future earnings growth.


	Fiscal Year Ended
	June 30,			June 30,			June 30,			June 30,			June 30,
	2009			2008			2007			2006			2005
				(1)			(2)						(3)
Selected Operating Results
Net sales	$	149,692		$	137,590		$	103,350		$	118,054		$	118,806
Gross profit		32,220			34,913			32,291			35,469			35,446
Gross profit as a percentage of net sales		21.5	%		25.4	%		31.2	%		30.0	%		29.8	%
Selling, general and administrative		30,340			28,117			21,151			19,895			20,503
Income from operations		804			5,927			10,341			14,980			14,362
Income (loss) before minority interest		(367	)		3,404			7,418			7,418			10,530
Minority interest		721			1,292			1,507			3,430			3,775
Net income (loss)		(1,088	)		2,112			5,911			7,100			6,427

Income from operations per share		0.14			1.09			1.99			2.88			2.82
Income (loss) before minority interest		(0.06	)		0.62			1.43			1.43			2.07
Basic earnings (loss) per common share		(0.19	)		0.39			1.14			1.37			1.26
Diluted earnings (loss) per common share		(0.19	)		0.39			1.14			1.36			1.26

Cash dividends declared per common share		—			0.36			0.48			0.48			0.40

Basic common shares outstanding		5,705			5,450			5,204			5,201			5,095
Diluted common shares outstanding		5,705			5,451			5,206			5,211			5,115

Summary Balance Sheet
Current assets	$	51,827		$	52,724		$	41,216		$	45,291		$	50,595
Total assets		80,868			81,960			64,751			65,061			70,815
Current liabilities		10,203			12,429			8,687			15,020			39,714
Long-term debt		29,886			27,759			18,938			16,204			1,551
Total liabilities		41,211			41,305			28,732			32,362			42,351
Stockholders’ equity		36,125			37,093			32,524			29,037			24,373
Book value per common share		6.33			6.81			6.25			5.58			4.78

ITEM 6. SELECTED FINANCIAL DATA.

(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. effective March 1, 2005.

~~The selected financial data in the tables below are for the five fiscal years~~19 ended June 30. The data should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the consolidated financial statements included herein.

			For the years ended
	(In thousands, except per share data)
	June 30,		June 30,		June 30,		June 30,		June 30,
	2004		2003		2002		2001		2000
Selected Operating Results:
Net sales	$	121,238	$	109,033	$	106,050	$	93,477	$	85,499
Gross profit		35,910		35,394		31,923		30,357		26,317
Minority Interest		3,719		4,235		2,516		1,954		1,148
Net income		7,646		6,846		6,160		4,687		4,280
Basic earnings per common share		1.43		1.24		1.04		0.79		0.63
Diluted earnings per common share		1.42		1.23		1.03		0.79		0.63
Cash dividends declared per common share		0.40		0.28		0.28		0.25		0.10
Basic common shares outstanding		5,336		5,512		5,937		5,933		6,781
Diluted common shares outstanding		5,383		5,568		6,001		5,942		6,781
Summary Balance Sheet:
Current assets	$	41,291	$	35,804	$	35,395	$	42,214	$	35,483
Current liabilities		31,605		22,329		22,685		31,981		24,221
Long-term debt		2,949		4,517		5,746		8,076		8,558
Total assets		55,091		51,443		53,298		59,129		50,101
Stockholders’ equity		18,339		20,538		22,624		17,782		16,959
Book value per common share		3.57		3.79		3.81		3.02		2.74

12Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

~~Table~~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 ~~Contents~~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 Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company’s estimates are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for the Company’s conclusions. The Company continually evaluates the information used to make these estimates as its business and the economic environment changes. The Company’s management believes that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on its financial statements, so the Company considers these to be its critical accounting policies. Revenue Recognition Revenue is recognized as product is shipped and related services are performed in accordance with all applicable revenue recognition criteria. For these transactions the Company applies the provisions of SEC Staff Accounting Bulletin No. 104 “Revenue Recognition.” The Company recognizes revenue when there is persuasive evidence of an arrangement, title and risk of loss have passed, delivery has occurred or the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Title generally transfers upon shipment of goods from the Company’s warehouse. The Company does not have an obligation or policy of replacing customer products damaged or lost in transit. In some instances, the Company ships product directly from its suppliers to the customers. In these cases, the Company recognizes revenue when the product is accepted by the customer’s representative. For certain products, the Company offers preseason early-order programs that carry extended terms whereby customers may order and take delivery of products prior to the selling season. Products sold under preseason programs have no right of return. The Company applies the provisions of Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” The Company’s application of EITF 99-19 includes evaluation of its terms with each major customer relative to a number of criteria that management considers in making its determination with respect to gross versus net reporting of revenue for transactions with its customers. Management’s criteria for making these judgments place particular emphasis on determining the primary obligor in a transaction and which party bears general inventory risk. The Company records all shipping and handling fees billed to customers as revenue, and related costs as cost of sales, when incurred, in accordance with EITF 00-10, “Accounting for Shipping and Handling Fees and Costs.” As part of its revenue recognition policy, the Company records an accrual of estimated incentives payable to its customers as a reduction of revenue at the time the related revenues are recorded. The Company bases its estimates on contractual terms of the programs and estimated or actual sales to individual customers. Actual incentives payable in any future period are inherently uncertain and, thus, may differ from its estimates. If actual or expected incentives were significantly greater than the reserves the Company had established, the Company would record a reduction to net revenues in the period in which the Company made such determination.

~~ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.~~20

CautionaryTable Statement of Contents

~~With~~In ~~the~~addition ~~exception~~to ofvarious ~~historical~~incentive ~~information~~programs, from time to time, the ~~matters~~Company ~~discussed~~is inrequired ~~this Item 7~~to ~~and~~provide ~~elsewhere~~mark-down infunds ~~this~~to ~~Annual~~certain ~~Report~~of onits ~~Form~~mass ~~10-K~~retail ~~contain~~customers ~~forward~~to assist them in clearing slow-~~looking statements~~moving inventory. ~~There~~These mark-down funds are ~~certain~~accrued ~~important~~as ~~factors~~a ~~which~~reduction ~~could~~of ~~cause~~revenue ~~results~~at the time that the related revenues are recorded. The Company is also required to ~~differ~~ ~~materially~~provide ~~from~~for ~~those~~the ~~anticipated~~cost byof ~~these~~labor ~~forward-looking~~associated ~~statements~~with resetting store displays. ~~Some~~ ofResets ~~the~~involve ~~important~~removing ~~factors~~slow-moving ~~which~~inventory ~~would~~and ~~cause~~replacing ~~actual~~it ~~results~~with new products. Although reset costs are paid to ~~differ materially~~third ~~from~~parties ~~those~~who inperform the ~~forward-looking~~services, ~~statements~~they ~~include,~~are ~~among~~considered ~~other things~~an incentive to our mass merchandise customers. For existing products that are replaced, the ~~success~~Company ofaccrues an estimate for the ~~Design~~cost ~~Trends~~as ~~portable~~in ~~lamp~~increase ~~program,~~to ~~changes~~cost of goods sold in ~~anticipated~~ ~~levels~~advance of ~~sales~~the reset at the time that the related revenues are recorded. The Company bases its estimates on a number of factors, ~~whether~~including ~~due~~information toobtained from our customers about their future ~~national~~plans. The cost for any new products or ~~regional economic~~space that is gained is expensed as incurred as an increase to cost of goods sold. Allowance for Doubtful Accounts The Company regularly analyzes significant customer balances, and, ~~competitive~~when ~~conditions~~it becomes evident a specific customer will be unable to meet its financial obligations to the Company, ~~changes~~such as in ~~relationships~~the ~~with~~case ~~customers, TSI~~of bankruptcy filings or deterioration in the customer’s ~~dependence~~operating results or financial position, a specific allowance for doubtful account is recorded to reduce the related receivable to the amount that is believed reasonably collectible. The Company also records allowances for doubtful accounts for all other customers based on ~~select~~a ~~mass~~variety ~~merchandisers~~of factors including the length of time the receivables are past due, the financial health of the customer ~~acceptance~~and historical experiences. If circumstances related to specific customers change, estimates of ~~existing~~ the recoverability of receivables could be further adjusted. Inventories The Company’s inventories are primarily composed of finished goods and ~~new~~are ~~products~~recorded at the lower of cost or market using the average cost method. For inventory shipped out of the Woodard facility in Owosso, ~~pricing~~Michigan, ~~pressures~~inventories ~~due~~are tostated ~~excess~~at ~~capacity~~the lower of cost, determined principally by the use of the standard cost ~~increases~~method which approximates first-in, ~~exchange~~ ~~rate~~first-out ~~fluctuations~~(“FIFO”), or market. The Company provides estimated inventory allowances for excess, slow-moving and obsolete inventory as well as inventory whose carrying value is in ~~the~~excess Uof net realizable value.S These reserves are based on current assessments about future demands, market conditions and related management initiatives. If market conditions and ~~Taiwanese~~actual ~~dollar~~demands are less favorable than those projected by management, ~~changes~~additional ininventory ~~tax~~write-downs may be required. Goodwill The Company assesses the carrying values of goodwill annually as of June 30 or ~~interest~~ ~~rates~~when circumstances dictate that the carrying value might be impaired. Impairment testing for goodwill is analyzed at the reporting unit level, ~~unfavorable~~which ~~economic~~for Craftmade has been defined as Mass and ~~political~~Specialty. ~~developments~~An inimpairment ~~Asia,~~loss generally would be recognized when the ~~location~~ carrying amount of the ~~Company~~reporting unit’s ~~primary~~net ~~vendors~~assets exceeds the estimated fair value of the reporting unit. In the event that an impairment is determined to have occurred, ~~declining~~the ~~conditions~~Company will reduce the carrying value of the asset in that period. The estimated fair value of reporting unit as of June 30, 2009 was determined using a combination of the ~~home construction~~income ~~industry~~approach (discounted cash flow or “DCF” analysis) and the market approach (application of relevant revenue or income multiples, ~~inability~~based on comparable companies). The discounted cash flow method calculates the present value of future cash flows of each reporting unit. In order to ~~realize~~determine ~~deferred~~the ~~tax~~present ~~assets~~value of these future cash flows for each reporting unit, ~~and~~it was necessary to forecast future revenues, cost of revenues, other ~~uncertainties~~ operating expenses and capital expenditures. Management based these forecasts on current information and expectations about our operations, ~~all~~activities and strategies, as well as the impact of ~~which~~the economic environment and actions or our suppliers, customers and competitors. It should be noted that any such forecasts are ~~difficult~~subjective and inherently uncertain. Each DCF was prepared on an invested capital basis. Invested capital refers to ~~predict~~the ~~and~~aggregate ~~many~~of all classes of ~~which~~debt ~~are beyond~~and equity invested in the ~~control~~business. In preparing a DCF analysis on an invested capital basis, forecasted debt-free cash flow is discounted to present value at the reporting unit’s respective weighted average cost of capital (“WACC”). Interest expense is excluded from the ~~Company~~forecast as debt-free cash flow represents an economic benefit that is available to all capital holders of an enterprise. The result of this analysis is to develop a measure of invested capital value.

~~Critical Accounting Policies and Estimates~~21

TheTable Company’s management’s discussion and analysis of its financial condition and results of operations following are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company’s estimates are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for the Company’s conclusions. The Company continually evaluates the information used to make these estimates as its business and the economic environment changes. The Company’s management believes that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on its financial statements, so the Company considers these to be its critical accounting policies. Contents

The market approach involves gathering information about comparable publicly traded guideline companies. Guideline companies provide a reasonable basis for comparison to the relative investment characteristics of the entity being valued. For our analysis, we were able to select representative publicly traded companies that operate in similar industries as Craftmade. We analyzed the latest financials and operating statistics of each of these publicly traded companies. We calculated the high, low, mean, and median for the invested capital to revenue and the invested capital to EBITDA multiples. From this analysis, we selected the appropriate multiple and applied it to Craftmade’s reporting unit’s associated figure. We then weighted the resulting values based on our assessment of the credibility and appropriateness of the given multiple, resulting in a market based measure of invested capital. We believe that both of these approaches have strengths and drawbacks. The DCF analysis captures Management’s best estimates of earnings potential for the Company’s reporting units from a detail level although numerous educated estimates are required throughout the process, which come with an inherent level of uncertainty. The market approach incorporates results of operations for several comparable companies in determining the Revenue ~~Recognition~~ and EBITDA multiples applicable, but it can be difficult to find appropriate comparable companies and this approach ignores specific information about future strategies and actions that can be explicitly factored into the DCF approach. Our final valuation took into consideration both approaches, although we placed more weight on the DCF analysis versus the publicly traded guideline approach. We also applied a working capital adjustment to the concluded present value of invested capital for each reporting unit to normalize the surpluses or deficits in working capital at the reporting unit level. In order to assess whether or not goodwill was impaired at the reporting unit level, the values developed in this process were compared with the book value of total equity of each reporting unit. If the reporting unit’s fair value of total equity is greater than the book value of total equity, then goodwill is not impaired and no further undertakings are required. Income Taxes The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, all expected future events other than enactments of changes in the tax law or rates are considered. Deferred income taxes have been provided on unremitted earnings from foreign investees. The Company reviews its deferred tax assets for ultimate realization and will record a valuation allowance to reduce the deferred tax asset if it is more likely than not that some portion, or all, of these deferred tax assets will not be realized. Tax authorities may not always agree with the tax positions taken by the Company. The Company believes it has adequate reserves in the event that a taxing authority differs with positions taken; however, there can be no assurance that the Company’s results will not be affected adversely. See “Note 2 – Summary of Significant Accounting Policies” in the notes to the consolidated financial statements for additional information. Variable Interest Entities Variable interest entities (“VIEs”) are primarily entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. The Company has a 50% ownership interest in Design Trends, a limited liability company. In connection with the adoption of FIN 46R, the Company concluded that Design Trends is a VIE and that the Company is the primary beneficiary. Pursuant to the provisions of FIN 46R, the Company consolidates Design Trends. Prior to the acquisition of Marketing Impressions, which became effective on July 1, 2006, the Company had a 50% ownership interest in PHI. The Company also concluded that PHI was a VIE and that the Company was the primary beneficiary. Pursuant to the provisions of FIN 46R, the Company consolidated PHI. Accordingly, the results of operations of PHI have historically 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 includes the full amount of PHI results from this date.

~~Revenue~~22 is recognized as product is shipped and related services are performed in accordance with all applicable revenue recognition criteria. For these transactions the Company applies the provisions of SEC Staff Accounting Bulletin No. 104 “Revenue Recognition.” The Company recognizes revenue when there is persuasive evidence of an arrangement, title and risk of loss have passed, delivery has occurred or the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Title generally transfers upon shipment of goods from our warehouse. The Company does not have an obligation or policy of replacing, at no cost, customer products damaged or lost in transit. In some instances, the Company ships product directly from our suppliers to the customers. In these cases, the Company recognizes revenue when the product is accepted by the customer’s representative. The Company applies the provisions of Emerging Issues Task Force (EITF) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” The Company’s application of EITF 99-19 includes evaluation of the terms of each major customer contract relative to a number of criteria that management considers in making its determination with respect to gross vs. net reporting of revenue for transactions with its customers. Management’s criteria for making these judgments place particular emphasis on determining the primary obligor in a transaction and which party bears general inventory risk. The Company records all shipping and handling fees billed to customers as revenue, and related costs as cost of sales, when incurred, in accordance with EITF 00-10, “Accounting for Shipping and Handling Fees and Costs.”

AsTable part of its revenue recognition policy, the Company records estimated incentives payable to its customers at a future date as a reduction of revenue at the time the revenues are recorded. The Company bases its estimates on contractual terms of the programs and estimated or actual sales to individual customers. Actual incentives in any future period are inherently uncertain and, thus, may differ from its estimates. If actual or expected incentives were significantly greater than the reserves the Company had established, the Company would record a reduction to net revenues in the period in which the Company made such determination. Contents

InOverview ~~addition~~Management toreviews ~~various~~a ~~incentive~~number ~~programs,~~of ~~from~~key ~~time~~indicators to ~~time~~evaluate the Company’s ~~is required~~financial toperformance, ~~provide~~including ~~mark-down~~net ~~funds~~sales, togross ~~certain~~profit ofand itselling, ~~mass~~general ~~retail~~and ~~customers~~administrative ~~to assist~~expenses ~~them~~by ~~in clearing slow-moving inventory~~segment. ~~These~~A ~~mark-down~~condensed ~~funds were recorded~~overview ~~as a reduction~~ of ~~revenue~~results infor the ~~period~~fiscal inyear ~~which~~ended ~~they~~June ~~were granted.~~30, ~~In March 2004~~2009, and the ~~Company~~corresponding ~~began~~prior toyear ~~estimate~~period ~~and~~is ~~record reductions~~summarized toin ~~revenue~~the ~~for~~table ~~these mark-down funds~~ that itfollows ~~records~~(in ~~when the~~thousands, ~~revenue~~except ispercentage ~~recorded~~data). ~~because~~Fiscal ~~based~~year onended ~~its~~June ~~past~~30, ~~practice~~2009 ~~these mark-down~~compared ~~funds~~to ~~were~~fiscal ~~estimable~~year ~~and~~ended ~~considered~~June ~~likely~~30, ~~to be granted.~~ 2008

13Income Statement by Segment (Dollars in thousands)


	Fiscal Year Ended									Fiscal Year Ended
	June 30, 2009									June 30, 2008
	Specialty			Mass			Total			Specialty			Mass			Total
Net sales	$	68,951		$	80,741		$	149,692		$	74,878		$	62,712		$	137,590
Cost of goods sold		(47,688	)	$	(69,784	)		(117,472	)		(51,203	)		(51,474	)		(102,677	)

Gross profit		21,263		$	10,957			32,220			23,675			11,238			34,913
Gross profit as a % of net sales		30.8	%		13.6	%		21.5	%		31.6	%		17.9	%		25.4	%

Selling, general and administrative expenses		(19,316	)		(11,024	)		(30,340	)		(19,539	)		(8,578	)		(28,117	)
As a % of net sales		28.0	%		13.7	%		20.3	%		26.1	%		13.7	%		20.4	%

Depreciation and amortization		(815	)		(261	)		(1,076	)		(600	)		(269	)		(869	)

Total operating expenses		(20,131	)		(11,285	)		(31,416	)		(20,139	)		(8,847	)		(28,986	)


Income (loss) from operations		1,132			(328	)		804			3,536			2,391			5,927

Interest expense, net								(1,438	)								(1,489	)
Other income (expenses)								(142	)								140


Income (loss) before income taxes and minority interests								(776	)								4,578
Provision for income tax (expense) / benefit								409									(1,174	)


Income (loss) before minority interests								(367	)								3,404
Minority interests								(721	)								(1,292	)

Net income (loss)							$	(1,088	)							$	2,112

~~Allowance~~Net Sales. Net sales for ~~Doubtful~~the ~~Accounts~~ Company increased $12,102,000 or 8.8% to $149,692,000 for the fiscal year ended June 30, 2009, compared to $137,590,000 for the fiscal year ended June 30, 2008, primarily from the inclusion of two additional quarters of outdoor furniture sales stemming from the Woodard Asset Acquisition. Due to the timing of the acquisition, fiscal 2008 only included two quarters of Woodard furniture sales, while fiscal 2009 included four quarters. This increase is partially offset by declines in sales of ceiling fans, lighting and accessories. Management believes that the decline in the housing market and the overall economic downturn will continue to create a difficult sales environment, particularly in the Specialty segment, which more closely correlates to new home starts. The Company continues to pursue its strategic growth plans, while also focusing on developing and implementing more immediate plans to mitigate the impact of the current economic downturn. Net sales from the Specialty segment decreased $5,927,000 or 7.9% to $68,951,000 for the fiscal year ended June 30, 2009, compared to $74,878,000 for the fiscal year ended June 30, 2008, as summarized in the following table. The inclusion of two additional quarters of outdoor furniture sales was more than offset by a decrease in fans, lighting and accessories.

~~The Company regularly analyzes~~23 significant customer balances, and, when it becomes evident a specific customer will be unable to meet its financial obligations to the Company, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position, a specific allowance for doubtful account is recorded to reduce the related receivable to the amount that is believed reasonably collectible. The Company also records allowances for doubtful accounts for all other customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer and historical experiences. If circumstances related to specific customers change, estimates of the recoverability of receivables could be further adjusted.

Inventories Table of Contents

~~The~~Net ~~Company’s~~Sales ~~inventories are primarily comprised~~ of ~~finished~~Specialty ~~goods and are~~Segment ~~recorded~~(Dollars at the lower of cost or market using the average cost method. The Company provides estimated inventory allowances for excess, slow-moving and obsolete inventory as well as inventory whose carrying value is in ~~excess of~~thousands) net realizable value. These reserves are based on current assessments about future demands, market conditions and related management initiatives. If market conditions and actual demands are less favorable than those projected by management, additional inventory write-downs may be required.

Goodwill


	Fans			Woodard
	Lighting &			Outdoor			Segment
Fiscal Year Ended	Accessories			Furniture			Total
June 30, 2009	$	38,156		$	30,795		$	68,951
June 30, 2008	$	50,768		$	24,110		$	74,878

Dollar increase (decrease)	$	(12,612	)	$	6,685		$	(5,927	)

Percent increase (decrease)		(24.8	%)		27.7	%		(7.9	%)

The ~~Company~~sales ~~assesses~~of all Specialty products continue to be affected by the ~~carrying~~extremely ~~values~~weak overall economy, reduced consumer spending and a historically low housing market. Specialty retailers tend to be small independent businesses, and have suffered disproportionately as cash strapped consumers cut spending and alter their buying habits. Many of ~~goodwill~~these ~~annually~~Specialty retailers are economically distressed and a small but growing number have either shut their doors or ~~when~~ ~~circumstances~~sought ~~dictate~~protection ~~that~~under federal bankruptcy laws since the ~~carrying~~beginning ~~value~~of ~~might~~the bebroad ~~impaired~~economic downturn. ~~The method~~Management continues to focus on introducing new products, expanding accounts and developing cross-selling opportunities for ~~determining~~its ifvarious ~~impairment~~product ~~has~~lines ~~occurred~~to ~~requires~~offset ~~estimates~~the ofweak ~~future cash~~housing ~~flows~~market. Management believes that long-term growth will be favorably affected by additional product offerings through enhanced product development efforts, as well as selling outdoor furniture products to lighting showrooms and selling outdoor lighting and ceiling fans to patio dealers, and focusing efforts on the ~~Company’s~~hospitality ~~weighted~~markets. ~~average~~Net ~~cost~~sales of ~~capital~~the Mass segment increased $18,029,000 or 28.7% Into $80,741,000 for the ~~event that~~fiscal anyear ~~impairment~~ended isJune ~~determined~~30, to2009, ~~have~~compared ~~occurred~~to $62,712,000 for the ~~Company~~fiscal ~~will~~year ~~reduce~~ended June 30, 2008, primarily from the ~~carrying~~ ~~value~~inclusion of two additional quarters of outdoor furniture sales related to the ~~asset~~Woodard Asset Acquisition. Net sales from the Mass segment are summarized in ~~that~~the ~~period.~~ following table:

~~Income~~Net Sales of Mass Segment ~~Taxes~~(Dollars in thousands)

The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, all expected future events other than enactments of changes in the tax law or rates are considered. Deferred income taxes have been provided on unremitted earnings from foreign investees. The Company reviews its deferred tax assets for ultimate realization and will record a valuation allowance to reduce the deferred tax asset if it is more likely than not that some portion, or all, of these deferred tax assets will not be realized.


				Woodard
	Lighting &			Outdoor			Segment
Fiscal Year Ended	Accessories			Furniture			Total
June 30, 2009	$	25,135		$	55,606		$	80,741
June 30, 2008		31,461			31,251			62,712

Dollar increase (decrease)	$	(6,326	)	$	24,355		$	18,029

Percent increase (decrease)		(20.1	%)		77.9	%		28.7	%

~~TSI’s~~Sales ~~50%~~of ~~owned~~lighting ~~LLCs~~products ~~operate~~and infan and lamp accessories to the ~~form~~Mass ofsegment ~~partnerships for~~are ~~tax~~primarily ~~purposes~~from the Company’s TSI and, ~~consequently~~Design Trends subsidiaries, doboth ~~not~~of ~~file~~which ~~federal~~experienced ~~income~~declines ~~tax~~in ~~returns. Accordingly~~the fiscal year ended June 30, 2009. The decrease in net sales of lighting and accessories was primarily the ~~Company~~result ~~recognizes~~of: it(i) a decline in orders from Lowe’s ~~share~~related to indoor lighting; (ii) lower sales of ~~their~~non-core ~~income~~drop shipped products; and (iii) lower sales of fan accessories. The decline in lighting net sales was primarily due to reduced retail sales of the ~~related~~ ~~tax~~mix ~~effects~~and onmatch itportable lamp program through Lowe’s. ~~provision~~Currently, ~~for~~Design ~~income~~Trends ~~taxes~~supplies mix and match portable lamps to all 13 Lowe’s regional distribution centers.

~~FIN 46~~24

InTable January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) and amended it by issuing FIN 46R in December 2003. Among other things, FIN 46R generally deferred the effective date of FIN 46 to the quarter ended March 31, 2004. Variable interest entities (VIEs) are primarily entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. Contents

~~The~~Woodard ~~Company~~sales ~~has~~were aprimarily ~~50%~~composed ~~ownership~~of ~~interest~~direct inimport ~~two~~sales ~~limited~~to ~~liability~~its ~~companies,~~various ~~Design~~mass ~~Trends~~merchant ~~and~~customers. ~~PHI~~Most of its products are shipped directly from China. ~~In connection~~Due ~~with~~to the ~~adoption~~seasonal nature of ~~FIN~~outdoor ~~46R~~furniture sales, most sales to mass merchants occur from January to April each year. Management believes that sales to Lowe’s will increase in the ~~Company~~coming ~~concluded~~fiscal year. Based on various line reviews, management believes that it will continue to be a primary vendor for Lowe’s mix and match portable lamps through Design Trends, and for Lowe’s lamp accessory/ceiling medallion programs through PHI, ~~are~~although ~~VIEs~~based ~~and~~on ~~that~~feedback from Lowe’s the Company isexpects to see a reduction in the ~~primary~~number ~~beneficiary~~of fan accessory SKUs it provides. Based on the number of outdoor furniture SKUs the Company has placed with Lowe’s for the upcoming year, the Company expects to see growth in this segment. The Company believes that it will continue to be invited to participate in each of ~~Design~~Lowe’s ~~Trends~~scheduled line reviews for its existing and ~~PHI~~new product lines. ~~Pursuant~~ The line reviews occur on approximately an annual basis for each product category throughout the year and give us the potential to add new SKUs to the ~~provisions~~Lowe’s program. However, participation in line reviews could also result in a partial or complete reduction of ~~FIN~~either ~~46R,~~subsidiary’s ~~effective~~existing ~~January 1,~~SKUs ~~2004,~~in the product lines currently offered to Lowe’s. Management believes that the future growth of the Mass segment is contingent upon the success of the Company ~~began~~’s ongoing efforts to ~~consolidate~~introduce ~~Design~~new ~~Trends~~products, styles and ~~PHI~~marketing concepts to existing customers and ~~restated~~the ~~its~~expansion ~~previously~~of ~~issued financial~~the ~~statements~~business to ~~reflect~~new ~~Design~~customers. ~~Trends~~Gross Profit. Gross profit of the Company as a percentage of net sales decreased 3.9% to 21.5% for the fiscal year ended June 30, 2009, compared to 25.4% for the fiscal year ended June 30, 2008 primarily due to the inclusion of two additional quarters of sales of Woodard products that carry a lower gross profit, as well as decreased margins in the traditional fan and ~~PHI~~lighting business in the Specialty segment. Gross profit as ~~consolidated~~a ~~entities~~percentage of net sales of the Specialty segment decreased 0. 7% to 30.9% for the fiscal year ended June 30, 2009, compared to 31.6% for the fiscal year ended June 30, 2008. The decrease is summarized in the following table:

~~Results~~Gross Profit as a Percentage of ~~Operations~~Net Sales of Specialty Segment

Fiscal year ended June 30, 2004 compared to fiscal year ended June 30, 2003.


	Fans			Woodard
	Lighting &			Outdoor			Segment
Fiscal Year Ended	Accessories			Furniture			Total
June 30, 2009		33.8	%		27.2	%		30.8	%
June 30, 2008		35.2	%		24.2	%		31.6	%

Percent decrease		(1.4	%)		3.0	%		(0.8	%)

~~Net Sales~~The —decrease ~~Net~~is ~~sales~~due ~~for~~to the ~~Company~~inclusion ~~increased~~of ~~$12,205,000,~~an oradditional ~~11.2%,~~two ~~to $121,238,000~~quarters ~~for~~of the ~~year~~lower ~~ended~~margin ~~June 30,~~outdoor ~~2004~~furniture ~~from~~lines ~~$109,033,000~~that ~~for~~carry ~~the~~lower ~~year ended~~gross ~~June 30~~profit than lighting and furniture, ~~2003.~~as ~~Net~~well ~~sales~~as ofa decrease in margins realized on the ~~Craftmade~~traditional ~~segment increased~~fan ~~$4,372,000, or~~and 8lighting business.~~9%,~~ toFan ~~$53,526,000~~and ~~for~~lighting margins in the ~~year~~Specialty ~~ended~~segment ~~June 30,~~were ~~2004,~~down from ~~$49,154,000~~ ~~for~~ the results generated in the fiscal year ended June 30, ~~2003.~~2008, ~~The~~as ~~increase~~the ineconomic ~~sales~~downturn ofmade ~~the~~it ~~Craftmade~~difficult ~~segment was~~for ~~due~~the Company to anpass ~~increased~~all ~~focus~~cost onincreases ~~sales~~to ~~and~~its ~~marketing~~customers. ~~and~~Gross ~~new~~profit ~~product introductions,~~ as ~~well~~a aspercent ~~the~~of ~~overall~~net ~~strength~~sales ofon the ~~housing~~outdoor ~~sector~~furniture ofbusiness ~~the U.S.~~increased ~~economy.~~year ~~Management~~over ~~anticipates~~year, ~~that~~as ~~Craftmade’s~~higher ~~sales~~pricing ~~will~~was ~~continue~~locked ~~to trend~~in ~~upwardly,~~prior into the ~~range~~onset of 5%the tobroader ~~10%~~economic ~~annually,~~slump ~~assuming~~late ~~continued strength~~ in ~~the housing sector and the overall U~~2008.~~S. economy.~~

1425

~~Net~~Gross profit as a percentage of net sales of the ~~TSI~~Mass segment ~~increased~~decreased ~~$7,833,000,~~4.4% orto 13.15% toof ~~$67,712,000~~net ~~for the~~sales ~~year ended June 30, 2004 from $59,879,000~~ for the fiscal year ended June 30, ~~2003.~~ ~~The~~2009, ~~increase~~compared ~~was primarily attributable~~ to ~~the~~17.9% ~~strong performance~~ of ~~Design~~ ~~Trends’~~net ~~portable~~sales ~~lamp business, which generated $7,343,000~~ in ~~incremental~~ ~~revenue during~~ the ~~period.~~same ~~Management~~prior ~~does~~year ~~not~~period, ~~anticipate~~as ~~future growth~~summarized ~~of the TSI division to continue at the robust rate generated~~ in ~~Fiscal 2004 from existing products sold to existing customers. Future growth of~~ the ~~TSI~~following ~~division is contingent upon the success of the Company’s ongoing efforts to introduce new products to existing customers and to expand the business to new customers.~~ table:

Gross Profit ~~— Gross profit of the Company~~ as a ~~percentage~~Percentage of ~~sales~~Net ~~declined~~Sales ~~to 29.6%~~ of ~~sales~~Mass ~~compared to 32.5% of sales for the years ended June 30, 2004 and~~Segment 2003, respectively. Gross profit of the Craftmade segment declined to 39.3% of net sales for the year ended June 30, 2004 compared to 40.2% for the year ended June 30, 2003. The decline in the gross margin of Craftmade was primarily due to price increases from the Company’s ceiling fan manufacturer that were not passed through to customers. The gross margin of the TSI segment declined to 22.0% of sales for the year ended June 30, 2004 compared to 26.1% of sales for the year ended June 30, 2003. The decline in the gross profit percentage of TSI was primarily due to a shift in the sales mix with a greater portion of revenue made of direct shipment sales which carry lower gross margins and lower SG&A expenses. In addition, the TSI division experienced an increase in mark-down money and price concessions provided to mass retail customers. Management anticipates that based on current market conditions, future gross profit margins for the Company will not differ significantly from gross margins generated in Fiscal 2004.

Selling, General and Administrative Expenses — Total selling, general and administrative (“SG&A”) expenses of the Company decreased $20,000 to $18,580,000 or 15.3% of net sales for the year ended June 30, 2004 from $18,600,000 or 17.1% of net sales for the year ended June 30, 2003. Total SG&A expense of the Craftmade segment declined $12,000 to $11,359,000 or 21.2% of sales compared to $11,371,000 or 23.1% of sales for the year ended June 30, 2003. The decline in SG&A expense as a percent of sales is primarily attributable to the effect of increased sales leveraging down fixed SG&A expenses. Total SG&A expenses of the TSI segment decreased $8,000 to $7,221,000 or 10.7% of sales for the year ended June 30, 2004 from $7,229,000 or 12.1% of sales for the year ended June 30, 2003. The decrease in SG&A expense as a percentage of sales was partially related to cost savings derived from the closing of the California office, which occurred in the second quarter of fiscal 2004, as well as a change in the sales mix. Management anticipates that based on current market conditions, future SG&A expenses as a percentage of sales will not be significantly different from results generated in Fiscal 2004.


				Woodard
	Lighting &			Outdoor			Segment
Fiscal Year Ended	Accessories			Furniture			Total
June 30, 2009		22.8	%		9.4	%		13.6	%
June 30, 2008		26.2	%		9.6	%		17.9	%

Percent decrease		(3.4	%)		(0.2	%)		(4.3	%)

~~Interest Expense~~Gross —profit ~~Net~~as ~~interest~~a ~~expense~~percentage of net sales for lighting products and ceiling fan accessories in the ~~Company~~Mass segment decreased ~~$119~~as a result of changes in vendor programs. Outdoor furniture gross profit as a percent of net sales in the Mass segment is traditionally low as all sales are direct import,~~000~~ and remained relatively flat to ~~$777~~ those achieved in fiscal 2008. For fiscal year 2010,~~000~~ ~~for~~gross profit as a percentage of net sales of lighting products and ceiling fan accessories in the Mass segment is expected to increase over the fiscal year ended June 30, ~~2004~~2009, as the Company has been working to gain cost concessions from its key vendors and transition to lower cost vendors where possible. Management believes that the gross profit as a percentage of net sales for Woodard will show slight improvements over fiscal year 2009 as a result of selective price increases used to offset material costs. Selling, General and Administrative Expenses. Total selling, general and administrative (“SG&A”) expenses of the Company increased $~~896~~2,223,000 to $30,340,000 or 20.3% of net sales for the fiscal year ended June 30, ~~2003~~2009, compared to $28,117,000 or 20.4% of net sales for the same period last year. This ~~decrease~~increase was primarily ~~the~~due ~~result~~to inclusion of atwo ~~decline~~additional inquarters of expenses related to the ~~average outstanding~~Woodard ~~balance~~outdoor onfurniture business. The expenses for the ~~Company’s~~historical ~~lines~~Craftmade ofbusiness ~~credit~~decreased by $1,350,000 during fiscal 2009, and ~~its~~Woodard ~~facility~~expenses ~~note payable~~were added at a much lower rate than achieved in fiscal 2008. ~~Management~~Woodard ~~anticipates~~expenses for all four quarters of fiscal 2009 were $10,474,000 compared to $6,901,000 for two quarters that were reported in ~~the~~fiscal ~~future,~~2008. ~~lower~~This ~~outstanding~~indicates, ~~balances~~ on ~~its~~average, ~~lines~~quarterly expenses of ~~credit~~$2,619,000 ~~will~~for ~~offset~~Woodard ~~expected~~for ~~increases~~fiscal in2009 ~~interest~~compared ~~rates~~to average quarterly expenses of $3, ~~resulting~~451,000 infor ~~total~~fiscal ~~interest~~2008, ~~expense~~a ~~that~~decrease of 24%. This reduction is ~~not~~due ~~significantly~~to ~~different~~the ~~from~~ completion of the ~~expense~~integration ~~generated~~of inthe ~~Fiscal~~Woodard ~~2004~~business into Craftmade, as well as broad cost cutting efforts across the board.

~~Minority Interests — As a result of a decline in income generated by the Company’s 50% owned LLCs~~Selling, ~~minority~~General ~~interests~~and ~~decreased~~Administrative ~~$516,000 to~~Expenses ~~$3,719,000~~(Dollars for the year ended June 30, 2004 compared to $4,235,000 for the year ended June 30, 2003. The decline was primarily related to the $2,100,000 sales allowance provided by PHI to a mass retail customer in ~~connection with the roll~~thousands) out of its new lamp parts business in the second quarter of fiscal 2004. The decline was partially offset by increased sales generated in the second half of fiscal 2004 related to the new business, as well as increased sales of Design Trends portable lamp business, as previously discussed.

Provision for Income Taxes — The provision for income taxes increased to $4,540,000 or 28.5% of income for the year ended June 30, 2004, from $4,158,000 or 27.3% for the year ended June 30, 2003.


					Increase/
	Fiscal Year Ended				(Decrease)
	June 30,		June 30,		Over Prior
	2009		2008		Year Period
Historical Craftmade	$	19,866	$	21,216	$	(1,350	)
Woodard Incremental		10,474		6,901		3,573

	$	30,340	$	28,117	$	2,223

~~Fiscal year ended June 30, 2003 compared to fiscal year ended June 30, 2002~~26

NetTable Sales — Net sales increased $2,983,000 to $109,033,000 for the year ended June 30, 2003 from $106,050,000 for the year ended June 30, 2002. Sales of the Craftmade division decreased 1.3% or $642,000, to $49,154,000 from $49,798,000 for the year ended June 30, 2002. The decrease in sales of the Craftmade division was primarily due to lower unit sales and lower prices on certain discontinued models of Contents

15 The historical Craftmade expenses were primarily impacted by lower variable costs, and reductions across the board, offset only slightly by an increase in salaries and property taxes, as summarized below:

~~Table~~Historical ofCraftmade Selling, ~~Contents~~General and Administrative Expenses (Dollars in thousands)

fans that were replaced by new models that were introduced in the January lighting market. Sales of the TSI division increased 6.4%, or $3,627,000, to $59,879,000 for the year ended June 30, 2003 from $56,252,000 for the year ended June 30, 2002. The increase in sales of the TSI division was attributable to an increase in Design Trends’ portable lamp business, which generated $3,404,000 in incremental revenue during the period.


					Increase/
	Fiscal Year Ended				(Decrease)
	June 30,		June 30,		Over Prior
	2009		2008		Year Period
Salaries & Wages	$	7,278	$	7,170	$	108
Commissions		2,259		2,754		(495	)
Accounting, Legal And Consulting		2,331		2,468		(137	)
Advertising		1,654		2,079		(425	)
Health Insurance		864		1,102		(238	)
Property Taxes		472		339		133
Warehouse Expense		389		512		(123	)
Trade Shows		169		289		(120	)
Other		4,450		4,503		(53	)

	$	19,866	$	21,216	$	(1,350	)

~~Gross~~The ~~Profit~~reduction —in ~~Gross~~commissions ~~profit~~is ~~increased~~a tovariable ~~32.5%~~cost ofdriven ~~sales,~~by ~~or $35,394,000, for~~ the ~~year~~decrease ~~ended~~in ~~June 30,~~net ~~2003 compared to 30.1% of~~ sales, ~~or $31,923,000, for~~ while the ~~year~~reduction ~~ended~~in ~~June 30~~accounting, ~~2002.~~legal ~~The~~and ~~gross~~consulting ~~margin~~fees ofis ~~the~~primarily ~~Craftmade~~driven ~~division~~by the ~~increased~~reduction tofrom ~~40.2%~~higher oflegal ~~sales~~and ~~for~~consulting ~~the~~costs ~~year~~in ~~ended~~fiscal ~~June 30,~~2008 ~~2003~~associated ~~from~~with ~~39.3%~~the ~~of sales~~search for a ~~the~~new ~~year~~chief ~~ended~~executive ~~June 30, 2002~~officer. ~~The~~Advertising ~~improvement~~expenses and participation in ~~the~~trade ~~gross~~shows ~~margin~~for of the traditional Craftmade ~~division~~business ~~was~~were ~~due~~significantly ~~primarily~~reduced toin ~~increased~~fiscal ~~sales~~2009, ofas ~~higher~~part ~~margin products. The gross margin~~ of ~~the~~broad cost ~~TSI~~cutting ~~division improved to 26~~efforts.1% ~~for~~Health ~~the~~insurance ~~year ended~~expenses ~~June 30,~~were ~~2003~~also ~~compared~~lower toin ~~21.9% of sales, for~~ the fiscal year ended June 30, ~~2002.~~ ~~The~~2009, ~~improvement~~as incompared to the ~~gross~~prior ~~margin~~year ~~of TSI was primarily~~ due to ~~the successful~~decreased ~~re-merchandising of the Design Trends portable lamp program, at which time slower turning and lower margin items were replaced with more productive inventory~~claims.

~~Selling,~~Given ~~General and Administrative Expenses — Total selling, general and administrative (“SG&A”) expenses of~~ the ~~Company~~completion ~~increased $638,000 to $18,600,000, or 17.1%~~ of ~~net sales, for~~ the ~~year~~Woodard ~~ended~~integration ~~June 30,~~and ~~2003~~broad ~~from $17,962,000,~~cost orcutting ~~16.9%~~efforts ofin ~~net sales, for~~ the ~~year ended June 30, 2002. Total~~second ~~SG&A~~half ~~expenses~~ of ~~the~~fiscal ~~Craftmade division decreased $168~~2009,~~000~~ tomanagement ~~$11,371,000~~expects ~~or 23.1%~~total ~~of net sales, compared to $11,539,000 or 23.2% of net sales in the previous year. The Craftmade division’s~~ SG&A expense asfor ~~a percentage of sales was relatively unchanged from~~ fiscal ~~2002~~2010 to ~~fiscal 2003~~decrease. ~~The decline in SG&A~~ expense in total dollars was primarily related to the decline in sales of the Craftmade division from fiscal 2002 to fiscal 2003. Total SG&A expenses of TSI increased $806,000 to $7,229,000 or 12.1% of sales compared to $6,423,000 or 12.5% of net sales, for the year ended June 30, 2002. The increase in TSI’s SG&A expenses in dollars as well as a percentage of sales was primarily due to an increase in payroll related expenses.

~~Interest~~Depreciation ~~Expense~~and —Amortization. ~~Interest~~Depreciation and amortization expense ~~declined~~of the Company increased $~~376~~207,000 to $~~896~~1,076,000 for the fiscal year ended June 30, ~~2003~~2009, ~~from~~compared to $1869,~~272,~~000 for the same ~~previous~~period last year. ~~This decline~~The ~~was~~increase ~~primarily~~resulted ~~the~~from ~~result~~two ofadditional ~~lower~~quarters ~~average~~of ~~outstanding~~depreciation ~~balances~~ on ~~the~~ ~~company’s~~Woodard ~~lines~~assets ofand ~~credits~~increased ~~and~~depreciation ~~its~~related ~~facility~~to ~~note,~~purchases ~~combined~~of ~~with~~tooling, ~~lower~~equipment ~~interest~~and ~~rates~~computer ~~in effect during the period~~hardware.

~~Minority~~Interest ~~Interests~~Expense. —Net Asinterest aexpense ~~result~~ of ~~an increase in income generated by~~ the Company’s ~~50%~~decreased ~~owned LLCs, minority interests increased~~ $151,~~719,~~000 to $41,~~235~~438,000 for the fiscal year ended June 30, ~~2003~~2009, ~~from~~compared to $21,~~516~~489,000 for the fiscal year ended June 30, ~~2002~~ 2008. ~~The~~Interest ~~increase~~expense ~~was~~decreased ~~due~~as toa anresult ~~increase in sales~~ of ~~Design~~lower ~~Trends’ portable~~average ~~lamp~~interest ~~program~~rates ~~which generated $3,404,000~~ in ~~incremental~~effect ~~revenue during~~as ~~the~~compared ~~year,~~to asthe ~~well~~prior asyear aoffset ~~$1,272,000~~somewhat ~~increase~~by inhigher ~~sales~~average ofoutstanding ~~PHI~~debt ~~for fiscal 2003 compared to the previous year~~balances.

~~Provision~~Other ~~for~~income ~~Income~~and ~~Taxes~~expense. —For ~~The~~the ~~provision~~fiscal ~~for~~year ~~income~~ended ~~taxes~~June 30, ~~increased~~2009, tothe Company realized a one-time expense of $4125,~~158,~~000 orrelated ~~27.3%~~to ofa ~~income~~waiver ~~for~~granted by the ~~year~~Frost ~~ended~~National ~~June 30,~~Bank ~~2003~~regarding the ~~from~~Company’s ~~$3,435,000~~non-compliance with the fixed charge coverage ratio contained in its loan oragreement ~~28.4%~~with such bank as of ~~income~~December 31, 2008. The Company recognized a gain of $140,000 for the fiscal year ended June 30, ~~2002~~2008, for leasing the oil and gas mineral rights at its principal place of business in Coppell, Texas.

~~Liquidity~~Minority ~~and~~interest. ~~Capital~~Minority ~~Resources~~interest expense decreased $571,000 to $721,000 for the fiscal year ended June 30, 2009, compared to $1,292,000 for the fiscal year ended June 30, 2008. The decrease in minority interest resulted from lower profits at Design Trends as a result of the decline in net sales.

~~Fiscal~~Provision for Income Taxes. The provision for income tax was a tax benefit of $409,000 or 27% of net loss before income taxes for fiscal year ended June 30, ~~2004~~2009, compared to $1,174,000 or 36% of income before income taxes for the fiscal year ended June 30, 2008 The effective tax rate is calculated by dividing income tax expense by income after minority interest and before income taxes. The effective tax rates presented are weighted averages of our multiple legal entities with effective income tax rates that differ from the statutory United States federal income tax rate of 34% due to the impact of state income taxes. The resulting consolidated effective rate can be significantly different than the statutory United States federal income tax rate of 34% due to the effect of operating losses in certain legal entities of the Company being offset by gains in other entities. The resulting consolidated effective tax rate is not necessarily representative of the effective tax rate in any of the individual tax entities of the Company. See ”Note 5 — Income Taxes” in the notes to the Company’s consolidated financial statements for additional detail regarding the Company’s policy for determining the provision for income taxes.

~~The Company’s cash increased $846,000 from $4,992,000 at June 30, 2003 to~~27 ~~$5,838,000 at June 30, 2004. The Company’s operating activities provided cash of $11,814,000, which was primarily attributable to income from operations before minority interest.~~

TheTable $195,000 of cash used in investing activities related to additions to property and equipment, which consisted primarily of warehouse racking, as well as purchases of office equipment in connection with the relocation of employees from the California office to the Company’s headquarters in Coppell, Texas. Contents

~~Cash~~Fiscal ~~used~~year inended ~~financing activities of $10,936,000 was primarily the result of (i)~~June ~~repurchases of the Company’s outstanding common stock of $8~~30,~~269,000,~~ ~~(ii) distributions~~2008 compared to ~~minority~~fiscal ~~interest~~year ~~members~~ended ~~of $5,302,000, and (iii)~~June ~~cash dividends of $2~~30,~~123,000,~~ ~~and (iv) principal payments on the Company’s notes payable of $1,982,000. These amounts were~~2007

16Income Statement by Segment (Dollars in thousands)


	Fiscal Year Ended									Fiscal Year Ended
	June 30, 2008									June 30, 2007
	Specialty			Mass			Total			Specialty			Mass			Total
Net sales	$	74,878		$	62,712		$	137,590		$	59,925		$	43,425		$	103,350
Cost 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			32,291
Gross 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			10,341


Interest expense, net								(1,489	)								(1,441	)
Other expenses								140									—


Income before income taxes and minority interests								4,578									8,900
Provision for income taxes								(1,174	)								(1,482	)


Income before minority interests								3,404									7,418
Minority interests								(1,292	)								(1,507	)

Net income							$	2,112								$	5,911

~~partially~~Net ~~offset~~Sales. byNet ~~(i) net~~sales ~~advances~~for on the Company~~’s revolving~~ ~~lines~~increased of$34,240,000 ~~credit~~or of 33.1% to $4137,~~125~~590,000 for the fiscal year ended June 30, ~~and~~2008, ~~(ii)~~compared ~~proceeds~~to $103,350,000 for the fiscal year ended June 30, 2007, primarily from athe ~~note~~acquisition ~~payable~~of the assets of $2Woodard,~~100~~ LLC, partially offset by declines in sales of ceiling fans, lighting and accessories sales.~~000.~~

~~The~~Net ~~Company’s~~sales ~~management~~from ~~believes~~the ~~that~~Specialty ~~its~~segment ~~current~~increased ~~lines of credit~~$14, ~~combined with cash flows from operations~~953,000 ~~are~~or ~~adequate~~25.0% to ~~fund the Company’s current operating needs~~$74, ~~debt service payments~~878,000 ~~and~~for ~~any future dividend payments, as well as fund its projected growth over~~ the ~~next twelve months. Based on~~ ~~current~~fiscal ~~market~~year ~~conditions,~~ended ~~management anticipates that future cash flows will be used primarily to retire existing debt and to repurchase Company common stock. On December~~June 930, ~~2003~~2008, ~~the~~compared ~~Company’s Board of Directors authorized the Company’s management~~ to ~~repurchase up to 500~~$59,925,000 ~~shares~~for of the ~~Company’s~~fiscal ~~outstanding common~~year ~~stock.~~ended ~~As of~~ June 30, ~~2004~~ 2007, ~~the~~primarily ~~Company had~~from ~~repurchased~~the ~~331,510~~acquisition ~~shares~~of ~~at an~~the ~~aggregate~~assets ~~cost~~ of $8Woodard,~~269~~ LLC,~~000~~ ~~under~~as ~~this~~summarized ~~program.~~in ~~The average price paid for~~the ~~shares~~following ~~repurchased during the period was $24~~table.~~96.~~

AtNet ~~June 30,~~Sales ~~2004, subject to continued compliance with certain covenants and restrictions, the Company had a $20,000,000 line~~ of ~~credit~~Specialty ~~with The Frost~~Segment ~~National Bank~~ (~~“Frost”),~~Dollars ofin ~~which $14,577,000 had been~~thousands) utilized. The Frost line of credit is due on demand; however if no demand is made, it is scheduled to mature on October 31, 2005. Management believes that alternative bank financing on acceptable terms would be available should the Company not be able to renew its line of credit. Debt covenants of the Frost line of credit requires the maintenance of a tangible net worth ratio of 2.5 to 1.0.

By entering into the Unconditional Guaranty of the Promissory Note dated as of November 24, 2003 to Prime/Home Impressions, LLC with Wachovia Bank, NA, the Company violated its negative covenant not to guarantee debts contained in the Loan Agreement dated as of November 6, 2001 with Frost. The Company has obtained a waiver of such violation from Frost, for the quarters ended December 31, 2003, March 31, 2004 and for the fiscal year ended June 30, 2004 and for the period ending September 15, 2005. Nevertheless the amount outstanding under this note at June 30, 2004, $14,577,000, has been classified as current due to its terms. Management believes that alternative bank financing on acceptable terms would be available should the Company not be able to renew its loan agreement.


	Fans			Woodard
	Lighting &			Outdoor			Segment
Fiscal Year Ended	Accessories			Furniture			Total
June 30, 2008	$	50,768		$	24,110		$	74,878
June 30, 2007		59,925			—			59,925

Dollar increase (decrease)	$	(9,157	)	$	24,110		$	14,953

Percent increase (decrease)		(15.3	%)		100.0	%		25.0	%

~~The~~28 Company was in violation of its negative covenant not to retire or otherwise acquire any of its capital stock contained in the Unconditional Guaranty of the Promissory Note dated as of November 24, 2003 to PHI with Wachovia Bank, N.A. The Company has obtained a waiver of such violation from Wachovia Bank, N.A. for the quarters ended December 31, 2003; March 31, 2004; and for the fiscal year ended June 30, 2004 and for the period ending September 15, 2005. Nevertheless the amount outstanding under this note at June 30, 2004, $1,575,000, has been classified as current due to its terms. Management believes that alternative bank financing on acceptable terms would be available should the Company not be able to renew its loan agreement.

At JuneTable 30, 2004, Design Trends had a $2,000,000 loan agreement with Frost, of which none had been utilized. Design Trends can borrow under this loan subject to continued compliance with certain covenants. Management believes that alternative bank financing on acceptable terms would be available should the Company not be able to renew its loan agreement. Contents

~~One~~ Net sales of the ~~Company’s~~ ~~50%-owned~~Mass ~~LLCs,~~segment ~~PHI,~~increased ~~has a~~ $219,~~000~~287,000 ~~line of~~or ~~credit (the “$2 Million Line of Credit”) with Wachovia Bank, N~~44.~~A. (“Wachovia”), at an interest rate equal to the Monthly LIBOR index plus 2~~4%~~, which~~ ~~expires October 1, 2004. During fiscal year 2003, PHI reduced the amount available on its line of credit from $3,000,000~~ to ~~its~~ ~~present level. There was an outstanding balance of~~ $162,~~548~~712,000 on for the ~~$2 Million Line of Credit at June 30, 2004. PHI has a $500,000~~fiscal ~~three-~~year ~~note~~ended ~~payable to Wachovia (the “$500,000 Note”) maturing on July 29, 2005, of which $195,000 was outstanding at~~ June 30, ~~2004. The $500~~2008,~~000 Note~~ ~~bears~~compared ~~interest at a rate equal~~ to ~~1-month LIBOR plus 2.5%. In addition, on November 24, 2003, PHI entered into a loan agreement with Wachovia (the “~~$~~2.1 Million Note”) whereby Wachovia agreed to advance up to $2~~43,~~100~~425,000 to ~~PHI,~~for ~~subject to PHI’s continued compliance with certain loan covenants specified by~~ the ~~agreement.~~fiscal ~~The~~year ~~$2.1~~ended ~~Million Note bears interest at a rate equal to the 1-month LIBOR plus 2.5%. At~~ June 30, ~~2004~~2007, ~~there was a~~ ~~$1,575,000~~primarily ~~balance~~from ~~outstanding under~~ the ~~$2.1 million~~acquisition ~~Note, which is scheduled to mature on March 15, 2005. The PHI members agreed to be guarantors~~ of the ~~$2 Million~~net ~~Line~~assets of ~~Credit~~Woodard, ~~the $500~~LLC,~~000~~ ~~Note~~as ~~and~~summarized ~~the $2.1 Million Note for business purposes,~~ in ~~order to induce~~ the following ~~lender to provide these loans to PHI.~~table:

AtNet ~~June 30,~~Sales ~~2004,~~of ~~$3,841,000~~Mass ~~remained outstanding under the note payable for~~Segment ~~the~~(Dollars ~~Company’s~~in ~~378,000 square foot operating facility. The Company’s management~~thousands) ~~believes that this facility will be sufficient for its purposes for the foreseeable future. The facility note payable matures on January 1, 2008.~~

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


				Woodard
	Lighting &			Outdoor			Segment
Fiscal Year Ended	Accessories			Furniture			Total
June 30, 2008	$	31,461		$	31,251		$	62,712
June 30, 2007		43,425			—			43,425

Dollar increase (decrease)	$	(11,964	)	$	31,251		$	19,287

Percent increase (decrease)		(27.6	%)		100.0	%		44.4	%

~~Management does~~Sales ~~not~~of ~~anticipate~~lighting ~~that~~products and ceiling fan accessories to the ~~covenants~~Mass segment are primarily from Craftmade’s Trade Source and ~~restrictions~~Design Trends subsidiaries, both of ~~its~~which ~~lines~~experienced declines in the fiscal year ended June 30, 2008. The decrease in net sales of Trade Source was ~~credit~~primarily the result of: (i) a decline in orders from Lowe’s related to indoor lighting and outdoor ~~loan~~lighting; ~~agreements~~(ii) lower sales of non-core drop shipped products; and (iii) lower sales of fan accessories. In November 2006, Lowe’s notified Trade Source that it will ~~limit~~no longer source the ~~Company'~~14 indoor and outdoor lighting SKUs previously sold by Trade Source to Lowe’s ~~growth~~via ~~potential~~direct import. The final shipments were shipped in during the third quarter of fiscal year 2007. Additional information is detailed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2007.

~~During fiscal~~The ~~year~~decline ~~2004,~~in ~~the~~Design ~~Company~~Trends’ ~~extended~~net ~~its~~sales ~~accounts~~was ~~receivable~~primarily ~~payment~~due ~~terms~~to ~~with~~reduced ~~its largest mass~~ retail ~~customer~~sales ~~(Lowes Companies) to 60 days from a previous range~~ of 30the ~~to 45 days. The Company does not anticipate that~~mix ~~this~~and ~~will~~match ~~have~~portable alamp ~~material~~program ~~impact~~through ~~on the availability of future cash collections to meet the Company~~Lowe’s ~~expected future cash obligations~~.

~~TSI maintained~~Woodard ~~inventory~~sales ~~levels~~were ofprimarily ~~$6,253,000~~composed atof ~~June 30,~~direct ~~2004. TSI’s~~import sales ~~are~~to ~~highly concentrated with Lowes Companies. Should the revenues generated by TSI from~~ its ~~programs~~various ~~with~~mass ~~Lowes Companies be at levels significantly~~merchant ~~lower than originally anticipated, the Company would be required to find other~~ customers ~~for this inventory~~. ~~There~~Most ~~can~~of beits noproducts ~~assurances~~are ~~that~~shipped ~~the~~directly ~~Company~~from ~~would be~~China. ~~able~~Due to ~~obtain~~the ~~additional~~seasonal ~~customers for this inventory or that any~~nature ~~alternative~~of ~~sources~~outdoor ~~would~~furniture ~~generate~~sales; ~~similar~~most sales ~~levels~~to ~~and~~mass ~~profit~~merchants ~~margins~~occur ~~as anticipated~~from ~~with~~January ~~the~~to ~~current~~April ~~mass merchandiser customer~~each year.

17Gross Profit. Gross profit of the Company as a percentage of net sales decreased 5.8% to 25.4% for the fiscal year ended June 30, 2008, compared to 31.2% for the fiscal year ended June 30, 2007, primarily due to increased sales of Woodard products that carry a lower gross profit as compared to net sales.

~~Table~~Gross profit as a percentage of ~~Contents~~net sales of the Specialty segment decreased 3.7% to 31.6% for the fiscal year ended June 30, 2008, compared to 35.3% for the fiscal year ended June 30, 2007. The decrease is summarized in the following table:

~~Fiscal~~Gross ~~year~~Profit ~~ended~~as ~~June 30,~~a ~~2003.~~Percentage of Net Sales of Specialty Segment

The Company’s cash increased $3,680,000 from $1,312,000 at June 30, 2002 to $4,992,000 at June 30, 2003. The Company’s operating activities provided cash of $14,895,000 during the year. This cash flow was primarily attributable to the Company’s income from operations before minority interest and a reduction in accounts receivable from trade.


	Fans			Woodard
	Lighting &			Outdoor			Segment
Fiscal Year Ended	Accessories			Furniture			Total
June 30, 2008		35.2	%		24.2	%		31.6	%
June 30, 2007		35.3	%		—			35.3	%

Percent decrease		(0.1	%)	na				(3.7	%)

~~Cash~~For ~~used~~fiscal ~~for~~year ~~investing~~2008, ~~activities~~gross profit as a percentage of ~~$186,000~~net ~~was~~sales ~~related~~of tothe ~~additions~~ceiling tofan and ~~property,~~lighting ~~plant~~sales ~~and~~in ~~equipment,~~the ~~primarily~~Specialty ~~for~~segment ~~additional~~was ~~racking~~only ~~installed~~slightly down from the results generated in the ~~Company’s~~fiscal ~~warehouse~~year ~~facility~~ended June 30, 2007, as the Specialty segment was able to offset the increases in cost of goods with a price increase that was effective April 15, 2008.

~~Cash used for financing activities of $11,029,000 was primarily the result of~~29 (i) the repurchase of 558,000 shares of the Company’s common stock at an aggregate cost of $7,746,000, (ii) principal payments of $950,000 on the Company’s notes payable (iii) cash dividends of $1,542,000 and (iv) minority interest distributions of $2,912,000. These amounts were partially offset by proceeds of $1,798,000 from the Company’s lines of credit and $323,000 from the exercise of employee stock options.

FiscalTable yearof ended June 30, 2002 Contents

~~The~~Gross ~~Company’s~~profit ~~cash~~as ~~decreased~~a ~~$326,000~~percentage ~~from~~of ~~$1,638,000~~net atsales ~~June 30,~~of ~~2001~~the toMass ~~$1,312,000~~segment atdecreased ~~June 30, 2002~~7.7% ~~The~~to ~~Company’s operating activities, provided cash of $~~17~~,849,000 during the year~~.9% ~~This~~of ~~cash~~net ~~flow~~sales ~~was~~for ~~primarily attributable to~~ the ~~Company’s~~fiscal ~~Income~~year ~~from operations~~ended ~~before~~June 30, ~~minority interest of $8~~2008,~~676,000~~ ~~and~~compared ato ~~reduction~~25.6% ~~in inventory~~ of ~~$8,127,000.~~net ~~The~~sales ~~reduction~~ in ~~inventory~~the ~~was related~~same ~~primarily~~prior toyear ~~the~~period, ~~TSI~~as ~~segment,~~summarized in ~~which a substantial portion of~~ the ~~business~~ ~~shifted~~following ~~toward sales of direct shipments rather than~~table: ~~warehouse shipments.~~

~~Cash~~Gross ~~used~~Profit ~~for~~as ~~investing~~a ~~activities~~Percentage of ~~$2,988,000~~Net ~~was~~Sales ~~primarily related to (i) capital expenditures~~ of ~~$2,292,000~~Mass ~~incurred in~~Segment connection with the installation of Design Trends patented lamp display program in all stores of the Company’s largest mass retail customer and (ii) $617,000 of capital expenditures associated with the implementation of the Company’s logistics and accounting systems upgrade.

Cash used for financing activities of $15,187,000 was primarily the result of (i) principal payments of $10,396,000 on the Company’s revolving lines of credit, (ii) principal payments of $2,146,000 on the Company’s notes payable (iii) cash dividends of $1,666,000 (iv) minority interest distributions of $1,322,000 and (iv) the repurchase of 17,000 shares of the Company’s common stock at an aggregate cost of $236,000. These amounts were partially offset by proceeds of $578,000 from the exercise of employee stock options.


				Woodard
	Lighting &			Outdoor			Segment
Fiscal Year Ended	Accessories			Furniture			Total
June 30, 2008		26.2	%		9.6	%		17.9	%
June 30, 2007		25.6	%		—			25.6	%

Percent increase/(decrease)		0.6	%	na				(7.7	%)

18Gross profit as a percentage of net sales for lighting products and ceiling fan accessories saw a slight overall increase as a result of changes in vendor programs. Woodard gross profit as a percent of net sales is low as all sales are direct import.

~~Table~~Selling, General and Administrative Expenses. Total selling, general and administrative (“SG&A”) expenses of ~~Contents~~the Company increased $6,966,000 to $28,117,000 or 20.4% of net sales for the fiscal year ended June 30, 2008, compared to $21,151,000 or 20.5% of net sales for the same period last year. This increase was primarily due to the acquisition of certain assets of Woodard, LLC.

~~the opinion of the Company’s management~~Selling, isGeneral ~~unusual for the industry~~ and ~~favorable~~Administrative ~~to the Company.~~Expenses ~~This~~(Dollars ~~manufacturer~~in ~~is not required to provide this credit facility under its~~thousands) ~~agreement with Craftmade, and it may discontinue this arrangement at any time.~~

Contractual Obligations


					Increase/
	Fiscal Year Ended				(Decrease)
	June 30,		June 30,		Over Prior
	2008		2007		Year Period
Historical Craftmade	$	21,216	$	21,151	$	65
Woodard Incremental		6,901		—		6,901

	$	28,117	$	21,151	$	6,966

The table below, as well as the information contained in Note 4 – “Revolving Lines of Credit and Notes Payable” and Note 10 – “Commitments and Contingencies” to the Company’s consolidated financial statements, summarizes the Company’s various repayment requirements at June 30~~, 2004.~~ ~~The Company expects to meet these obligations with cash flows from existing operations.~~

			Payments		Due by Period
Contractual			Less than 1				3-5		More than 5
Obligations	Total		year		1-3 years		years		years
Long Term Debt Obligations	$	5,611,000	$	2,662,000	$	2,949,000	$	—		—
Operating Lease Obligations	$	438,000	$	188,000	$	234,000	$	16,000		—
Total	$	6,049,000	$	2,850,000	$	3,183,000	$	16,000	$	—

~~At June 30, 2004, the Company had a $20,000,000 line of credit with~~ The ~~Frost National~~historical ~~Bank (the “~~Craftmade ~~Line~~expenses ofwere ~~Credit”)~~primarily atimpacted anby ~~interest~~lower ~~rate~~variable ofcosts ~~prime~~and ~~(4.00%~~reductions atin ~~June 30,~~overhead ~~2004)~~largely ~~less~~offset ~~.5%,~~by ofincreases ~~which~~in ~~$14,577,000~~group ~~was~~health ~~outstanding. The line of credit is due on demand; however~~insurance, ifconsulting noand legal ~~demand is made~~fees, itas issummarized ~~scheduled~~below: ~~to mature October 31, 2005.~~

AtHistorical ~~June 30, 2004, PHI had a $2 Million Line of Credit with Wachovia at an~~Craftmade ~~interest rate equal to the one-month LIBOR plus 2%. At June 30~~Selling, ~~2004,~~General ~~the one-month~~and ~~LIBOR~~Administrative ~~rate was equal to 1.3582%. There was a $1,548,000 outstanding~~Expenses ~~balance~~(Dollars onin ~~the line of credit at June 30, 2004. The $2 Million Line of Credit~~thousands) ~~is due on demand; however, if no demand is made, it is scheduled to mature October 1, 2004.~~


					Increase/
	Fiscal Year Ended				(Decrease)
	June 30,		June 30,		Over Prior
	2008		2007		Year Period
Commissions	$	2,754	$	3,326	$	(572	)
Bad Debt Expense		329		33		296
Accounting, legal and consulting		2,468		2,237		231
Health Insurance		1,102		789		313
Rent		246		393		(147	)
Other		14,317		14,373		(56	)

	$	21,216	$	21,151	$	65

~~Table~~The ofreduction ~~Contents~~in commissions expense is a variable cost driven by the decrease in net sales, while the increase in accounting, legal and consulting fees is primarily driven by costs associated with the search for a new chief executive officer. Health insurance expense was higher in the fiscal year ended June 30, 2008, as compared to the prior year due to increased claims.

~~Effects~~Depreciation and Amortization. Depreciation and amortization expense of ~~Recent~~the ~~Accounting~~Company ~~Pronouncements~~increased $70,000 to $869,000 for the fiscal year ended June 30, 2007, compared to $799,000 for the same period last year. The increase resulted primarily from increased depreciation related to computer system upgrades.

~~In December~~Interest ~~2003,~~Expense. ~~the~~Net ~~SEC~~interest ~~issued~~expense ~~Staff~~of ~~Accounting~~the ~~Bulletin (“SAB”)~~Company ~~No. 104~~increased $48,000 ~~“Revenue~~to ~~Recognition”~~$1,489,000 for the ~~which~~fiscal ~~supercedes~~year ~~SAB~~ended June ~~101~~30, ~~“Revenue~~2008, ~~Recognition~~compared into ~~Financial Statements”.~~$1,441,000 ~~SAB 104~~for ~~rescinds~~ the ~~accounting~~fiscal ~~guidance contained~~year inended ~~SAB~~June ~~101~~30, 2007. ~~specifically~~Interest ~~related~~expense toincreased ~~multiple~~as ~~elements revenue~~a ~~managements,~~result ~~but~~of ~~leaves~~higher ~~the~~average ~~remaining~~outstanding ~~SAB 101~~debt ~~principles~~balances ~~largely~~stemming ~~unchanged.~~from ~~The~~the ~~adoption~~acquisition of ~~SAB 104~~certain ~~did~~net ~~not~~assets ~~have~~of anWoodard, ~~impact~~LLC, which was somewhat offset onby ~~Craftmade’s~~lower ~~consolidated~~average ~~results~~interest ofrates ~~operations~~in ~~or financial~~effect ~~position~~as compared to the prior year.

~~Inflation~~Other income. The Company realized a gain of $140,000 for the fiscal year ended June 30, 2008, for leasing the oil and gas mineral rights at its principal place of business in Coppell, Texas.

~~Generally,~~Minority ~~inflation~~interest. ~~has~~Minority ~~not~~interest ~~had~~expense decreased $215,000 ~~and~~to $1,292,000 for the ~~Company~~fiscal year ~~does~~ended ~~not~~June 30, ~~expect~~2008, itcompared to ~~have~~$1,507,000 ~~a material~~for ~~impact~~the ~~upon~~fiscal ~~operating~~year ~~results.~~ended ~~However~~June 30, ~~there~~2007. ~~can~~The decrease bein nominority ~~assurance~~interest ~~that the~~resulted ~~Company’s~~from ~~business~~lower ~~will~~profits ~~not~~at beDesign ~~affected~~Trends byas ~~inflation~~a inresult of the decline ~~future~~in net sales.

~~Related~~Provision ~~Party~~for Income Taxes. The provision for income tax was $1,174,000 or 35.7% of net ~~Transactions~~income before income taxes for fiscal year ended June 30, 2008, compared to $1,507,000 or 20.0% of income before income taxes for the fiscal year ended June 30, 2007. See ”Note 5 — Income Taxes” in the notes to the consolidated financial statements for additional detail regarding the Company’s policy for determining the provision for income taxes.

~~The Company has a~~31 non-interest bearing note receivable from its chief executive officer for $50,000. Principal payments on the note are being amortized monthly, which will result in the note being paid in full in August 2005.

TSITable leased office space from a former director of the Company, who was also an executive officer of the Company. This lease was for five months at $7,500 per month of the fiscal year, until the office was relocated in November 2003. Contents

20Liquidity and Capital Resources

~~Table~~Fiscal ofyear ~~Contents~~ended June 30, 2009

~~ITEM~~The 7ACompany’s cash decreased $885,000 from $1,269,000 at June 30, 2008 to $384,000 at June 30, 2009. ~~QUANTITATIVE~~Net ~~AND~~cash ~~QUALITATIVE~~used ~~DISCLOSURES~~by ~~ABOUT~~the ~~MARKET~~Company’s ~~RISK~~operating activities was $409,000 compared to $11,778,000 in cash provided by the Company’s operating activities for the fiscal year ended June 30, 2008, a reduction of $12,187,000. The decrease in cash flow from operations resulted primarily from operating losses and increased receivables, as sales slowed and customers paid slower during the broad economic downturn.

The ~~information~~$1,713,000 ~~set~~of ~~forth~~cash ~~below~~used ~~constitutes~~in ainvesting ~~“forward~~activities ~~looking~~for ~~statement.”~~the ~~See Item~~fiscal year ended June 7.30, ~~Management’s~~2009, was ~~Discussion~~primarily ~~and~~related ~~Analysis~~to the addition of ~~Financial~~property, ~~Condition~~equipment and tooling and additional ~~Results~~contingent consideration related to the acquisition of ~~Operations~~Marketing –Impressions ~~Cautionary~~in ~~Statement~~2006.

AtCash ~~June 30,~~provided ~~2004,~~by ~~the~~financing ~~Company~~activities ~~had~~of a $201,~~000~~237,000 ~~line~~primarily consists of ~~credit~~amounts ~~with~~drawn ~~The~~on ~~Frost~~the ~~National~~Company’s ~~Bank~~line ~~(the “Craftmade Line~~ of ~~Credit”)~~credit atand anis ~~interest~~partially ~~rate~~offset ofby ~~prime (4.00%~~distributions atto ~~June 30,~~minority ~~2004)~~interest ~~less~~members totaling ~~.5%, of which~~ $14750,~~577,~~000 ~~was~~and ~~outstanding.~~principal ~~The line~~payments ~~of credit is due~~ on ~~demand;~~the ~~however,~~Company’s ~~if no demand is made, it is scheduled to mature October 31, 2005~~notes.

AtOn ~~June~~July 3010, ~~2004~~2009, ~~PHI~~the ~~had~~Company, together with certain of its direct or indirect subsidiaries (the “Borrowers”) entered into a $2Loan ~~Million~~and ~~Line~~Security ofAgreement ~~Credit~~(the “Revolving Loan Agreement”) with ~~Wachovia~~Bank atof anAmerica, N.A. (“Bank of America”). The Revolving Loan Agreement provides for ~~interest~~revolving ~~rate~~loans ~~equal~~in an aggregate amount up to $40,000,000 and is secured by substantially all of the ~~one-month~~Borrowers’ ~~LIBOR~~assets, ~~plus~~excluding 2%its current real estate holdings. AtThe ~~June~~Revolving Loan Agreement will terminate on July 3010, ~~2004~~2012. On July 10, ~~the~~2009 Woodard—CM, LLC (“Woodard”), a ~~one~~wholly-~~month~~owned ~~LIBOR~~subsidiary ~~rate~~of ~~was~~Craftmade ~~equal~~entered tointo ~~1.3582%.~~a ~~There~~Term ~~was~~Loan Agreement (the “Term Loan Agreement”) with The Frost National Bank, San Antonio, Texas (“Frost”), in conjunction with executing a Term Loan Note (“the Frost Note”), in the principal amount of $13,~~548~~500,000, ~~outstanding~~payable ~~balance~~to onFrost, ~~the~~secured ~~line~~by ofWoodard’s ~~credit~~primary atmanufacturing ~~June 30~~and distribution facility located in Owosso, ~~2004~~Michigan. The $2Term ~~Million~~Loan ~~Line~~Agreement ofwill ~~Credit is~~terminate ~~due~~ on ~~demand;~~July 10, ~~however~~2012. In the aggregate, ifthe noproceeds ~~demand~~from isthe ~~made,~~Revolving itLoan isAgreement ~~scheduled~~and tothe ~~mature~~Term Loan Agreement, were ~~October~~used to pay off amounts owed under the Frost Loan Agreement dated as of December 131, ~~2004~~2007. The Company’s management believes that its new line of credit, combined with cash flows from operations, will be adequate to fund the Company’s current operating needs and debt service payments over the next 12 months.

~~PHI has~~Management aanticipates ~~$500,000~~that ~~Note~~future ~~payable~~cash toflows ~~Wachovia~~will ~~maturing~~be onused ~~July 29,~~primarily ~~2005,~~to ~~of which~~retire ~~$195,000~~existing ~~was outstanding at June 30~~debt, ~~2004. The note bears interest at a~~ ~~rate~~fund ~~equal~~potential toacquisitions ~~the~~or ~~Monthly~~other ~~LIBOR~~investments ~~Index~~that ~~plus~~will ~~2.5%.~~enhance Inlong-term ~~addition,~~stockholder ~~on November 24,~~value ~~2003,~~and ~~PHI~~distribute ~~entered~~earnings ~~into~~to ~~the~~its ~~$2.1 million~~minority ~~Note~~interest ~~with~~member. ~~Wachovia~~The ~~whereby~~Company ~~Wachovia agreed~~remains tocommitted ~~advance up~~ to ~~$2,100,000 to PHI, subject to PHI’s continued~~its ~~compliance~~business ~~with~~strategy ~~certain~~of ~~loan~~creating ~~covenants~~long-term ~~specified~~earnings bygrowth, ~~the~~maximizing ~~agreement.~~stockholder Atvalue ~~June 30,~~through ~~2004,~~internal ~~there was a $1~~improvements,~~575,000~~ ~~balance~~making ~~outstanding~~selective ~~under~~acquisitions ~~the~~and ~~$2.1~~dispositions ~~Million~~of ~~Note~~assets, ~~which~~ isfocusing ~~scheduled~~on cash toflow ~~mature~~and onretaining ~~March 15,~~quality ~~2005~~personnel.

~~The~~Management ~~short-term~~believes ~~nature~~that ofgiven ~~each of~~ the ~~Craftmade~~current ~~Line~~volatility ofin ~~Credit and~~ the ~~$2 Million~~housing ~~Line~~and ofdebt ~~Credit~~markets, ~~the~~it ~~$500,000 Note and the $2.1 Million Note~~is ~~(collectively,~~in the ~~“PHI~~best ~~Lines~~interest of ~~Credit”), subjects the Company to market~~long-~~risk-associated~~term ~~with~~stockholder ~~adverse~~value ~~changes~~for inmanagement ~~interest~~to ~~rates.~~continue Ato ~~sharp rise in~~evaluate ~~interest~~selective ~~rates~~and ~~could~~opportunistic ~~materially~~acquisitions. ~~adversely~~Management ~~affect~~believes ~~the~~this ~~financial~~strategy, ~~condition~~if ~~and~~successful, ~~results~~could ofenhance ~~operations of~~ the Company.’s ~~The~~product ~~Company~~offerings ~~has~~and ~~not~~potentially ~~entered~~enable ~~into~~the ~~any instruments~~Company to ~~minimize~~expand into ~~this~~adjacent ~~market~~product ~~risk~~categories ofand ~~adverse~~sales ~~changes~~channels inthat ~~interest~~are ~~rates because~~less ~~the~~reliant ~~Company~~on ~~believes~~ the ~~cost~~overall housing ~~associated~~environment. ~~with~~There ~~such~~can ~~instruments~~be ~~would outweigh~~no ~~the~~assurances, ~~benefits~~however, that ~~would~~any beagreement ~~obtained~~regarding ~~from~~any such ~~utilizing~~acquisition ~~such~~will ~~instruments~~be consummated.

~~Under~~Fiscal ~~the~~year ~~Craftmade~~ended ~~Line of Credit~~June 30, ~~for each one-percentage point (1%)~~2008 incremental increase in the prime rate, the Company’s annualized interest expense would increase by approximately $146,000. Consequently, an increase in the prime rate of five percentage points (5%) would result in an estimated annualized increase in interest expense for the Company of approximately $729,000.

~~Under~~The ~~the~~Company’s ~~PHI~~cash ~~Lines~~increased of$341,000 ~~Credit~~from $928,000 ~~for~~at ~~each~~June 30, ~~one-percentage~~2007 ~~point~~to ($1%),269,000 ~~incremental~~at June 30, ~~increase~~2008. inNet ~~LIBOR,~~cash provided by the Company’s ~~annualized~~operating ~~interest~~activities ~~expense~~increased ~~would~~$4,736,000 ~~increase by~~to ~~approximately~~$11,778,000 for the fiscal year ended June 30, 2008, compared to $337,042,000. ~~Consequently~~for the fiscal year ended June 30, an2007. The increase in ~~LIBOR~~cash offlow ~~five~~from ~~percentage~~operations resulted primarily from ~~points~~the ~~(5%)~~timing ~~would~~of ~~result~~the inWoodard anAsset ~~estimated~~Acquisition ~~annualized~~and ~~increase~~subsequent incollection ~~interest expense~~of ~~for~~working capital after the ~~Company~~acquisition date, and lower inventories and receivables due to lower sales of ~~approximately~~lighting ~~$166~~and accessories,~~000~~ offset by the reduction in cash due to lower income from operations.

The ~~Company~~$16,851,000 ~~currently purchases a substantial amount~~ of ~~ceiling~~cash ~~fans~~used ~~and~~in ~~other products~~investing ofactivities ~~its~~was ~~Craftmade~~primarily ~~segment~~related ~~from Fanthing, a Taiwanese company. The Company’s verbal understanding with Fanthing provides that all transactions are~~ to ~~be denominated in U.S. dollars; however,~~ the ~~understanding further provides~~acquisition ~~that,~~of incertain ~~the event that~~net ~~the~~assets ~~value~~ of ~~the U.S. dollar appreciates or depreciates against the Taiwanese dollar by one Taiwanese dollar or more~~Woodard, ~~Fanthing’s prices will be accordingly adjusted by 2.5%. As of September 1~~LLC, ~~2004 one U.S. dollar equaled $33.87 Taiwanese dollars. A sharp appreciation of the Taiwanese dollar relative to the U.S. dollar could materially adversely affect the financial condition~~ and ~~results~~ ofcontingent ~~operations~~payments ofrelated ~~the Company. The Company has not entered into any instruments~~ to ~~minimize this market risk of adverse changes in currency rates because~~ the ~~Company~~acquisition ~~believes the cost associated with such instruments would outweigh the benefits that would be obtained from utilizing such instruments. All other purchases~~ of ~~the Company from foreign vendors are denominated in U.S.~~Marketing ~~dollars and are not subject to adjustment provisions with respect to foreign currency fluctuations~~Impressions. ~~As a result, the Company does not believe that it is~~ ~~subject to any material foreign currency exchange risk with respect to such purchases.~~

~~During the fiscal year ended June 30, 2004, the Company purchased approximately~~32 $16,649,000 of products from Fanthing. Under the Company’s understanding with Fanthing, each $1 incremental appreciation of the Taiwanese dollar would result in an estimated annualized net increase in cost of goods sold of approximately $416,000, based on the Company’s purchases during the fiscal year ended June 30, 2004, (on an annualized basis). A $5 incremental appreciation of the Taiwanese dollar would result in an estimated annualized increase in cost of goods sold of approximately $2,081,000 based on the Company’s purchases during the fiscal year ended June 30, 2004 (on an annualized basis). A $10 incremental

21 Table of Contents

~~Table~~Cash provided by financing activities primarily resulted from the cash borrowed to purchase certain assets of ~~Contents~~Woodard, LLC, offset by (i) cash dividends of $2,560,000, (ii) distributions to minority interest members totaling $1,225,000 and (iii) cash flow from operations that sweeps to the line of credit.

~~appreciation~~Fiscal ~~of the Taiwanese dollar would result in an increase of approximately $4,162,000 on an annualized basis, based on the Company’s purchases during the fiscal~~ year ended June 30, ~~2004 (on an annualized basis).~~2007 These amounts are estimates of the financial impact of an appreciation of the Taiwanese dollar relative to the U.S. dollar and are based on annualizations of the Company’s purchases from Fanthing for the fiscal year ended June 30, 2004. Consequently, these amounts are not necessarily indicative of the effect of such changes with respect to an entire year.

~~ITEM~~The 8Company’s cash decreased $1,236,000 from $2,164,000 at June 30, 2006 to $928,000 at June 30, 2007. ~~FINANCIAL~~Cash ~~STATEMENTS~~decreased ~~AND~~as ~~SUPPLEMENTARY~~a ~~DATA~~result of the Company sweeping excess cash balances against its line of credit on a daily basis at PHI beginning in the quarter ended December 31, 2006, funds used to acquire Marketing Impressions and lower net income in fiscal 2007 as compared to prior fiscal years. Net cash provided by the Company’s operating activities decreased $792,000 to $7,042,000 for the fiscal year ended June 30, 2007, compared to $7,834,000 for the fiscal year ended June 30, 2006. The decrease in cash flow from operations resulted primarily from (a) lower net income, (b) lower accounts payable from the settlement of balances arising from the acquisition of Marketing Impressions and (c) a reduction in accrued customer allowances primarily from the loss of the indoor and outdoor lighting business with Lowe’s. These amounts were offset by lower accounts receivable and inventory balances driven in part by lower net sales in fiscal 2007.

The ~~financial~~$3,607,000 ~~statements~~of ~~and~~cash ~~supplementary~~used ~~data~~in ~~are~~investing ~~included~~activities ~~under~~was ~~Item~~primarily related to the acquisition of ~~15(a)(1)~~Marketing Impressions and ~~15(a)(2)~~the ongoing upgrade of ~~this~~existing ~~report~~computer systems.

~~ITEM~~Cash 9used in financing activities primarily resulted from (i) cash dividends of $2,498,000, (ii) distributions to minority interest members totaling $1,674,000 and (iii) principal payments on the Company’s notes payable of $1,134,000. ~~CHANGES~~These INamounts ~~AND~~were ~~DISAGREEMENTS~~offset ~~WITH~~by ~~ACCOUNTANTS~~$671,000 of ONproceeds ~~ACCOUNTING~~from ~~AND~~our ~~FINANCIAL~~line ~~DISCLOSURE~~of credit.

~~Not~~Contractual ~~applicable.~~Obligations

~~ITEM~~The 9Atable below, as well as the information contained in “Note 4 — Long-Term Obligations” and “Note 8 — Commitments and Contingencies” in the notes to the Company’s consolidated financial statements, summarizes the Company’s various repayment requirements at June 30, 2009. ~~CONTROLS~~The Company ~~AND~~expects ~~PROCEDURES~~to meet these obligations with cash flows from existing operations or by renewing and extending its line of credit, although there can be no guarantee of such results.

~~The Company’s management, with the participation of the~~33 Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report were not designed nor were functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This conclusion is based on the identified material weakness in internal control over financial reporting and in the disclosure controls that is described below under the heading, Change in Internal Control over Financial Reporting.

ChangeTable inof Internal Control over Financial Reporting Contents

~~The Company~~Summary ~~previously~~of ~~disclosed~~Contractual ~~in its Form 10-Q for the quarter~~Obligations ~~ended~~At ~~March~~June 3130, ~~2004, that in evaluating its disclosure~~2009 ~~controls and procedures, management considered “reportable conditions”~~ (asDollars ~~defined under standards established by the American Institute of Certified Public Accountants (“AICPA”)) that were identified~~ in ~~a letter dated April 19, 2004, addressed to the Company’s Chief Executive Officer from PricewaterhouseCoopers, LLP (“PwC”~~thousands)~~, the~~ ~~Company’s independent registered public accounting firm, and then communicated to the Company’s Audit Committee.~~

From January 2004 to the present, the Company has been engaged in extensive remediation efforts with respect to the reportable conditions mentioned in the April 19, 2004 letter, including engaging an outside internal control consultant to evaluate, analyze and document all of the Company’s internal controls over its financial reporting. However, in connection with the audit of the fiscal year ended June 30, 2004, PwC informed the Company’s Audit Committee that it believes that the personnel and management of the Company who perform its accounting and financial reporting functions are not sufficiently expert in U.S. GAAP and the requirements of the SEC and the Public Company Accounting Oversight Board, and this lack of expertise represents a material weakness (as defined under standards established by AICPA) in the operation of internal control over financial reporting. With respect to this material weakness, PwC noted the following as failures in the Company’s operation of internal control: (i) failure of financial reporting controls in preventing or detecting misstatements of accounting information that resulted in certain adjustments to the financial statements; (ii) failure to perform internal control tasks such as the timely preparation of account reconciliations; and (iii) failure to correct internal control deficiencies it previously identified such as earnings per share computational errors, audit adjustments, discipline around financial reporting, depth of financial accounting and reporting personnel, timely reconciliation of cash accounts, review and ascertainment of the amount of inventory reserve on a quarterly basis and the failure to use financial consolidation software.


			Payments Due By Period
			Less than		1 to 3		3 to 5		More than
Contractual Obligations	Total		1 year		Years		Years		5 years
Lines of credit⁽¹⁾	$	20,042	$	20,042	$	—	$	—	$	—
Note payable	$	10,317	$	494	$	1,089	$	1,240	$	7,493
Operating lease obligations	$	2,461	$	727	$	1,239	$	495	$	—
Capital lease obligations	$	69	$	48	$	21	$	—	$	—
Guaranteed royalties	$	199	$	90	$	109	$	—	$	—
Assumed interest⁽²⁾	$	4,716	$	1,017	$	1,211	$	1,060	$	1,428
Woodard Restructuring	$	155	$	155	$	—	$	—	$	—
Teiber consulting agreement	$	67	$	67	$	—	$	—	$	—
Contingent consideration⁽³⁾	$	—	$	—	$	—	$	—	$	—
Liability for uncertain tax positions⁽⁴⁾	$	—	$	—	$	—	$	—	$	—

Total	$	38,025	$	22,639	$	3,669	$	2,795	$	8,921

In this regard, PwC has recommended that the Company engage personnel with expertise or train existing personnel in the following areas:


⁽¹⁾		Based on Frost line of credit in place at June 30, 2009. As of July 10, 2009 Frost line of credit has been replaced with a new line of credit with Bank of America providing up to $40,000,000 in revolving loans, supplemented by a $3,500,000 note with Frost.

⁽²⁾		Assumed interest calculated at the interest rate in effect at June 30, 2009 for each obligation.

⁽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.

⁽⁴⁾		The Company has accrued certain liabilities related to uncertain tax positions, per FIN 48. Given the contingent amouts and timing of these liabilities, we have not included them here.

•Lines ~~U.S. GAAP; • financial reporting in accordance with SEC regulations; • requirements~~ of ~~the~~Credit ~~Public Company Accounting Oversight Board;~~ and •Notes ~~application of technical accounting pronouncements.~~Payable

~~Management of~~The ~~the~~ Company ~~has presented to the Company~~’s ~~Audit~~long-term ~~Committee~~obligations aare ~~plan to~~summarized remedy the concerns raised by PwC. This plan is designed to ensure that the preparation of the Company’s consolidated financial statements, including the process to review and analyze elements of the Company’s financial statement close process, is in ~~accordance with U.S. GAAP. In addition,~~ the ~~plan~~following will ensure that the personnel involved in this process have available to them the relevant information about U.S. GAAP, SEC financial reporting requirements, and the requirements of the Public Company Accounting Oversight Board necessary for them to be able to prepare the Company’s financial statements. Specifically, our plan provides for additional resources and further training of the Company’s accounting team includingtable:

•Summary ~~the employment~~ of ~~additional~~Long ~~staff~~Term onObligations (Dollars ~~the~~in Company’s accounting team, including a new chief accounting officer; • increasing the level of attendance at targeted U.S. GAAP and SEC reporting courses by senior Company finance staff responsible for the preparation of U.S. GAAP financial reports and SEC disclosures; and • subscribing to additional information networks that provide publications and updates of SEC and U.S. GAAP releases and rule changes and of information about the requirements of the Public Company Accounting Oversight Board.thousands)

The Company is actively recruiting additional accounting staff and plans to complete the hiring process during the second fiscal quarter of 2005. Additionally, the Company’s senior accounting staff have already committed to taking training courses during the next several months and will continue to evaluate the merits of additional courses as they become available. The Company will begin receiving additional publications and updates of SEC, U.S. GAAP and the Public Company Accounting Oversight Board requirements and will review the adequacy of this additional information within the next several months to determine whether additional resources are required.


			Outstanding			Outstanding
			Balance			Balance			Current
	Commitment		June 30, 2009			June 30, 2008			Interest Rate			Maturity
Revolving line of credit⁽¹⁾	$	50,000	$	20,042		$	17,374		LIBOR plus 1.50%			December 31, 2009
Note payable — facility		n/a		10,317			10,779			6.5	%	December 10, 2017
Capital lease obligation		n/a		69			113			7.6	%	November 5, 2010

Sub-total				30,428			28,266
Less: current amounts due				(542	)		(507	)

Long-term obligations			$	29,886		$	27,759

~~Until management~~(1) ofBased ~~the~~on ~~Company~~Frost isline ~~satisfied~~of ~~that~~credit itin ~~has~~place ~~addressed~~at ~~its~~June ~~need~~30, ~~for~~2009. ~~sufficient expertise~~As inof ~~preparing~~July ~~financial~~10, ~~statements~~2009 ~~required~~Frost inline ~~its~~of ~~filings under~~credit ~~the~~has ~~securities~~been ~~laws,~~replaced ~~the~~with ~~Company~~a ~~will~~new ~~seek~~line toof ~~mitigate~~credit ~~this~~with ~~weakness~~Bank ~~by conferring~~of ~~with~~America ~~its~~providing ~~accounting~~up ~~advisers~~to ~~with~~$40,000,000 ~~respect~~in torevolving ~~the technical~~loans, ~~requirements~~supplemented ~~applicable~~by toa ~~the~~$3,500,000 ~~Company’s~~note ~~financial statements~~with Frost.

~~The implementation~~As of ~~the~~June 30, ~~initiatives~~2009 ~~described above is among~~ the Company’s ~~highest~~primary ~~priorities.~~revolving ~~The~~line ~~Company’s~~of ~~Board~~credit ofwas ~~Directors,~~held inby ~~coordination~~a banking ~~with~~group ~~the~~led ~~Company’s~~by ~~Audit~~The ~~Committee,~~Frost ~~will~~National ~~continually~~Bank ~~assess~~(“Frost”) ~~the progress~~ and ~~sufficiency~~including ofWhitney ~~these~~National ~~initiatives~~Bank and ~~make adjustments as~~ ~~and~~Commerce ~~when~~Bank, ~~necessary~~N.A., Asunder, ofa ~~the~~Third ~~date~~Amended ofand ~~this~~Restated ~~report,~~Loan ~~management~~Agreement of (the ~~Company~~ ~~believes~~“Frost ~~that the~~Loan ~~plans~~Agreement”) ~~outlined~~signed ~~above~~December 31, ~~when~~2007 ~~completed~~and maturing on December 31, ~~will~~2009. ~~eliminate~~Total ~~the~~credit ~~material~~lines ~~weakness~~available into ~~internal~~Craftmade ~~accounting~~and ~~control~~its assubsidiaries ~~described~~under ~~above.~~this ~~However~~agreement awere $50,000,000, and there ~~control~~was ~~system~~$3,832,000 noavailable ~~matter~~to ~~how~~borrow ~~well~~under ~~designed~~the ~~and~~applicable ~~operated~~borrowing base at June 30, ~~cannot~~2009. The ~~provide~~Company ~~absolute~~satisfied ~~assurance~~all ~~that~~obligations under the ~~objectives~~Frost ofLoan ~~the~~Agreement ~~control~~by ~~system~~repaying ~~are~~all ~~met~~outstanding amounts on July 10, 2009, and no ~~evaluation~~ ofother ~~controls~~fees ~~can~~or ~~provide~~payments ~~absolute~~are ~~assurance~~due ~~that~~or ~~all~~expected ~~control~~in relation to ~~issues~~this ~~have~~agreement, ~~been~~or ~~detected~~the related notes.

~~ITEM 9B. OTHER INFORMATION.~~34

NotTable applicable. of Contents

22On July 10, 2009, Craftmade together with the Borrowers, entered into the Revolving Loan Agreement with Bank of America. The Revolving Loan Agreement provides for revolving loans in an aggregate amount up to $40,000,000 and is secured by substantially all of the Borrowers’ assets, excluding its current real estate holdings. On July 10, 2009 Woodard entered into the Term Loan Agreement with Frost, in conjunction with executing the Frost Note, in the principal amount of $3,500,000, payable to Frost, secured by the Michigan Facility. In the aggregate the proceeds from the Revolving Loan Agreement and the Term Loan Agreement (together the “Loan Agreements”), were used to pay off amounts owed under the Frost Loan Agreement dated as of December 31, 2007.

~~Table~~Loans under the Revolving Loan Agreement may be deemed to be either “Base Rate Loans” or “LIBOR Rate Loans”. Base Rate Loans will bear interest at a per annum rate equal to the greater of ~~Contents~~(a) the Prime Rate (as published by Bank of America); (b) the Federal Funds Rate, plus 0.50%; or (c) 30 day London Interbank Offered Rate (“LIBOR”), plus 1.0%, plus an applicable margin ranging from 0.75% to 1.25% based on Craftmade’s cash flow performance as measured by the Fixed Charge Coverage Ratio (as defined in the Revolving Loan Agreement) for the most recent month. LIBOR Rate Loans will bear interest at LIBOR for the applicable interest period (30, 60 or 90 days), plus an applicable margin ranging from 3.00% to 4.00% based on Craftmade’s cash flow performance as measured by the Fixed Charge Coverage Ratio (as defined in the Revolving Loan Agreement) for the most recent month. The maximum amount of loans under the Revolving Loan Agreement will be determined by a formula (the “Borrowing Base”) taking into consideration the receivables and inventory of the Borrowers, net of any reserves put into place by Bank of America. The Revolving Loan Agreement will terminate on July 7, 2012.

~~PART~~Pursuant ~~III~~to the Revolving Loan Agreement, the financial covenants require Craftmade to maintain a Fixed Charge Coverage Ratio of not less than 0.85 for the initial periods, and building to not less that 1.0 by August, 2009 and thereafter. All wholly-owned domestic subsidiaries of Craftmade, and Design Trends have agreed to be guarantors of the Revolving Loan Agreement (the “Guarantors”). Should Craftmade achieve and maintain a minimum of $6,000,000 of availability (calculated as the Borrowing Base minus the principal balance of all loans) for 60 days, the Fixed Charge Coverage Ratio shall not be tested until such time as availability drops below $6,000,000.

~~ITEM~~The Frost Note bears a floating interest rate based on Prime Rate (as published in the Wall Street Journal) plus 2.0% per annum. Pursuant to the Frost Note, Woodard has agreed to pay equal monthly payments of principal and interest based on a 10-year amortization schedule, with the unpaid principal and interest payable on July 7, 2012. ~~DIRECTORS~~As ~~AND~~security ~~EXECUTIVE~~for ~~OFFICERS~~the OFpayment and ~~THE~~performance ~~REGISTRANT~~of the Frost Note, Woodard granted a mortgage lien to Frost in the Michigan Facility located at 210 S. Delaney Road, Owosso, Michigan, which Woodard acquired as part of the Woodard Asset Acquisition. On the Closing Date, Craftmade and certain of its direct and indirect subsidiaries entered into guaranty agreements (“Guaranties”) with Frost pursuant to which such entities agreed to guarantee payment and performance of the Note by Woodard.

~~The~~Further information ~~required~~regarding by this ~~item~~Revolving isLoan ~~incorporated~~Agreement ~~herein~~and byNotes ~~reference~~is ~~to our~~detailed ~~proxy~~in ~~statement to be filed with~~ the Company’s ~~Securities~~Current ~~and~~Report ~~Exchange~~on ~~Commission pursuant~~Form to8-K ~~Regulation 14A~~filed ~~promulgated~~with ~~under~~ the ~~Securities~~SEC ~~Exchange~~on ~~Act of 1934~~July 16, ~~as amended (the “Proxy Statement”)~~2009.

~~ITEM~~On November 14, 2007, the Company entered into a term loan to refinance its home office and warehouse with an original principal balance of $11,000,000. ~~EXECUTIVE~~The ~~COMPENSATION~~loan is payable in equal monthly installments of principal and interest of $95,822. The loan bears an interest rate of 6.5% per year. The loan is collateralized by the building and land. The loan is scheduled to mature on December 10, 2017. Further information regarding this loan is detailed in the Company’s Current Report on Form 8-K filed with the SEC on November 20, 2007.

~~The~~Operating ~~information~~and ~~required~~Capital byLease ~~this Item is incorporated herein by reference to~~Obligations ~~the Proxy Statement.~~

~~ITEM~~Operating 12and capital lease obligations include rents for the Company’s properties (see “Item 2. ~~SECURITY~~Properties.”), ~~OWNERSHIP~~its OFtelephone ~~CERTAIN~~system ~~BENEFICIAL~~and ~~OWNERS~~computer ~~AND~~equipment ~~MANAGEMENT~~and ~~AND~~certain ~~RELATED~~equipment ~~STOCKHOLDER~~at ~~MATTERS~~its Owosso, Michigan and Coppell, Texas facilities.

~~Equity Compensation Plan Information~~35

TheTable following table sets forth (a) the number of securities to be issued upon exercise of outstanding options, (b) the weighted average of exercise price of such outstanding options, and (c) the number of securities remaining available for future issuance, under the Company’s equity compensation plans. All of the Company’s equity compensation plans have been approved by security holders of the Company. Contents

(c)

(a)

(b)

Number of Securities Remaining

Number of Securities to be

Weighted-Average

Available for Future Issuance Under

Issued Upon Exercise of

Exercise Price of

Equity Compensation Plans

Outstanding Options,

Outstanding Options

(Excluding Securities

Plan Category

Warrants and Rights

Reflected in Column (a))

1999 Stock Option Plan

52,000

6.75

100,000

2000 Non-Employee Director Plan

22,500

13.67

52,500

Total

74,500

7.45

152,500

Guaranteed Royalties

~~The~~Guaranteed ~~remaining~~royalties ~~information~~represent ~~required~~guaranteed byminimum ~~this~~payments ~~Item~~under isa ~~incorporated~~licensing ~~herein by reference to the Proxy Statement~~agreement.

~~ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.~~Inflation

The ~~information~~Company ~~required~~believes bythat ~~this~~inflation ~~Item~~has isnot ~~incorporated~~had ~~herein~~a bymaterial ~~reference~~impact toupon the Company’s results of operations for each of the ~~Proxy~~three ~~Statement~~fiscal years ended June 30, 2009. However, there can be no assurance that future inflation will not have an adverse impact upon the Company’s operating results and financial condition.

~~ITEM~~Effects ~~14.~~of ~~PRINCIPAL~~Recent ~~ACCOUNTANT~~Accounting ~~FEES AND SERVICES.~~Pronouncements

~~The~~In ~~information~~May 2009, ~~required~~FASB byissued ~~this~~SFAS ~~Item~~165, is“Subsequent ~~incorporated~~Events” ~~herein~~(“SFAS by165”). ~~reference~~SFAS 165 provides general standards for the accounting and reporting of subsequent events that occur between the balance sheet date and issuance of financial statements. SFAS 165 requires the issuer to recognize the effects, if material, of subsequent events in the ~~Proxy~~financial ~~Statement~~statements if the subsequent event provides additional evidence about conditions that existed as of the balance sheet date. The issuer must also disclose the date through which subsequent events have been evaluated and the nature of any nonrecognized subsequent events. Nonrecognized subsequent events include events that provide evidence about conditions that did not exist as of the balance sheet date, but which are of such a nature that they must be disclosed to keep the financial statements from being misleading. The statement is effective for financial reporting periods ending after June 15, 2009. The Company adopted SFAS 165 effective June 30, 2009 and has made the appropriate additional disclosures in its consolidated financial statements.

23In June 2009, FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”. The objective of this statement is to improve financial reporting by enterprises involved with variable interest entities. This statement addresses (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities”, as a result of the elimination of the qualifying special-purpose entity concept in SFAS No. 166, “Accounting for Transfers of Financial Assets”, and (2) concern about the application of certain key provisions of FASB Interpretation No. 46(R), including those in which the accounting and disclosures under the interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. This statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company is in the process of evaluating the impact SFAS No. 167 will have on its consolidated financial statements.

~~Table~~In December 2007, FASB issued Statement of ~~Contents~~Financial Accounting Standards No. 141 (revised 2007), Business Combinations, (“SFAS 141(R)”). SFAS 141(R) amends the principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquired company and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. In April 2009 FASB issued FASB Staff Position FSP No. FAS 141(R)-1 (“FSP FAS No.141(R)-1”) which amends SFAS 141(R) and clarifies the accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. SFAS 141(R) and FSP FAS No. 141(R)-1 are effective for the Company as of July 1, 2009, and the Company will apply them prospectively to all business combinations subsequent to the effective date.

~~PART~~In IVDecember 2007, FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the controlling and noncontrolling interests and requires the separate disclosure of income attributable to controlling and noncontrolling interests. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact that the adoption of SFAS 160 will have on its consolidated financial statements.

~~ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.~~36

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

1.In ~~Financial~~February 2007, ~~Statements~~FASB —issued SFAS No. 159, The ~~financial~~Fair ~~statements~~Value ~~listed~~Option infor ~~the~~Financial Assets and Financial Liabilities (“~~Index~~SFAS 159”). This statement permits entities to ~~Consolidated~~choose ~~Financial~~to ~~Statements”~~measure ~~described~~many financial instruments and certain other items at ~~F-1.~~fair 2value. ~~Financial~~Companies ~~Statement~~should ~~Schedule~~report unrealized –gains ~~The~~and ~~financial~~losses ~~statement~~on ~~schedule~~items ~~listed~~for inwhich the ~~“Index~~fair tovalue ~~Consolidated~~option ~~Financial~~has ~~Statements”~~been ~~described~~elected in earnings at ~~F-1.~~each 3subsequent reporting date. ~~Exhibits~~This –statement ~~Refer~~was toeffective ~~(c)~~for ~~below~~the Company as of July 1, 2008 but currently has no impact on the Company’s consolidated financial statements.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (b“SFAS 157”). ~~Reports~~This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those years. The FASB has also issued Staff Position FAS 157-2 (“FSP 157-2”), which delays the effective date of SFAS 157 for non-financial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a ~~Form~~recurring 8basis (at least annually), until fiscal years beginning after November 15, 2008. The Company has adopted SFAS 157 and will apply it where, and if, appropriate and is currently assessing the impact of FSP 157-K2 ~~None~~which was effective for the Company as of July 1, 2009.

In July 2006, FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (c“FIN 48”) ~~Exhibits~~which clarifies the accounting for uncertainty in income taxes recognized under FASB Statement No. 109, Accounting for Income Taxes. FIN 48 addresses the recognition and measurement of tax positions taken or expected to be taken, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. We adopted and applied FIN 48 under the transition provisions to all of our income tax positions at the required effective date of July 1, 2007. See Note 5 in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional detail.

3.1 -		Certificate of Incorporation of the Company, filed as Exhibit 3 (a) (2) to the Company’s Post Effective Amendment No. 1 to Form S-18 (File No. 33-33594-FW) and incorporated by reference herein.
3.2 -		Certificate of Amendment of Certificate of Incorporation of the Company, dated March 24, 1992 and filed as Exhibit 4.2 to the Company’s Form S-8 (File No. 333-44337) and incorporated by reference herein.
3.3 -		Amended and Restated Bylaws of the Company, filed as Exhibit 3 (b) (2) to the Company’s Post Effective Amendment No. 1 to Form S-8 (File No. 33-33594-FW) and incorporated by reference herein.
4.1 -		Specimen Common Stock Certificate, filed as Exhibit 4.4 to the Company’s Registration Statement on Form S-3 (File No. 333-70823) and incorporated by reference herein.
4.2 -		Rights Agreement, dated as of June 23, 1999, between Craftmade International, Inc. and Harris Trust and Savings Bank, as Rights Agent, previously filed as an exhibit to Form 8-K dated July 9, 1999 (File No. 000-26667) and incorporated by reference herein.
10.1 -		Earnest Money contract and Design/Build Agreement dated May 8, 1995, between MEPC Quorum Properties II, Inc. and Craftmade International, Inc. (including exhibits), previously filed as an exhibit in Form 10Q for the quarter ended December 31, 1995, and herein incorporated by reference.
10.2 -		Assignment of Rents and Leases dated December 21, 1995, between Craftmade International, Inc. and Allianz Life Insurance Company of North America (including exhibits), previously filed as an exhibit in Form 10Q for the quarter ended December 31, 1995, and herein incorporated by reference.
10.3 -		Deed of Trust, Mortgage and Security Agreement made by Craftmade International, Inc., dated December 21, 1995, to Patrick M. Arnold, as trustee for the benefit of Allianz Life Insurance Company of North America (including exhibits), previously filed as an exhibit in Form 10Q for the quarter ended December 31, 1995, and herein incorporated by reference.
10.4 -		Second Amended and Restated Credit Agreement dated November 14, 1995, among

Related Party Transactions

24The Company purchases a majority of its outdoor patio furniture for the Mass segment from a Chinese factory that is 50% owned by an affiliate of Henry Crown and Company. Henry Crown and Company owns Woodard, LLC, from which the Company purchased certain assets in January 2008. As part of the purchase price in that transaction, Henry Crown and Company became the beneficial owner of more than 5% of our Common Stock. For the twelve months ended June 30, 2009, the Company purchased approximately $20 million in products from the joint venture, which were sold to various customers. The Company currently does not have any agreements in place that compel either party to operate in any manner that differs from standard customer/vendor relationships. Based on this factor, the Company’s management has determined that the transactions between the two parties are at arms-length.

~~Table~~In addition, the Company formerly leased approximately 20,000 square feet of ~~Contents~~office space in Chicago, Illinois from an affiliate of Henry Crown and Company for $31,935 per month. This lease covered the former Woodard, LLC Chicago offices and expired on February 28, 2009. The Company has initiated a new agreement with Henry Crown and Company for 1,989 square feet that commenced on January 15, 2009 and will expired on August 14, 2009, and has been extended through the end of September 2009. The Company pays $4,475 per month for this space. The Company’s management has determined that the terms of both agreements represent fair market value.

		Craftmade International, Inc., Nations Bank of Texas, N.A., as Agent and the Lenders defined therein (including exhibits), previously filed as an exhibit in Form 10Q for the quarter ended December 31, 1995, and herein incorporated by reference.
**10.5 -		Lease Agreement dated November 30, 1995, between Craftmade International, Inc. and TSI Prime, Inc., previously filed as an exhibit in Form 10Q for the quarter ended December 31, 1995, and herein incorporated by reference.
10.6 -		Revolving credit facility with Texas Commerce Bank, previously filed as an exhibit in Form 10K for the year ended June 30, 1996, and herein incorporated by reference.
10.7 -		Agreement and Plan of Merger, dated as of July 1, 1998, by and among Craftmade International, Inc., Trade Source International, Inc. a Delaware corporation, Neall and Leslie Humphrey, John DeBlois, the Wiley Family Trust, James Bezzerides, the Bezzco Inc. Employee Retirement Trust and Trade Source International, Inc, a California corporation, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
10.8 -		Voting Agreement, dated July 1, 1998, by and among James R. Ridings, Neall Humphrey and John DeBlois, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
10.9 -		Third Amendment to Credit Agreement, dated July 1, 1998, by and among Craftmade International, Inc., a Delaware corporation, Trade Source International, Inc., a Delaware corporation, Chase Bank of Texas, National Association (formerly named Texas Commerce Bank, National Association) and Frost National Bank (formerly named Overton Bank and Trust), filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
10.10 -		Consent to Merger by Chase Bank of Texas, National Association and Frost National Bank, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
** 10.11 -		Employment Agreement, dated July 1, 1998, by and among Craftmade International, Inc., Trade Source International, Inc., a Delaware corporation and Neall Humphrey, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
** 10.12 -		Employment Agreement, dated July 1, 1998, by and among Craftmade International, Inc., Trade Source International, Inc., a Delaware corporation and Leslie Humphrey, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
** 10.13 -		Employment Agreement, dated July 1, 1998, by and among Craftmade International, Inc., Trade Source International, Inc., a Delaware corporation and John DeBlois, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
10.14 -		Registration Rights Agreement, dated July 1, 1998, by and among Craftmade International, Inc., Neall and Leslie Humphrey and John DeBlois, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
10.15 -		ISDA Master Agreement and Schedule, dated June 17, 1999, by and among Chase Bank of Texas, National Association, Craftmade International, Inc., Durocraft International, Inc. and

Effective February 1, 2008, the Board of the Company and Mr. William E. Bucek, a director of the Company, entered into a an agreement (the “Agreement”) in which Mr. Bucek agreed, in his capacity as a director of the Company, to (i) work with the Company’s senior management to oversee the successful integration of the recent acquisition of certain assets of Woodard, LLC, (ii) work with the Company’s senior management to develop a strategic marketing and sales plan, (iii) assist the Board by evaluating the Company’s members of senior management during the search for a Chief Executive Officer and (iv) help facilitate the retirement of James R. Ridings from the position of Chief Executive Officer of the Company. The original term of the agreement was until June 30, 2008. Effective July 1, 2008, the Company amended the Agreement to extend the term at each successive regular Board meeting at the discretion of the Board. Effective September 30, 2008 the Board determined that Mr. Bucek had fulfilled his responsibilities under the Agreement, and the Agreement was terminated. Pursuant to the Agreement Mr. Bucek received $12,500 per month for his services, which the Board deemed to be reasonable and based upon rates that would prevail in an arms-length transaction.

2537

		Trade Source International, Inc., filed as Exhibit 10.15 to the Company’s Quarterly Report on Form 10Q filed November 12, 1999 (File No. 000-26667) and herein incorporated by reference.
10.16 -		Confirmation under ISDA Master Agreement, dated July 23, 1999, from Chase Bank of Texas, National Association to Craftmade International, Inc., filed as Exhibit 10.16 to the Company’s Quarterly Report on Form 10Q filed November 12, 1999 (File No. 000-26667) and herein incorporated by reference.
10.17 -		Fourth Amendment to Credit Agreement, dated April 2, 1999, by and among Craftmade International, Inc., a Delaware corporation, Durocraft International, Inc. a Texas corporation, Trade Source International, a Delaware corporation, Chase Bank of Texas, National Association and Frost National Bank, filed as Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q filed May 15, 2000 (File No. 000-26667) and herein incorporated by reference.
10.18 -		Letter Agreement Concerning Fifth Amendment to Credit Agreement, dated August 11, 1999, from Chase Bank of Texas, N.A. and Frost National Bank to Craftmade International, Inc., Durocraft International Inc., Trade Source International, Inc., and C/D/R Incorporated, filed as Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q filed May 15, 2000 (File No. 000-26667) and herein incorporated by reference.
10.19 -		Sixth Amendment to Credit Agreement, dated November 12, 1999, by and among Craftmade International, Inc., a Delaware corporation, Durocraft International, Inc., a Texas corporation, Trade Source International, Inc., a Delaware corporation, C/D/R Incorporated, a Delaware corporation, Chase Bank of Texas, National Association and Frost National Bank, filed as Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q filed May 15, 2000 (File No. 000-26667) and herein incorporated by reference.
** 10.20 -		Employment Agreement dated October 25, 1999, between Kathy Oher and Craftmade International, Inc., filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K filed September 26, 2000 (File No. 000-26667) and herein incorporated by reference.
10.21 -		Seventh Amendment to Credit Agreement dated May 12, 2000, by and among Craftmade International, Inc., a Delaware corporation, Durocraft International, Inc., a Texas corporation, Trade Source International, Inc., a Delaware corporation, C/D/R Incorporated, a Delaware corporation, Chase Bank of Texas, National Association and Frost National Bank, filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed September 26, 2000 (File No. 000-26667) and herein incorporated by reference.
** 10.22 -		Craftmade International, Inc. 1999 Stock Option Plan, filed as Exhibit A to the Company’s Proxy Statement on Schedule 14A filed October 4, 2000 (File No. 000-26667) and herein incorporated by reference.
** 10.23 -		Craftmade International, Inc. 2000 Non-Employee Director Stock Plan, filed as Exhibit B to the Company’s Proxy Statement on Schedule 14A filed October 4, 2000 (File No. 000-26667) and herein incorporated by reference.
10.24 -		Eighth Amendment to Credit Agreement dated February 12, 2001, by and among Craftmade International, Inc., a Delaware corporation, Durocraft International, Inc., a Texas corporation, Trade Source International, Inc., a Delaware corporation, Design Trends, LLC, a Delaware limited liability company, C/D/R Incorporated, a Delaware corporation, The Chase Manhattan Bank and The Frost National Bank, filed as Exhibit 10.24 to the Company’s Quarterly Report on Form 10-Q filed May 14, 2001 (File No. 000-26667) and herein incorporated by reference.

Effective March 16, 2009, Todd Teiber accepted the position of Senior Vice-President of Specialty Sales with the Company. The Company acquired Teiber Lighting from Mr. Teiber in 2005, and Mr. Teiber has been party to a consulting agreement with the Company since that time, for which Mr. Teiber receives $100,000 per year. Under the terms of the Teiber Lighting acquisition, Mr. Teiber’s consulting agreement will end February 28, 2010. Mr. Teiber is also owner of Teiber Lighting Sales, which provides sales representation to the Company for its lighting and accessory products in the Specialty segment, in certain geographies. Mr. Teiber is no longer employed by Teiber Lighting Sales, but retains ownership of the company. Craftmade paid commissions of $297,000 to Teiber Lighting Sales in fiscal 2009. Based on an evaluation of similar transactions, the Company’s management has determined that the terms of Mr. Teiber’s employment as well as the use of Teiber Lighting Sales to represent Craftmade products both represent fair market value transactions.

26Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

~~Table~~Foreign ofCurrency ~~Contents~~Risk

10.25 -		Ninth Amendment to Credit Agreement dated June 29, 2001, by and among Craftmade International, Inc., a Delaware corporation, Durocraft International, Inc., a Texas corporation, Trade Source International, Inc., a Delaware corporation, Design Trends, LLC, a Delaware limited liability company, C/D/R Incorporated, a Delaware corporation, The Chase Manhattan Bank and The Frost National Bank, filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed September 26, 2001 (File No. 000-26667) and herein incorporated by reference.
10.26 -		Loan Agreement dated November 6, 2001, by and between Craftmade International, Inc., a Delaware corporation, and The Frost National Bank, a national banking association, filed as Exhibit 10.26 to the Company’s quarterly Report on Form 10-Q filed February 14, 2002 (File No. 000-26667) and herein incorporated by reference.
10.27 -		Termination Agreement dated November 16, 2001, by and between Craftmade International, Inc., a Delaware corporation, and JP Morgan Chase Bank, filed as Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q filed February 14, 2002 (File No. 000-26667) and herein incorporated by reference.
10.28 -		Modification, Renewal and Extension Agreement dated October 27, 2003, by and between The Frost National Bank, a national banking association, and Craftmade International, Inc., a Delaware corporation, filed as Exhibit 10.27 to the Company's Quarterly Report on Form 10-Q filed November 14, 2003 (File No. 000-26667) and herein incorporated by reference.
10.29 -		Note and Security Agreement dated November 24, 2003 by Prime/Home Impressions LLC, a North Carolina limited liability company, to Wachovia Bank, N.A., with Security Agreement of Prime/Home Impressions, LLC, and Guaranty Agreement of Craftmade International, Inc., filed as Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q filed February 17, 2004 (File No. 000-26667) and herein incorporated by reference.
10.30 -		Agreement regarding Lamps Plus, Inc. Litigation, entered into on December 31, 2003 and effective February 21, 2003, by and among Craftmade International, Inc., a Delaware corporation, Design Trends, LLC, a Delaware limited liability company, Dolan Northwest, LLC, an Oregon limited liability company and Patrick S. Dolan, filed as Exhibit 10.29 to the Company's Quarterly Report on Form 10-Q filed February 17, 2004 (File No. 000-26667) and herein incorporated by reference.
*10.31 -		Business Loan Agreement dated June 14, 2004, by and between The Frost National Bank, a national banking association, and Design Trends, LLC, a Delaware limited liability company.
*10.32 -		Second Amendment to Loan Agreement dated June 14, 2004, by and between The Frost National Bank, a national banking association, and Craftmade International, Inc., a Delaware corporation.
* 21 -		Subsidiaries of the Registrant.
* 31.1 -		Certification of James R. Ridings, Chairman of the Board, President and Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
* 31.2 -		Certification of Kathleen B. Oher, Vice President and Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
* 32.1 -		Certification of James R. Ridings, Chairman of the Board, President and Chief Executive Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* 32.2 -		Certification of Kathleen B. Oher, Vice President and Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Substantially all of the Company’s inventory and other purchases are made in U.S. dollars in order to limit its exposure to foreign currency fluctuations.

~~(d)~~Interest ~~All~~Rate ~~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.~~Exposure

*The Company does not currently use derivative financial instruments to hedge interest rate exposure. The Company sweeps any excess cash balances against its line of credit on a daily basis to minimize balances outstanding and corresponding interest expense. As of June ~~Filed~~30, ~~herewith~~2009, the ~~(unless~~Company ~~otherwise~~had ~~indicated~~$20,042,000 ~~exhibits~~in borrowings outstanding on its line of credit with the Frost National Bank. On July 11, 2009 the Company re-financed its line of credit, moving the primary facility to Bank of America, N.A. and establishing a $3.5 million term loan with Frost National Bank. Our earnings are ~~previously~~affected by changes in interest rates due to the fact that interest on ~~filed)~~our line of credit is calculated based upon LIBOR, and our Frost term loan is based on Prime Rate as published in the Wall Street Journal. A 1.0% increase in the effective interest rate on our outstanding borrowings at June 30, 2009, would increase our interest expense by approximately $200,000 on an annualized basis.

**Item A8. ~~management~~Financial ~~contract~~Statements orand ~~compensatory~~Supplementary ~~plan or arrangement required to be filed as an exhibit to this form~~Data.

27The financial statements and supplementary data are included under Item 15(a)(1) and 15(a)(2) of this report.

~~Table~~Item 9. ofChanges ~~Contents~~in and Disagreements with Accountants on Accounting and Financial Disclosure.

~~SIGNATURES~~None.

~~Pursuant to the requirements of Section~~Item ~~13 or 15~~9A(dT). ofControls ~~the~~and ~~Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on September 24, 2004~~Procedures.

CRAFTMADE INTERNATIONAL, INC.

	(a)		Evaluation of Disclosure Controls and Procedures

			As of the end of the period covered by this report, the Company’s management conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

			Based on this evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

~~By: /s/ James R. Ridings James R. Ridings, Chairman of the Board, President and Chief Executive Officer~~38

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

Signatures	Capacity	Date
/s/ James R. Ridings	Chairman of the Board, President,	September 24, 2004
	Chief Executive Officer and
James R. Ridings	Director (Principal Executive
	Officer)
/s/ Clifford Crimmings	Vice President of Marketing and	September 24, 2004
	Director
Clifford Crimmings
/s/ Kathleen B. Oher	Chief Financial Officer, Vice	September 24, 2004
	President and Director
Kathleen B. Oher	(Principal Financial and
	Accounting Officer)
/s/ John DeBlois	Executive Vice President of Trade	September 24, 2004
	Source International, Inc.
John DeBlois	and Director
/s/ A. Paul Knuckley	Director	September 24, 2004
A. Paul Knuckley
/s/ Jerry E. Kimmel	Director	September 24, 2004
Jerry E. Kimmel
/s/ Lary Snodgrass	Director	September 24, 2004
Lary Snodgrass
/s/ Dale Griggs	Director	September 24, 2004
Dale Griggs
/s/ R. Don Morris	Director	September 24, 2004
R. Don Morris
/s/ William E. Bucek	Director	September 24, 2004
William E. Bucek

	(b)		Management’s Annual Report on Internal Control Over Financial Reporting

			The 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, 2009.

	(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 temporary 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 Reporting

			During the quarter ended June 30, 2009, 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.

28Item 9B. Other Information.

~~Table of Contents~~None.

~~INDEX~~PART ~~TO CONSOLIDATED FINANCIAL STATEMENTS~~III

Craftmade International, Inc. Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Statements of Income		F-3
Consolidated Balance Sheets		F-4
Consolidated Statements of Cash Flows		F-6
Consolidated Statements of Changes in Stockholders’ Equity		F-7
Notes to Consolidated Financial Statements		F-8
Financial Statement Schedule:
II – Valuation and Qualifying Accounts		F-19

Item 10. Directors, Executive Officers and Corporate Governance.

~~All~~The ~~other~~information ~~financial~~required ~~statement~~by ~~schedules~~Item 10 ~~have~~of ~~been~~Form ~~omitted~~10-K ~~since~~is ~~they~~hereby ~~are~~incorporated ~~either~~by reference from the ~~not~~earlier ~~required,~~filed ~~not~~of ~~applicable,~~(i) an amendment to this annual report on Form 10-K or (ii) the ~~required~~Company’s definitive ~~information~~proxy isstatement ~~shown~~for in the 2009 Annual Meeting of Stockholders, which will be filed ~~financial~~within ~~statements~~120 days orafter ~~related~~the ~~notes~~Company’s year end for the year covered by this report.

~~F-1~~Item 11. Executive Compensation.

~~Table~~The information required by Item 11 of ~~Contents~~Form 10-K is hereby incorporated by reference from the earlier filed of (i) an amendment to this annual report on Form 10-K or (ii) the Company’s definitive proxy statement for the 2009 Annual Meeting of Stockholders, which will be filed within 120 days after the Company’s year end for the year covered by this report.

~~REPORT OF INDEPENDENT~~39 ~~REGISTERED PUBLIC ACCOUNTING FIRM~~

ToTable the Board of Directors and Stockholders of Craftmade International, Inc. Contents

~~In our opinion, the consolidated financial statements listed in the index appearing under~~ Item ~~15(a)(1) present fairly, in all material respects, the financial position of Craftmade International, Inc~~12. ~~and its~~Security ~~subsidiaries~~Ownership ~~(the “Company”) at June 30, 2004 and 2003, and the results~~ of ~~their~~ ~~operations~~Certain ~~and~~Beneficial ~~their~~Owners cash flows for each of the three years in the period ended June 30, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and ~~financial~~Management ~~statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements~~ and ~~financial~~Related ~~statement~~Stockholder ~~schedule based on our audits~~Matters. ~~We conducted our~~ audits of these statements and financial statement schedule in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~As noted~~The infollowing ~~Note~~table sets forth as of June 330, to2009: (i) the ~~consolidated~~number ~~financial~~of ~~statements,~~securities to be issued ~~the~~upon ~~Company~~exercise ~~adopted~~of outstanding options, (ii) the ~~provisions~~weighted average of ~~Financial~~exercise ~~Accounting~~price ~~Standards~~of ~~Board~~such ~~Interpretation~~outstanding ~~No. 46R~~options, ~~effective~~and ~~January~~(iii) 1,the ~~2004~~number of securities remaining available for future issuance under equity compensation plans that have been approved by security holders of the Company.

~~PRICEWATERHOUSECOOPERS~~Equity ~~LLP~~Compensation Plan Information

Fort Worth, Texas September 13, 2004, except for Note 10, as to which the date is September 24, 2004

Number of

Securities

Number of

Remaining

Securities

Weighted-

Available

to be Issued

Average

for Future

Upon

Exercise

Issuance

Exercise of

Price of

Under Equity

Outstanding

Compensation

Plan 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

140,700

13.17

239,500

Total

159,200

13.53

239,500

FThe remaining information required by Item 12 of Form 10-2K is hereby incorporated by reference from the earlier filed of (i) an amendment to this annual report on Form 10-K or (ii) the Company’s definitive proxy statement for the 2009 Annual Meeting of Stockholders, which will be filed within 120 days after the Company’s year end for the year covered by this report.

~~Table~~Item 13. Certain ofRelationships ~~Contents~~and Related Transactions, and Director Independence.

~~CRAFTMADE~~The ~~INTERNATIONAL,~~information ~~INC.~~required ~~AND~~by ~~SUBSIDIARIES~~Item 13 of Form 10-K is hereby incorporated by reference from the ~~CONSOLIDATED~~earlier ~~STATEMENTS~~filed OFof ~~INCOME~~(i) an amendment to this annual report on Form 10-K or (ii) the Company’s definitive proxy statement for the 2009 Annual Meeting of Stockholders, which will be filed within 120 days after the Company’s year end for the year covered by this report.

	FOR THE YEAR ENDED
	June 30,			June 30,			June 30,
	2004			2003			2002
				(See Note 3)			(See Note 3)
	(In thousands except per share data)
Net sales	$	121,238		$	109,033		$	106,050
Cost of goods sold		85,328			73,639			74,127
Gross profit		35,910			35,394			31,923
Selling, general and administrative expenses		18,580			18,600			17,962
Interest expense		777			896			1,272
Depreciation		648			659			578
Total expenses		20,005			20,155			19,812
Income before income taxes and minority interest		15,905			15,239			12,111
Provision for income taxes		4,540			4,158			3,435
		11,365			11,081			8,676
Minority interest		(3,719	)		(4,235	)		(2,516	)
Net income	$	7,646			6,846			6,160
Basic earnings per common share	$	1.43		$	1.24		$	1.04
Diluted earnings per common share	$	1.42		$	1.23		$	1.03
Cash dividends declared per common share	$	0.40		$	0.28		$	0.28

Item 14. Principal Accounting Fees and Services.

~~SEE~~The ~~ACCOMPANYING~~information ~~NOTES~~required TOby Item 14 of Form 10-K is hereby incorporated by reference from the ~~CONSOLIDATED~~earlier ~~FINANCIAL~~filed ~~STATEMENTS~~of (i) an amendment to this annual report on Form 10-K or (ii) the Company’s definitive proxy statement for the 2009 Annual Meeting of Stockholders, which will be filed within 120 days after the Company’s year end for the year covered by this report.

~~F-3~~PART IV

~~Table~~Item 15. ofExhibits ~~Contents~~and Financial Statement Schedules.

~~CRAFTMADE~~(a) ~~INTERNATIONAL,~~The ~~INC.~~following ~~AND~~documents ~~SUBSIDIARIES CONSOLIDATED~~are ~~BALANCE~~filed ~~SHEETS~~ as part of this report:

~~ASSETS~~ 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.

	June 30,			June 30,
	2004			2003
				(See Note 3)
	(In thousands except share data)
Current assets:
Cash	$	5,838		$	4,992
Accounts receivable — net of allowance for doubtful accounts of $150 and $150, respectively		19,242			16,582
Inventories — net of allowance for obsolescence of $1,171 and $1,641, respectively		15,172			13,124
Deferred income taxes		9			435
Prepaid expenses and other current assets		1,193			671
Total current assets		41,454			35,804
Property and equipment, net
Land		1,535			1,535
Building		7,784			7,784
Office furniture and equipment		9,013			8,818
Leasehold improvements		279			279
		18,611			18,416
Less: accumulated depreciation		(9,626	)		(7,524	)
Total property and equipment, net		8,985			10,892
Goodwill, net of accumulated amortization of $1,204 and $1,204 respectively		4,735			4,735
Other assets		80			12
Total other assets		4,815			4,747
Total assets	$	55,254		$	51,443

Financial Statement Schedule — The financial statement schedule “Schedule II — Valuation and Qualifying Accounts” on page F-42 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.

~~SEE~~3. ~~ACCOMPANYING~~Exhibits ~~NOTES~~— ~~TO CONSOLIDATED~~Certain ~~FINANCIAL~~of ~~STATEMENTS~~ the exhibits to this Annual Report are hereby incorporated by references, as summarized in (b) below.

F-4

	(b)		Exhibits

			A 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.

~~Table of Contents~~40

CRAFTMADETable INTERNATIONAL,of INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Contents

~~LIABILITIES AND STOCKHOLDERS’ EQUITY~~SIGNATURES

	June 30,			June 30,
	2004			2003
	(In thousands except share data)
				(See Note 3)
Current liabilities:
Notes payable - current	$	2,662		$	976
Revolving lines of credit		16,125			12,000
Accounts payable		6,186			4,486
Commissions payable		289			287
Income taxes payable		1,112			607
Accrued customer allowances		4,320			3,058
Other accrued expenses		1,074			915
Total current liabilities		31,768			22,329
Other non-current liabilities:
Notes payable - long term		2,949			4,517
Deferred income taxes		214			492
Total liabilities		34,931			27,338
Minority interests		1,984			3,567
Commitments and contingencies (Note 10)
Stockholders’ equity:
Series A cumulative, convertible callable preferred stock, $1.00 par value, 2,000,000 shares authorized; 32,000 shares issued		32			32
Common stock, $.01 par value, 15,000,000 shares authorized, 9,465,535 and 9,425,535 shares issued, respectively		95			94
Additional paid-in capital		14,098			13,584
Unearned deferred compensation		(11	)		(43	)
Retained earnings		41,207			35,684
Less: treasury stock, 4,336,587 and 4,004,277 common shares at cost, and 32,000 preferred shares at cost		(37,082	)		(28,813	)
Total stockholders’ equity		18,339			20,538
Total liabilities and stockholders’ equity	$	55,254		$	51,443

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on September 25, 2009.

~~SEE~~CRAFTMADE ~~ACCOMPANYING~~INTERNATIONAL, ~~NOTES TO~~INC. ~~CONSOLIDATED FINANCIAL STATEMENTS~~

~~F-5~~ By: /s/ J. Marcus Scrudder J. Marcus Scrudder Chief Executive Officer

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

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS


Signatures	Capacity	Date

/s/ James R. Ridings James R. Ridings	Chairman of the Board	September 28, 2009

/s/ J. Marcus Scrudder J. Marcus Scrudder	Chief Executive Officer (Principal Executive Officer)	September 28, 2009

/s/ C. Brett Burford C. Brett Burford	Chief Financial Officer (Principal Financial and Accounting Officer)	September 28, 2009

/s/ William E. Bucek William E. Bucek	Director	September 28, 2009

/s/ A. Paul Knuckley A. Paul Knuckley	Director	September 28, 2009

/s/ R. Don Morris R. Don Morris	Director	September 28, 2009

/s/ Lary Snodgrass Lary Snodgrass	Director	September 28, 2009

	For the years ended June 30,
	2004			2003			2002
				(In thousands)
				(See Note 3)			(See Note 3)
Cash flows from operating activities:
Net income	$	7,646		$	6,846		$	6,160
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,102			2,295			2,128
Provision for bad debts		69			108			237
Stock compensation expense		33			33			33
Deferred income taxes		147			802			(227	)
Minority Interest		3,719			4,235			2,516
Change in assets and liabilities
providing (using) cash:
Accounts receivable		(2,728	)		4,741			(2,454	)
Inventories		(2,046	)		(1,799	)		8,127
Prepaid expenses and other current assets		(590	)		65			442
Accounts and commissions payable		1,535			(608	)		(1,650	)
Income taxes payable		505			(250	)		(77	)
Accrued expenses		1,422			(1,573	)		2,614
Minority interest payable		(153	)		—			—
Net cash provided by operating activities		11,977			14,895			17,849
Cash flows from investing activities:
Additions to property and equipment		(195	)		(186	)		(2,988	)
Net cash used in investing activities		(195	)		(186	)		(2,988	)
Cash flows from financing activities:
Proceeds from notes payable		2,100			—			—
Principal payments on notes payable		(1,982	)		(950	)		(2,146	)
Net proceeds from (repayments on) lines of credit		4,125			1,798			(10,396	)
Treasury stock purchases		(8,269	)		(7,746	)		(235	)
Distributions to minority interest members		(5,302	)		(2,912	)		(1,322	)
Cash dividends		(2,123	)		(1,542	)		(1,666	)
Proceeds from exercise of employee stock options		514			323			578
Net cash used in financing activities		(10,936	)		(11,029	)		(15,187	)
Net increase (decrease) in cash		846			3,680			(326	)
Cash at beginning of year		4,992			1,312			1,638
Cash at end of year	$	5,838		$	4,992		$	1,312

SupplementalTable disclosures of cash flow information: Contents

Cash paid during the year for:
Interest	$	777	$	896	$	1,272
Income taxes	$	3,752	$	3,435	$	2,926

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm			F-2

Consolidated Statements of Operations			F-3

Consolidated Balance Sheets			F-4

Consolidated Statements of Cash Flows			F-5

Consolidated Statements of Changes in Stockholders’ Equity			F-7

Notes to Consolidated Financial Statements			F-9

Financial Statement Schedule:

II – Valuation and Qualifying Accounts			F-42

F-61

~~CRAFTMADE~~REPORT ~~INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT~~ OF ~~CHANGES~~INDEPENDENT INREGISTERED ~~STOCKHOLDERS’~~PUBLIC ~~EQUITY FOR~~ACCOUNTING ~~THE YEAR ENDED JUNE 30, 2004~~FIRM

					SERIES A		ADDITIONAL		UNEARNED
					PREFERRED		PAID-IN		DEFERRED
	COMMON STOCK				STOCK		CAPITAL		COMPENSATION
(In thousands)	Shares		Amount
Balance as of June 30, 2001		9,327	$	93		32	$	12,683	$	(108	)
Comprehensive income:
Net income for the twelve months ended June 30, 2002		—		—		—		—		—
Termination of derivative financial instrument		—		—		—		—		—
Total comprehensive income
Deferred compensation earned										32
Treasury stock purchases		—		—		—		—		—
Exercise of employee stock options		64		1				578		—
Cash dividends		—		—		—		—		—
Balance as of June 30, 2002		9,391		94		32		13,261		(76	)
Comprehensive income:
Net income for the twelve months ended June 30, 2003		—		—		—		—		—
Total comprehensive income
Deferred compensation earned										33
Treasury stock purchases		—		—		—		—		—
Exercise of employee stock options		35		—				323		—
Cash dividends		—		—		—		—		—
Balance as of June 30, 2003		9,426		94		32		13,584		(43	)
Comprehensive income:
Net income for the twelve months ended June 30, 2004		—		—		—		—		—
Total comprehensive income
Deferred compensation earned		—		—		—		—		32
Treasury stock purchases		—		—		—		—		—
Exercise of employee stock options		40		1		—		514		—
Cash dividends		—		—		—		—		—
Balance as of June 30, 2004		9,466	$	95		32	$	14,098	$	(11	)

To the Board of Directors and Stockholders of Craftmade International, Inc.
Coppell, Texas

				ACCUMULATED
				OTHER
	RETAINED			COMPREHENSIVE
	EARNINGS			INCOME			TREASURY STOCK
(In thousands)							Shares		Amount			Total
Balance as of June 30, 2001	$	25,886		$	28			3,461	$	(20,832	)	$	17,782
Comprehensive income:
Net income for the twelve months ended June 30, 2002		6,160			—			—		—			6,160
Termination of derivative financial instrument		0			(28	)		—		—			(28	)
Total comprehensive income		6,160			(28	)							6,132
Deferred compensation earned													32
Treasury stock purchases		0			—			17		(235	)		(235	)
Exercise of employee stock options		0			—			—		—			579
Cash dividends		(1,666	)		—			—		—			(1,666	)
Balance as of June 30, 2002		30,380			—			3,478		(21,067	)		22,624
Comprehensive income:
Net income for the twelve months ended June 30, 2003		6,846			—			—		—			6,846
Total comprehensive income		6,846			—								6,846
Deferred compensation earned													33
Treasury stock purchases		—			—			558		(7,746	)		(7,746	)
Exercise of employee stock options		—			—			—		—			323
Cash dividends		(1,542	)		—			—		—			(1,542	)
Balance as of June 30, 2003		35,684			—			4,036		(28,813	)		20,538
Comprehensive income:
Net income for the twelve months ended June 30, 2004		7,646			—			—		—			7,646
Total comprehensive income		7,646											7,646
Deferred compensation earned		—			—			—		—			32
Treasury stock purchases		—			—			332		(8,269	)		(8,269	)
Exercise of employee stock options		—			—			—		—			515
Cash dividends		(2,123	)		—			—		—			(2,123	)
Balance as of June 30, 2004	$	41,207			—			4,368	$	(37,082	)	$	18,339

We have audited the accompanying consolidated balance sheets of Craftmade International, Inc. and Subsidiaries (the “Company”) as of June 30, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the three years in the period ended June 30, 2009. We have also audited the schedule listed in Item 15(a)(2) of this Form 10-K for the three years in the period ended June 30, 2009. These financial statements and the schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits.

~~SEE~~We ~~ACCOMPANYING~~conducted ~~NOTES~~our TOaudits in accordance with the standards of the Public Company Accounting ~~CONSOLIDATED~~Oversight ~~FINANCIAL~~Board ~~STATEMENTS~~(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement and schedule. We believe that our audits provide a reasonable basis for our opinion.

~~F-7~~In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at June 30, 2009 and 2008, and the results of its operations and its cash flows for the three years in the period ended June 30, 2009, in conformity with accounting principles generally accepted in the United States of America.

~~Table~~Also, ofin ~~Contents~~our opinion, the schedule presents fairly, in all material respects, the information set forth herein for the three years in the period ended June 30, 2009.

~~CRAFTMADE~~/s/ ~~INTERNATIONAL~~BDO Seidman, ~~INC. AND ITS SUBSIDIARIES~~LLP ~~NOTES~~BDO TOSeidman, ~~CONSOLIDATED FINANCIAL STATEMENTS~~LLP

~~NOTE~~Dallas, 1Texas September 28, ~~- ORGANIZATION AND NATURE OF THE COMPANY~~2009

Craftmade International, Inc., a Delaware corporation, is organized into two operating segments: Craftmade International, Inc. (“Craftmade”) and Trade Source International, Inc. (“TSI”). Craftmade is principally engaged in the design, distribution and marketing of ceiling fans, light kits, outdoor lighting, bathstrip lighting and related accessories to a nationwide network of lighting showrooms and electrical wholesalers specializing in sales to the remodeling, new home construction and replacement markets. TSI, a whollyF-~~owned subsidiary acquired July 1,~~2 1998, and its two 50% owned limited liability companies, Prime/Home Impressions, LLC (“PHI”) and Design Trends, LLC (“Design Trends”), are principally engaged in the design, distribution and marketing of outdoor and indoor lighting, selected ceiling fans and various fan accessories to mass merchandisers. Craftmade, TSI, their wholly-owned subsidiaries and 50% owned limited liability companies are collectively referred to as the “Company”.

NOTETable 2of - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Contents

~~Basis~~CRAFTMADE ~~of presentation - The Company’s consolidated financial statements include the accounts of all wholly-owned subsidiaries and the accounts of two variable interest entities~~INTERNATIONAL, ~~PHI and Design Trends, in which the Company is the primary beneficiary~~INC. ~~All~~AND ~~significant intercompany accounts and transactions have been eliminated. The~~SUBSIDIARIES ~~functional currency of the Company’s foreign subsidiaries is the United States dollar.~~

~~Accounts~~CONSOLIDATED ~~receivable~~STATEMENTS ~~- Accounts~~OF receivable balances represent customer trade receivables generated from the Company’s operations. To reduce the potential for credit risk, the Company evaluates the collectibility of customer balances based on a combination of factors but does not generally require collateral. The Company regularly analyzes significant customer balances, and, when it becomes evident a specific customer will be unable to meet its financial obligations to the Company, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position, a specific allowance for doubtful account is recorded to reduce the related receivable to the amount that is believed reasonably collectible. The Company also records allowances for doubtful accounts for all other customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer and historical experiences. If circumstances related to specific customers change, estimates of the recoverability of receivables could be further adjusted. Receivables are pledged under the Company’s borrowing arrangements. OPERATIONS

~~Concentration~~(In of credit risk - Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade receivables. Substantially all of Craftmade’s customers are lighting showrooms; howeverthousands, ~~credit~~except ~~risk~~per isshare limited due to the large number of customers and their dispersion across many different geographic locations. As of June 30, 2004, Craftmade had no significant concentration of credit risk. As part of its ongoing control procedures, TSI monitors the creditworthiness of its customers thereby mitigating the effect of its concentration of credit risk. All of TSI’s sales are to mass merchandisers with two customers comprising the most significant portion as follows: data)

	Lowes Companies						Walmart
	Fiscal Year Ended
Fiscal	Percent of			Percent of			Percent of			Percent of
	June 30,			June 30,			June 30,
Year	TSI’s Sales			Consolidated Sales			TSI’s Sales			Consolidated Sales
	2009			2008			2007
2004		75	%		42	%		15	%		8	%
Net sales	$	149,692		$	137,590		$	103,350
2003		70	%		39	%		17	%		9	%
Cost of goods sold		(117,472	)		(102,677	)		(71,059	)
2002		70	%		37	%		18	%		10	%
Gross profit		32,220			34,913			32,291
Gross profit as a percentage of net sales		21.5	%		25.4	%		31.2	%
Selling, general and administrative expenses		(30,340	)		(28,117	)		(21,151	)
Depreciation and amortization		(1,076	)		(869	)		(799	)
Total operating expenses		(31,416	)		(28,986	)		(21,950	)
Income from operations		804			5,927			10,341
Interest expense, net		(1,438	)		(1,489	)		(1,441	)
Other income (expense)		(142	)		140			—
Income (loss) before income taxes and minority interest		(776	)		4,578			8,900
Income tax (expense) / benefit		409			(1,174	)		(1,482	)
Income (loss) before minority interest		(367	)		3,404			7,418
Minority interest		(721	)		(1,292	)		(1,507	)
Net income (loss)	$	(1,088	)	$	2,112		$	5,911
Earnings (loss) per share data:
Basic weighted average common shares outstanding		5,705			5,450			5,204
Diluted weighted average common shares outstanding		5,705			5,451			5,206
Basic earnings (loss) per share	$	(0.19	)	$	0.39		$	1.14
Diluted earnings (loss) per share	$	(0.19	)	$	0.39		$	1.14
Cash dividends declared per common share	$	—		$	0.36		$	0.48

~~Inventories~~See -accompanying ~~The~~notes ~~Company’s~~to ~~inventories~~consolidated ~~are~~financial ~~primarily comprised of finished goods and are recorded at the lower of cost or market using the average cost method~~statements. ~~The~~ Company provides estimated inventory allowances for excess, slow-moving and obsolete inventory as well as inventory whose carrying value is in excess of net realizable value. These reserves are based on current assessments about future demands, market conditions and related management initiatives. If market conditions and actual demands are less favorable than those projected by management, additional inventory write-downs may be required.

F-83

~~Deferred~~CRAFTMADE ~~financing costs - Deferred financing costs~~INTERNATIONAL, ~~consisting~~INC. ofAND ~~fees and other expenses associated with debt financing,~~SUBSIDIARIES ~~are amortized over the term of the related debt using the straight-line method, which approximates the effective interest method.~~

~~Property~~CONSOLIDATED ~~and~~BALANCE ~~equipment - Property and equipment is recorded at cost. Depreciation is determined using the straight-line method over the estimated useful lives of the property and equipment, as follows:~~ SHEETS

Building		40 years
Office furniture and equipment		3 to 7 years

(In thousands, except per share data)

Leasehold improvements are amortized over the life of the lease or its useful life, whichever is shorter.


	June 30,			June 30,
	2009			2008
ASSETS

Current assets
Cash	$	384		$	1,269
Accounts receivable, net		25,290			23,644
Inventories, net		20,563			22,420
Income taxes receivable		1,780			1,485
Deferred income taxes		1,367			1,332
Prepaid expenses and other current assets		2,443			2,574

Total current assets		51,827			52,724


Property and equipment, net		11,141			11,060
Goodwill		14,947			14,419
Other intangibles, net		1,097			1,300
Other assets		1,856			2,457

Total non-current assets		29,041			29,236


Total assets	$	80,868		$	81,960


LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS’ EQUITY

Current liabilities
Book overdrafts	$	8		$	182
Accounts payable		7,231			8,411
Other accrued expenses		2,422			3,329
Current portion of long-term obligations		542			507

Total current liabilities		10,203			12,429


Non-current liabilities
Long-term obligations		29,886			27,759
Deferred income taxes		1,122			1,117

Total non-current liabilities		31,008			28,876


Total liabilities		41,211			41,305


Minority interests		3,532			3,562

Stockholders’ equity
Common stock, $0.01 par value, 15,000,000 shares authorized; 10,204,420 and 10,204,420 shares issued, respectively		102			102
Additional paid-in capital		22,335			22,215
Retained earnings		51,814			52,902
Less: treasury stock, 4,499,920 common shares at cost		(38,126	)		(38,126	)

Total stockholders’ equity		36,125			37,093


Total liabilities, minority interests and stockholders’ equity	$	80,868		$	81,960

~~Depreciation~~See ~~expense~~accompanying ~~for~~notes the years ended June 30, 2004, 2003 and 2002 approximated $2,102,000, $2,295,000 and $2,218,000, respectively. Depreciation expense of $1,454,000, $1,636,000 and $1,640,000 was recorded as a reduction of revenue related to ~~display~~consolidated ~~equipment~~financial ~~in one of the Company’s customer’s retail stores~~statements.

~~Maintenance and repairs are charged to expense as incurred; renewals and~~F-4 betterments are charged to appropriate property or equipment accounts. Upon sale or retirement of depreciable assets, the cost and related accumulated depreciation is removed from the accounts, and the resulting gain or loss is included in the results of operations in the period of the sale or retirement.

ImpairmentTable of long-lived assets - The Company reviews potential impairments of long-lived assets and certain identifiable intangibles on an exception basis when there is evidence that events or changes in circumstances have made recovery of an asset’s carrying value unlikely. An impairment loss is recognized if the sum of the expected future cash flows, undiscounted and before interest, from the use of the asset is less than the net book value of the asset. Generally, the amount of the impairment loss is measured as the difference between the net book value of the assets and the estimated fair value. Contents

~~Goodwill~~CRAFTMADE -INTERNATIONAL, ~~Goodwill relates to Craftmade’s acquisition of TSI in fiscal 1999~~INC. ~~The~~AND ~~Company assesses the carrying values of goodwill annually or~~SUBSIDIARIES when circumstances dictate that the carrying value might be impaired. The method for determining if impairment has occurred requires estimates of future cash flows and the Company’s weighted average cost of capital. In the event that an impairment is determined to have occurred, the Company will reduce the carrying value of the asset in that period.

~~Product~~CONSOLIDATED ~~warranties~~STATEMENTS ~~- Provisions~~OF ~~for~~CASH estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information on the nature, frequency, and average cost of warranty claims. FLOWS

	Fiscal			Fiscal			Fiscal
Warranty Reserve:	2004			2003			2002
Beginning of year balance	$	139		$	—		$	—
Provision for estimated expenses		1,764			1,748			1,941
Warranty claims paid		(1,673	)		(1,609	)		(1,941	)
End of year balance	$	230		$	139		$	—

(In thousands)

Income taxes - The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, all expected future events other than enactments of changes in the tax law or rates are considered. Deferred income taxes have been provided on unremitted earnings from foreign investees. The Company reviews its deferred tax assets for ultimate realization and will record a valuation allowance to reduce the deferred tax asset if it is more likely than not that some portion, or all, of these deferred tax assets will not be realized.


	Fiscal Year Ended
	June 30,			June 30,			June 30,
	2009			2008			2007
Cash flows from operating activities:
Net income (loss)	$	(1,088	)	$	2,112		$	5,911
Adjustments to reconcile net income (loss) to net cash provided (used in) by operating activities:
Depreciation and amortization, including amounts in Cost of Sales		1,341			953			799
Provision for bad debt and inventories		488			203			136
(Gain) / loss on sale of property and equipment		32			(6	)		7
Stock compensation expense		120			110			64
Deferred income taxes		(30	)		(71	)		763
Minority interest		721			1,292			1,507
Change in assets and liabilities, net of a business acquired, providing/(using) cash
Accounts receivable		(1,979	)		6,924			1,854
Inventories		1,703			3,888			2,908
Prepaid expenses and other current assets		732			460			(300	)
Accounts payable		(1,249	)		(3,316	)		(2,882	)
Other accrued expenses		(1,200	)		(771	)		(3,725	)

Net cash provided by (used in) operating activities		(409	)		11,778			7,042


Cash 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		(619	)		(698	)		(1,601	)
Additions to property, equipment and tooling		(1,094	)		(655	)		(499	)

Net cash used in investing activities		(1,713	)		(16,851	)		(3,607	)


Cash flows from financing activities:
Cash dividends		—			(2,560	)		(2,498	)
Distributions to minority interest members		(750	)		(1,225	)		(1,674	)
Proceeds from note payable — facility		—			11,000			—
Payments on notes		(459	)		(443	)		(1,134	)
Increase/(decrease) in book overdrafts		(174	)		134			(22	)
Proceeds from exercise of employee stock options		—			—			10
Principal payments on capital lease		(48	)		(41	)		(24	)
Proceeds from lines of credit		98,419			73,355			18,252
Payments on lines of credit		(95,751	)		(74,806	)		(17,581	)

Net cash provided by/(used in) financing activities		1,237			5,414			(4,671	)


Net increase/(decrease) in cash		(885	)		341			(1,236	)
Cash at beginning of year		1,269			928			2,164

Cash at end of year	$	384		$	1,269		$	928

~~TSI’s~~See ~~50%~~accompanying ~~owned~~notes ~~LLCs~~to ~~operate~~consolidated infinancial ~~the form of partnerships for tax purposes and, consequently, do not file federal income tax returns~~statements. ~~Accordingly, the Company recognizes its share of their income and the related tax effects on its provision for income taxes.~~

~~Revenue recognition~~ F-5 Revenue is recognized as product is shipped and related services are performed in accordance with all applicable revenue recognition criteria. For these transactions the Company applies the provisions of SEC Staff Accounting Bulletin No. 104 “Revenue Recognition.” The Company recognizes revenue when there is persuasive evidence of an arrangement, title and risk of loss have passed, delivery has occurred or the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Title generally transfers upon shipment of goods from our warehouse. The Company does not have an obligation or policy of replacing, at no cost, customer products damaged or lost in transit. In some instances, the Company ships product directly from our suppliers to the customers. In these cases, the Company recognizes revenue when the product is accepted by the customer’s representative. The Company applies the provisions of Emerging Issues Task Force (EITF) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” The Company’s application of EITF 99-19 includes evaluation of the terms of each major customer contract relative to a number of criteria that management considers in making its determination with respect to gross vs. net reporting of revenue for transactions with its customers. Management’s criteria for making these judgments place particular emphasis on determining the primary obligor in a transaction and which party bears general inventory risk. The Company records all shipping and handling fees billed to customers as revenue, and related costs as cost of sales, when incurred, in accordance with EITF 00-10, “Accounting for Shipping and Handling Fees and Costs.”

AsTable part of its revenue recognition policy, the Company records estimated incentives payable to its customers at a future date as a reduction of revenue at the time the revenues are recorded. The Company bases its estimates on contractual terms of the programs and estimated or actual sales to individual customers. Actual incentives in any future period are inherently uncertain and, thus, may differ from its estimates. If actual or expected incentives were significantly greater than the reserves the Company had established, the Company would record a reduction to net revenues in the period in which the Company made such determination. Contents

InCRAFTMADE ~~addition to various incentive programs~~INTERNATIONAL, ~~from time to time the Company is required to provide mark-down funds to certain of its mass retail customers to assist them in clearing slow-moving inventory~~INC. ~~These~~AND ~~mark-down funds~~SUBSIDIARIES ~~were~~CONSOLIDATED ~~recorded~~STATEMENTS asOF aCASH ~~reduction~~FLOWS of– ~~revenue in the period in which they~~CONTINUED ~~were granted.~~ (In ~~March 2004, the Company began to estimate and record~~thousands) reductions to revenue for these mark-down funds that it records when the revenue is recorded because based on its past practice these mark-down funds were estimable and considered likely to be granted.

Advertising cost - The Company’s advertising expenditures consist primarily of print advertising programs, and are expensed as incurred or used. Advertising expense for the years ended June 30, 2004, 2003 and 2002, was $1,154,000, $1,299,000 and $1,326,000, respectively. Prepaid advertising costs consisting of current catalogs on hand at June 30, 2004 and 2003 were $339,000 and $471,000, respectively and are expensed in relation to use.


	Fiscal Year Ended
	June 30,		June 30,		June 30,
	2009		2008		2007
Supplemental disclosures of cash flow information:
Cash paid during the fiscal year for:
Interest	$	1,484	$	1,557	$	1,316
Income taxes		353		1,518		2,719

Supplemental disclosures of non-cash investing and financing activities:
Additional contingent consideration not paid	$	90	$	77	$	—
Dividends declared but not paid		—		—		625
Property and equipment financed under capital lease		—		—		177

Common stock and warrants issued in conjunction with acquisition	$	—	$	4,279	$	—

~~Research~~See ~~and development~~accompanying -notes ~~Research,~~to ~~development~~consolidated ~~and engineering~~financial ~~expenditures for the creation and application of new products and processes were approximately $293,000, $167,000 and $219,000 for the years ended June 30, 2004, 2003 and 2002, respectively~~statements.

F-96

~~Stock-based~~CRAFTMADE ~~compensation - The Company follows the disclosure only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123~~INTERNATIONAL, ~~“Accounting for Stock-Based Compensation” as amended by SFAS No~~INC. ~~148.~~AND ~~However,~~SUBSIDIARIES the Company continues to measure compensation cost for those plans using the intrinsic value based method of accounting as prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”.

~~Had compensation cost for the Company’s stock option plans been determined~~CONSOLIDATED ~~based~~STATEMENTS onOF ~~the~~CHANGES ~~fair~~IN ~~value of the stock options at grant date, in accordance with the provisions of FAS 123, “Accounting for Stock-Based Compensation”, the Company~~STOCKHOLDERS’s ~~net income and diluted earnings per common share would have been adjusted to the pro forma amounts indicated below (in thousands, except per share amounts):~~ EQUITY

	Fiscal 2004		Fiscal 2003		Fiscal 2002
Net income, as reported	$	7,646	$	6,846	$	6,160
Net income, pro forma		7,508		6,689		6,021
Basic earnings per common share, as reported		1.43		1.24		1.04
Basic earnings per common share, pro forma		1.41		1.21		1.01
Diluted earnings per common share, as reported		1.42		1.23		1.03
Diluted earnings per common share, pro forma		1.39		1.20		1.00

FOR THE THREE YEARS ENDED JUNE 30, 2009

~~The~~(In ~~fair value of each option grant is calculated on the date of grant using the Black-Scholes option pricing model based upon the following weighted-average assumptions:~~ thousands)

	Fiscal 2004			Fiscal 2003			Fiscal 2002
							Series A			Additional
Expected volatility		50	%		50	%		50	%
	Common Stock						Preferred			Paid-In		Retained			Treasury Stock
Risk-free interest rate		2.9	%		3.7	%		4.9	%
	Shares			Amount			Stock			Capital		Earnings			Shares		Amount			Total
Expected lives		7	years		7	years		7	years
Balance as of June 30, 2006		9,703		$	97		$	—		$	17,757	$	49,309			4,500	$	(38,126	)	$	29,037
Dividend Yield		1.6	%		1.8	%		2.1	%
Comprehensive income:
Net income for the fiscal year ended June 30, 2007													5,911								5,911
Total comprehensive income													5,911								5,911
Exercise of stock options, net of tax benefit		1			—			—			10		—			—		—			10
Stock-based compensation charge		—			—			—			64		—			—		—			64
Cash 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
Comprehensive income:
Net income for the fiscal year ended June 30, 2008													2,112								2,112
Total comprehensive income													2,112								2,112
Stock and warrants issued to Forwoodco, LLC		500			5			—			4,274		—			—		—			4,279
Stock-based compensation charge		—			—			—			110		—			—		—			110
Cash dividends declared		—			—			—			—		(1,932	)		—		—			(1,932	)
Balance as of June 30, 2008		10,204		$	102		$	—		$	22,215	$	52,902			4,500	$	(38,126	)	$	37,093

~~The~~See ~~weighted~~accompanying ~~average~~notes ~~fair value of options granted during fiscal 2004, 2003 and 2002 with an exercise equal~~ to ~~fair~~consolidated ~~market~~financial ~~value on the grant date was $5~~statements.~~06, $5.11~~ ~~and $5.92, respectively.~~

~~Earnings per common share~~ F- ~~Basic earnings per share measures the~~7 performance of an entity over the reporting period. Diluted earnings per share measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. The treasury stock method is used to determine the dilutive potential of stock options. Options which, based on their exercise price, would be anti-dilutive are not considered in the treasury stock method calculation. There have been no options excluded from the earnings per share calculations due to their anti-dilutive nature.

SegmentTable informationof - The Company presents two reportable segments, Craftmade and TSI. The Company’s reportable segments have been identified utilizing the management approach which designates the internal organization that is used by management for making operating decisions and assessing performance. Contents

~~Pervasiveness~~CRAFTMADE ofINTERNATIONAL, ~~estimates~~INC. -AND ~~The preparation of financial statements in~~SUBSIDIARIES ~~conformity~~CONSOLIDATED ~~with~~STATEMENTS ~~generally~~OF ~~accepted~~CHANGES ~~accounting~~IN ~~principles~~STOCKHOLDERS’ ~~requires~~EQUITY ~~management to~~— ~~make estimates and assumptions that affect the reported amounts of assets~~CONTINUED ~~and~~FOR ~~liabilities~~THE ~~and~~THREE ~~disclosure~~YEARS ofENDED ~~contingent~~JUNE ~~assets~~30, ~~and~~2009 ~~liabilities~~— ~~at the~~CONTINUED ~~date~~(In ~~of the financial statements and the reported amounts of revenues and~~thousands) ~~expenses during the reporting period. Actual results could differ from those estimates.~~

Reclassifications - Certain prior year amounts have been reclassified to conform with the current year presentation.


					Series A		Additional
	Common Stock				Preferred		Paid-In		Retained			Treasury Stock
	Shares		Amount		Stock		Capital		Earnings			Shares		Amount			Total

Balance as of June 30, 2008		10,204	$	102	$	—	$	22,215	$	52,902			4,500	$	(38,126	)	$	37,093

Comprehensive loss:
Net loss for the fiscal year ended June 30, 2009										(1,088	)							(1,088	)

Total comprehensive loss										(1,088	)							(1,088	)

Stock-based compensation charge		—		—		—		120		—			—		—			120


Balance as of June 30, 2009		10,204	$	102	$	—	$	22,335	$	51,814			4,500	$	(38,126	)	$	36,125

~~Effects~~See ofaccompanying ~~recent accounting~~notes pronouncements - In December 2003, the SEC issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition”, which supercedes SAB 101, “Revenue Recognition in Financial Statements”. SAB 104 rescinds the accounting guidance contained in SAB 101 specifically related to ~~multiple~~ ~~elements revenue managements, but leaves the remaining SAB 101 principles largely unchanged. The adoption of SAB 104 did not have an impact on Craftmade’s condensed~~ consolidated ~~results of operations or~~ financial ~~position~~statements.

F-108

~~NOTE 3~~CRAFTMADE -INTERNATIONAL, ~~ACCOUNTING~~INC. ~~CHANGES~~AND ITS SUBSIDIARIES

~~FIN~~NOTES 46 TO THE CONSOLIDATED FINANCIAL STATEMENTS

InNote ~~January 2003,~~1 — ~~the~~Organization ~~Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46)~~ and ~~amended~~ itNature ~~by issuing FIN 46R in December 2003. Among other things, FIN 46R generally deferred the effective date~~ of ~~FIN 46 to~~ the quarter ended March 31, 2004. Variable interest entities (VIEs) are primarily entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which the Company ~~is involved must be evaluated to determine~~ ~~the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.~~

~~The Company~~As ~~has~~of aJune 30, ~~50%~~2009 ~~ownership~~Craftmade ~~interest~~International, inInc., ~~two~~a ~~limited~~Delaware ~~liability~~corporation, is organized by ~~companies~~customer ~~Design~~base ~~Trends~~into two operating segments: Specialty and ~~PHI~~Mass. InPrior ~~connection~~to ~~with~~June 30, ~~the~~2008 these ~~adoption~~segments ofwere ~~FIN~~referred ~~46R,~~to ~~the~~as ~~Company~~Craftmade ~~concluded~~and ~~that~~TSI, ~~Design~~respectively ~~Trends~~but ~~and~~these segments were ~~PHI~~re-named ~~are~~to ~~VIEs~~be ~~and~~more ~~that~~descriptive ~~the~~as ~~Company~~well isas ~~the~~to ~~primary~~be ~~beneficiary~~inclusive of ~~each~~the product lines added through the acquisition of ~~Design~~certain ~~Trends~~net ~~and~~assets ~~PHI~~of Woodard, LLC. ~~Pursuant~~Subsequent to ~~the~~that ~~provisions~~date, “Craftmade ofInternational, ~~FIN~~Inc.” ~~46R,~~and ~~effective~~“Craftmade” ~~January 1,~~refer ~~2004,~~to the Company ~~began~~and to“Craftmade ceiling ~~consolidate~~fans” ~~Design~~refer ~~Trends~~to ~~and~~ceiling ~~PHI~~fan ~~and~~products ~~restated~~sold ~~its~~primarily ~~previously~~within ~~issued~~the ~~financial~~Specialty ~~statements~~segment under the Craftmade trade name. “TSI” now refers specifically to ~~reflect~~the ~~Design~~Trade ~~Trends~~Source ~~and~~International subsidiary ~~PHI~~rather asthan ~~consolidated~~the ~~entities~~entire Mass segment.

~~Prior~~The toSpecialty ~~the~~segment ~~adoption~~primarily ofderives ~~FIN~~its ~~46,~~revenue ~~the~~from ~~Company~~home ~~guaranteed the debt of PHI; thus~~furnishings, ~~the~~including ~~recognition of the debt of PHI in the Condensed Consolidated Balance Sheets~~ceiling ~~does~~fans, ~~not~~light ~~represent~~kits, anbath-strip ~~incremental~~lighting, ~~increase~~lamps, inlight ~~the~~bulbs, ~~claims~~door ~~on the general assets of the Company. Further~~chimes, ~~management~~ventilation ~~believes that recognition of the other~~systems, ~~liabilities~~outdoor aspatio afurniture ~~result of consolidating Design Trends~~ and ~~PHI~~other ~~does~~accessories ~~not~~offered ~~result~~primarily inthrough ~~any~~lighting ~~incremental increase in the level of claims on the general assets of the~~showrooms, ~~Company;~~patio ~~rather~~dealers, ~~the~~hospitality ~~additional~~customers ~~liabilities~~and ~~represent~~catalogue ~~claims~~houses. ~~against~~The ~~the~~Mass ~~additional~~segment ~~assets~~derives ~~recognized~~its revenue byfrom ~~the~~outdoor ~~Company~~lighting, asoutdoor apatio ~~result~~furniture, ofportable ~~the consolidations. Conversely~~lamps, ~~the~~indoor ~~additional~~lighting ~~assets~~and fan ~~recognized as a result of consolidating Design Trends~~ and ~~PHI~~lamp doaccessories ~~not~~marketed ~~represent~~solely ~~additional assets of the Company that could be used~~ to ~~satisfy~~mass ~~claims~~retailers byand ~~the~~certain ~~creditors~~major ofretail ~~the Company~~chains.

~~The~~All ~~following~~prior ~~tables~~year ~~present~~disclosures ~~the~~have ~~balance~~been ~~sheets~~re-named ofto ~~Design~~be ~~Trends~~consistent ~~and~~with ~~PHI as of June 30, 2004 and June 30, 2003 and~~ the ~~results~~current ~~of operations for the three~~year ~~years ended June 30, 2004~~disclosure.

~~CRAFTMADE~~Note ~~INTERNATIONAL,~~2 ~~INC.~~— ~~AND~~Summary ~~SUBSIDIARIES CONDENSED~~of ~~CONSOLIDATED~~Significant ~~BALANCE~~Accounting ~~SHEETS~~Policies ~~as of June 30, 2004~~

								Consolidation and
	Craftmade/		Design		Prime			Elimination
	TSI		Trends		Home			Entries			Consolidated
Total assets	$	39,132	$	10,954	$	3,508		$	1,660		$	55,254
Total liabilities and minority interests		24,316		8,844		5,318			(1,563	)		36,915
Total stockholders’ equity		14,816		2,110		(1,810	)		3,223			18,339
Total liabilities and stockholders’ equity	$	39,132	$	10,954	$	3,508		$	1,660		$	55,254

Basis of presentation — The Company’s consolidated financial statements include the accounts of all of its wholly-owned subsidiaries and the accounts of its variable interest entity, Design Trends, LLC (“Design Trends”), of which the Company is the primary beneficiary. On January 2, 2008, Woodard-CM, LLC, a wholly owned subsidiary of Craftmade (“Woodard-CM”) completed the purchase of substantially all of the net assets of Woodard, LLC (“Woodard”). The Company’s financial statements incorporate the results of Woodard, as of the acquisition date. See “Note 3 — Acquisitions” in the notes to the consolidated financial statements for unaudited proforma results for Woodard for the fiscal years ended June 30, 2007 and June 30, 2008. All significant intercompany accounts and transactions have been eliminated. The functional currency of the Company’s foreign subsidiaries is the United States dollar. Certain prior year balances have been reclassified to conform to current year presentation.

~~CONDENSED~~Accounts ~~CONSOLIDATED~~receivable ~~BALANCE~~— ~~SHEETS~~Accounts receivable balances represent customer trade receivables asgenerated from the Company’s operations and consist of ~~June 30,~~the ~~2003~~following:

							Consolidation and
	Craftmade/		Design		Prime		Elimination
	TSI		Trends		Home		Entries			Consolidated
Total assets	$	43,198	$	9,523	$	2,364	($	3,642	)	$	51,443
Total liabilities and minority interests		22,463		5,641		1,457		1,344			30,905
Total stockholders’ equity		20,735		3,882		907		(4,986	)		20,538
Total liabilities and stockholders’ equity	$	43,198	$	9,523	$	2,364	($	3,642	)	$	51,443

Summary of Accounts Receivable
(Dollars in thousands)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED June 30, 2004


	June 30,			June 30,
	2009			2008
Accounts receivable	$	23,062		$	21,623
Other receivables		2,769			2,405
Allowance for doubtful accounts		(541	)		(384	)

Net accounts receivable	$	25,290		$	23,644

							Consolidation and
	Craftmade/		Design		Prime		Elimination
	TSI		Trends		Home		Entries			Consolidated
Net Sales	$	75,541	$	36,422	$	9,275	$	0		$	121,238
Income before minority interest expense and income taxes	$	8,274	$	6,830	$	801	$	0		$	15,905
Net income	$	3,928	$	6,636	$	801	($	3,719	)	$	7,646

Other receivables primarily consist of debit memos due from customers and vendors.

~~CONDENSED CONSOLIDATED STATEMENTS OF INCOME~~F-9 ~~FOR THE YEAR ENDED June 30, 2003~~

							Consolidation and
	Craftmade/		Design		Prime		Elimination
	TSI		Trends		Home		Entries			Consolidated
Net Sales	$	71,817	$	29,079	$	8,137	$	0		$	109,033
Income before minority interest expense and income taxes		6,658		5,724		2,857		0			15,239
Net income	$	2,610	$	5,591	$	2,881	($	4,236	)	$	6,846

~~CONDENSED~~CRAFTMADE ~~CONSOLIDATED~~INTERNATIONAL, ~~STATEMENTS~~INC. OFAND ~~INCOME~~ITS SUBSIDIARIES ~~FOR~~NOTES TO THE ~~YEAR~~CONSOLIDATED ~~ENDED June 30,~~FINANCIAL ~~2002~~STATEMENTS

							Consolidation and
	Craftmade/		Design		Prime		Elimination
	TSI		Trends		Home		Entries			Consolidated
Net Sales	$	73,510	$	25,675	$	6,865	$	0		$	106,050
Income before minority interest expense and income taxes		7,003		3,384		1,724		0			12,111
Net income	$	3,643	$	3,243	$	1,790	($	2,516	)	$	6,160

To reduce the potential for credit risk, the Company evaluates the collectability of customer balances based on a combination of factors but does not generally require collateral. The Company regularly analyzes significant customer balances, and, when it becomes evident a specific customer will be unable to meet its financial obligations to the Company, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position, a specific allowance for doubtful account is recorded to reduce the related receivable to the amount that is believed reasonably collectible. The Company also records allowances for doubtful accounts for all other customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer and historical experiences. If circumstances related to specific customers change, estimates of the recoverability of receivables could be further adjusted. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Receivables are pledged under the Company’s borrowing arrangements.

InConcentration ~~December 2003,~~of credit risk — Financial instruments that potentially subject the ~~SEC~~Company ~~issued~~to concentrations ~~Staff~~of ~~Accounting~~credit ~~Bulletin~~risk ~~(“SAB”)~~consist Noprimarily of trade receivables. ~~104,~~ ~~“Revenue~~Substantially ~~Recognition”,~~all Specialty ~~which~~segment ~~supersedes~~customers ~~SAB~~are ~~101~~lighting showrooms and patio dealers; however, ~~“Revenue~~credit ~~Recognition~~risk is inlimited ~~Financial~~due to the large number of customers and their dispersion across many different ~~Statements”~~geographic locations. ~~SAB~~As ~~104~~of ~~rescinds~~June 30, 2009, the ~~accounting~~Specialty ~~guidance~~segment ~~contained~~had inno ~~SAB~~significant concentration ~~101~~of ~~specifically~~credit ~~related~~risk. toAs ~~multiple~~part ~~element~~of ~~revenue~~its ~~arrangements,~~ongoing ~~but~~control ~~leaves~~procedures, the Mass segment ~~remaining~~monitors ~~SAB~~the ~~101~~creditworthiness ~~principles~~of ~~largely~~its ~~unchanged.~~customers, ~~The~~thereby ~~adoption~~mitigating the effect of ~~SAB~~its concentration ~~104~~of ~~did~~credit ~~not~~risk. ~~have~~All aof ~~material~~Mass ~~impact~~segment onsales ~~Craftmade~~are to mass merchandisers, with Lowe’s ~~condensed~~Companies, ~~consolidated~~Inc. ~~results~~(“Lowe’s”) ofand Costco Wholesale Corporation (“Costco”) comprising the ~~operations~~most orsignificant ~~financial~~portion ~~position.~~as follows:

F-11


	Lowe’s						Costco
	Percent of			Percent of			Percent of			Percent of
	Mass			Consolidated			Mass			Consolidated
Fiscal Year Ended	Net Sales			Net Sales			Net Sales			Net Sales
June 30, 2008		44	%		24	%		9	%		5	%
June 30, 2008		41	%		19	%		14	%		6	%
June 30, 2007		70	%		29	%		0	%		0	%

~~Table~~Inventories — The Company’s fan and lighting inventories are primarily composed of finished ~~Contents~~goods and are recorded at the lower of cost or market using the average cost method. Outdoor furniture inventory shipped out of the Woodard facility in Owosso, Michigan, consists of finished goods, work in process and raw materials, and are stated at the lower of cost, determined principally by the use of the standard cost method which approximates first-in, first-out (“FIFO”), or market if lower. The Company provides estimated inventory allowances for excess, slow-moving and obsolete inventory as well as inventory whose carrying value is in excess of net realizable value. These reserves are based on current assessments about future demands, market conditions and related management initiatives. If market conditions and actual demands are less favorable than those projected by management, additional inventory write-downs may be required. Inventory reserves were $208,000 and $423,000 at June 30, 2009 and 2008, respectively.

~~NOTE~~Summary 4of —Inventory (Dollars ~~REVOLVING~~in ~~LINES OF CREDIT AND NOTES PAYABLE~~thousands)

Description	June 30, 2004			June 30, 2003
	June 30,			June 30,
On October 27, 2003 the Company renewed its $20,000,000 loan agreement with The Frost National Bank. Borrowings under this agreement are made under a revolving promissory note (the “Craftmade Line of Credit”) and are limited to the lesser of $20,000,000 less the amount outstanding under a separate $2,000,000 revolving promissory note with the bank (“Design Trends Line of Credit”) or the amount equal to the borrowing base calculated on eligible accounts receivable and inventory. The borrowings are collateralized by certain inventory and accounts receivable and bear interest at prime (4.00% at June 30, 2004) less .5% and require the maintenance of a tangible net worth ratio of 2.5 to 1.0. The line of credit is due on demand; however, if no demand is made, it is scheduled to mature October 31, 2005.	$	14,577		$	12,000
	2009			2008
On June 14, 2004 the Company entered into a $2,000,000 loan agreement with Frost National Bank. Borrowings under this agreement are made under a promissory note (the “Design Trends Line of Credit”) collateralized by certain inventory and accounts receivable of the Company and 50% or $1,000,000 whichever is less of outstanding borrowings are guaranteed by the other member of Design Trends. The borrowings bear interest at a variable interest rate 3.5% at June 30, 2004 and require the maintenance of working capital of 2 to 1 and tangible net worth of 2.5 to 1. Any borrowings under this agreement will be due on October 31, 2005.		—			—
Raw materials	$	5,728		$	6,212
On November 24, 2003 PHI entered into a loan agreement with Wachovia Bank NA. Borrowings under this agreement are made under a $2,100,000 promissory note collateralized by substantially all the assets of PHI. This loan is guaranteed jointly and severally by each of the PHI members. Borrowings under this agreement are payable in quarterly installments of $525,000 plus interest at 1-month LIBOR plus 2.5% beginning on June 15, 2004 until March 15, 2005 when all unpaid principal and interest shall be due and payable. This loan agreement requires the maintenance of certain financial ratios including minimum tangible net worth and funded debt to EBITDA.		1,575			—
Work in process		622			936
On April 17, 2002 PHI entered into a $2,000,000 note and security agreement with Wachovia Bank, NA. Borrowings under this agreement are limited to a borrowing base calculated as a percentage of certain eligible accounts receivable and inventory are payable on demand with interest at LIBOR (1.3582% at June 30, 2004) plus 2% payable monthly, collateralized by certain inventory and receivables of the Company and jointly and severally guaranteed by the PHI members. This loan agreement requires, which expires on October 1, 2004, the maintenance of certain financial ratios including the maintenance of minimum tangible net worth and funded debt to EBITDA.		1,548			—
Finished goods		14,213			15,272
On April 29, 2002 PHI entered into a three-year $500,000 note and security agreement with Wachovia Bank, NA. Borrowings under this agreement are payable monthly in installments of $13,889 plus interest at LIBOR plus 2.5% collateralized by certain inventory and receivables of the Company.		195			362
Total	$	20,563		$	22,420
On May 9, 2000 the Company entered into a term loan to finance its home office and warehouse with an original principal balance of $9,200,000. The loan is payable in equal monthly installments of $100,378 of principal and interest at 8.302% with a final balloon payment of $901,045 when the loan matures on January 1, 2008. The loan is collateralized by the building and land with a net book value of approximately $7,743,000 at June 30, 2004.		3,841			5,131
		21,736			17,493
Less lines of credit due on demand		(16,125	)		(12,000	)
Less amounts due in following year — current		(2,662	)		(976	)
Non-current	$	2,949		$	4,517

~~Scheduled maturities of notes payable, excluding lines of credit due on demand~~F-10 ~~are as follows (in thousands):~~

Fiscal Year
2005	$	2,662
2006		1,027
2007		1,086
2008		836
	$	5,611

~~The~~CRAFTMADE ~~Company was in violation of its negative covenant not to retire or otherwise acquire any of its capital stock contained in the Unconditional Guaranty of the Promissory Note dated as of November 24~~INTERNATIONAL, ~~2003 to Prime/Home Impressions, LLC with Wachovia Bank, NA~~INC. ~~The~~AND ~~Company~~ITS ~~has obtained a waiver of~~SUBSIDIARIES ~~such~~NOTES ~~violation~~TO ~~from~~THE ~~Wachovia~~CONSOLIDATED ~~Bank,~~FINANCIAL ~~NA for the quarters ended December 31, 2003;~~STATEMENTS March 31, 2004; and for the fiscal year ended June 30, 2004 and for the period ending September 15, 2005. Nevertheless the amount outstanding under this note at June 30, 2004, $1,575,000 has been classified as current due to its terms.

~~By entering~~Property into the Unconditional Guaranty of the Promissory Note dated as of November 24, 2003 to Prime/Home Impressions, LLC with Wachovia Bank, NA, the Company violated its negative covenant not to guarantee debts contained in the Loan Agreement dated as of November 6, 2001 with Frost Bank. The Company has obtained a waiver of such violation from Frost Bank, for the quarters ended December 31, 2003; March 31, 2004; and ~~for~~equipment ~~the~~— ~~fiscal~~Property ~~year ended June 30, 2004~~ and ~~for~~equipment ~~the~~is ~~period~~recorded ~~ending September 15, 2005. Nevertheless the amount outstanding under this note~~ at ~~June 30,~~cost ~~2004,~~and ~~$14,577,000~~summarized ~~has been classified~~ as ~~current due to its terms.~~ follows:

At(Dollars ~~June 30,~~in ~~2004 and 2003 the weighted average interest rate on outstanding borrowings under the revolving lines of credit were 4.7% and 5.4%, respectively.~~thousands)

F-12


	June 30,			June 30,
	2009			2008
Land	$	1,761		$	1,761
Buildings		10,499			10,341
Office furniture and equipment		5,184			4,841
Leasehold improvements		440			211

Gross property and equipment		17,884			17,154
Accumulated depreciation		(6,743	)		(6,094	)

Net property and equipment	$	11,141		$	11,060

~~Table~~Depreciation is determined using the straight-line method over the estimated useful lives of ~~Contents~~the property and equipment, as follows:

NOTE 5 - INCOME TAXES


Buildings			40 years
Office furniture and equipment			2 to 7 years

~~Components~~Office furniture and equipment includes the cost of the ~~provision~~Company’s ~~for~~product ~~income~~tooling ~~taxes~~which ~~for~~is amortized ~~the~~over two years. ~~ended~~Leasehold ~~June 30, 2004,~~improvements ~~2003~~are ~~and~~amortized ~~2002~~over ~~consist~~the life of the ~~following:~~lease or their useful life, whichever is shorter.

	2004		2003		2002
	(In thousands)
Current expense:
Federal	$	3,499	$	2,617	$	3,300
State		536		487		266
Foreign		358		252		96
Total current expense	$	4,393	$	3,356		3,662
Total deferred		147		802		(227	)
Provision for income taxes	$	4,540	$	4,158	$	3,435

Depreciation and amortization expense is summarized in the following table:

Deferred taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. The temporary differences that give rise to deferred tax assets and liabilities at June 30, 2004 and 2003 are as follows:


	2009		2008		2007
Depreciation of property and equipment	$	1,139	$	751	$	601
Amortization of intangibles		203		202		198

	$	1,342	$	953	$	799

	2004			2003
	(In thousands)
Inventories	$	433		$	452
Accounts receivable reserves		55			56
Accrued customer allowances		172			232
Investment in 50% owned LLCs		577			519
Other		116			64
Total deferred tax assets		1,353			1,323
Depreciation and amortization		(388	)		(493	)
Foreign taxes		(1,163	)		(888	)
Other		(7	)		—
Total deferred tax liabilities		(1,558	)		(1,381	)
	$	(205	)	$	(57	)

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

~~The~~Impairment ~~differences~~of ~~between~~long-lived ~~the~~assets — The Company’s ~~effective~~reviews ~~tax~~potential ~~rate~~impairments of long-lived assets and ~~the~~certain ~~federal~~identifiable intangibles on an exception basis when there is evidence ~~statutory~~that ~~rate~~events or changes in circumstances have made recovery of ~~34%~~an ~~for~~asset’s carrying value unlikely. An impairment loss is recognized if the ~~years~~sum ~~ended~~of ~~June 30~~the expected future cash flows, undiscounted ~~2004~~and before interest, ~~2003~~from ~~and~~the ~~2002~~use ~~are~~of the asset is less than the net book value of the asset. Generally, the amount of the impairment loss is measured as ~~follows:~~the difference between the net book value of the assets and the estimated fair value. There was no impairment of long-lived assets at June 30, 2009.

	2004			2003			2002
	(In thousands)
Tax at the statutory corporate rate	$	5,416		$	5,181		$	4,118
Less federal income tax		(1,297	)		(1,459	)		(868	)
Attributable to minority interest
State income taxes, net of federal benefit		343			360			232
Other		78			76			(47	)
Provision for income taxes	$	4,540		$	4,158		$	3,435

F-11

F-13 Table of Contents

~~Table~~CRAFTMADE ofINTERNATIONAL, ~~Contents~~INC. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~NOTE~~Goodwill 6and -other ~~STOCKHOLDERS’~~intangible ~~EQUITY~~assets — The following table summarizes the Company’s goodwill:

Stock Option Plans


	Speciality		Mass		Total
June 30, 2008	$	6,745	$	7,674	$	14,419
Acquisition of Marketing Impressions		—		529		529

June 30, 2009	$	6,745	$	8,203	$	14,948

OnPer ~~October 27,~~FASB ~~2000,~~Statement ~~the~~of ~~Company’s~~Financial ~~stockholders~~Accounting ~~approved~~Standards ~~the~~No. 142, ~~1999~~Goodwill ~~Stock~~and Other ~~Option~~Intangible ~~Plan~~Assets (“~~1999~~SFAS ~~Plan~~142”) ~~and 2000 Non-Employee Director Plan (“Non-Employee Plan”)~~, ~~previously~~goodwill ~~adopted~~shall bybe ~~the~~tested ~~Board~~for ofimpairment ~~Directors~~at ona ~~October 29,~~level ~~1999 and~~of ~~February 16,~~reporting ~~2000,~~referred ~~respectively.~~to ~~The~~as ~~1999 Plan and Non-Employee Plan allow~~ a ~~maximum~~ ofreporting ~~300,000~~unit. ~~and~~Impairment ~~75,000~~is ~~shares, respectively, of~~ the ~~Company’s~~condition ~~common stock~~that toexists bewhen ~~issued. Options granted pursuant to~~ the ~~1999 Plan will be~~ ~~designated~~carrying asamount ~~either~~of ~~Incentive~~goodwill ~~Stock~~exceeds ~~Options~~its ~~(“ISOs”)~~implied orfair ~~Non-Qualified Stock Options (“NQSOs”)~~value. ~~Options~~SFAS ~~granted~~142 ~~pursuant~~requires toa ~~the Non~~two-~~Employee Plan will be~~step ~~designated~~impairment astest ~~NQSOs.~~which ~~The 1999~~is ~~Plan~~used ~~options~~to ~~vest~~identify atpotential agoodwill ~~rate~~impairment ~~of 20% on the grant date~~ and ~~20%~~measure ~~for each~~the ~~successive~~amount ~~year. The Non-Employee Plan options vest within six months~~ of ~~the date~~a ofgoodwill ~~grant.~~impairment ~~Options~~loss ~~may~~to be ~~exercised~~recognized at(if any ~~time once they become vested, but not more than 10 years from the date of grant~~).

Under SFAS 142 a reporting unit is an operating segment or one level below an operating segment (referred to as a component). A ~~summary~~component of ~~options~~an ~~issued~~operating ~~under~~segment is a reporting unit if the ~~above~~component ~~agreements~~constitutes a business for which discrete financial information is available asand ~~follows:~~segment management regularly reviews the operating results of that component. An operating segment shall be deemed to be a reporting unit if all of its components are similar, if none of its components is a reporting unit, or if it comprises only a single component.

	1999 Plan									Non-Employee Plan
				Weighted				Weighted				Weighted				Weighted
				Average		Exercise		Average				Average				Average
				Exercise		Price		Remaining				Exercise		Exercise Price		Remaining
	Shares			Price		Range		Life		Shares		Price		Range		Life
Outstanding at June 30, 2001		190,000			6.75						9,000		7.06
Granted		—			—						4,500		14.85
Exercised		(64,000	)		6.75						—		—
Outstanding at June 30, 2002		126,000		$	6.75						13,500	$	9.66
Granted		—			—						4,500		14.15
Exercised		(33,500	)		6.75						—		—
Outstanding at June 30, 2003		92,500		$	6.75						18,000	$	10.78
Granted		—			—						4,500		25.20
Exercised		(40,500	)		6.75						—		—
Outstanding at June 30, 2004		52,000		$	6.75	$	6.75		6.3		22,500	$	13.67	$	6.56-$25.20		7.8
Exercisable at June 30, 2004		12,000		$	6.75						22,500	$	10.78

Craftmade is organized into two operating segments, Mass and Specialty. While each operating segment has components, they do not meet the above requirements to be considered reporting units, therefore Craftmade considers Mass and Specialty as reporting units for purposes of testing for goodwill impairment. In analyzing goodwill impairment assets, liabilities and goodwill must be assigned or allocated to the reporting units. Since the vast majority of Mass revenues are related to items that are direct shipped to customers, the Company allocates substantially all its assets to the Specialty segment. The only exception is accounts receivable which are allocated to each segment by customer. Debt is allocated to each reporting unit based on the reporting unit’s percentage of total revenue. Goodwill is assigned to the appropriate reporting unit based on where revenues stemming from the related acquisitions are reported.

~~Deferred~~The ~~compensation~~first ~~expense~~step of the goodwill impairment test compares the fair value of a reporting unit iswith ~~recognized~~its carrying amount, including goodwill. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the ~~Company’s~~measurement ~~results~~date. The estimated fair value of ~~operations~~reporting unit as of June 30, 2009 was determined using a combination of the ~~options~~income ~~vest.~~approach (discounted cash flow or “DCF” analysis) and the market approach (application of relevant revenue or income multiples, based on comparable companies). If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, thus the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss, if any.

~~F-14~~The second step of the goodwill impairment test compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill shall be determined in the same manner as the amount of goodwill recognized in a business combination was determined. That is, an entity shall assign the fair value of a reporting unit to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess Based on our valuation of the fair value of each reporting unit compared with its carrying amount, there was no impairment of goodwill at June 30, 2009. This conclusion was based on our assessment under the first step of impairment testing dictated by SFAS 142, and therefore the second step was unnecessary.

~~Table of Contents~~F-12

TreasuryTable Stockof Purchases Contents

OnCRAFTMADE ~~December 9~~INTERNATIONAL, ~~2003, the Company’s Board of Directors authorized the Company’s management to repurchase up to 500,000 shares of the Company’s outstanding common stock~~INC. AsAND ofITS ~~June 30, 2004 the Company had repurchased 331,310 shares at~~SUBSIDIARIES anNOTES ~~aggregate~~TO ~~cost~~THE ofCONSOLIDATED ~~$8,269,000~~FINANCIAL ~~under this program.~~STATEMENTS

~~Stockholder~~The ~~Rights~~Company ~~Plan~~assesses the carrying values of goodwill annually as of June 30 or when circumstances dictate that the carrying value might be impaired. Per SFAS 142 goodwill of a reporting unit shall be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Examples of such events or circumstances include a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of. In addition, SFAS 142 also requires that goodwill be tested for impairment after a portion of goodwill has been allocated to a business to be disposed of. Based on the rapid economic decline seen in the last half of calendar 2008, the Company performed an interim test for goodwill impairment as of December 31, 2008, and found that no impairment was necessary at that time.

OnThe ~~June 23,~~amount ~~1999, the Company declared a dividend~~ of ~~one~~goodwill ~~Preferred~~deductible ~~Share Purchase~~for ~~Right~~tax ~~(“Right”)~~purposes onin ~~each outstanding share of~~ the ~~Company’s common~~future ~~stock. The dividend distribution~~ was made on July 19, 1999 to stockholders of record on that date. The Rights become exercisable if a person or group acquires 15% or more of the Company’s common stock or announces its intent to do so. Each Right will entitle stockholders to buy one one-thousandth of a share of Series A Preferred Stock, $~~1.00 par value per share~~5, ~~at an exercise price of $48. When the Rights become exercisable~~467,000 ~~the holder of each Right (other than the acquiring person or members of such group) is entitled (1) to purchase,~~ at the Right’s then current exercise price, a number of the acquiring company’s common shares having a market value of twice such price, (2) to purchase, at the Right’s then current exercise price, a number of the Company’s common shares having a market value of twice such price, or (3) at the option of the Company, to exchange the Rights (other than Rights owned by such person or group), in whole or in part, at an exchange ratio of one-half share of common stock (or one-thousandth of a share of the Series A Preferred Stock) per Right. The Rights may be redeemed for $.001 each by the Company at any time prior to acquisition by a person (or group) of beneficial ownership of 15% or more of the Company’s common stock. The Rights will expire on June 2330, 2009.

FIn connection with its acquisitions, the Company acquired certain identifiable intangible assets, including patents, trademarks and covenants not-15to-compete:

~~Table~~Summary of ~~Contents~~Intangible Assets (Dollars in thousands)

NOTE 8 - EARNINGS PER SHARE


	June 30,			June 30,
	2009			2008
Non-compete covenants	$	1,020		$	1,020
Patents and trademarks		720			720

Gross intangible assets		1,740			1,740
Accumulated amortization		(643	)		(440	)

Net intangible assets	$	1,097		$	1,300

~~The~~As ~~following~~of isJune 30, a2009, ~~reconciliation~~estimated offuture ~~the~~amortization ~~numerator~~expense ~~and~~related ~~denominator~~to ~~used~~intangible assets inis ~~the~~summarized ~~basic~~as ~~and diluted EPS calculations~~follows:

	For the years ended June 30,
	2004		2003		2002
	(In thousands, except per share data)
Basic and diluted EPS:
Numerator: net income	$	7,646	$	6,846	$	6,160
Basic denominator:
Common shares outstanding		5,336		5,512		5,937
Basic EPS:	$	1.43	$	1.24		1.04
Diluted denominator:
Common shares outstanding		5,336		5,512		5,937
Options		47		56		64
Total shares		5,383		5,568		6,001
Diluted EPS:	$	1.42	$	1.23	$	1.03

Summary of Future Amortization Expense
(Dollars in Thousands)

NOTE 9 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS


Fiscal Year Ending
June 30, 2010	$	188
June 30, 2011		188
June 30, 2012		179
June 30, 2013		164
June 30, 2014		47
Thereafter		331

	$	1,097

The Company’s financial instruments include cash, receivables, accounts and commissions payable, accrued expenses and amounts outstanding under various debt agreements. Management believes the fair values of these instruments approximate the related carrying values as of June 30, 2004 because of their shortF-~~term nature, recent renegotiations and/or~~13 ~~variable interest rates.~~

NOTETable 10of - COMMITMENTS AND CONTINGENCIES Contents

~~The~~CRAFTMADE Company leases various equipment and real estate under non-cancelable operating lease agreements which require future cash payments. The Company incurred rental expense under its operating lease agreements of $264INTERNATIONAL,~~000, $363,000,~~ ~~and $364,000 for the years ended June 30, 2004, 2003 and 2002, respectively~~INC. ~~Future~~AND ~~minimum~~ITS ~~lease payments under non-cancelable operating~~SUBSIDIARIES ~~leases~~NOTES asTO ofTHE ~~June 30,~~CONSOLIDATED ~~2004~~FINANCIAL ~~are as follows (in thousands):~~STATEMENTS

Fiscal Year
2005	$	188
2006		118
2007		94
2008		22
2009		16
Total	$	438

Other accrued expenses — Other accrued expenses consist of the following balances:

~~The~~Summary Company is a party to a lawsuit alleging patent infringement related to a patent held by Lamps Plus, Inc. In November 2003, a jury verdict held that the Company willfully infringed on the patent. The jury awarded damages of ~~$143,385,~~Other ~~and~~Accrued ~~Lamps Plus filed a motion to seek treble damages~~Expenses ~~plus~~(Dollars reasonable attorneys’ fees and court costs. On September 14, 2004, the Court entered a Judgment and Permanent Injunction and issued an Order Awarding Attorneys’ Fees. The Judgment awards Lamps Plus $143,385 in ~~actual damages plus costs of~~Thousands) court. The Order awards $600,000 in attorneys’ fees to Lamps Plus. The Company and other defendants in the lawsuit intend to appeal the Judgment and Order, and the outcome of the appeal is uncertain, accordingly no accrual for any amount has been made in the Company’s June 30, 2004 consolidated financial statements.

Craftmade has an agreement with Dolan Northwest, LLC (the owner of the 50% of Design Trends) pursuant to which Dolan Northwest is responsible for the judgment rendered in the lawsuit, plus all costs and


	June 30,		June 30,
	2009		2008
Accrued customer allowances	$	729	$	834
Commissions payable		331		611
Accrued payroll		555		752
Restructuring reserve, net of taxes		97		443
Co-op advertising allowance		350		353
Other current liabilities		360		336

Other accrued expenses	$	2,422	$	3,329

~~F-16~~Returns — The Company offers certain customers credits for authorized returned merchandise and estimates an allowance for sales returns at the end of each period:

~~Table~~Sales ofReturns ~~Contents~~Allowance (Dollars in thousands)

expenses, including legal fees and court costs, associated with the judgment. Pat Dolan has unconditionally guaranteed the obligations of Dolan Northwest under this agreement.


	June 30,			June 30,			June 30,
	2009			2008			2007
Beginning of year balance	$	77		$	91		$	87
Provision for estimated returns		941			909			1,025
Return credits issued		(950	)		(923	)		(1,021	)

End of year balance	$	68		$	77		$	91

IfProduct ~~the~~warranties ~~defendants’ appeal~~— isCraftmade ~~unsuccessful,~~products ~~according~~are towarranted ~~the~~against ~~above~~defects ~~mentioned~~in ~~agreement,~~workmanship and ~~any~~materials ~~damages~~depending ~~would~~on bestandard ~~the~~offerings ~~responsibility~~ of ~~Dolan~~ ~~Northwest,~~various ~~LLC~~lengths and terms. InProvisions ~~the~~for estimated ~~event~~expenses ~~that~~related ~~both~~to ~~Dolan~~product ~~Northwest~~warranties ~~and~~are ~~Pat~~made ~~Dolan~~at ~~became~~the ~~insolvent~~time orproducts are sold. ~~otherwise~~These ~~unable~~estimates toare ~~meet~~established ~~any~~using ~~such~~historical ~~obligation,~~information iton ~~could~~the ~~become~~nature, afrequency, and ~~liability~~average cost of ~~Design~~warranty ~~Trends~~claims. orProduct ~~Craftmade~~warranty reserves are reported as part of accounts payable on the consolidated balance sheet.

~~NOTE~~Product 11Warranty ~~- 401~~Reserves (k)Dollars ~~DEFINED~~in ~~CONTRIBUTION PLAN~~thousands)

The Company has a defined contribution retirement savings plan (the Retirement Plan) covering substantially all domestic employees who meet certain eligibility requirements as to age and length of service. The Retirement Plan incorporates the salary deferral provision of Section 401(k) of the Internal Revenue Code and employees may defer compensation up to the annual maximum limit prescribed by the Internal Revenue Code. The Company matches half of participant contributions up to 6% of their annual compensation. The Company’s contributions to the Retirement Plan were $90,000, $101,000 and $96,000 for the years ended June 30, 2004, 2003 and 2002, respectively.


	June 30,			June 30,			June 30,
	2009			2008			2007
Beginning of year balance	$	774		$	177		$	169
Woodard Opening Reserve		—			584			—
Provision for estimated expenses		1,436			1,720			1,147
Warranty claims paid		(1,890	)		(1,707	)		(1,139	)

End of year balance	$	320		$	774		$	177

~~NOTE 12~~ F- ~~MAJOR SUPPLIER AND RELATED PARTY~~14

OnTable December 7, 1989, Craftmade and its major Supplier (the “Supplier”) entered into a written agreement, terminable on 180 days prior notice, pursuant to which the Supplier has agreed to manufacture ceiling fans for Craftmade. The Supplier provides substantially all of Craftmade’s ceiling fans and accessories. The Supplier is permitted under the arrangement to manufacture ceiling fans for other distribution provided such ceiling fans are not a replication of the Craftmade series or models. Contents

~~Fans~~CRAFTMADE ~~and~~INTERNATIONAL, ~~accessories~~INC. ~~manufactured~~AND ~~and~~ITS ~~sold to Craftmade by the Supplier~~SUBSIDIARIES ~~account~~NOTES ~~for~~TO ~~approximately~~THE ~~67%~~CONSOLIDATED ~~66%~~FINANCIAL ~~and 69% of Craftmade’s purchases (21%,~~STATEMENTS ~~23%, and 22% of consolidated purchases) during the years ended June 30, 2004, 2003 and 2002, respectively.~~

Income taxes — The ~~company~~Company ~~has~~accounts afor ~~non-interest~~income ~~bearing~~taxes ~~note~~under ~~receivable~~an ~~from~~asset ~~its~~and ~~chief-executive~~liability ~~officer~~approach that requires the recognition of deferred tax assets and liabilities for ~~$50~~the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences,~~000~~ all expected future events other than enactments of changes in the tax law or rates are considered. Deferred ~~Principal~~income ~~payments~~taxes have been provided on unremitted earnings from foreign investees. The Company reviews its deferred tax assets for ultimate realization and will record a valuation allowance to reduce the ~~note~~deferred ~~are~~tax ~~being~~asset if it is more likely than not that some portion, ~~amortized~~or ~~monthly~~all, ~~which~~of these deferred tax assets will ~~result~~not inbe realized. The Company has established, and periodically reviews and reevaluates an estimated contingent tax liability on its consolidated balance sheet to provide for the ~~note~~possibility ~~being~~of ~~paid~~unfavorable outcomes in ~~full~~tax matters. The Company believes its reserves are adequate in ~~August~~the ~~2005~~event the positions are not ultimately upheld.

~~TSI~~In ~~leased~~July 2006, ~~office~~FASB ~~space~~issued ~~from~~Interpretation No. 48, Accounting for Uncertainty in Income Taxes a(“FIN ~~former~~48”) ~~director~~which ofclarifies the ~~company~~accounting for uncertainty in income taxes recognized under FASB Statement No. 109, ~~who~~Accounting ~~was~~for ~~also~~Income ~~senior-officer~~Taxes. FIN 48 addresses the recognition and measurement of ~~TSI.~~tax ~~This~~positions ~~lease~~taken ~~was~~or expected to be taken, and also provides guidance on ~~for~~derecognition, ~~five~~classification, ~~months~~interest atand $7penalties,~~500~~ ~~per~~accounting ~~month~~in interim periods and disclosure. We adopted and applied FIN 48 under the transition provisions to all of our income tax positions at the ~~fiscal~~required ~~year~~effective ~~until~~date of July 1, 2007. See Note 5 in the Notes ~~office~~to ~~was~~the ~~relocated~~Consolidated Financial Statements for additional detail.

FRevenue recognition — Revenue is recognized as product is shipped and related services are performed in accordance with all applicable revenue recognition criteria. For these transactions the Company applies the provisions of Securities and Exchange Commission (“SEC’) Staff Accounting Bulletin (“SAB”) No. 104 “Revenue Recognition.” The Company recognizes revenue when there is persuasive evidence of an arrangement, title and risk of loss have passed, delivery has occurred or the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Title generally transfers upon shipment of goods from the Company’s warehouse. The Company does not have an obligation or policy of replacing customer products damaged or lost in transit. In some instances, the Company ships product directly from its suppliers to the customers. In these cases, the Company recognizes revenue when the product is accepted by the customer’s representative. For certain products, the Company offers preseason early-17order programs that carry extended terms whereby customers may order and take delivery of products prior to the selling season. Products sold under preseason programs have no right of return.

~~Table~~The Company applies the provisions of ~~Contents~~Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” The Company’s application of EITF 99-19 includes evaluation of its terms with each major customer relative to a number of criteria that management considers in making its determination with respect to gross versus net reporting of revenue for transactions with its customers. Management’s criteria for making these judgments place particular emphasis on determining the primary obligor in a transaction and which party bears general inventory risk. The Company records all shipping and handling fees billed to customers as revenue, and related costs as cost of sales, when incurred, in accordance with EITF 00-10, “Accounting for Shipping and Handling Fees and Costs.”

~~NOTE~~As 13part -of ~~SEGMENT~~its ~~INFORMATION~~revenue recognition policy, the Company records estimated incentives payable to its customers at a future date as a reduction of revenue at the time the revenues are recorded. The Company bases its estimates on contractual terms of the programs and estimated or actual sales to individual customers. Actual incentives in any future period are inherently uncertain and, thus, may differ from its estimates. If actual or expected incentives were significantly greater than the reserves the Company had established, the Company would record a reduction to net revenues in the period in which the Company made such determination.

~~The Company operates in two reportable segments, Craftmade and TSI. The accounting policies of the segments are the same as those described in Note 2~~ F- ~~Summary of Significant Accounting Policies. The Company evaluates~~15 ~~the performance of its segments and allocates resources to them based on their operating profit and loss and cash flows.~~

TheTable Company is organized on a combination of product type and customer base. The Craftmade segment primarily derives its revenue from home furnishings including ceiling fans, light kits, bathstrip lighting and lamps offered primarily through lighting showrooms, certain major retail chains and catalog houses. The TSI segment derives its revenue from outdoor lighting, portable lamps, indoor lighting and fan accessories marketed solely to mass merchandisers. Contents

~~The~~CRAFTMADE ~~following~~INTERNATIONAL, ~~table~~INC. ~~presents~~AND ~~information~~ITS ~~about~~SUBSIDIARIES NOTES ~~the~~TO ~~reportable~~THE ~~segments (in~~CONSOLIDATED ~~thousands):~~FINANCIAL STATEMENTS

	Craftmade		TSI		Total
For the year ended June 30, 2004:
Net sales to external customers	$	53,526	$	67,712	$	121,238
Operating profit		9,112		7,570		16,682
Interest expense		708		69		777
Minority interest		—		3,719		3,719
Provision for income taxes		3,019		1,521		4,540
Depreciation		554		94		648
Total assets		29,163		26,091		55,254
For the year ended June 30, 2003:
Net sales to external customers	$	49,154	$	59,879	$	109,033
Operating profit		7,835		8,300		16,135
Interest expense		851		45		896
Minority interest		—		4,235		4,235
Provision for income taxes		2,677		1,481		4,158
Depreciation		570		89		659
Total assets		28,372		23,071		51,443
For the year ended June 30, 2002:
Net sales to external customers	$	49,798	$	56,252	$	106,050
Operating profit		7,582		5,801		13,383
Interest expense		1,112		160		1,272
Minority interest		—		2,516		2,516
Provision for income taxes		2,331		1,104		3,435
Depreciation		474		104		578
Total assets		27,143		25,999		53,142

In addition to various incentive programs, from time to time, the Company is required to provide mark-down funds to certain of its mass retail customers to assist them in clearing slow-moving inventory. These mark-down funds are accrued as a reduction of revenue at the time that the related revenues are recorded.

The ~~following~~Company is ~~sales~~also ~~information~~required byto ~~geographic~~provide ~~area~~ for the ~~years~~cost ~~ended~~of ~~June 30,~~labor ~~2004,~~associated ~~2003,~~with resetting store displays. Resets involve removing slow-moving inventory and ~~2002~~replacing (it with new products. Although reset costs are paid to third parties who perform the services, they are considered an incentive to our mass merchandise customers. For existing products that are replaced, the Company accrues an estimate for the cost as an increase to cost of goods sold in ~~thousands)~~advance of the reset at the time that the related revenues are recorded. The Company bases its estimates on a number of factors. The cost for any new products or space that is gained is expensed as incurred as an increase to cost of goods sold.

	2004		2003		2002
United States		112,894		99,781		102,250
Hong Kong		8,344		9,252		3,800
		121,238		109,033		106,050

Variable interest entities — In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”) and amended it by issuing FIN 46R in December 2003. Among other things, FIN 46R generally deferred the effective date of FIN 46 to the quarter ended June 30, 2004. Variable interest entities (“VIEs”) are primarily entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.

~~Long-lived~~The ~~assets~~Company ~~totalled approximately~~has ~~$8,985,000~~a ~~and~~50% ~~$10,893,000~~ownership atinterest ~~June 30~~in Design Trends, ~~2004~~a ~~and~~limited liability company. In ~~2003~~connection with the adoption of FIN 46R, ~~respectively.~~ ~~Approximately~~the $0Company concluded that Design Trends is a VIE and ~~$11,000~~that ofthe Company is the ~~long~~primary ~~lived~~beneficiary. ~~assets~~Pursuant to the provisions of FIN 46R, ateffective ~~June~~January 301, 2004, ~~and~~the ~~2003, respectively,~~Company ~~are~~began ~~located~~to inconsolidate ~~Hong~~Design ~~Kong~~Trends.

~~F-18~~Prior to the acquisition of Marketing Impressions, Inc. which became effective on July 1, 2006, the Company had a 50% ownership interest in Prime/Home Impressions, Inc. (“PHI”). The Company also concluded that PHI was a VIE and that the Company was the primary beneficiary. Pursuant to the provisions of FIN46R, effective January 1, 2004, the Company began to consolidate PHI and restated its previously issued financial statements to reflect PHI as a consolidated entity. Accordingly, the results of operations of PHI have historically 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 includes the full amount of PHI results from this date.

~~Table of Contents~~F-16

NOTETable 14of - QUARTERLY DATA Contents

~~The~~CRAFTMADE ~~Company’s product sales~~INTERNATIONAL, ~~particularly~~INC. ~~ceiling~~AND ~~fans,~~ITS ~~are somewhat~~SUBSIDIARIES ~~seasonal~~NOTES ~~with~~TO ~~sales~~THE inCONSOLIDATED ~~the~~FINANCIAL ~~warmer first and fourth quarters being~~STATEMENTS ~~historically higher than in the two other fiscal quarters.~~

The following ~~table~~tables ~~contains~~present ~~information derived from unaudited financial statements of~~ the ~~Company.~~consolidating Inbalance ~~the~~sheets ~~opinion~~ of the Company’s ~~management,~~VIEs broken ~~the~~out ~~information~~from ~~includes~~the ~~all~~remainder ~~adjustments necessary for fair presentation~~ of ~~the~~its ~~results.~~business ~~The~~which ~~results~~is ofall awholly ~~particular~~owned ~~quarter~~(“Craftmade ~~are~~Wholly ~~not necessarily~~Owned”), ~~indicative~~as of ~~the~~June 30, ~~results~~2009 ~~that~~and ~~might be achieved for a full fiscal year~~2008.

	Fiscal 2004								Fiscal 2003
	First		Second		Third		Fourth		First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter
(In thousands, except per share data)
Statements of income data:
Net Sales	$	31,191	$	28,947	$	28,988	$	32,112	$	30,177	$	24,936	$	26,778	$	27,142
Gross Profit		10,221		7,643		8,462		9,584		10,072		7,891		8,210		9,221
Operating Profit		5,563		2,556		3,890		4,673		5,234		3,259		3,488		4,154
Net Income		2,369		1,364		1,782		2,131		2,204		1,368		1,356		1,918
Basic EPS	$	0.44	$	0.25	$	0.34	$	0.41	$	0.38	$	0.25	$	0.25	$	0.36
Diluted EPS	$	0.43	$	0.25	$	0.33	$	0.41	$	0.38	$	0.25	$	0.25	$	0.36
Basic shares outstanding		5,422		5,437		5,314		5,165		5,796		5,516		5,384		5,353
Diluted shares outstanding		5,481		5,477		5,360		5,207		5,858		5,574		5,436		5,402

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2009
(Dollars in thousands)

CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES


	Craftmade		Design
	Wholly Owned		Trends		Consolidated

Total assets	$	62,892	$	17,976	$	80,868


Total liabilities and minority interests	$	43,112	$	1,631	$	44,743
Total stockholders’ equity		19,780		16,345		36,125

Total liabilities and stockholders’ equity	$	62,892	$	17,976	$	80,868

~~Schedule II~~AS ~~Valuation~~OF ~~and~~JUNE ~~Qualifying~~30, ~~Accounts~~2008 (Dollars in thousands)

For each of the three years in the period ended June 30, 2004


	Craftmade		Design
	Wholly Owned		Trends		Consolidated

Total assets	$	65,815	$	16,145	$	81,960


Total liabilities and minority interests	$	44,346	$	521	$	44,867
Total stockholders’ equity		21,469		15,624		37,093

Total liabilities and stockholders’ equity	$	65,815	$	16,145	$	81,960

			Additions
			(1)		(2)
	Balance at		Charged to		Charged to other					Balance
	beginning of		costs		accounts		Deductions			at end of
Description	period		and expense		(describe)		(describe)			period
Allowance for doubtful accounts for the years ended:
June 30, 2004	$	150	$	69	$	—	$	(69	)(a)	$	150
June 30, 2003	$	150	$	108	$	—	$	(108	)(a)	$	150
June 30, 2002	$	150	$	237	$	—	$	(237	)(a)	$	150
Allowance for inventory obsolescence for the years ended:
June 30, 2004	$	1,641	$	1,070	$	—	$	(1,548)	(b)	$	1,171
June 30, 2003	$	2,241	$	1,516	$	—	$	(2,116)	(b)	$	1,641
June 30, 2002	$	342	$	1,967	$	—	$	(68)	(b)	$	2,241

F-17

(a)Table Reduction of the allowance for doubtful accounts associated with the write-off of certain uncollectible accounts receivable balances.Contents

~~(b)~~CRAFTMADE ~~Reduction~~INTERNATIONAL, ofINC. ~~the~~AND ~~allowance~~ITS ~~for~~SUBSIDIARIES NOTES ~~inventory~~TO ~~obsolescence~~THE ~~associated~~CONSOLIDATED ~~with~~FINANCIAL ~~the disposal or sale of certain inventory items.~~STATEMENTS

~~F-19~~Advertising costs — The Company’s advertising expenditures consist primarily of print advertising programs, and are expensed as used. Prepaid advertising costs consist of current catalogs and sales collateral on hand and are expensed in relation to use. Advertising expense and prepaid advertising costs increased in the fiscal year ended June 30, 2008 primarily as the result of the acquisition of certain net assets of Woodard. For the fiscal year ended June 30, 2009 a reduction in advertising expense for the traditional fan and lighting business was largely offset by the inclusion of two additional quarters of expenses related to the Woodard business. Prepaid advertising costs increases in the fiscal year ended June 30, 2009 were related to the release of new catalogues and sales collateral.

~~Table~~Advertising (Dollars ofin ~~Contents~~thousands)

EXHIBIT INDEX


	Fiscal Year Ended
	June 30,		June 30,		June 30,
	2009		2008		2007
Advertising expense	$	3,447	$	3,484	$	2,161
Prepaid advertising costs		920		699		407

Exhibit
No.		Description
3.1	-	Certificate of Incorporation of the Company, filed as Exhibit 3 (a) (2) to the Company’s Post Effective Amendment No. 1 to Form S-18 (File No. 33-33594-FW) and incorporated by reference herein.
3.2	-	Certificate of Amendment of Certificate of Incorporation of the Company, dated March 24, 1992 and filed as Exhibit 4.2 to the Company’s Form S-8 (File No. 333-44337) and incorporated by reference herein.
3.3	-	Amended and Restated Bylaws of the Company, filed as Exhibit 3 (b) (2) to the Company’s Post Effective Amendment No. 1 to Form S-8 (File No. 33-33594-FW) and incorporated by reference herein.
4.1	-	Specimen Common Stock Certificate, filed as Exhibit 4.4 to the Company’s Registration Statement on Form S-3 (File No. 333-70823) and incorporated by reference herein.
4.2	-	Rights Agreement, dated as of June 23, 1999, between Craftmade International, Inc. and Harris Trust and Savings Bank, as Rights Agent, previously filed as an exhibit to Form 8-K dated July 9, 1999 (File No. 000-26667) and incorporated by reference herein.
10.1	-	Earnest Money contract and Design/Build Agreement dated May 8, 1995, between MEPC Quorum Properties II, Inc. and Craftmade International, Inc. (including exhibits), previously filed as an exhibit in Form 10Q for the quarter ended December 31, 1995, and herein incorporated by reference.
10.2	-	Assignment of Rents and Leases dated December 21, 1995, between Craftmade International, Inc. and Allianz Life Insurance Company of North America (including exhibits), previously filed as an exhibit in Form 10Q for the quarter ended December 31, 1995, and herein incorporated by reference.
10.3	-	Deed of Trust, Mortgage and Security Agreement made by Craftmade International, Inc., dated December 21, 1995, to Patrick M. Arnold, as trustee for the benefit of Allianz Life Insurance Company of North America (including exhibits), previously filed as an exhibit in Form 10Q for the quarter ended December 31, 1995, and herein incorporated by reference.
10.4	-	Second Amended and Restated Credit Agreement dated November 14, 1995, among Craftmade International, Inc., Nations Bank of Texas, N.A., as Agent and the Lenders defined therein (including exhibits), previously filed as an exhibit in Form 10Q for the quarter ended December 31, 1995, and herein incorporated by reference.
** 10.5	-	Lease Agreement dated November 30, 1995, between Craftmade International, Inc. and TSI Prime, Inc., previously filed as an exhibit in Form 10Q for the quarter ended December 31, 1995, and herein incorporated by reference.
10.6	-	Revolving credit facility with Texas Commerce Bank, previously filed as an exhibit in Form 10K for the year ended June 30, 1996, and herein incorporated by reference.
10.7	-	Agreement and Plan of Merger, dated as of July 1, 1998, by and among Craftmade International, Inc., Trade Source International, Inc. a Delaware corporation, Neall and Leslie Humphrey, John DeBlois, the Wiley Family Trust, James Bezzerides, the Bezzco Inc. Employee Retirement Trust and Trade Source International, Inc, a California corporation, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.

Research and development — Research, development and engineering expenditures for the creation and application of new products and processes are expensed as incurred, as summarized in the following table:

~~Table~~Research ofand ~~Contents~~Development (Dollars in thousands)

Exhibit
	Fiscal Year Ended
No.			Description
	June 30,			June 30,		June 30,
10.8	-		Voting Agreement, dated July 1, 1998, by and among James R. Ridings, Neall Humphrey and John DeBlois, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
	2009			2008		2007
10.9	-		Third Amendment to Credit Agreement, dated July 1, 1998, by and among Craftmade International, Inc., a Delaware corporation, Trade Source International, Inc., a Delaware corporation, Chase Bank of Texas, National Association (formerly named Texas Commerce Bank, National Association) and Frost National Bank (formerly named Overton Bank and Trust), filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
Research and development	$	221		$	184	$	265
10.10	-		Consent to Merger by Chase Bank of Texas, National Association and Frost National Bank, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
** 10.11	-		Employment Agreement, dated July 1, 1998, by and among Craftmade International, Inc., Trade Source International, Inc., a Delaware corporation and Neall Humphrey, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
** 10.12	-		Employment Agreement, dated July 1, 1998, by and among Craftmade International, Inc., Trade Source International, Inc., a Delaware corporation and Leslie Humphrey, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
** 10.13	-		Employment Agreement, dated July 1, 1998, by and among Craftmade International, Inc., Trade Source International, Inc., a Delaware corporation and John DeBlois, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
10.14	-		Registration Rights Agreement, dated July 1, 1998, by and among Craftmade International, Inc., Neall and Leslie Humphrey and John DeBlois, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and herein incorporated by reference.
10.15	-		ISDA Master Agreement and Schedule, dated June 17, 1999, by and among Chase Bank of Texas, National Association, Craftmade International, Inc., Durocraft International, Inc. and Trade Source International, Inc., filed as Exhibit 10.15 to the Company’s Quarterly Report on Form 10Q filed November 12, 1999 (File No. 000-26667) and herein incorporated by reference.
10.16	-		Confirmation under ISDA Master Agreement, dated July 23, 1999, from Chase Bank of Texas, National Association to Craftmade International, Inc., filed as Exhibit 10.16 to the Company’s Quarterly Report on Form 10Q filed November 12, 1999 (File No. 000-26667) and herein incorporated by reference.
10.17	-		Fourth Amendment to Credit Agreement, dated April 2, 1999, by and among Craftmade International, Inc., a Delaware corporation, Durocraft International, Inc. a Texas corporation, Trade Source International, a Delaware corporation, Chase Bank of Texas, National Association and Frost National Bank, filed as Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q filed May 15, 2000 (File No. 000-26667) and herein incorporated by reference.
10.18	-		Letter Agreement Concerning Fifth Amendment to Credit Agreement, dated August 11, 1999, from Chase Bank of Texas, N.A. and Frost National Bank to Craftmade International, Inc., Durocraft International Inc., Trade Source International, Inc., and C/D/R Incorporated, filed as Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q filed May 15, 2000 (File No. 000-26667) and herein incorporated by reference.
10.19	-		Sixth Amendment to Credit Agreement, dated November 12, 1999, by and among Craftmade International, Inc., a Delaware corporation, Durocraft International, Inc., a Texas corporation, Trade Source International, Inc., a Delaware corporation, C/D/R Incorporated, a Delaware corporation, Chase Bank of Texas, National Association and Frost National Bank, filed as Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q filed May 15, 2000 (File No. 000-26667) and herein incorporated by reference.

~~Table~~Stock-based compensation — Effective July 1, 2005, the Company adopted Statement of Financial ~~Contents~~Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), which revises SFAS 123 and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requires all share-based payments to employees to be recognized in the financial statements based on their fair values using an option-pricing model, such as the Black-Scholes model, at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company elected to use the modified prospective method for adoption, which requires compensation expense to be recorded for all unvested stock options and restricted shares beginning in the first quarter of adoption. Compensation cost for awards granted prior to, but not vested as of, the date the Company adopted SFAS 123(R) were based on the grant date fair value and attributes originally used to value those awards.

Exhibit
No.		Description
** 10.20	-	Employment Agreement dated October 25, 1999, between Kathy Oher and Craftmade International, Inc., filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K filed September 26, 2000 (File No. 000-26667) and herein incorporated by reference.
10.21	-	Seventh Amendment to Credit Agreement dated May 12, 2000, by and among Craftmade International, Inc., a Delaware corporation, Durocraft International, Inc., a Texas corporation, Trade Source International, Inc., a Delaware corporation, C/D/R Incorporated, a Delaware corporation, Chase Bank of Texas, National Association and Frost National Bank, filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed September 26, 2000 (File No. 000-26667) and herein incorporated by reference.
** 10.22	-	Craftmade International, Inc. 1999 Stock Option Plan, filed as Exhibit A to the Company’s Proxy Statement on Schedule 14A filed October 4, 2000 (File No. 000-26667) and herein incorporated by reference.
** 10.23	-	Craftmade International, Inc. 2000 Non-Employee Director Stock Plan, filed as Exhibit B to the Company’s Proxy Statement on Schedule 14A filed October 4, 2000 (File No. 000-26667) and herein incorporated by reference.
10.24	-	Eighth Amendment to Credit Agreement dated February 12, 2001, by and among Craftmade International, Inc., a Delaware corporation, Durocraft International, Inc., a Texas corporation, Trade Source International, Inc., a Delaware corporation, Design Trends, LLC, a Delaware limited liability company, C/D/R Incorporated, a Delaware corporation, The Chase Manhattan Bank and The Frost National Bank, filed as Exhibit 10.24 to the Company’s Quarterly Report on Form 10-Q filed May 14, 2001 (File No. 000-2667) and herein incorporated by reference.
10.25	-	Ninth Amendment to Credit Agreement dated June 29, 2001, by and among Craftmade International, Inc. a Delaware corporation, Durocraft International, Inc., a Texas corporation, Trade Source International, Inc., a Delaware corporation, Design Trends, LLC, a Delaware limited liability company, C/D/R Incorporated, a Delaware corporation, The Chase Manhattan Bank and The Frost National Bank, filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed September 26, 2001 (File No. 000-26667) and herein incorporated by reference.
10.26	-	Loan Agreement dated November 6, 2001, by and between Craftmade International, Inc., a Delaware Corporation, and The Frost National Bank, a national banking association, filed as Exhibit (0.26 to the Company’s quarterly Report on Form 10-Q filed February 14, 2002 (File No. 000-26667) and herein incorporated by reference.
10.27	-	Termination Agreement dated November 16, 2001, by and between Craftmade International, Inc., a Delaware corporation, and JP Morgan Chase Bank, filed as Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q filed February 14, 2002 (File No. 000-26667) and herein incorporated by reference.
10.28	-	Modification, Renewal and Extension Agreement dated October 27, 2003, by and between The Frost National Bank, a national banking association, and Craftmade International, Inc., a Delaware corporation, filed as Exhibit 10.27 to the Company's Quarterly Report on Form 10-Q filed November 14, 2003 (File No. 000-26667) and herein incorporated by reference.
10.29	-	Note and Security Agreement dated November 24, 2003 by Prime/Home Impressions LLC, a North Carolina limited liability company, to Wachovia Bank, N.A., with Security Agreement of Prime/Home Impressions, LLC, and Guaranty Agreement of Craftmade International, Inc., filed as Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q filed February 17, 2004 (File No. 000-26667) and herein incorporated by reference.
10.30	-	Agreement regarding Lamps Plus, Inc. Litigation, entered into on December 31, 2003 and effective February 21, 2003, by and among Craftmade International, Inc., a Delaware corporation, Design Trends, LLC, a Delaware limited liability company, Dolan Northwest, LLC, an Oregon limited liability company and Patrick S. Dolan, filed as Exhibit 10.29 to the Company's Quarterly Report on Form 10-Q filed February 17, 2004 (File No. 000-26667) and herein incorporated by reference.
*10.31	-	Business Loan Agreement dated June 14, 2004, by and between The Frost National Bank, a national banking association, and Design Trends, LLC, a Delaware limited liability company.
*10.32	-	Second Amendment to Loan Agreement dated June 14, 2004, by and between The Frost National Bank, a national banking association, and Craftmade International, Inc., a Delaware corporation.
* 21	-	Subsidiaries of the Registrant.
* 31.1	-	Certification of James R. Ridings, Chairman of the Board, President and Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
* 31.2	-	Certification of Kathleen B. Oher, Vice President and Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
* 32.1	-	Certification of James R. Ridings, Chairman of the Board, President and Chief Executive Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* 32.2	-	Certification of Kathleen B. Oher, Vice President and Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

The Company has recognized compensation cost for all stock-based payments granted subsequent to July 1, 2005 in the consolidated financial statements, summarized as follows:

* FiledStock-Based ~~herewith~~Compensation Expense (~~unless~~Dollars ~~otherwise~~in ~~indicated, exhibits are previously filed~~thousands).

** A management contract or compensatory plan or arrangement required to be filed as an exhibit to this form.


	Fiscal Year Ended
	June 30,		June 30,		June 30,
	2009		2008		2007
Stock-based compensation expense recognized:
Selling, general & administrative	$	120	$	110	$	64

F-18

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

Total future compensation cost related to non-vested options is expected to be amortized over the following future periods as follows:

Future Stock-Based Compensation Expense
(Dollars in thousands)


	Expected
	Future
	Compensation
Fiscal Year Ending	Cost
June 30, 2010	$	117
June 30, 2011		72
June 30, 2012		17
June 30, 2013		—

	$	206

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

Subsequent Events — In the preparation of its consolidated financial statements, the Company considered subsequent events through September 28, 2009, which was the date the Company’s consolidated financial statements were issued.

Effects of recent accounting pronouncements

In May 2009, FASB issued SFAS 165, “Subsequent Events” (“SFAS 165”). SFAS 165 provides general standards for the accounting and reporting of subsequent events that occur between the balance sheet date and issuance of financial statements. SFAS 165 requires the issuer to recognize the effects, if material, of subsequent events in the financial statements if the subsequent event provides additional evidence about conditions that existed as of the balance sheet date. The issuer must also disclose the date through which subsequent events have been evaluated and the nature of any nonrecognized subsequent events. Nonrecognized subsequent events include events that provide evidence about conditions that did not exist as of the balance sheet date, but which are of such a nature that they must be disclosed to keep the financial statements from being misleading. The statement is effective for financial reporting periods ending after June 15, 2009. The Company adopted SFAS 165 effective June 30, 2009 and has made the appropriate additional disclosures in its consolidated financial statements.

In June 2009, FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”. The objective of this statement is to improve financial reporting by enterprises involved with variable interest entities. This statement addresses (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities”, as a result of the elimination of the qualifying special-purpose entity concept in SFAS No. 166, “Accounting for Transfers of Financial Assets”, and (2) concern about the application of certain key provisions of FASB Interpretation No. 46(R), including those in which the accounting and disclosures under the interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. This statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company is in the process of evaluating the impact SFAS No. 167 will have on its consolidated financial statements.

F-19

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

In December 2007, FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations, (“SFAS 141(R)”). SFAS 141(R) amends the principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquired company and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. In April 2009 FASB issued FASB Staff Position FSP No. FAS 141(R)-1 (“FSP FAS No.141(R)-1”) which amends SFAS 141(R) and clarifies the accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. SFAS 141(R) and FSP FAS No. 141(R)-1 are effective for the Company as of July 1, 2009, and the Company will apply them prospectively to all business combinations subsequent to the effective date.

In December 2007, FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the controlling and noncontrolling interests and requires the separate disclosure of income attributable to controlling and noncontrolling interests. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact that the adoption of SFAS 160 will have on its consolidated financial statements.

In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Companies should report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement was effective for the Company as of July 1, 2008 but currently has no impact on the Company’s consolidated financial statements.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those years. The FASB has also issued Staff Position FAS 157-2 (“FSP 157-2”), which delays the effective date of SFAF 157 for non-financial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008. The Company has adopted SFAS 157 and will apply it where, and if, appropriate and is currently assessing the impact of FSP 157-2 which was effective for the Company as of July 1, 2009.

In July 2006, FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) which clarifies the accounting for uncertainty in income taxes recognized under FASB Statement No. 109, Accounting for Income Taxes. FIN 48 addresses the recognition and measurement of tax positions taken or expected to be taken, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. We adopted and applied FIN 48 under the transition provisions to all of our income tax positions at the required effective date of July 1, 2007. See Note 5 in the Notes to the Consolidated Financial Statements for additional detail.

Dividend Policy

The Company announced on May 8, 2008, that it had suspended its quarterly dividend. However, any decision to declare and pay dividends in the future will be made at the discretion of the Company’s Board of Directors and will depend on, among other things, the Company’s results of operations, cash requirements, financial condition, availability of funds under its line of credit and other factors that the Board of Directors may deem relevant.

F-20

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

Related Party Transactions

The Company purchases a majority of its outdoor patio furniture for the Mass segment from a Chinese factory that is 50% owned by an affiliate of Henry Crown and Company. Henry Crown and Company owns Woodard, LLC, from which the Company purchased certain assets in January 2008. As part of the purchase price in that transaction, Henry Crown and Company became the beneficial owner of more than 5% of our Common Stock. For the twelve months ended June 30, 2009, the Company purchased approximately $20 million in products from the joint venture, which were sold to various customers. The Company currently does not have any agreements in place that compel either party to operate in any manner that differs from standard customer/vendor relationships. Based on this factor, the Company’s management has determined that the transactions between the two parties are at arms-length.

In addition, the Company formerly leased approximately 20,000 square feet of office space in Chicago, Illinois from an affiliate of Henry Crown and Company for $31,935 per month. This lease covered the former Woodard, LLC Chicago offices and expired on February 28, 2009. The Company has initiated a new agreement with Henry Crown and Company for 1,989 square feet that commenced on January 15, 2009 and expired on August 14, 2009, and has been extended through the end of September 2009. The Company pays $4,475 per month for this space. The Company’s management has determined that the terms of both agreements represent fair market value.

Fair Value of Financial Instruments

The Company’s financial instruments include cash, receivables, accounts and commissions payable, accrued expenses and amounts outstanding under various debt agreements. Management believes the fair values of these instruments approximate the related carrying values as of June 30, 2009, because of their short-term nature, recent renegotiations and/or variable interest rates.

F-21

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

Earnings Per Share

Basic earnings per share measures the performance of an entity over the reporting period. Diluted earnings per share measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. The treasury stock method is used to determine the dilutive potential of stock options. Stock options for which the exercise price was greater than the average market price of common shares were not included in the computation of diluted earnings per share as the effect would be antidilutive.

Reclassifications

Certain information provided for the prior years has been reclassified to conform to the current year presentation.

Note 3 — Acquisitions

Acquisition of Certain Assets of Woodard, LLC.

On January 2, 2008, Woodard-CM completed the purchase of substantially all of the assets of Woodard, 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 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 is $14,896,000.

In connection with the acquisition, the Company incurred approximately $655,000 in professional fees associated with the transaction. The Company has charged $692,000 for expected restructuring costs. During the quarter ended June 30, 2008, the Company began relocating and integrating certain of identified positions, which resulted in closing the Chicago, Illinois office in February 2009. The Company has since opened a small satellite office in Chicago to house the few remaining Chicago-based Woodard personnel.

F-22

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

Purchase Price Summary
(Dollars in thousands)


Cash paid at closing	$	16,168
GAAP 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 the Common Stock, 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 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 years
Dividend yield		5.8	%

Criteria have been established in Statement of Financial Accounting Standards No. 141, “Business Combinations” for determining whether intangible assets should be recognized separately from goodwill. The amounts included in the following allocation include $2.5 million that was placed in an escrow account for a period of 18 months from the closing date for indemnifications made by the seller in relation to its representations, warranties or covenants pursuant to the Agreement.

The excess value of certain assets acquired over purchase price has been recorded as a reduction of the fair value of the Owosso, Michigan facility that would otherwise have been recorded.

F-23

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

Purchase Price Allocation


Initial estimated purchase price				$	20,168
Less: Working capital adjustment					(1,272	)
Value of warrants					279

Total Purchase Consideration					19,175


Acquired Assets (Adjusted to estimated fair value)
Accounts receivable, net	$	12,708
Inventories, net		8,212
Prepaid expenses and other current assets		2,450
Plant, property and equipment		2,929
Other assets		1,528

Total Assets					27,827

Assumed Liabilities
Accounts payable	$	5,852
Other accrued expenses		1,702

Other liabilities incurred during transaction
Professional fees associated with acquisition		655
Restructuring reserve		692
Deferred tax asset for restructuring reserve		(249	)

Total Liabilities					8,652


Total Purchase Price				$	19,175

The following table sets forth the unaudited pro forma results of operations of the Company as if the Woodard acquisition had occurred at the beginning of fiscal year 2008. The results for periods prior to the acquisition are comprised of historical information adjusted for certain expenses that were not included in the acquisition.

The pro forma amounts for the fiscal year ended June 30, 2008 do not purport to be indicative of the results that would have actually been obtained if the merger occurred as of the beginning of the period presented or that may be obtained in the future. As certain net assets of Woodard were acquired January 2, 2008 the information below for the fiscal year ended June 30, 2009 does not reflect any pro forma effects.

F-24

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

Unaudited Pro Forma Results
(In thousands, except per share data)


	Fiscal Year Ended
	June 30,			June 30,
	2009			2008
Net sales
As reported	$	149,692		$	137,590
Pro forma		149,692			164,590

Net income
As reported	$	(1,088	)	$	2,112
Pro forma		(1,088	)		860

Basic earnings per share
As reported	$	(0.19	)	$	0.39
Pro forma	$	(0.19	)	$	0.14

Diluted earnings per share
As reported	$	(0.19	)	$	0.39
Pro forma	$	(0.19	)	$	0.14

In April 2007, Woodard issued a non-interest bearing promissory note to one of its suppliers in exchange for $1,477,000, in connection with a distribution agreement. Upon issuing the non-interest bearing note, Woodard imputed interest at 7.5%, Woodard’s borrowing rate at that time, and reduced the value of the note by approximately $400,000 as a charge to Cost of Goods. The promissory note includes a minimum payment schedule of principal payments at 2.5% of weekly inventory purchases from the supplier. The outstanding balance of the note that is not expected to be paid within one year based upon the projected volume of purchases has been classified as long-term in the accompanying balance sheets. The initial term of the agreement ended July 31, 2009, after which the agreement renews automatically for additional periods of one year.

The Company reserved $692,000, which was charged to the acquisition, related to restructuring costs at the date of the acquisition. In the fiscal year ended June 30, 2009 there were severance related cash payments of $537,000 charged to the reserve, which is substantially all that has been paid since the date of acquisition. The Company expects to utilize the balance of the reserve in the coming fiscal year.

Acquisition of Marketing Impressions, Inc.

Effective July 1, 2006, the Company acquired Marketing Impressions, Inc., a Georgia corporation (“Marketing Impressions”). Marketing Impressions owned the remaining 50% interest in the Company’s limited liability company PHI and also supplied the Company with certain fan accessory products. This acquisition increased the Company’s effective ownership of PHI to 100% and has been accounted for using the purchase method of accounting. The transaction enables the Company to benefit from 100% of PHI’s earnings, gives the Company complete control over the operations of PHI and also allows it to source certain of its fan accessory products directly. The Company believes that operational control, the ability to source certain products directly and the additional earnings obtained from 100% ownership support the goodwill resulting from the transaction.`

F-25

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

In conjunction with the acquisition of Marketing Impressions, the Company also acquired certain patents and trademarks from the sellers and entered into non-compete and consulting agreements.

The results of operations of PHI have historically 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 includes the full amount of PHI results from this date. In conjunction with the closing of the transaction, the Company paid Marketing Impressions its share of minority interest outstanding at June 30, 2006. This amount totaled $972,000.

The purchase price, including amounts for patents and trademarks and non-compete agreements, is based on a known initial payment plus a contingent amount that is based upon percentage of gross profit without any reductions for vendor displays and annual reset costs (“Adjusted Gross Profit”). The purchase price is summarized as follows:

Purchase Price Summary
(Dollars in thousands)


As of June 30, 2009:
Amount paid at closing, net of cash acquired	$	1,287
Contingent payments earned		2,954
Acquisition-related costs		220

Total consideration as of June 30, 2009	$	4,461


Percent of Adjusted Gross Profit July 1, 2006 to August 31, 2011		22	%

Additonal Percent of Adjusted Gross Profit July 1, 2006 to June 30, 2007 (not to exceed $750)		15	%

Contingent payments earned include $597,000 accrued during the fiscal year ended June 30, 2009. The Company has estimated that the total remaining payout based on future levels of Adjusted Gross Profit through August 31, 2011 to be a total of $1,234,000. In accordance with SFAS No. 141, Business Combinations (“SFAS 141”), contingent consideration is recorded when a contingency is satisfied and additional consideration is issued or becomes issuable.

F-26

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

The purchase price was allocated based on the estimated fair values of the assets acquired and liabilities assumed as of the effective date of acquisition and is summarized as follows:

Purchase Price Allocation
(Dollars in thousands)


Assets:
Accounts receivable	$	368
Inventory		2
Property and equipment		214
Deferred tax assets		70
Acquired intangibles		1,530
Goodwill		2,164

		4,348


Liabilities:
Accounts payable		1,120
Note payable and other liabilities		24

		1,144

Total purchase price as of June 30, 2007	$	3,204

The amount of goodwill allocated to the purchase price was $2,164,000, all of which is deductible for tax purposes over a 15 year period. In connection with the acquisition, the Company acquired certain identifiable intangible assets, including patents, trademarks and covenants not-to-compete. The gross amounts of such assets along with the range of amortizable lives are as follows:

Summary of Acquired Intangibles
(Dollars in thousands)


	Life		Gross
	in Years		Amount
Patents and trademarks		15	$	710
Non-compete covenants		7		820

			$	1,530

The purchase price was allocated based on the respective market value of the net assets acquired. Annual amortization expense is estimated to be $164,000 per fiscal year.

F-27

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

Note 4 — Long-Term Obligations

The Company’s long-term obligations are summarized in the following table:

Summary of Long Term Obligations
(Dollars in thousands)


			Outstanding			Outstanding
			Balance			Balance			Current
	Commitment		June 30, 2009			June 30, 2008			Interest Rate			Maturity
Revolving line of credit (1)	$	50,000	$	20,042		$	17,374		LIBOR plus 1.50%			December 31, 2009
Note payable — facility		n/a		10,317			10,779			6.5	%	December 10, 2017
Capital lease obligation		n/a		69			113			7.6	%	November 5, 2010

Sub-total				30,428			28,266
Less: current amounts due				(542	)		(507	)

Long-term obligations			$	29,886		$	27,759


⁽¹⁾		Based on Frost line of credit in place at June 30, 2009. As of July 10, 2009 Frost line of credit has been replaced with a new line of credit with Bank of America providing up to $40,000,000 in revolving loans, supplemented by a $3,500,000 note with Frost.

As of June 30, 2009 the Company’s primary revolving line of credit was held by a banking group led by The Frost National Bank (“Frost”) and including Whitney National Bank and Commerce Bank, N.A., under, a Third Amended and Restated Loan Agreement (the “Frost Loan Agreement”) signed December 31, 2007 and maturing on December 31, 2009. As a result of the subsequent refinancing of the line of credit, the balance as of June 30, 2009 was classified as long-term. Total credit lines available to Craftmade and its subsidiaries under this agreement were $50,000,000, and there was $3,832,000 available to borrow under the applicable borrowing base at June 30, 2009.

The financial covenants contained in the Frost Loan Agreement required Craftmade to maintain a ratio of total liabilities (excluding any subordinated debt) to tangible net worth of not greater than 2.5 to 1.0 for the quarters ending June, 30, September 30 and December 31 and not greater than 3.25 to 1.0 for the quarter ending March 31. The financial covenants required a Fixed Charge Coverage Ratio (as defined in the Loan Agreement) of not less than 1.25 to 1.0, tested quarterly. The Company was not in compliance with its Fixed Charge Coverage Ratio covenant at June 30, 2009. However, the Company subsequently satisfied all obligations under the Frost Loan Agreement by repaying all outstanding amounts on July 10, 2009, and no other fees or payments are due or expected in relation to this agreement, or the related notes.

On July 10, 2009, Craftmade International, Inc. (“Craftmade”), together with certain of Craftmade’s direct or indirect subsidiaries (the “Borrowers”), entered into a Loan and Security Agreement (the “Revolving Loan Agreement”) with Bank of America, N.A.(“Bank of America”). The Revolving Loan Agreement provides for revolving loans in an aggregate amount up to $40,000,000 and is secured by substantially all of the Borrowers’ assets, excluding its current real estate holdings. On July 10, 2009 Woodard—CM, LLC (“Woodard—CM”),a wholly-owned subsidiary of Craftmade entered into a Term Loan Agreement (the “Term Loan Agreement”) with The Frost National Bank, San Antonio, Texas (“Frost”), in conjunction with executing a Term Loan Note (“the Frost Note”), in the principal amount of $3,500,000, payable to Frost, secured by Woodard—CM’s primary manufacturing and distribution facility located in Owosso, Michigan (the “Michigan Facility”). In aggregate the proceeds from the Revolving Loan Agreement and the Term Loan Agreement (together the “Loan Agreements”), were used to pay off amounts owed under the Frost Loan Agreement dated as of December 31, 2007.

F-28

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

Loans under the Revolving Loan Agreement may be deemed to be either Base Rate Loans or LIBOR Rate Loans. Base Rate Loans will bear interest at a per annum rate equal to the greater of (a) the Prime Rate (as published by Bank of America); (b) the Federal Funds Rate, plus 0.50%; or (c) 30 day London Interbank Offered Rate (“LIBOR”), plus 1.0%, plus an applicable margin ranging from 0.75% to 1.25% based on Craftmade’s cash flow performance as measured by the Fixed Charge Coverage Ratio (as defined in the Revolving Loan Agreement) for the most recent month. LIBOR Rate Loans will bear interest at LIBOR for the applicable Interest Period (30, 60 or 90 days), plus an applicable margin ranging from 3.00% to 4.00% based on Craftmade’s cash flow performance as measured by the Fixed Charge Coverage Ratio (as defined in the Revolving Loan Agreement) for the most recent month. The maximum amount of loans under the Revolving Loan Agreement will be determined by a formula (the “Borrowing Base”) taking into consideration the receivables and inventory of the Borrowers, net of any reserves put into place by Bank of America. The Revolving Loan Agreement will terminate on July 7, 2012.

Pursuant to the Revolving Loan Agreement, the financial covenants require Craftmade to maintain a Fixed Charge Coverage Ratio (as defined in the Revolving Loan Agreement) of not less than 0.85 for the initial periods, and building to not less that 1.0 by August, 2009 and thereafter. All wholly-owned domestic subsidiaries of Craftmade, and Design Trends LLC, a 50% owned subsidiary of Craftmade, have agreed to be guarantors of the Revolving Loan Agreement (the “Guarantors”). Should Craftmade achieve and maintain a minimum of $6,000,000 of availability (calculated as the Borrowing Base minus the principal balance of all loans) for 60 days, the Fixed Charge Coverage Ratio shall not be tested until such time as availability drops below $6,000,000.

The Frost Note bears a floating interest rate based on Prime Rate (as published in the Wall Street Journal) plus 2.0% per annum. Pursuant to the Frost Note, Woodard—CM has agreed to pay equal monthly payments of principal and interest based on a 10-year amortization schedule, with the unpaid principal and interest payable on July 7, 2012. As security for the payment and performance of the Frost Note, Woodard—CM granted to Frost, pursuant to a Mortgage a lien in the Michigan Facility located at 210 S. Delaney Road, Owosso, Michigan, which Woodard—CM acquired as part of the January 4, 2008 acquisition of certain net assets of Woodard, LLC. On the Closing Date, Craftmade entered into guaranty agreements (“Guaranties”) with Frost pursuant to which Craftmade together with certain of its direct or indirect subsidiaries has agreed to guarantee payment and performance of the Note by Woodard—CM.

Further information regarding this Revolving Loan Agreement and Notes is detailed in the Company’s Form 8-K filed with the SEC on July 16, 2009.

On November 14, 2007, the Company entered into a term loan to refinance its home office and warehouse with an original principal balance of $11,000,000. The loan is payable in equal monthly installments of principal and interest of $95,822. The loan bears an interest rate of 6.5% per year. The loan is collateralized by the building and land. The loan is scheduled to mature on December 10, 2017.

Scheduled maturities of notes payable and lines of credit at June 30, 2008 are detailed as follows:

Schedule of Maturities
(Dollars in thousands)


	Line of		Note		Capital
Fiscal Year Ended	Credit⁽¹⁾		Payable		Lease		Total
June 30, 2010	$	20,042	$	494	$	48	$	20,584
June 30, 2011		—		527		21		548
June 30, 2012		—		562		—		562
June 30, 2013		—		600		—		600
June 30, 2014		—		640		—		640
Thereafter		—		7,494		—		7,494

	$	20,042	$	10,317	$	69	$	30,428


⁽¹⁾		Based on Frost line of credit in place at June 30, 2009. As of July 10, 2009 Frost line of credit has been replaced with a new line of credit with Bank of America providing up to $40,000,000 in revolving loans, supplemented by a $3,500,000 note with Frost.

F-29

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

Note 5 — Income Taxes

Components of the provision for income taxes consist of the following:

Provision for Income Taxes
(Dollars in thousands)


	Fiscal Year Ended
	June 30,			June 30,			June 30,
	2009			2008			2007
Current expense/(benefit):
Federal	$	(437	)	$	1,246		$	1,003
State		92			57			(427	)
Foreign		(33	)		42			143

Total current expense/(benefit):		(378	)		1,345			719
Deferred expense/(benefit)		(31	)		(171	)		763

Provision for income tax expense/(benefit)	$	(409	)	$	1,174		$	1,482

The provision for income tax was a tax benefit of $409,000 or 27% of net income before income taxes for fiscal year ended June 30, 2009, compared to $1,174,000 or 36% of income before income taxes for the fiscal year ended June 30, 2008 The effective tax rate is calculated by dividing income tax expense by income after minority interest and before income taxes. The effective tax rates presented are weighted averages of our multiple legal entities with effective income tax rates that differ from the statutory United States federal income tax rate of 34% due to the impact of state income taxes. The resulting consolidated effective rate can be significantly different than the statutory United States federal income tax rate of 34% due to the effect of operating losses in certain legal entities of the Company being offset by gains in other entities. The resulting consolidated effective tax rate is not necessarily representative of the effective tax rate in any of the individual tax entities of the Company.

For the fiscal year ended June 30, 2007, federal income tax expense was reduced by a benefit obtained from a reduction in amounts set aside for tax contingencies. The benefit obtained from state taxes in fiscal years 2007 and 2006 resulted from anticipated refunds from lower state apportionment rates applied to prior periods as a result of a change in the state tax law. See “Reconciliation of Federal Tax Rate to Effective Tax Rate” below.

F-30

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

Summary of Deferred Taxes
(Dollars in thousands)


	June 30,			June 30,
	2009			2008
Inventories	$	347		$	403
Investment in 50% owned LLC’s		178			186
Reserves and accruals		194			216
Accounts receivable reserves		294			131
State refund claims, net of federal tax		19			100
Net operating loss carryforwards		77			24
Other		102			83
Valuation allowance		(78	)		(100	)

Total deferred tax assets		1,133			1,043


Depreciation and amortization		(771	)		(671	)
Foreign taxes		(117	)		(157	)

Total deferred tax liabilities		(888	)		(828	)

Net deferred tax asset/(liability)	$	245		$	215

The valuation allowance represents a portion of the tax benefits of certain state refund claims which may not be fully realized.

The differences between the Company’s effective tax rate and the federal statutory rate of 34% are summarized in the following table:

Reconciliation of Federal Tax Rate to Effective Tax Rate
(Dollars in thousands)


	Fiscal Year Ended
	June 30,			June 30,			June 30,
	2009			2008			2007
Tax at the statutory corporate rate	$	(264	)	$	1,557		$	3,026
Less: federal income tax attributable to minority interest		(242	)		(439	)		(459	)
Foreign tax rate under federal statutory rate⁽¹⁾		31			(40	)		(905	)
Federal taxes on anticipated repatriation of foreign earnings		(31	)		40			147
State income taxes, net of federal benefit⁽²⁾		74			28			(314	)
Other		23			29			(13	)

Provision for income taxe expense (benefit)	$	(409	)	$	1,174		$	1,482


⁽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 for the fiscal year ended June 30, 2007, include 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-31

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

On July 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). At the date of adoption, the gross amount of unrecognized tax benefits, interest and penalties was $290,000 that, if recognized, would affect the effective tax rate. As a result of the implementation of FIN 48, we recognized no additional adjustments in the liability for unrecognized income tax benefits. Additionally, adoption of FIN 48 resulted in the reclassification of certain accruals for uncertain tax positions in the amount of $190,000 from current to other long-term expenses.

The following table summarizes the changes in our unrecognized income tax benefits for the year ended June 30, 2009:

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