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, 2003

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.____

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER
(AS DEFINED IN RULE 12B-2 OF THE ACT). YES [ ] NO[X]

THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF
THE REGISTRANT AS OF DECEMBER 31, 2002 WAS $59,020,000

THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S $.01 PAR VALUE
COMMON STOCK AS OF SEPTEMBER 26, 2003 WAS 5,424,628

DOCUMENTS INCORPORATED BY REFERENCE

PORTIONS OF THE REGISTRANT'S PROXY STATEMENT PERTAINING TO THE REGISTRANT'S 2003
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 Security Holders......................................................... 7

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

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

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

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................................. 16

Item 8. Financial Statements and Supplementary Data................................................................. 17

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................................................................... 17

Item 9A. Controls and Procedures..................................................................................... 17

PART III ..................................................................................................................... 18

Item 10. Directors and Executive Officers of the Registrant.......................................................... 18

Item 11. Executive Compensation...................................................................................... 18

Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................................................................... 18

Item 13. Certain Relationships and Related Transactions.............................................................. 18

Item 14. Principal Accounting Fees and Services ..................................................................... 18

PART IV ...................................................................................................................... 19

Item 15. Exhibits, Financial Statements, Financial Statement
Schedule and Reports on Form 8-K......................................................................... 19

Signatures ........................................................................................................... 25

PART I

ITEM 1. BUSINESS

THE COMPANY

Craftmade International, Inc. was incorporated in the state of Texas on July
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 equity interest in the 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 China.

50% 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- Design Trends markets indoor lighting, including
portable table lamps, floor lamps, chandeliers and wall sconces
designed by Patrick Dolan. Substantially all of Design Trends' sales
are to mass merchandisers.

PHI- PHI markets various fan accessories including decorative
pull-chains, replacement switches, blade arms, blades and ceiling
medallions. All of PHI's sale are to mass merchandisers.

Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and all amendments to these reports will be made available free of
charge through the Investor Relations section of our Internet website,
HTTP://WWW. CRAFTMADE.COM, or CRAFTMADE.COM, as soon as practicable after such
material is electronically filed with, or furnished to, the Securities and
Exchange Commission.

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

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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 43%, 42% and 43% of the
Company's sales for fiscal years 2003, 2002 and 2001, respectively.

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 9%, 11% and 12% of the Company's sales in fiscal years 2003, 2002
and 2001, respectively.

TSI PRODUCTS

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, as well as the retailers' private label brands. The outdoor
lighting is designed for either wall mounting or as a post-mounted fixture.
TSI's sales of outdoor lighting represented 16%, 21% and 19% of the Company's
sales in fiscal years 2003, 2002, and 2001, respectively. Indoor lighting
represented 15%, 12%, and 12%, respectively, of the Company's sales in fiscal
years, 2003, 2002, and 2001.

50% OWNED INVESTEES' PRODUCTS

DESIGN TRENDS - During fiscal year 2000, the Company began marketing floor and
table lamps, chandeliers and wall sconces designed by Patrick Dolan to various
mass merchandisers through Design Trends, a 50% owned investee. The program is
merchandised in a patented display and packaged 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.

PHI - PHI markets various fan accessories, including decorative pull-chains,
replacement switches, blade arms, blades and ceiling medallions to various mass
merchandisers.

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

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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 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
historically extended Craftmade full credit for any product returns. 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.

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. 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
portable lamps and shades from three primary manufacturers located in China.
These products are also shipped in containers, either to the Company's facility
in Coppell, Texas or directly to the customer.

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 Craftmade exclusively
in the sale of ceiling fans in return for commissions on such sales. During
fiscal years 2003, 2002 and 2001, no single lighting showroom or electrical
wholesaler accounted for more than 2% of Craftmade's sales.

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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.

50% OWNED INVESTEES

Substantially all of Design Trends' sales are to mass merchandisers with one
customer comprising the most significant portion its sales, as follows:

The majority of Design Trends' sales are by direct shipment. The remaining sales
are shipped from the Company's Coppell, Texas facility. Design Trends 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.

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With respect to its sales, Design Trends relies on the reputation of its
products and the relationship it has with its mass merchandiser customers, as
well as its patented display system. Design Trends also participates in
advertising programs and special promotions performed by its customers

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 15 - Segment Information in the Notes
to Consolidated Financial Statements.

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 2003,
Craftmade introduced three new series of fans: Twin Air, Log Cabin and American
Tradition. The Company also added a new custom finish, Oiled Bronze.

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

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

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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.

PATENTS AND TRADEMARKS

The Company 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.

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

EMPLOYEES

As of August 31, 2003, the Company employed a total of 131 full time employees,
including five executive officers, (two of whom are TSI officers), 19 managers,
22 clerical and administrative personnel, 26 marketing personnel; 48 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 SECURITY HOLDERS.

No matters were submitted to a vote of stockholders during the fourth quarter of
fiscal year 2003.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY 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, Two North Lasalle Street, Chicago IL 60602, is
the transfer agent and registrar for the Company's common stock.

HOLDERS

On August 31, 2003, there were 102 holders of record of the Company's common
stock.

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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. The data should be read in conjunction with Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
the consolidated financial statements included herein.

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

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

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

In addition to various incentive programs, from time to time the Company is
required to provide mark down funds to certain of it mass retail customers to
assist them in clearing slow-moving inventory. These markdown funds are recorded
as a reduction of revenue in the period in which they are incurred.

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.

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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 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.

The Company is required to assess the carrying values of goodwill annually or
when circumstances dictate that the carrying value might be impaired. The method
for determining if impairment has occurred requires estimates of future cash
flows and the Company's weighted average cost of capital. In the event that an
impairment is determined to have occurred, the Company will reduce the carrying
value of the asset in that period.

RESULTS OF OPERATIONS

Fiscal year ended June 30, 2003 compared to fiscal year ended June 30, 2002.

Net Sales - Net sales decreased $1,692,000 to $71,817,000 for the year ended
June 30, 2003 from $73,509,000 for the year ended June 30, 2002. Sales of the
Craftmade division decreased 1.3% or $643,000, to $49,155,000 from $49,798,000
for the year ended June 30, 2002. The decrease in sales of the Craftmade
division was primarily due to lower unit sales and lower prices on certain
discontinued models of fans that were replaced by new models that were
introduced in the January lighting market. Management expects the showroom
division to generate positive sales growth in fiscal 2004 as a result of new
product introductions and fewer close-out sales. Sales of the TSI division
decreased 4.4%, or $1,049,000, to $22,662,000 for the year ended June 30,2003
from $23,711,000 for the year ended June 30, 2002. The decline in sales of the
TSI division was attributable to a decline in direct shipment sales of outdoor
lighting to a mass retail customer.

Gross Profit - Gross profit increased to 32.6% of sales, or $23,448,000, for the
year ended June 30, 2003 compared to 31.7% of sales, or $23,328,000, for the
year ended June 30, 2002. The gross margin of the Craftmade division increased
to 40.2% of sales for the year ended June 30, 2003 from 39.3% of sales for the
year ended June 30, 2002. The improvement in the gross margin of the Craftmade
division was due primarily to increased sales of higher margin products. The
gross margin of the TSI division improved to 16.2% for the year ended June 30,
2003 compared to 15.7% of sales, for the year ended June 30, 2002. The
improvement in the gross margin of TSI was primarily due to a smaller write down
of slow moving inventory in the year ended June 30, 2003 compared to the prior
year period. The TSI division recorded an inventory write-down of $426,000 and
$500,000 in fiscal 2003 and fiscal 2002, respectively.

Selling, General and Administrative Expenses - Total selling, general and
administrative ("SG&A") expenses of the Company increased $332,000 to
$15,307,000, or 21.3% of net sales, for the year ended June 30, 2003 from
$14,975,000, or 20.4% of net sales, for the year ended June 30, 2002. Total SG&A
expenses of the Craftmade division decreased $168,000 to $11,371,000 or 23.1% of
net sales, compared to $11,539,000 or 23.2% of net sales in the previous year.
The Craftmade division's SG&A expense as a percentage of sales was relatively
unchanged from fiscal 2002 to fiscal 2003. The decline in SG&A expense in total
dollars was primarily related to the decline in sales of the Craftmade division
from fiscal 2002 to fiscal 2003. Total SG&A expenses of TSI increased $500,000
to $3,936,000 or 17.4% of sales compared to $3,436,000 or 14.5% of net sales,
for the year ended June 30, 2002. The increase in TSI's SG&A expenses in dollars
as well as a percentage of sales was primarily due to an increase in payroll
related expenses.

Net Interest Expense - Net interest expense declined $49,000 to $837,000 for the
year ended June 30, 2003 from $886,000 for the previous year. This decline was
primarily the result of 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 $1,619,000 to $4,241,000 for fiscal 2003 from $2,622,000 for fiscal
2002. The increase in income from these investees was due to an increase in
sales of Design Trends' portable lamp program which generated $3,404,000 in
incremental revenue during the year, as well as a $1,274,000 increase in sales
of PHI for fiscal 2003 compared to the previous year.

-11-

Provision for Income Taxes - The provision for income taxes increased to
$4,049,000, or 37.2% of income before taxes for the year ended June 30, 2003
from $3,360,000, or 35.3% of income before taxes for the year ended June 30,
2002 because of higher state income taxes.

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 for year ended June 30, 2002 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 for year ended June 30, 2002 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 for year ended June 30, 2002 from $2,038,000
for the year ended June 30, 2001. 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.

LIQUIDITY AND CAPITAL RESOURCES

Fiscal year ended June 30, 2003.

The Company's cash increased $2,845,000 from $624,000 at June 30, 2002 to
$3,469,000 at June 30, 2003. The Company's operating activities provided cash of
$10,342,000 during the year ended June 30, 2003 compared to $13,979,000 during
the year ended June 30, 2002. This cash flow was primarily attributable to the
Company's net income, a reduction in the Company's accounts receivable, and a
reduction in the Company's accounts receivable from Design Trends, its 50% owned
investee.

-12-

Cash used for investing activities of $186,000 was related to additions to
property, plant and equipment, primarily for additional racking installed in the
Company's warehouse facility.

Cash used for financing activities of $7,310,000 was primarily the result of (i)
the repurchase of 558,000 shares of the Company's common stock at an aggregate
cost of $7,746,000, (ii) principal payments of $1,311,000 on the Company's notes
payable and (iii) cash dividends of $1,542,000. These amounts were partially
offset by proceeds of $2,966,000 from the Company's line of credit and $323,000
from the exercise of employee stock options.

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. Management is negotiating to
renew the Company's line of credit and believe they will be able to complete the
negotiations prior to the maturity of its existing line of credit. Management
believes that alternative bank financing on acceptable terms would be available
should the company not be able to renew its current line of credit.

At June 30, 2003, subject to continued compliance with certain covenants and
restrictions, the Company had $20,000,000 available on its line of credit, of
which $12,000,000 had been utilized. In addition, PHI had $3,000,000 available
on its line of credit, on which there was no outstanding balance. The Company's
management believes that its current lines of credit, combined with cash flows
from operations, are adequate to fund the Company's operations during the next
twelve months.

At June 30, 2003, $5,131,000 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, on which there was no outstanding balance. Craftmade is a
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 $3,004,000 at June 30,
2003. 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.

-13-

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's 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.

OFF BALANCE SHEET ARRANGEMENTS

Craftmade is a guarantor of PHI's lines of credit. The company has not engaged
in any other off balance sheet transactions or agreements.

CONTRACTUAL OBLIGATIONS

The table below, as well as the information contained in Note 5 - "Note Payable"
and Note 12 - "Commitments and Contingencies" to the Company's financial
statements, summarizes the Company's various repayment requirements.

At June 30, 2003, the Company has a $20,000,000 line of credit with The Frost
National Bank at an interest rate of prime (4.00% at June 30, 2003) less .5%, of
which $12,000,000 was outstanding. The line of credit is due on demand; however,
if no demand is made, it is scheduled to mature October 31, 2003. At June 30,
2003, PHI had a $3,000,000 line of credit with Wachovia Bank, N.A. at an
interest rate equal to the one-month LIBOR plus 2%. At June 30, 2003, the
one-month LIBOR rate was equal to 1.30%. There was a zero outstanding balance on
the line of credit at June 30, 2003. PHI's Line of Credit is due on demand;
however, if no demand is made, it is scheduled to mature October 1, 2004. In
addition, PHI has a $500,000 three-year note payable to Wachovia maturing on
July 29, 2005, of which $361,000 was outstanding at June 30, 2003. The note
bears interest at a rate equal to the Monthly LIBOR Index plus 2.5%. Craftmade
is the guarantor on PHI's lines of Credit.

-14-

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which has an effective date for exit or disposal
activities that are initiated after December 31, 2002. This statement provides
that cost associated with an exit or disposal activity must be recognized when
the liability is incurred. The adoption of SFAS No. 146 did not have a material
impact on the Company's financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of FAS 123,
which is effective for financial statements for fiscal years ending after
December 15, 2002. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
disclosure requirements of SFAS No. 148 are included in Note 2 of Notes to
Consolidated Financial Statements.

In December 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others which has an effective date of
December 31, 2002. FIN 45 requires a guarantor to make additional disclosures in
its interim and annual financial statements regarding the guarantor's
obligations. In addition, FIN 45 requires, under certain circumstances, that a
guarantor recognize, at the inception of the guarantee, a liability for the fair
value of the obligation undertaken when issuing the guarantee. The impact of the
accounting requirements of FIN 45 on the Company's financial statements was not
material.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. This interpretation of Accounting
Research Bulletin No. 51, Consolidated Financial Statements, addresses
consolidation of variable interest entities. FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary if the entity
does not effectively disperse risks among the parties involved. The provisions
of FIN 46 are effective immediately for those variable interest entities created
after January 31, 2003. The provisions are effective for the first period
beginning after June 15, 2003, for those variable interests held prior to
February 1, 2003. The Company has no variable interest entities and accordingly
does not believe the adoption of this Interpretation will have a material impact
on the Company's financial position or results of operations.

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which amends SFAS 133 for certain
decisions made by the FASB Derivatives Implementation Group. In particular, SFAS
149 (1) clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative, (2) clarifies when a
derivative contains a financing component, (3) amends the definition of
underlying to conform it to language used in FASB interpretation number (FIN)
45, and (4) amends certain other existing pronouncements. SFAS 149 is effective
for contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. In addition, most provisions of
SFAS 149 are to be applied prospectively. The effect of adopting this new
standard on the Company's financial statements is not expected to be material.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
clarifies the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. SFAS 150 requires that those
instruments be classified as liabilities in statements of financial position.
SFAS 150 is effective for interim periods beginning after June 15, 2003. The
effect of adopting this new standard on the Company's financial statements is
not expected to be material.

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,
2003.

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.

RELATED PARTY TRANSACTIONS

TSI leases office space from a director of the Company who is also a senior
officer of TSI. This lease is for $7,500 per month on a month-to-month basis.

-15-

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.

We are exposed to market risk from changes in interest rates. We have in the
past used financial instruments to offset these risks. These financial
instruments were not used for trading or speculative purposes. We did not
experience any significant changes in market risk for the fiscal year ended June
30, 2002.

At June 30, 2003, 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
$12,000,000 was outstanding. At June 30, 2003 the prime rate was equal to 4.00%.
The Craftmade Line of Credit is due on demand; however, if not demand is made,
it is scheduled to mature October 31, 2003. Management is negotiating to renew
the Company's line of credit and believe they will be able to complete the
negotiations prior to the maturity of its existing line of credit. Management
believes that alternative bank financing on acceptable terms would be available
should the company not be able to renew its current line of credit.

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%, on
which there was no outstanding balance. 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 October 1, 2004. In addition, PHI had
a $500,000 three-year note payable with Wachovia maturing on July 29, 2005, of
which $361,000 was outstanding at June 30, 2003. The note bears interest at a
rate equal to the Monthly LIBOR Index plus 2.5%.

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 with
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, 2003 outstanding balance,
for each one-percentage point (1%) incremental increase in the prime rate, the
Company's annualized interest expense would increase by approximately $120,000.
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 $600,000.

Under the PHI Note Payable, using the June 30, 2003 outstanding balance , for
each one-percentage point (1%) incremental increase in LIBOR, the Company's
annualized interest expense would increase by approximately $3,610.
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 $18,050.

We are exposed to market risk from changes in foreign currency exchange rates.
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, 2003, one U.S. dollar
equaled $34.09 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.

During the fiscal year ended June 30, 2003, the Company purchased approximately
$16,111,000 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
$403,000 based on the Company's purchases during the fiscal year ended June 30,
2003. A $5 incremental appreciation of the Taiwanese dollar would result in an
estimated annual increase in cost of goods sold of approximately $2,014,000,
based on the Company's purchases during the fiscal year ended June 30, 2003. A
$10 incremental appreciation of the Taiwanese dollar would result in an annual
increase of approximately $4,028,000, based on the Company's purchases during
the fiscal year ended June 30, 2003. 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, 2003. Consequently, these amounts are not necessarily
indicative of the effect of such changes with respect to future years.

-16-

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.

ITEM 9A. CONTROLS AND PROCEDURES.

The Company's management, including the Company's principal executive officer
and principal financial officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period
covered by this Annual Report on Form 10-K. Based upon that evaluation, the
Company's principal executive officer and principal financial officer have
concluded that the disclosure controls and procedures were effective as of the
end of the period covered by this Annual Report on Form 10-K.

There were no changes in the Company's internal control over financial reporting
that occurred during the Company's last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

-17-

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated herein by reference to our
proxy statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the Proxy Statement).

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the
Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

EQUITY COMPENSATION PLAN INFORMATION

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

The remaining information required by this Item is incorporated herein by
reference to the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated herein by reference to the
Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by Item 14 of Form 10-K is not required to be included
in this report in accordance with Securities and Exchange Release No. 34-47265A.

-18-

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 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

On April 24, 2003 the Company furnished a current report on Form 8-K
Item 9, and Item 12. to disclose a press release for estimated results
for the fiscal year ended June 30, 2003. On April 29, 2003, the Company
furnished a current report on Form 8-K Item 9. and Item 12. to disclose
an earnings correction to its press release. On May 1, 2003 the Company
furnished a current report on Form 8-K Item 9. and Item 12. to disclose
a press release describing earnings for fiscal 2003 fourth quarter and
year end results.

(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.

-19-

**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.

-20-

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.

-21-

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.

*31.1 - Certification of James R. Ridings, Chairman of the Board,
President and Chief Executive Officer of the Company, pursuant
to Section 302 of the Sarbanes- Oxley Act of 2002.

*31.2 - Certification of Kathleen B. Oher, Vice President and Chief
Financial Officer of the Company, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

*32.1 - Certification of James R. Ridings, Chairman of the Board,
President and Chief Executive Officer of the Company, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

*32.2 - Certification of Kathleen B. Oher, Vice President and Chief
Financial Officer of the Company, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

(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.

*Filed herewith (unless otherwise indicated, exhibits are previously
filed).

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

-22-

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 29, 2003.

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.

-23-

INDEX TO FINANCIAL STATEMENTS

F-1

REPORT OF INDEPENDENT AUDITORS

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

In our opinion, the consolidated financial statements listed in the index
appearing under item 15(a)(1) present fairly, in all material respects, the
financial position of Craftmade International, Inc. and its subsidiaries (the
"Company") at June 30, 2003 and 2002, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2003
in conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule listed
in the index under item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements 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.

As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for goodwill and other intangibles assets
effective July 1, 2001.

/s/ PricewaterhouseCoopers LLP
Fort Worth, Texas
August 8, 2003

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:

SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

F-7

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2003

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. 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, 2003,
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.

F-9

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.

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, 2003, 2002
and 2001 approximated $650,000, $569,000 and $503,000, 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, or $0.07 per share, has been recorded in the accompanying 2001
consolidated statement 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, 2003, 2002 and 2001, was $1,205,000,
$1,326,000 and $1,160,000, respectively. Prepaid advertising costs at June 30,
2002 and 2001 were $219,000 and $226,000, 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.

F-10

The Company's 50% owned investees operate in the form of limited liability
corporations for tax purposes 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 - All derivative instruments are
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 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, 2003, 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".

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, the Company's net income and 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 2003 and 2002 with
an exercise equal to fair market value on the grant date was $5.11 and $5.92,
respectively.

EARNINGS PER COMMON SHARE - Basic earnings per share measures the performance of
an entity over the reporting period. Diluted earnings per share measures the
performance of an entity over the reporting period while giving effect to all
potentially dilutive common shares that were outstanding during the period. The
treasury stock method is used to determine the dilutive potential of stock
options. 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.
F-11

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.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS - In July 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which
has an effective date for exit or disposal activities that are initiated after
December 31, 2002. This statement provides that cost associated with an exit or
disposal activity must be recognized when the liability is incurred. The
adoption of SFAS No. 146 did not have a material impact on the Company's
financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment of FAS 123, which is
effective for financial statements for fiscal years ending after December 15,
2002. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
disclosure requirements of SFAS No. 148 are included in Note 2 of Notes to
Consolidated Financial Statements.

In December 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others which has an effective date of December 31,
2002. FIN 45 requires a guarantor to make additional disclosures in its interim
and annual financial statements regarding the guarantor's obligations. In
addition, FIN 45 requires, under certain circumstances, that a guarantor
recognize, at the inception of the guarantee, a liability for the fair value of
the obligation undertaken when issuing the guarantee. The impact of the
accounting requirements of FIN 45 on the Company's financial statements was not
material.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation
of Variable Interest Entities. This interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements, addresses consolidation of
variable interest entities. FIN 46 requires certain variable interest entities
to be consolidated by the primary beneficiary if the entity does not effectively
disperse risks among the parties involved. The provisions of FIN 46 are
effective immediately for those variable interest entities created after January
31, 2003. The provisions are effective for the first period beginning after June
15, 2003, for those variable interests held prior to February 1, 2003. The
Company has no variable interest entities and accordingly does not believe the
adoption of this Interpretation will have a material impact on the Company's
financial position, results of operations or cash flows.

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which amends SFAS 133 for certain
decisions made by the FASB Derivatives Implementation Group. In particular, SFAS
149 (1) clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative, (2) clarifies when a
derivative contains a financing component, (3) amends the definition of
underlying to conform it to language used in FASB interpretation number (FIN)
45, and (4) amends certain other existing pronouncements. SFAS 149 is effective
for contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. In addition, most provisions of
SFAS 149 are to be applied prospectively. The effect of adopting this new
standard on the Company's financial statements is not expected to be material.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
clarifies the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. SFAS 150 requires that those
instruments be classified as liabilities in statements of financial position.
SFAS 150 is effective for interim periods beginning after June 15, 2003. The
effect of adopting this new standard on the Company's financial statements is
not expected to be material.

F-12

NOTE 3 - INVESTMENT IN 50% OWNED INVESTEES

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

Substantially all of the 50% owned investees' sales are to mass merchandisers.
One customer accounted for 83%, 80%, and 66% of sales in 2003, 2002 and 2001,
respectively. At June 30, 2003 and 2002 accounts receivable from this customer
totaled $3,215,000 and $5,455,000 respectively.

The Company received distributions of $2,918,000, $1,322,000, and $1,160,000, in
2003, 2002 and 2001 respectively, from these two 50% owned investees.

The Company's 50% owned investees operate in the form of limited liability
corporations 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, 2003, 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, 2003), of
which $12,000,000 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 contains 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, 2003.

Management is negotiating to renew the Company's line of credit and believe they
will be able to complete the negotiations prior to the maturity of its existing
line of credit. Management believes that alternative bank financing on
acceptable terms would be available should the Company not be able to renew its
current line of credit.

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, 2003 the loan bears
interest at 8.302%. The loan is payable in equal monthly installments of
principal
F-13

and interest of $100,378 with a final balloon payment of $901,045 when the loan
matures on January 1, 2008. The loan is collateralized by the building and land.

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

NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS

During 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, 2003,
2002 and 2001 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, 2003 and 2002 are as follows:

F-14

The differences between the Company's effective tax rate and the federal
statutory rate of 34% for the years ended June 30, 2003, 2002 and 2001 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 they 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 Design
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

F-15

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:

CRAFTMADE INTERNATIONAL, INC.
STOCK OPTIONS

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 approximating $162,000 in 2001. Deferred compensation expense is
recognized in the Company's results of operations as the options vest.

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, 2003, the Company had repurchased
2,264,300 shares at an aggregate cost of $23,100,000 of which 558,000 shares at
an aggregate cost of $7,746,000 were purchased in fiscal 2003.

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

F-16

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, 2003 because of their
short-term nature, recent renegotiations and/or variable interest rates.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

As of June 30, 2003, PHI had $3,000,000 available on its line of credit, of
which $0 had been utilized. Craftmade is a 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 $353,000,
$359,000, and $306,000 for the years ended June 30, 2003, 2002, and 2001,
respectively. Future minimum lease payments under noncancelable operating leases
as of June 30, 2003 are as follows (in thousands):

F-17

TSI leases office space from a director of the Company, who is also a senior
officer of TSI. 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 currently there is no such litigation or claim that when
resolved will have a material effect on the Company's financial position,
results of operations or cash flows.

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 under the age of fifty (50) are allowed to tax defer a
maximum of $11,000 of their annual compensation. Employees over the age of fifty
(50) are allowed to tax defer a maximum of $12,000 of their annual compensation.
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, 2003, 2002, and 2001 aggregated approximately $101,000, $96,000,
and $96,000 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 66%, 61% and 61% of Craftmade's purchases (35.8%, 37.1% and
31.5% of consolidated purchases) during the years ended June 30, 2003, 2002 and
2001, respectively.

F-18

NOTE 15 - SEGMENT INFORMATION

The Company operates in two reportable segments, Craftmade and TSI. The
accounting policies of the segments are the same as those described in Note 2 -
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 primarily through
lighting showrooms, certain major retail chains and catalog houses. The TSI
segment derives its revenue from outdoor lighting, portable lamps, indoor
lighting and fan accessories marketed solely to mass merchandisers.

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

Long-lived assets totalled approximately $9,343,000 and $9,806,000 at June 30,
2003 and 2002, respectively. Approximately $11,000 and $25,000 of the long lived
assets at June 30, 2003 and 2002, respectively, are located in Hong Kong.

F-19

NOTE 16 - QUARTERLY DATA

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.

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-20

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-21

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
of Design Trends, LLC

In our opinion, the financial statements listed in the index appearing under
item 15(a)(1) present fairly, in all material respects, the financial position
of Design Trends, LLC (a Delaware Limited Liability Corporation) (the "Company")
at June 30, 2003, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit 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
audit provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Fort Worth, Texas
August 8, 2003

F-22

DESIGN TRENDS, LLC
STATEMENTS OF INCOME AND MEMBERS' EQUITY

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS

F-23

DESIGN TRENDS, LLC
BALANCE SHEETS

THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS

F-24

DESIGN TRENDS, LLC
BALANCE SHEETS

LIABILITIES AND MEMBERS' EQUITY

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS

F-25

DESIGN TRENDS, LLC
STATEMENTS OF CASH FLOW

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS

F-26

DESIGN TRENDS, LLC
STATEMENTS OF CASH FLOWS (CONTINUED)

Supplemental disclosures of cash flow information:

THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.

F-27

DESIGN TRENDS, LLC
NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND NATURE OF THE COMPANY

Design Trends, LLC., a Delaware limited liability corporation, is a joint
venture between Craftmade International, Inc. ("Craftmade") and Dolan Northwest,
LLC. (collectively "Members'"), with each member owning 50% of the entity.
Design Trends is principally engaged in designing, sourcing and marketing table
lamps, floor lamps, torchiere lamps, chandeliers, bath accessories, wall
sconces, and pendant fixtures to mass merchandisers, home centers and home decor
retailers. The Company operates in one business segment.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

DISPLAY EQUIPMENT - Display equipment is recorded at cost and is being
depreciated on the straight line method over 3 years. Depreciation of display
equipment totaling $1,639,000, $1,562,000 and $196,000 in 2003, 2002 and 2001,
respectively is reflected as a reduction of net sales.

IMPAIRMENT OF LONG-LIVED ASSETS - The Company reviews potential impairments of
long-lived assets 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.

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, 2003, 2002 and 2001, was $92,000, $26,000
and $25,000, respectively.

INCOME TAXES - For federal income tax purposes, the Company is treated as a pass
through entity. The Company's Members include their share of the Company's
taxable income in their federal income tax returns. As a result, the Company
does not provide federal income taxes in its financial statements.

The Company accounts for state 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. 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.

F-28

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 amounts reported in the financial
statements and accompanying notes. Significant items subject to such estimates
and assumptions include the carrying amount of property and equipment and
valuation allowances for receivables and inventories. Actual results could
differ from those estimates.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS - In July 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which
has an effective date for exit or disposal activities that are initiated after
December 31, 2002. This statement provides that cost associated with an exit or
disposal activity must be recognized when the liability is incurred. SFAS No.
146 does not currently impact the Company's financial statements.

In December 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires a guarantor to make
additional disclosures in its interim and annual financial statements regarding
the guarantor's obligations. In addition, FIN 45 requires, under certain
circumstances, that a guarantor recognize, at the inception of the guarantee, a
liability for the fair value of the obligation undertaken when issuing the
guarantee. The impact of the accounting requirements of FIN 45 on the Company's
financial statements was not material.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation
of Variable Interest Entities. This interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements, addresses consolidation of
variable interest entities. FIN 46 requires certain variable interest entities
to be consolidated by the primary beneficiary if the entity does not effectively
disperse risks among the parties involved. The provisions of FIN 46 are
effective immediately for those variable interest entities created after January
31, 2003. The provisions are effective for the first period beginning after June
15, 2003, for those variable interests held prior to February 1, 2003. The
Company has no variable interest entities and accordingly does not believe the
adoption of this Interpretation will have a material impact on the Company's
financial position or results of operations.

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which amends SFAS 133 for certain
decisions made by the FASB Derivatives Implementation Group. In particular, SFAS
149 (1) clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative, (2) clarifies when a
derivative contains a financing component, (3) amends the definition of
underlying to conform it to language used in FASB interpretation number (FIN)
45, and (4) amends certain other existing pronouncements. SFAS 149 is effective
for contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. In addition, most provisions of
SFAS 149 are to be applied prospectively. The Company does not expect that the
provisions of this statement will have a material impact on the Company's
financial statements.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
improves the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. SFAS 150 requires that those
instruments be classified as liabilities in statements of financial position.
SFAS 150 is effective for interim periods beginning after June 15, 2003. The
Company does not expect this statement to have a material impact on it's
financial statements.

NOTE 3 - MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of trade receivables. One mass merchandiser
customer accounts for 87%, 85% and 79% of net sales in 2003, 2002 and 2001,
respectively. At June 2003 and June 2002, accounts receivable from this customer
totaled $2,680,000 and $4,475,000, respectively. As part of its ongoing control
procedures, the Company monitors the creditworthiness of its customers thereby
mitigating the effect of any concentration of credit risk.

F-29

NOTE 4 - INCOME TAXES

Components of the provision for state income taxes for the years ended June 30,
2003, 2002 and 2001 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. These
difference primarily relate to inventory and accrued customer allowances.

NOTE 5 - RELATED PARTIES AND COMMITMENTS AND CONTINGENCIES

There are no sales between the Company and its Members. The Company utilizes
Craftmade's Coppell, Texas distribution facility and Craftmade's personnel in
the conduct of their operations.

The Company pays Craftmade for facility rent and payroll costs for those full
time Company employees when they work directly in the Company's operations.
Facility rent is based on total square footage occupied by the Company and
payroll costs represent actual costs for those employees. No allocation of
indirect personnel costs, including Member management level personnel, is
charged to the Company.

The Company is provided with advances for its working capital needs by Craftmade
from borrowings under Craftmade's line of credit. Craftmade charges the
Company interest on these advances at the bank's prime rate plus two percentage
points and interest is calculated on the average outstanding monthly balance.

The Company's payments to Craftmade are summarized as follows:

F-30

EXHIBIT INDEX

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

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

3.3 - Amended and Restated Bylaws of the Company, filed as Exhibit
3 (b) (2) to the Company's Post Effective Amendment No. 1 to
Form S-8 (File No. 33-33594-FW) and incorporated by reference
herein.

4.1 - Specimen Common Stock Certificate, filed as Exhibit 4.4 to
the Company's Registration Statement on Form S-3 (File No.
333-70823) and incorporated by reference herein.

4.2 - Rights Agreement, dated as of June 23, 1999, between
Craftmade International, Inc. and Harris Trust and Savings
Bank, as Rights Agent, previously filed as an exhibit to Form
8-K dated July 9, 1999 (File No. 000-26667) and incorporated
by reference herein.

10.1 - Earnest Money contract and Design/Build Agreement dated May
8, 1995, between MEPC Quorum Properties II, Inc. and Craftmade
International, Inc. (including exhibits), previously filed as
an exhibit in Form 10Q for the quarter ended December 31,
1995, and herein incorporated by reference.

10.2 - Assignment of Rents and Leases dated December 21, 1995,
between Craftmade International, Inc. and Allianz Life
Insurance Company of North America (including exhibits),
previously filed as an exhibit in Form 10Q for the quarter
ended December 31, 1995, and herein incorporated by reference.

10.3 - Deed of Trust, Mortgage and Security Agreement made by
Craftmade International, Inc., dated December 21, 1995, to
Patrick M. Arnold, as trustee for the benefit of Allianz Life
Insurance Company of North America (including exhibits),
previously filed as an exhibit in Form 10Q for the quarter
ended December 31, 1995, and herein incorporated by reference.

10.4 - Second Amended and Restated Credit Agreement dated November
14, 1995, among Craftmade International, Inc., Nations Bank of
Texas, N.A., as Agent and the Lenders defined therein
(including exhibits), previously filed as an exhibit in Form
10Q for the quarter ended December 31, 1995, and herein
incorporated by reference.

10.5 - Lease Agreement dated November 30, 1995, between Craftmade
International, Inc. and TSI Prime, Inc., previously filed as
an exhibit in Form 10Q for the quarter ended December 31,
1995, and herein incorporated by reference.

10.6 - Revolving credit facility with Texas Commerce Bank,
previously filed as an exhibit in Form 10K for the year ended
June 30, 1996, and herein incorporated by reference.

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

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.

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.

*31.1 - Certification of James R. Ridings, Chairman of the Board,
President and Chief Executive Officer of the Company, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2 - Certification of Kathleen B. Oher, Vice President and Chief
Financial Officer of the Company, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

*32.1 - Certification of James R. Ridings, Chairman of the Board,
President and Chief Executive Officer of the Company, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

*32.2 - Certification of Kathleen B. Oher, Vice President and Chief
Financial Officer of the Company, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

*Filed herewith (unless otherwise indicated, exhibits are previously
filed).

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