CRAFTMADE INTERNATIONAL INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2002

or

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

Commission file number 000-26667

CRAFTMADE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

Delaware 75-2057054
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

650 S. Royal Lane, Suite 100 75019
Coppell, Texas (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code:

(972) 393-3800

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
COMMON STOCK, $0.01 PAR VALUE on which registered
NASDAQ NATIONAL MARKET SYSTEM

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, and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
--- ---

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. X
---

The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of September 20, 2002 was $80,646,775.

The number of shares outstanding of the registrant's $.01 par value
common stock as of September 20, 2002 was 5,631,758.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement pertaining to the Registrant's 2002
annual meeting of stockholders are incorporated by reference into Part III of
this report.

INDEX

PART I ........................................................................................... 1

Item 1. Business................................................................................... 1

Item 2. Properties................................................................................. 7

Item 3. Legal Proceedings.......................................................................... 7

Item 4. Submission of Matters to a Vote of Stockholders............................................ 7

PART II ........................................................................................... 8

Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters....................................................................... 8

Item 6. Selected Financial Data.................................................................... 9

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................... 10

Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................. 14

Item 8. Financial Statements and Supplementary Data................................................ 16

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................................................... 16

PART III ........................................................................................... 17

Item 10. Directors and Executive Officers of the Registrant......................................... 17

Item 11. Executive Compensation..................................................................... 17

Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................................................ 17

Item 13. Certain Relationships and Related Transactions............................................. 17

PART IV ........................................................................................... 18

Item 14. Exhibits, Financial Statements, Financial Statement
Schedule and Reports on Form 8-K.......................................................... 18

Signatures .......................................................................................... 21

PART I

ITEM 1. BUSINESS

THE COMPANY

Craftmade International, Inc. was incorporated in the state of Texas on July 16,
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 15 -
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 their 50% owned investees are collectively
referred to as the "Company".

CRAFTMADE - 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(R) 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(R) 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. Craftmade also imports and distributes a
variety of cables and components for the telephone and communications
industries.

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 Asia,
including Hong Kong.

FIFTY-PERCENT OWNED INVESTEES - The Company has a 50% ownership interest in two
entities, Design Trends, LLC ("Design Trends") and Prime/Home Impressions, LLC
("PHI"). Design Trends markets portable table lamps, floor lamps, chandeliers
and wall sconces designed by Patrick Dolan. PHI markets various fan accessories
including universal down-rods, pull-chains and ceiling medallions.

CRAFTMADE PRODUCTS

CEILING 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 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 42%, 43% and 43% of
the Company's sales for fiscal years 2002, 2001 and 2000, respectively.

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LIGHT KITS - Craftmade markets nearly eighty models of light kits, which consist
of the glass shades and filters, in various colors which may be utilized with
Craftmade's ceiling fans or other ceiling fans.

BATH-STRIP LIGHTING - Craftmade markets nearly two dozen series of bath-strip
lighting in different lengths and decorative finishes under the Accolade(R)
trade name. Craftmade plans to add finishes and series from time to time based
on customer demand.

OUTDOOR LIGHTING - Craftmade markets over forty designs of outdoor lighting in
different decorative finishes under the Accolade(R) trade name. Other outdoor
products are also marketed under the TSI Prime brand, or under the retailers'
private label. Styles include wall-mount, pendant and post-mount. Craftmade
plans to add finishes and designs from time to time based on customer demand.

ACCESSORIES - Craftmade also markets a variety of designer and standard wall
controls to regulate the speed and intensity of ceiling fans and lighting
fixtures and universal down-rods for use with ceiling fans. Accessory sales
represented 11%, 12% and less than 10% of the Company's sales in fiscal years
2002, 2001 and 2000, respectively.

CABLE COMPONENTS - Craftmade distributes various cable components, including
connectors and switches that it acquires from Asian manufacturers for use with
computers and telephone board circuitry.

TSI PRODUCTS

LIGHTING - TSI markets over one hundred designs of lighting, including ceiling
mount lighting fixtures, bath-strip lighting and outdoor lighting in a variety
of decorative finishes, colors and sizes to various mass merchandisers under the
TSI Prime brand. The outdoor lighting is designed for either wall mounting or as
a post-mounted fixture. TSI's sales of outdoor lighting represented 21%, 19% and
22% of the Company's sales in fiscal years 2002, 2001, and 2000, respectively.
Indoor lighting represented, 12%, 12%, and 11%, respectively, of the Company's
sales in fiscal years, 2002, 2001, and 2000.

INDOOR LIGHTING - During fiscal year 2000, the Company began marketing floor and
table lamps, chandeliers and wall sconces designed by Pat Dolan to various mass
merchandisers through Design Trends, a 50% owned investee. The program is
merchandised in a mix and match system that enables the consumer to customize a
lamp base and shade combination. Lampshades are displayed separately on a
revolving carousel that economizes space. The smaller packaging of the lamp
bases enables the retailer to display a greater number of SKUs in the same
amount of space. Selections of lamp bases include large, medium, buffet, small
and mini lamps and are offered in a variety of styles and finishes.

ACCESSORIES - TSI also markets various fan accessories, including universal
down-rods, pull-chains and ceiling medallions, to various mass merchandisers
through PHI, a 50%-owned investee.

MANUFACTURING

Craftmade's ceiling fans, bath-strip lighting and substantially all of its light
kits and certain accessories are produced by Fanthing and Sunlit. Craftmade
selected Fanthing in August 1986 to manufacture all of its ceiling fans and
certain fan accessories based on the Company's belief that Fanthing has the
capability to produce and ship a wide variety of product on a cost effective
basis while maintaining excellent quality control in the manufacturing process.
In 1989, Craftmade and Fanthing entered into a formal written agreement that is
terminable on 180 days prior notice. The written agreement does not obligate
Fanthing to produce and sell fans to Craftmade in any specified quantity, nor
does it obligate Fanthing to sell products to Craftmade at a fixed price.
Fanthing is permitted under the arrangement to manufacture ceiling fans for
other distributors provided such ceiling fans are not a replication of
Craftmade's series or models. Fanthing also manufactures certain ceiling fan
accessories, such as down-rods, which are sold by Craftmade independently of its
ceiling fans.

Fanthing has provided Craftmade with a $1,000,000 credit facility, pursuant to
which Fanthing 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, this credit facility is equivalent to
approximately three weeks' supply

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of ceiling fans and represents a supplier commitment that the Company's
management believes is unusual for the industry and favorable to the Company.
Fanthing is not required to provide this credit facility under its agreement
with Craftmade, and Fanthing may discontinue this credit facility at any time.
Craftmade places orders with Fanthing in anticipation of normally recurring
orders. In the ordinary course of business, orders are filled within 60 days,
which includes approximately 20 days for transport. While Craftmade's agreement
with Fanthing does not contain provisions relating to adjustments or returns as
a result of product defects, Fanthing has previously extended Craftmade full
credit for any product returns during the fifteen-year period of their working
relationship. Ceiling fans are shipped in container-size lots, generally
consisting of 1,600 fan units. Delivery is made in Dallas, Texas upon
presentment of documents by Craftmade's designated freight forwarder following
payment for such containers at Fanthing's bank in Taiwan.

Under a stock purchase agreement between the Company and Fancy Industrial, Inc.
("Fancy"), a Texas corporation and a wholly-owned subsidiary of Fanthing, the
Company, at its option, may repurchase 227,691 shares of the Company's common
stock owned by Fancy for an aggregate purchase price of $138,000. At June 30,
2002 and 2001, the fair value of the option approximated $3,461,000 and
$2,551,000, respectively. Although the Company may exercise the repurchase
option at any time, it currently does not intend to do so in light of its
continuing relationship with Fanthing.

The Company's management believes that Craftmade's relationship with Fanthing
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.

Craftmade purchases its bath-strip 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.

Craftmade and TSI purchase outdoor lighting from several manufacturers located
in Asia. Outdoor lighting orders are received in container-size lots, similar to
light kit and ceiling fan orders. However, the outdoor lighting manufacturers
require payment seven days after notification of shipment of the order.
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.

Craftmade's wall controls, timers and switches as well as certain of its ceiling
fan blades are manufactured by companies based in the United States. Craftmade
offers a variety of custom blade sets in various sizes and finishes, including
unfinished oak, ash and other wood grains and in clear, mirror, gold mirror,
black, smoke and antique white acrylic. The finished products are packaged and
labeled under the Craftmade brand name.

TSI purchases most of its ceiling fan accessories from several manufacturers
located in Asia, with the exception of ceiling medallions which are purchased
from a manufacturer located in the United States. Design Trends purchases its
lamps from a manufacturer located in China. These products are also shipped on
containers, either to the Company's facility in Coppell, Texas or directly to
the customer. All of TSI's and Design Trends foreign vendors require payment
seven days after notification of shipment of product from Asia.

DISTRIBUTION

Craftmade's products are marketed through more than 1,600 lighting showrooms and
electrical wholesaler locations specializing in sales to the new home
construction, 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 sales force
of approximately 65 sales representatives, who represent

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Craftmade exclusively in the sale of ceiling fans in return for commissions on
such sales. During fiscal years 2002, 2001 and 2000, no single lighting showroom
or electrical wholesaler accounted for more than 2% of Craftmade's sales.

Sales representatives are carefully selected and continually evaluated in order
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 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.

All 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:

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

MARKETING

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.

TSI relies primarily on the reputation of its products and the relationship it
has with its mass merchandiser customers with respect to its sales. TSI
participates in advertising programs and special promotions performed by its
customers. TSI also promotes its product line at semi-annual trade shows in
Dallas (in January and June) and utilizes Craftmade's showroom at the Dallas
Trade Mart.

The Company has a 48-hour product shipment policy. In order to meet these 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."

For 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.

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PRODUCT EXPANSION

Craftmade continually expands its ceiling fan product line, providing
proprietary products to its customer base in order to meet current and
anticipated demands for unique, innovative products. During fiscal year 2002,
Craftmade introduced six new series of fans (Celestial, Civic, Kona Bay,
Impulse, Ol' Madrid and Velocity). The Company also expanded its selection of
custom finishes by adding Carbon Fiber, English Toffee, Galvanized Steel and
Graystone. Craftmade expanded its selection of complementary products by
introducing its Superlative Collection, a large-size outdoor lantern product
line comprised of 50 different styles, and a compact fluorescent line of outdoor
lanterns comprised of twenty products, all of which were designed to meet Energy
Star specifications.

SEASONALITY

The Company's product sales, particularly ceiling fans, are somewhat seasonal
with sales in the warmer first and fourth quarters being historically higher
than in the two other fiscal quarters.

BACKLOG

Backlog 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.

COMPETITION

The ceiling fan and lighting fixture market is highly competitive at all levels
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, have longer operating histories, substantially greater financial
resources or greater name recognition than Craftmade. However, because of TSI's
ability to provide unique benefits to mass merchandisers that the Company's
management believes other competitors do not offer, such as TSI's display
systems, packaging and merchandise, 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.

The mass merchandiser market is also highly competitive. TSI has 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 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 of competing in the mass
merchandiser market.

INDEPENDENT SAFETY TESTING

All of the ceiling fans, outdoor lighting, light kits and lamps sold by the
Company in the United States are tested by Underwriter's Laboratories (UL),
which is an independent non-profit corporation which tests certain products,
including ceiling fans and lighting fixtures, for public safety. Under its
agreement with UL, the Company voluntarily submits its products to UL, and UL
tests the products for safety. If the product is acceptable, UL issues a listing
report that provides a technical description of the product. UL provides the
manufacturers with procedures to follow in manufacturing the products.
Electrical products that are manufactured in accordance with the designated
procedures display the UL listing mark, 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. The
contract between the Company and UL provides for automatic renewal unless either
party cancels as a result of default or gives applicable prior notice.

PRODUCT LIABILITY

The 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.

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PATENTS AND TRADEMARKS

The Company does not believe that patent protection is significant to most of
its products or current business operations. The Company, however, has patented
certain of its product designs and the functional features of some of its
products, including a patent on its Cathedral Ceiling Adapter and the Carousel
light kit. The expiration dates of Craftmade's patents (excluding pending
applications) currently range from 2008 to 2014. In addition, Fanthing holds
certain Taiwanese patents covering specific technology employed in Craftmade
ceiling fans, but the Company's management does not believe that such patents
are material to the production of Craftmade products. 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 eight series of fans and certain other license agreements entered into in
the ordinary course of its business. The Company has registered the trademarks
Craftmade (R), Accolade (R) and Durocraft (R), along with the product names of
certain of its designs, with the United States Patent and Trademark Office.

EMPLOYEES

As of July 31, 2002, the Company employed a total of 130 full time employees,
including three executive officers, two TSI officers, 18 managers, 30 clerical
and administrative personnel, 19 marketing personnel; 47 warehouse personnel and
11 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.

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ITEM 2. PROPERTIES

The Company's headquarters are located in Coppell, Texas. The facility consists
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 5 - 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 leases permanent display facilities at the Dallas Trade Mart,
which are used by both Craftmade and TSI. The lease provides for monthly rental
payments of $6,372 per month from July 1, 2002 through April 30, 2003, and
$6,632 per month from May 1, 2003 through April 30, 2004 with three percent
annual increases thereafter. The lease expires April 30, 2007.

TSI leases office space from an affiliate of TSI in El Dorado Hills, California.
This lease is for $7,500 per month on a month-to-month basis.

ITEM 3. LEGAL PROCEEDINGS

The Company is currently not a party to any material legal or administrative
proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

No matters were submitted to a vote of stockholders during the fourth quarter of
fiscal year 2002.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The initial public offering price of the Company's 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.

The following table sets forth, for the periods indicated, the high and low bid
information per share of common stock on the Nasdaq National Market System, as
reported by Nasdaq.

Computershare Investor Services, 1601 Elm Street, Suite 4340, Dallas, Texas
75201, is the transfer agent and registrar for the Company's common stock.

HOLDERS

On September 19, 2002, there were 106 holders of record of the Company's common
stock.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth (i) the number of securities to be issued upon
exercise of outstanding options, (ii) the weighted average of exercise price of
such outstanding options, and (iii) the number of securities remaining available
for future issuance, under (a) equity compensation plans that have been approved
by security holders and (b) equity compensation plans that have not been
approved by security holders of the Company.

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ITEM 6. SELECTED FINANCIAL DATA

The selected financial data in the tables below are for the five fiscal years
ended June 30, 2002. The data should be read in conjunction with the financial
statements and notes, which are included elsewhere herein. Effective July 1,
1998 the Company acquired TSI. This acquisition may affect the comparability of
the information contained in the tables below.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CAUTIONARY STATEMENT

With the exception of historical information, the matters discussed in this Item
7 and elsewhere in this Annual Report on Form 10-K contain forward-looking
statements. There are certain important factors which could cause results to
differ materially from those anticipated by these forward-looking statements.
Some of the important factors which would cause actual results to differ
materially from those in the forward-looking statements include, among other
things, the success of the Design Trends portable lamp program, changes in
anticipated levels of sales, whether due to future national or regional economic
and competitive conditions, changes in relationships with customers, TSI's
dependence on select mass merchandisers, customer acceptance of existing and new
products, pricing pressures due to excess capacity, cost increases, exchange
rate fluctuations in the U.S. and Taiwanese dollar, changes in tax or interest
rates, unfavorable economic and political developments in Asia, the location of
the Company's primary vendors, declining conditions in the home construction
industry, inability to realize deferred tax assets, and other uncertainties, all
of which are difficult to predict and many of which are beyond the control of
the Company.

Critical Accounting Policies

The Company's management 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 our conclusions. The Company continually evaluates the
information used to make these estimates as our 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

The Company recognizes revenue when title transfers and the risks and rewards of
ownership have passed to the customer, based on the terms of sale. Title
generally transfers upon shipment of goods from our warehouse. In some
instances, the Company ships product directly from our supplier to the customer.
In these cases, the Company recognizes revenue when the product is accepted by
the customer's representative. The Company does not have an obligation or policy
of replacing, at no cost, customer products damaged or lost in transit.

As part of our revenue recognition policy, the Company records estimated
incentives payable to our 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 our 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.

Allowance for Doubtful Accounts

The Company maintains an allowance for trade accounts receivable for which
collection on specific customer accounts is doubtful. In determining
collectibility, the Company's management reviews available customer financial
statement information, credit rating reports as well as other external documents
and public filings. When it is deemed probable that a specific customer account
is uncollectible, that balance is included in the reserve calculation. Actual
results could differ from these estimates.

Inventories

Inventories are the Company's largest asset class. The Company's inventories are
primarily comprised of finished goods and are recorded at the lower of cost or
market using the average cost method. The Company

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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.

RESULTS OF OPERATIONS

Fiscal year ended June 30, 2002 compared to fiscal year ended June 30, 2001.

Net Sales - Net sales increased $2,402,000 to $73,509,000 for the year ended
June 30, 2002 from $71,107,000 for the year ended June 30, 2001. Sales of the
Craftmade division increased 2.6% or $1,284,000, to $49,798,000 from $48,514,000
for the year ended June 30, 2001. The increase in sales of the Craftmade
division was primarily due to an increase in Craftmade's sales of outdoor
lighting which generated incremental revenue of $1,070,000 compared to the prior
year period. Sales of the TSI division increased 4.9%, or $1,118,000, to
$23,711,000 from $ 22,593,000 for the year ended June 30, 2001. The increase was
attributable to additional direct shipment sales of outdoor lighting to a mass
retail customer.

Gross Profit - Gross profit increased to 31.7% of sales, or $ 23,328,000, for
the year ended June 30, 2002 compared to 31.5% of sales, or $ 22,380,000, for
the year ended June 30, 2001. The gross margin of the Craftmade division
increased to 39.3% of sales for the year ended June 30, 2002 from 37.6% of sales
for the year ended June 30, 2001. The improvement in the gross margin of the
Craftmade division was due primarily to a series of price concessions the
Company negotiated with its ceiling fan vendor, which have, in part, been passed
on to customers. The improvement in the exchange rate of the U.S. dollar
relative to the Taiwanese dollar also had a favorable impact on the gross margin
of the showroom division. Gross profit of the TSI division declined to
$3,733,000, or 15.7% of sales, for the year ended June 30, 2002 compared to
$4,151,000, or 18.4% of TSI's sales, for the year ended June 30, 2001. The
decline in the gross margin of TSI was primarily due to an inventory write down
of approximately $500,000 that was taken during fiscal 2002 to record
discontinued items at their net realizable value.

Selling, General and Administrative Expenses - Total selling, general and
administrative ("SG&A") expenses of the Company increased $740,000 to
$14,975,000, or 20.4% of net sales, for the year ended June 30, 2002 from
$14,235,000, or 20.0% of net sales, for the year ended June 30, 2001. Total SG&A
expenses of the Craftmade division increased $400,000 to $11,539,000 or 23.2% of
net sales, compared to $11,139,000 or 23.0% of Craftmade's net sales, in the
previous year. The increase in SG&A expenses of the Craftmade division was
primarily related to costs associated with the implementation of the Company's
logistics and accounting systems upgrade. Total SG&A expenses of TSI increased
$340,000 to $3,436,000 or 14.5% of sales compared to $3,096,000 or 13.7% of net
sales, for the year ended June 30, 2001. The increase in TSI's SG&A expenses as
a percentage of sales was primarily due to an increase in payroll related SG&A
expenses.

Net Interest Expense - Net interest expense declined $900,000 to $886,000 for
the year ended June 30, 2002 from $1,786,000 for the previous year. This decline
was primarily the result of a decrease in the amounts outstanding under the
Company's revolving line of credit, combined with lower interest rates in effect
during the period.

Equity in Earnings of 50% Owned Investees Before Income Taxes - Income from
investees, representing the Company's 50% ownership of PHI and Design Trends,
increased $584,000 to $2,622,000 from $2,038,000 for the year ended June 30,
2002. The increase in income from these investees was due to an increase in
sales of Design Trends' portable lamp program which generated $13,200,000 in
incremental revenue during the year.

Provision for Income Taxes - The provision for income taxes increased to
$3,360,000, or 35.3% of income before taxes for the year ended June 30, 2002
from $2,811,000, or 37.5% of income before taxes for the year ended June 30,
2001.

Fiscal year ended June 30, 2001 compared to fiscal year ended June 30, 2000.

Net Sales - Net sales decreased $3,991,000 to $ 71,107,000 for the year ended
June 30, 2001 from $75,098,000 for the year ended June 30, 2000. Sales of the
Craftmade division decreased 4.0% or $2,046,000, to $48,514,000 from $50,560,000
for the year ended June 30, 2000. The decline in sales of the Craftmade division
was primarily related to sales declines in the Company's lower priced, lower
margin series

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of ceiling fans. The Company intends to continue to be aggressive in the pricing
of specific products when the strategy is effective in increasing unit volume
sales. Sales of the TSI division decreased 7.9%, or $1,945,000, to $22,593,000
from $ 24,538,000 for the year ended June 30, 2000. The decline was attributable
to a decline in direct shipment sales of outdoor lighting to a mass retail
customer.

Gross Profit - Gross profit increased to 31.5% of sales, or $ 22,380,000, for
the year ended June 30, 2001 compared to 29.3% of sales, or $ 22,028,000, for
the year ended June 30, 2000. The gross margin of the Craftmade division
increased to 37.6% of sales for the year ended June 30, 2001 from 36.7% of sales
for the year ended June 30, 2000. Craftmade has negotiated price concessions
from its ceiling fan vendor which management believes will enable the Company to
be competitive on pricing and maintain or improve its historical margins on
these products. Gross profit of the TSI division increased to $ 4,151,000, or
18.4% of sales, for the year ended June 30, 2001 compared to $3,466,000, or
14.1% of TSI's sales, for the year ended June 30, 2000. The increase was
primarily attributed to a shift in the sales mix from direct import sales to
domestic sales that carry higher gross profit margins and higher SG&A expenses.
In addition, last year's gross margin was negatively impacted by non-recurring
sales credits issued to a mass retail customer.

Selling, General and Administrative Expenses - Total selling, general and
administrative ("SG&A") expenses increased $280,000 to $14,235,000, or 20.0% of
net sales, for the year ended June 30, 2001 from $13,955,000, or 18.6% of net
sales, for the year ended June 30, 2000. SG&A expenses of the Craftmade division
increased to $11,139,000 or 23.0% of net sales, compared to $10,773,000 or 21.3%
of Craftmade's net sales, in the previous year. SG&A expenses of TSI increased
as a percentage of sales to 13.7% or $3,096,000 for the year ended June 30, 2001
compared to 13.0% of TSI's net sales or $3,182,000 for the year ended June 30,
2000. The increase in both divisions' SG&A expenses as a percentage of sales was
primarily due to the decline in sales during the period, which resulted in the
de-leveraging of SG&A expenses compared to the previous year.

Net Interest Expense - Net interest expense increased $292,000 to $1,786,000 for
the year ended June 30, 2001 from $1,494,000 for the previous year. This
increase was primarily the result of an increase in the amounts outstanding
under the Company's revolving line of credit.

Equity in Earnings of 50% Owned Investees Before Income Taxes - Income from
investees, representing the Company's 50% ownership of PHI and Design Trends,
increased $887,000 to $2,038,000 from $1,151,000 for the years ended June 30,
2001 and 2000, respectively. The increase in income from investees was due to an
increase in sales of Design Trends' portable lamp program which generated
$11,917,000 in incremental revenue during the period.

Provision for Income Taxes - The provision for income taxes increased to
$2,811,000, or 37.5% of income before taxes for the year ended June 30, 2001
from $2,583,000, or 37.6% of income before taxes for the year ended June 30,
2000.

LIQUIDITY AND CAPITAL RESOURCES

Fiscal year ended June 30, 2002.

The Company's cash decreased $99,000 from $723,000 at June 30, 2001 to $624,000
at June 30, 2002. The Company's operating activities provided cash of
$13,979,000 during the year ended June 30, 2002 compared to $1,639,000 during
the year ended June 30, 2001. This cash flow was primarily attributable to the
Company's net income, a reduction in the Company's receivable from Design
Trends, its 50% owned investee, and a reduction in TSI's inventory levels.

Cash used for investing activities of $696,000 was related to additions to
property and equipment, primarily for costs associated with the implementation
of the Company' logistics and accounting systems upgrade.

Cash used for financing activities of $13,382,000 was primarily the result of
(i) the repurchase of 17,000 shares of the Company's common stock at an
aggregate cost of $235,000, (ii) principal payments of $2,146,000 on the
Company's notes payable, (iii) principal payments or $9,766,000 on the Company's
line of credit, and (iv) cash dividends of $1,666,000. These amounts were
partially offset by proceeds of $431,000 from the exercise of employee stock
options.

-12-

On November 6, 2001, the Company entered into a Credit Agreement with The Frost
National Bank ("Frost"), pursuant to which Frost agreed to provide the Company
with a $20,000,000 line of credit. The Credit Agreement with Frost replaced the
Company's existing $20,000,000 line of credit with J.P. Morgan Chase & Co.
("Chase") and Frost. The terms of the Company's new line of credit with Frost
are substantially identical to the Company's preceding line of credit. The
Company chose to obtain its line of credit solely from Frost, rather than a
syndicate of Frost and Chase, because the Company currently maintains its
banking accounts with Frost, and the use of Frost exclusively will permit the
Company to facilitate more rapid payments with respect to the line of credit,
which the Company believes will result in a reduction of interest expense. The
line of credit is due on demand; however, if no demand is made, it is scheduled
to mature October 31, 2003. The line of credit is collateralized by inventory,
accounts receivable and equipment of the Company.

At June 30, 2002, subject to continued compliance with certain covenants and
restrictions, the Company had $20,000,000 available on its line credit, of which
$9,034,000 had been utilized.

At June 30, 2002, $6,442,000 remained outstanding under the note payable for the
Company's 378,000 square foot operating facility. The Company's management
believes that this facility will be sufficient for its purposes for the
foreseeable future. The facility note payable matures on January 1, 2008.

As a result of the terms of the Company's note payable on its operating
facility, the Company is subject to market risk associated with adverse changes
in interest rates. In an effort to reduce this market risk, the Company entered
into an interest rate swap agreement (the "Swap Agreement") with Chase during
the first quarter of fiscal 2000, which was held by the Company for non-trading
purposes. As discussed above, in November 2001, the Company transferred its line
of credit from Chase to Frost. In connection with this transfer, the Company and
Chase agreed to terminate the Swap Agreement, and Chase paid the Company $61,500
in connection with this termination.

Fanthing, Craftmade's ceiling fan manufacturer has provided Craftmade with a
$1,000,000 credit facility, 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.

With respect to the Company's 50%-owned investees, PHI had $3,000,000 available
on its line of credit, of which $1,169,000 had been utilized. Craftmade is the
guarantor on this line of credit. Design Trends utilizes the Company's lines of
credits described above. To satisfy anticipated demand for the portable lamp
program, Design Trends maintained an inventory level of $2,180,000 at June 30,
2002. This program is primarily with one mass merchandiser customer. Should the
terms of the program with this particular mass merchandiser be at a level less
than originally anticipated the Company would be required to find other
customers for this inventory. There can be no assurances that the alternative
sources would generate similar sales levels and profit margins as anticipated
with the current mass merchandiser customer.

Fiscal year ended June 30, 2001.

The Company's cash decreased $342,000 from $1,065,000 at June 30, 2000 to
$723,000 at June 30, 2001. The Company's operating activities provided cash of
$1,639,000 during the year ended June 30, 2001 compared to $1,222,000 during the
year ended June 30, 2000. This operating cash flow increase was primarily
attributable to the Company's net income adjusted for non-cash items, which was
partially offset by an increase in the receivable from Design Trends, one of the
Company's 50% owned investees.

Cash used for investing activities of $761,000 was primarily related to
additions to property and equipment, primarily for costs associated the
implementation of the Company's logistics and accounting systems upgrade, as
well as installation of an additional level of racking in Craftmade's warehouse.

Cash used for financing activities of $1,220,000 was primarily the result of (i)
the repurchase of 313,300 shares of the Company's common stock at an aggregate
cost of $2,559,000, (ii) principal payments of $474,000 on the Company's notes
payable, and (iii) cash dividends of $1,455,000. These amounts were partially
offset by net principal advances, of $3,200,000 under the Company's line of
credit. The Company has currently suspended its stock repurchase program but may
implement the program in the future.

-13-

CONTRACTUAL OBLIGATIONS

The table below, as well as the information contained Note 5 - "Note Payable"
and Note 12 - "Commitments and Contingencies" to our financial statement,
summarizes our various repayment requirements.

At June 30, 2002, the Company has a $20,000,000 line of credit with a financial
institution at an interest rate of prime less .5% (4.75% at June 30, 2002), of
which $9,034,000 was outstanding. The line of credit is due on demand; however,
if no demand is made, it is scheduled to mature October 31, 2003. In addition,
PHI had $3,000,000 available on its line of credit, of which $1,169,000 had been
utilized. The line of credit is due on demand; however, if no demand is made, it
is scheduled to mature April 16, 2003. Craftmade is the guarantor on PHI's line
of credit.

NEW ACCOUNTING PRONOUNCEMENTS

ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS - In October 2001
the Financial Accounting Standards Board issued FASB Statement No. 144 ("FAS
144"), "Accounting for the Impairment of Long-Lived Assets." FAS 144 provides
guidance on the accounting for the impairment or disposal of long-lived assets.
FAS 144 supercedes FAS 121 and applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principles Board
Opinion No. 30 (APB 30), Reporting Results of Operations Reporting the Effects
of Disposal of a Segment of a Business. FAS 144 develops one accounting model
(based on the model in FAS 121) for long-lived assets that are to be disposed of
by sale, as well as addresses the principal implementation issues. FAS 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The adoption of FAS 144 is not expected to have a material
effect on the consolidated financial statements.

ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES - On June 28,
2002 the Financial Accounting Standards Board issued FASB Statement No. 146
("FAS 146"), "Accounting for Costs Associated with Exit or Disposal Activities."
FAS 146 addresses significant issues relating to the recognition, measurement,
and reporting of costs associated with exit and disposal activities, including
restructuring activities, and nullifies the guidance in Emerging Issues Task
Force (EITF) Issue No. 94-3 (EITF 94-3), Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). The provisions of FAS 146 are
effective for exit or disposal activities initiated after December 31, 2002.
Earlier application is encouraged. Retroactive application of FAS 146 is
prohibited and, accordingly, liabilities recognized prior to the initial
application of FAS 146 should continue to be accounted for in accordance with
EITF 94-3 or other applicable preexisting guidance. The adoption of FAS 146 is
not expected to have a material effect on the consolidated financial statements.

CHANGES IN INTERNAL CONTROLS

There have been no changes in internal controls or in other factors that
significantly changed internal controls during the fiscal year ended June 30,
2002.

INFLATION

Generally, inflation has not had, and the Company does not expect it to have, a
material impact upon operating results. However, there can be no assurance that
the Company's business will not be affected by inflation in the future.

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

The information set forth below constitutes a "forward looking statement." See
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Cautionary Statement.

-14-

As a result of the terms of the Company's note payable on its operating
facility, the Company is subject to market risk associated with adverse changes
in interest rates. In an effort to reduce this market risk, the Company entered
into an interest rate swap agreement (the "Swap Agreement") with Chase during
the first quarter of fiscal 2000, which was held by the Company for non-trading
purposes.

In November 2001, the Company transferred its line of credit from Chase to
Frost. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources." In connection with
this transfer, the Company and Chase agreed to terminate the Swap Agreement, and
Chase paid the Company $61,500 in connection with this termination.

At June 30, 2002, the Company had a $20,000,000 line of credit (the "Craftmade
Line of Credit") with Frost at an interest rate of prime less 5%, of which
$9,034,000 was outstanding. At June 30, 2002 the prime rate was equal to 4.75%.
The Craftmade Line of Credit is due on demand; however, if not demand is made,
it is scheduled to mature October 31, 2003.

In addition, at June 30, 2002, PHI had a $3,000,000 line of credit (the "PHI
Line of Credit") with Wachovia Bank, N.A. at an interest rate of the one-month
LIBOR plus 2%, of which $1,169,000 was outstanding. At June 30, 2002 the
one-month LIBOR rate was equal to 1.84%. The PHI Line of Credit is due on
demand; however, if no demand is made, it is scheduled to mature April 16, 2003.

Because of the short-term nature of each of the Craftmade Line of Credit and the
PHI Line of Credit, the Company is subject to market risk associated adverse
changes in interest rates. A sharp rise in interest rates could materially
adversely affect the financial condition and results of operations of the
Company. The Company has not entered into any instruments to minimize this
market risk of adverse changes in interest rates because the Company believes
the cost associated with such instruments would outweigh the benefits that would
be obtained from utilizing such instruments.

Under the Craftmade Line of Credit, using the June 30, 2002 outstanding balance,
for each one-percentage point (1%) incremental increase in the prime rate, the
Company's annualized interest expense would increase by approximately $90,000.
Consequently, an increase in the prime rate of five percentage points (5%) would
result in an estimated annualized increase of interest expense for the Company
of approximately $450,000.

Under the PHI Line of Credit, using the June 30, 2002 outstanding balance , for
each one-percentage point (1%) incremental increase in LIBOR, the Company's
annualized interest expense would increase by approximately $12,000.
Consequently, an increase in LIBOR of five percentage points (5%) would result
in an estimated annualized increase of interest expense for the Company of
approximately $60,000.

The Company currently purchases a substantial amount of ceiling fans and other
products of its Craftmade division 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
that, in the event that the value of the U.S. dollar appreciates or depreciates
against the Taiwanese dollar by one Taiwanese dollar or more, Fanthing's prices
will be accordingly adjusted by 2.5%. %. As of September 23, 2002, one U.S.
dollar equaled $34.73 Taiwanese dollars. A sharp appreciation of the Taiwanese
dollar relative to the U.S. dollar could materially adversely affect the
financial condition and results of operations of the Company. The Company has
not entered into any instruments to minimize this market risk of adverse changes
in currency rates because the Company 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. dollars and are not subject to adjustment provisions with
respect to foreign currency fluctuations. 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, 2002, the Company purchased approximately
$15,445,000 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
$386,000 based on the Company's purchases during the fiscal year ended June 30,
2002. A $5 incremental appreciation of the Taiwanese dollar would result in an
estimated annual increase in cost of goods sold of approximately $1,931,000,
based on the Company's purchases during the fiscal year ended June 30, 2002. A
$10 incremental appreciation of the Taiwanese dollar would result in an annual
increase of approximately

-15-

$3,861,000, based on the Company's purchases during the fiscal year ended June
30, 2002. 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 the
Company's purchases from Fanthing for the fiscal year ended June 30, 2002.
Consequently, these amounts are not necessarily indicative of the effect of such
changes with respect to future years.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data are included under Item 14(a)(1)
of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

-16-

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information relating to the Company's directors and nominees for election as
directors of the Company is incorporated herein by reference from the Company's
Proxy Statement for its 2002 Annual Meeting of Stockholders, specifically the
discussion under the headings "Election of Directors - General," "-Nominees,"
"-Executive Officers" and "-Section 16(a) Beneficial Ownership Reporting
Compliance." It is currently anticipated that the Proxy Statement will be
publicly available and mailed to stockholders in October 2002.

ITEM 11. EXECUTIVE COMPENSATION

The discussion under "Election of Directors - Director Compensation,"
"-Executive Compensation,""-Option Exercises and Holdings," "-Employment
Contracts and Termination of Employment Arrangements," "-Board Compensation
Committee Report on Executive Compensation" and "-Stock Performance Graph" in
the Company's Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The discussion under "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The discussion under "Election of Directors - Certain Relationships and Related
Transactions" in the Company's Proxy Statement is incorporated herein by
reference.

-17-

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND
REPORTS ON FORM 8-K

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

1. Financial Statements - The financial statements listed in the
"Index to Consolidated Financial Statements" described at F-1.

2. Financial Statement Schedule - The financial statement schedule
listed in the "Index to Consolidated Financial Statements"
described at F-1.

3. Exhibits - Refer to (c) below.

(b) Reports on Form 8-K

None

(c) Exhibits

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.

-18-

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 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.

-19-

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.

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.

21 - Subsidiaries of the Registrant.

(d) 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.

-20-

SIGNATURES

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 30, 2002.

CRAFTMADE INTERNATIONAL, INC.

By: /s/ James Ridings
----------------------------------------
James Ridings, Chairman of the Board,
President and Chief Executive Officer

Pursuant 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.

-21-

CERTIFICATIONS
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, James R. Ridings, certify that:

1. I have reviewed this annual report on Form 10-K of Craftmade
International, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.

Date: September 30, 2002 /s/ James R. Ridings
--------------------------
James R. Ridings
President and
Chief Executive Officer

-22-

I, Kathleen B. Oher, certify that:

1. I have reviewed this annual report on Form 10-K of Craftmade
International, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.

Date: September 30, 2002 /s/ Kathleen B. Oher
--------------------------
Kathleen B. Oher
Chief Financial Officer

-23-

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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.

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the consolidated financial statements listed in the accompanying
index appearing on page F-1 present fairly, in all material respects, the
financial position of Craftmade International, Inc. and its subsidiaries (the
"Company") at June 30, 2002 and 2001, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2002,
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 accompanying index appearing on page F-1 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 statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which 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.

/s/ PricewaterhouseCoopers LLP

Fort Worth, Texas
August 20, 2002

F-2

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

F-3

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS

SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

F-4

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY

SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

F-5

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

SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

F-6

CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Supplemental disclosures of cash flow information:

The accompanying notes are an integral part
of these consolidated financial statements.

F-7

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2002

SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

F-8

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

NOTE 1 - ORGANIZATION AND NATURE OF THE COMPANY

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. Craftmade also imports and
distributes a variety of cables and components for the telephone and
communications industries. TSI, a wholly-owned subsidiary acquired July 1, 1998,
and two 50% owned investees, 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 investees are collectively referred to
as the "Company".

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation - The Company's consolidated financial statements include
the accounts of all wholly-owned subsidiaries; 50% owned investees are accounted
for using the equity method.

All intercompany accounts and transactions have been eliminated. The functional
currency of the Company's foreign investees is the United States dollar.

CONCENTRATION 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;
however, credit risk is limited due to the large number of customers and their
dispersion across many different geographic locations. As of June 30, 2002,
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 any concentration of credit risk. All of TSI's
sales are to mass merchandisers with two customers comprising the most
significant portion as follows:

INVENTORIES - Inventories are stated at the lower of cost or market, with cost
being determined using the average cost method which approximates the first-in,
first-out (FIFO) method. The cost of inventory includes freight-in and duties on
imported goods.

PROPERTY AND 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:

Building 40 years
Office furniture , equipment and other 3 to 7 years.

F-9

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

Depreciation and amortization expense for the years ended June 30, 2002, 2001
and 2000 approximated $569,000, $503,000 and $455,000, respectively.

Maintenance and repairs are charged to expense as incurred; renewals and
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.

IMPAIRMENT 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.

GOODWILL - Goodwill relates to Craftmade's acquisition of TSI in fiscal 1999. In
accordance with SFAS 142, "Goodwill and Intangible Assets", which was adopted by
the Company effective July 2001, goodwill is no longer being amortized. On an
annual basis, and when there is reason to suspect that its value has been
impaired by comparing its carrying value to its market value, goodwill will be
tested for impairment by comparing its carrying value to its fair value. If
indicated, an impairment loss will be recorded. Goodwill amortization of
$396,000 and $412,000 for the years ended June 30, 2001 and 2000, respectively,
has been recorded in the accompanying consolidated statements of income.

REVENUE RECOGNITION - The Company recognizes revenue when the customer takes
title to the product and the related risks and rewards of ownership of the
products have transferred to the customer. The Company records estimated
incentives payable to the customer at a future date as a reduction of revenue at
the time revenues are recorded. Income and costs from shipping and handling
charges paid by the customer are recorded as sales and costs of goods sold,
respectively.

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, 2002, 2001 and 2000, was $1,326,000,
$1,160,000 and $1,014,000, respectively. Prepaid advertising costs at June 30,
2002 and 2001 were $226,000 and $305,000, respectively. Prepaid advertising
costs will be reflected as an expense during the period used.

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.

The Company's 50% owned investees operate in the form of partnerships and,
consequently, do not file federal income tax returns. Instead, the Company's
share of their income is reported in the Company's federal tax return.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Company adopted Statement on
Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative
Instruments and Hedging Activities", on July 1, 2000. FAS 133 requires that all
derivative instruments be recorded on the balance sheet at fair value. Changes
in the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, depending on the

F-10

type of hedge transaction. For fair-value hedge transactions in which the
Company is hedging changes in an asset's, liability's, or firm commitment's fair
value, changes in the fair value of the derivative instrument will generally be
offset in the income statement by changes in the hedged item's fair value. For
cash-flow hedge transactions in which the Company is hedging the variability of
cash flows related to a variable-rate asset, liability, or a forecasted
transaction, changes in the fair value of the derivative instrument will be
reported in other comprehensive income. The gains and losses on the derivative
instrument that are reported in other comprehensive income will be reclassified
as earnings in the periods in which earnings are impacted by the variability of
the cash flows of the hedged item. The ineffective portion of all hedges will be
recognized in current-period earnings. At June 30, 2002, the Company did not
have any outstanding derivative instruments.

STOCK-BASED COMPENSATION - The Company follows the disclosure only provisions of
FAS 123, "Accounting for Stock-Based Compensation". However, 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".

EARNINGS PER COMMON SHARE AND STOCK SPLIT - 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. 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.

SEGMENT INFORMATION - 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.

PERVASIVENESS OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles 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.

NEW ACCOUNTING PRONOUNCEMENTS

ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS - In October 2001
the Financial Accounting Standards Board issued FASB Statement No. 144 ("FAS
144"), "Accounting for the Impairment of Long-Lived Assets". FAS 144 provides
guidance on the accounting for the impairment or disposal of long-lived assets.
FAS 144 supercedes FAS 121 and applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principles Board
Opinion No. 30 (APB 30), Reporting Results of Operations Reporting the Effects
of Disposal of a Segment of a Business. FAS 144 develops one accounting model
(based on the model in FAS 121) for long-lived assets that are to be disposed of
by sale, as well as addresses the principal implementation issues. FAS 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The adoption of FAS 144 is not expected to have a material
effect on the consolidated financial statements.

ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES - On June 28,
2002 the Financial Accounting Standards Board issued FASB Statement No. 146
("FAS 146"), "Accounting for Costs Associated with Exit or Disposal Activities".
FAS 146 addresses significant issues relating to the recognition, measurement,
and reporting of costs associated with exit and disposal activities, including
restructuring activities, and nullifies the guidance in Emerging Issues Task
Force (EITF) Issue No. 94-3 (EITF 94-3), Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). The provisions of FAS 146 are
effective for exit or disposal activities initiated after December 31, 2002.
Earlier application is encouraged. Retroactive application of FAS 146 is
prohibited and, accordingly, liabilities recognized prior to the initial
application of FAS 146 should continue to be accounted for in accordance

F-11

with EITF 94-3 or other applicable preexisting guidance. The adoption of FAS 146
is not expected to have a material effect on the consolidated financial
statements.

NOTE 3 - INVESTMENT IN 50% OWNED INVESTEES

Combined summarized financial information for Design Trends and PHI is as
follows for the year ended:

The Company received distributions of $1,322,000, $1,160,000, and $1,369,000, in
2002, 2001 and 2000 respectively, from these two 50% owned investees.

The Company's 50% owned investees operate in the form of partnerships and,
consequently, do not file federal income tax returns. Instead, the Company's
share of their income is reported in the Company's federal tax return.

NOTE 4 - REVOLVING LINE OF CREDIT

At June 30, 2002, the Company has a $20,000,000 line of credit with a financial
institution at an interest rate of prime less .5% (4.25% at June 30, 2002), of
which $9,034,000 was outstanding. The line of credit is due on demand; however,
if no demand is made, it is scheduled to mature October 31, 2003. This line of
credit is collateralized by inventory, accounts receivable and equipment of the
Company. Company utilizes borrowings under this line of credit to partially fund
its working capital needs as well as the working capital needs of Design Trends.

The line of credit contain certain financial covenants, which include tangible
net worth, funded debt to EBITDA ratio, capital expenditures and common stock
repurchases. The Company has complied with the covenants as of and for the year
ended June 30, 2002.

NOTE 5 - NOTE PAYABLE

Craftmade has a term loan to finance its home office and warehouse with an
original principal balance of $9,200,000. At June 30, 2002 the loan bears
interest at 8.302%. The loan is payable in equal monthly installments of
principal and interest of $100,378 with a final balloon payment of $1,793,752
when the loan matures on January 1, 2008. The loan is collateralized by the
building and land.

F-12

Scheduled maturities of the note payable are as follows (in thousands):

NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS

During the first quarter of fiscal 2000, the Company entered into an interest
rate swap agreement, with a maturity of December 29, 2003, to manage its
exposure to interest rate movements by effectively converting a portion of its
long-term facility debt from fixed to variable rates. The derivative instrument
was terminated in November 2001 and the Company received $61,500 in connection
with this termination.

NOTE 7 - INCOME TAXES

Components of the provision for income taxes for the years ended June 30, 2002,
2001 and 2000 consist of the following:

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, 2002 and 2001 are as follows:

F-13

The differences between the Company's effective tax rate and the federal
statutory rate of 34% for the years ended June 30, 2002, 2001 and 2000 are as
follows:

NOTE 8 - TRANSACTIONS WITH 50% OWNED INVESTEES

There are no sales between the Company and its 50% investees or between the
investees, The investees utilize the Company's Coppell, Texas distribution
facility and Company personnel in the conduct of their operations.

The Company charges Design Trends for facility rent and payroll costs for those
full time Company employees when hey work directly in Design Trends operations.
Facility rent is based on total square footage occupied by Design Trends and
payroll costs represent actual costs for those employees. No allocation of
indirect personnel costs, including management level personnel, is included in
the charge to Design Trends.

The Company utilizes borrowings under its line of credit to provide Designs
Trends with advances for its working capital needs. The Company charges Design
Trends interest on these advances at the bank's prime rate plus two percentage
points and interest is calculated on the average outstanding monthly balance.

PHI reimburses the company $30,000 per month for general warehouse and
administrative expenses.

Craftmade's charges to its 50% owned investees are summarized as follows:

NOTE 9 - STOCKHOLDERS' EQUITY

STOCK OPTION PLANS

On October 27, 2000, the Company's stockholders approved the 1999 Stock Option
Plan ("1999 Plan") and 2000 Non-Employee Director Plan ("Non-Employee Plan"),
previously adopted by the Board of Directors on October 29, 1999 and February
16, 2000, respectively. The 1999 Plan and Non-Employee Plan allow a maximum of
300,000 and 75,000 shares, respectively, of the Company's common stock to be
issued. Options granted pursuant to the 1999 Plan will be designated as either
Incentive Stock Options ("ISOs") or Non-Qualified Stock Options ("NQSOs").
Options granted pursuant to the Non-Employee Plan will be designated as NQSOs.
The 1999 Plan options vest at a rate of 20% on the grant date and 20% for each
successive year. The Non-Employee Plan options vest within six months of the
date of grant. Options may be exercised at any time once they become vested, but
not more than 10 years from the date of grant.

A summary of options issued under the above agreements is as follows:

F-14

As the exercise price of certain of the option grants noted above was less than
fair market value on the date of grant the Company recorded deferred
compensation expense approximating $162,000. The deferred compensation expense
is recognized in the Company's results of operations in accordance with the
vesting terms of the applicable plan.

Had compensation cost for the Company's stock option plans been determined based
on the fair value of the stock options at grant date, in accordance with the
provisions of FAS 123, "Accounting for Stock-Based Compensation", the Company'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):

The 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:

The weighted average fair value of options granted during fiscal 2001 with an
exercise price less than fair market value on the grant date was $5.00. The
weighted average fair value of options granted during fiscal 2002 and 2001 with
an exercise equal to fair market value on the grant date was $5.92 and $5.71,
respectively.

TREASURY STOCK PURCHASES

During the year ended June 30, 1999, the Company's Board of Directors authorized
the Company's management to repurchase up to 2,350,000 shares of the Company's
outstanding common stock. At June 30, 2002, the Company had repurchased
1,706,300 shares at an aggregate cost of $15,354,000 of which 17,000 shares at
an aggregate cost of $235,000 were purchased in fiscal 2002.

F-15

STOCKHOLDER RIGHTS PLAN

On June 23, 1999, the Company declared a dividend of one Preferred Share
Purchase Right ("Right") on each outstanding share of the Company's common
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, at an exercise price of $48. When
the Rights become exercisable, 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 23, 2009.

NOTE 10 - EARNINGS PER SHARE

The following is a reconciliation of the numerator and denominator used in the
basic and diluted EPS calculations:

NOTE 11 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include cash, receivables, accounts and
commissions payable, accrued liabilities and amounts outstanding under various
debt agreements. Management believes the fair values of these instruments
approximate the related carrying values as of June 30, 2002 because of their
short-term nature, recent renegotiations and/or variable interest rates.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

PHI had $3,000,000 available on its line of credit, of which $1,169,000 had been
utilized. Craftmade is the guarantor on this line of credit.

The 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 $359,000,
$306,000, and $269,000 for the years ended June 30, 2002, 2001, and 2000,
respectively. Future minimum lease payments under noncancelable operating leases
as of June 30, 2002 are as follows (in thousands):

F-16

TSI leases office space from an employee of TSI, who previously had been a
principal stockholder of TSI's predecessor company. This lease is for $7,500 per
month on a month-to-month basis.

From time to time the Company is involved in certain legal actions and claims
arising in the ordinary course of business. It is the opinion of management
based on the advice of legal counsel and after consideration of the Company's
insurance coverage that there is no such litigation or claim that when resolved
will have a material effect on the Company's financial position or results of
operations.

Under a stock purchase agreement between the Company and Fancy Industrial, Inc.
("Fancy"), a Texas corporation and a wholly-owned subsidiary of Fanthing, the
Company, at its option, may repurchase 227,691 shares of the Company's common
stock owned by Fancy for an aggregate purchase price of $138,000. At June 30,
2002 and 2001, the fair value of the option approximated $3,461,000 and
$2,551,000, respectively. Although the Company may exercise the repurchase
option at any time, it currently does not intend to do so in light of its
continuing relationship with Fanthing.

NOTE 13 - 401(k) DEFINED CONTRIBUTION PLAN

The Company has a qualified 401(k) defined contribution plan which covers
substantially all full-time employees who have met certain eligibility
requirements. Employees are allowed to tax defer the lesser of 10% of their
annual compensation or $10,500. The Company will match one-half of the
participant's contributions up to 6% of their annual compensation. The Company's
matching contribution for the years ended June 30, 2002, 2001, and 2000
aggregated approximately $96,000, $96,000, and $92,000 respectively.

NOTE 14 - MAJOR SUPPLIER AND RELATED PARTY

On 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.

Fans and accessories manufactured and sold to Craftmade by the Supplier account
for approximately 61%, 61% and 71% of Craftmade's purchases (37.1%, 31.5% and
37.2% of consolidated purchases) during the years ended June 30, 2002, 2001 and
2000, respectively.

Under a stock purchase agreement between the Company and the Supplier the
Company, at its option, may repurchase 227,691 shares of the Company's common
stock owned by the Supplier for an aggregate purchase price of $138,000. At June
30, 2002 and 2001, the fair value of the option approximated $3,461,000 and
$2,551,000, respectively. Although the Company may exercise the repurchase
option at any time, it currently does not intend to do so in light of its
continuing relationship with the Supplier.

NOTE 15 - SEGMENT INFORMATION

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

The 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 through lighting
showrooms, certain retail chains and catalog houses. The TSI segment derives its
revenue from lighting, fan accessories and select ceiling fans marketed solely
to mass merchandisers.

F-17

The following table presents information about the reportable segments (in
thousands):

The following is sales information by geographic area for the years ended June
30, 2002, 2001 and 2000 (in thousands):

Long-lived assets totaled approximately $9,806,000 and $9,670,000 at June 30,
2002 and 2001, respectively. Approximately $25,000 and $36,000 of the long-lived
assets at June 30, 2002 and 2001, respectively, are located in Hong Kong.

F-18

NOTE 16 - QUARTERLY DATA

The Company's product sales, particularly ceiling fans, are somewhat seasonal
sales in the warmer first and fourth quarters being historically higher than in
the two other fiscal quarters.

The following table contains information derived from unaudited financial
statements of the Company. In the opinion of the Company's management, the
information includes all adjustments necessary for fair presentation of the
results. The results of a particular quarter are not necessarily indicative of
the results that might be achieved for a full fiscal year.

F-19

CRAFTMADE INTERNATIONAL, INC. AND ITS INVESTEES

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

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

F-20

EXHIBIT INDEX

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 - Employment Agreement, dated July 1, 1998, by and among
Craftmade International, Inc., Trade Source International,
Inc., a Delaware corporation Neall an 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.

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 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.

21 - Subsidiaries of the Registrant.