FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

CRAFTMADE INTERNATIONAL, INC.

Registrant’s telephone number, including area code (972) 393-3800

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [x]. No [  ].

5,080,115 shares of Common Stock were outstanding as of October 27, 2004.

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES

Index to Quarterly Report on Form 10-Q

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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES

SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES

ASSETS

SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES

SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

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

SEPTEMBER 30, 2004 (Unaudited)

Note 1 - BASIS OF PREPARATION AND PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and with the rules and regulations of the Securities and Exchange Commission for interim financial reporting, and include all adjustments which are, in the opinion of management, necessary for a fair presentation. The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. As further discussed in footnote 3, the Company adopted new accounting guidance that required the consolidation of Design Trends and PHI. The Company adopted this guidance as of January 1, 2004 and retroactively applied it to its previously issued financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures are adequate to make the information presented not misleading; however, it is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto which are incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004. The financial data for the interim periods may not necessarily be indicative of results to be expected for the year. All financial information is in thousands (000’s) except share data.

Stock-based compensation

The Company follows the disclosure only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148. 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, “Accounting for Stock-Based Compensation”, the Company’s net income and diluted earnings per common share would have been adjusted to the pro forma amounts indicated below (in thousands, except per share amounts):

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

September 30, 2004
(Unaudited)
(In Thousands)

Note 2 - EARNINGS PER SHARE

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

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NOTE 3 - 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 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2003. 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, outdoor lighting, and lamps offered primarily through lighting showrooms, mass merchandisers and catalog houses. The TSI segment derives its revenue from ceiling mount lighting fixtures, bath-strip lighting and outdoor lighting marketed solely to mass merchandisers.

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

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NOTE 4 – COMMITMENTS AND CONTINGENCIES

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

Craftmade has an agreement with Dolan Northwest, LLC (the owner of the 50% of Design Trends) pursuant to which Dolan Northwest is responsible for the judgment rendered in the lawsuit, plus all costs and expenses, including legal fees and court costs, associated with the judgment. Pat Dolan has unconditionally guaranteed the obligations of Dolan Northwest under this agreement.

If the defendants’ appeal is unsuccessful, according to the above mentioned agreement, any damages would be the responsibility of Dolan Northwest, LLC. In the event that both Dolan Northwest and Pat Dolan became insolvent or otherwise unable to meet any such obligation, it could become a liability of Design Trends or Craftmade.

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ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Statement

With the exception of historical information, the matters discussed in this document contain forward-looking statements. There are certain important factors which could cause actual 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 dependency of Trade Source International, Inc. (“TSI”), Design Trends, LLC (“Design Trends”) and Prime/Home Impression, LLC (“PHI”) on sales to select mass merchandiser customers and changes in those relationships, changes in anticipated levels of sales, whether due to future national or regional economic and competitive conditions, changes in relationships with Craftmade customers, customer acceptance of existing and new products, pricing pressures due to excess capacity, cost increases, changes in tax or interest rates, unfavorable economic and political developments in Asia (the location of the Company’s primary vendors) and changes in the foreign currency exchange rate between the U.S. and Taiwan dollar, declining conditions in the home construction industry, inability to realize deferred tax assets, labor strikes, lockouts, and other labor slow downs, the ability of the Company to import merchandise from foreign countries without significantly restrictive tariffs, duties or quotas and the ability of the Company to source, ship and deliver items from foreign countries to its U.S. distribution centers at reasonable prices and rates and in a timely fashion, as well as other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company.

Critical Accounting Policies and Estimates

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,

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assumptions and judgments involved in the accounting policies described below have the greatest potential impact on its financial statements, so the Company considers these to be its critical accounting policies.

Revenue Recognition

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

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.

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These mark-down funds were recorded as a reduction of revenue in the period in which they were granted. In March 2004, the Company began to estimate and record reductions to revenue for these mark-down funds that it records when the revenue is recorded because based on its past practice these mark-down funds were estimable and considered likely to be granted.

Allowance for Doubtful Accounts

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

Inventories

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.

Goodwill

The Company assesses 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.

Income Taxes

The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and

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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.

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

On October 22, 2004, President Bush signed the American Jobs Creation Act of 2004 (the “Act”), which includes numerous provisions that may affect business practices and accounting for income taxes. Since the Act was enacted in October, any effects from the law itself would not be reflected in the Company’s income tax provision until the 4th quarter. Management is currently evaluating what, if any, effects the Act may have on the Company.

FIN 46

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

The Company has a 50% ownership interest in two limited liability companies, Design Trends and PHI. In connection with the adoption of FIN 46R, the Company concluded that Design Trends and PHI are VIEs and that the Company is the primary beneficiary of each of Design Trends and PHI. Pursuant to the provisions of FIN 46R, effective January 1, 2004, the Company began to consolidate Design Trends and PHI.

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Results of Operations

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Net Sales. Net sales for the Company declined $2,166,000 or 6.9% to $29,025,000 for the three month period ended September 30, 2004 compared to $31,191,000 for the same three month period last year.

Net sales from the Craftmade segment increased $288,000, or 2.0%, to $14,600,000 for the three months ended September 30, 2004 from $14,312,000 for the same three month period last year. The increase in sales of the Craftmade segment was primarily related to an increase in outdoor lighting sales, and an increase in sales of the builder’s model fan series.

Net sales of the TSI segment declined $2,454,000, or 14.5% to $14,425,000 for the three months ended September 30, 2004 from $16,879,000 for the same three-month period last year. The decline was due to a $3,973,000 decline in Design Trends’ sales, partially offset by a net increase in sales of the remaining divisions of the TSI segment.

Design Trends sales decline was primarily due to changes in the buying pattern of its largest mass retail customer. Management believes the changes are related to the retailer’s sales forecasts, targeted levels of replenishment inventory, targeted inventory turns, and other factors that are within the realm of the retailer’s control. Craftmade’s management receives feedback from the retailer primarily at the time of the retailer’s annual line review, in connection with the semi-annual reset of its lighting program. Based on the most recent annual line review, management believes that the retailer remains committed to the lighting program with Design Trends. However, lower average unit retail prices went into effect in June 2004 in Design Trends’ portable lamp program with its largest customer. Based on sales results in the fiscal first quarter, management anticipates that Design Trends’ sales will continue to decline for the remainder of the fiscal year compared to the same period in the previous year.

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At the time of the fiscal 2003 lighting reset, which occurred in the June 2003 to August 2003 timeframe, the Design Trends program was in the majority of the locations of its largest mass retail customer, which amounted to approximately 900 stores. During fiscal 2004, the customer opened 130 new stores into which Design Trends rolled out its lighting program. As of the fiscal 2004 reset, the retailer was operating approximately 1,030 stores, and the Design Trends lighting program was rolled out to 922 of those stores in the June 2004 to August 2004 timeframe, for a net increase of approximately 12 stores in fiscal 2004. Going forward, management anticipates Design Trends will obtain product placements in approximately 90% of the new stores the retailer opens.

Gross Profit. Gross profit of the Company as a percentage of sales declined to 29.4% for the three months ended September 30, 2004, compared to 32.8% for the same period of 2003. The gross profit percentage of the Craftmade segment declined to 38.6% of net sales compared to 40.8% of net sales in the year ago period. The decline in the gross margin of the Craftmade segment was partially due to an increase in outbound freight as a percentage of net sales. Outbound freight increased to 7.4% of sales for the three month period ended September 30, 2004, compared to 6.2% in the year ago period. The decline in the gross profit margin was also the result of increased product costs due to a weaker U.S. dollar compared to the Taiwan dollar. In addition, gross profit margins were impacted by a change in sales mix, with a greater portion of sales being driven by Craftmade’s builders’ model ceiling fans, which carry a lower gross profit percentage than the overall product mix. The Company anticipates that margins for remainder of fiscal 2005 for the Craftmade division will remain approximately the same as in the fiscal first quarter.

The gross profit percentage of the TSI segment declined to 20.0% of sales for the three months ended September 30, 2004 compared to 26.0% of sales in the year ago period. The decline was due to (i) an increase in vendor program accruals as a percentage of gross sales to 13.5% from 11.9% in the prior year period (ii) the implementation of a markdown accrual on sales to TSI’s largest mass retail customer of 3.0% of gross sales from 0.0% in the prior year period and (iii) an increase in outbound freight cost to 2.0% of gross sales from 0.8% in the prior year period. For the remainder of fiscal 2005, gross profit as a percentage of sales is expected to improve slightly compared to the first quarter results. The anticipated improvement for the TSI segment is based on expectations of a change in sales mix, with a greater portion of sales being generated by higher margin customers.

Selling, General and Administrative Expenses. Total selling, general and administrative (“SG&A”) expenses of the Company increased $904,000 to $5,409,000 or 18.6% of net sales for the three months ended September 30, 2004 from $4,505,000 or 14.4% of net sales for

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the same three month period last year. Total SG&A expenses of the Craftmade segment increased $828,000 to $3,787,000 or 25.9% of sales compared to $2,959,000 or 20.7% of sales for the same period in the previous fiscal year. The increase in SG&A expenses of the Craftmade segment was partially related to an increase in advertising costs of approximately $250,000, and an increase in salaries and benefits of approximately $100,000. The remainder of the increase was primarily due to an increase in costs incurred with respect to the Company’s independent auditors, outside legal counsel, management consultants and contract labor. These increased costs were incurred in order to address internal controls issues and the continuing evaluation by the Company’s management and independent auditors of the proper interpretation of FIN46 with respect to the Company’s 50% owned subsidiaries. Total SG&A expenses of the TSI segment increased $78,000 to $1,622,000 or 11.2% of sales compared to $1,544,000 or 9.2% of sales for the same period in the previous year. The increase in SG&A expenses of the TSI segment was primarily the result of a larger portion of the Company’s fixed and variable overhead being allocated to the TSI division as its operations represent a larger portion of the Company’s infrastructure, including use of a larger portion of the Company’s office and warehouse space, human resources and financial capital.

Interest Expense. Net interest expense of the Company increased $37,000 to $230,000 for the three months ended September 30, 2004 from $193,000 for the three-month period ended September 30, 2003. The average outstanding balance on the Company’s lines of credit was higher in the fiscal first quarter compared to the prior year period, and interest rates on its lines of credit in effect during the period were higher than in the prior year period. The balance on the Company’s revolving lines of credit increased partially as a result of PHI’s borrowings to finance the rollout of its lamp parts program in fiscal 2004. In addition, borrowings on the Company’s revolving lines of credit increased as a result of an increase in the company’s accounts receivable due to a change in its accounts receivable payment terms with its largest mass retail customer to 60 days from a previous range of 30 to 45 days. The outstanding balance on the Company’s facility note was lower than in the prior year period, and the interest rate on the facility note remained unchanged compared to the prior year period.

Minority Interests. As a result of a decline in income generated by the Company’s 50% owned subsidiaries, minority interests decreased $1,080,000 to $566,000 for the fiscal first quarter from $1,646,000 for the same period in the previous year. The decline was primarily related to the decline in sales and gross profit of Design Trends, as discussed above.

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Provision For Income Taxes. The provision for income tax was $770,000 or 35.5% of income for the three months ended September 30, 2004, compared to $1,353,000 or 36.3% for the same period of the prior year.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s cash increased $2,157,000 from $5,838,000 at June 30, 2004 to $7,995,000 at September 30, 2004. The Company’s operating activities provided cash of $5,057,000, which was primarily attributable to income from operations before minority interest expense.

The $17,000 of cash used in investing activities related to additions to property and equipment, which consisted primarily of purchases of computer equipment and office furniture.

Cash used in financing activities of $2,883,000 was primarily the result of (i) repurchases of the Company’s outstanding common stock of $993,000, (ii) distributions to minority interest members of $293,000, (iii) cash dividends of $502,000, (iv) principal payments on the Company’s notes payable of $789,000, and (v) net payments on the Company’s revolving lines of credit of $316,000. These amounts were partially offset by proceeds from stock options exercised of $10,000.

The Company’s management believes that its current lines of credit, combined with cash flows from operations, are adequate to fund the Company’s current operating needs, debt service payments, and any future dividend payments, as well as fund its projected growth over the next twelve months. Management believes that alternative bank financing on acceptable terms would be available should the Company not be able to renew its existing lines of credit.

Management anticipates that future cash flows will be used primarily to retire existing debt and to repurchase Company common stock. On December 9, 2003, the Company’s Board of Directors authorized the Company’s management to repurchase up to 500,000 shares of the Company’s outstanding common stock. As of September 30, 2004, the Company had repurchased 381,643 shares at an aggregate cost of $9,263,000 under this program. The average price paid per share repurchased was $24.27.

At September 30, 2004, subject to continued compliance with certain covenants and restrictions, the Company had a $20,000,000 line of credit with The Frost National Bank (“Frost”), of which $14,261,000 had been utilized. The Frost line of credit is due on demand; however if no demand is made, it is scheduled to mature on October 31, 2005.

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At September 30, 2004, Design Trends had a $2,000,000 loan agreement with Frost, of which none had been utilized. Design Trends can borrow under this loan subject to continued compliance with certain covenants.

One of the Company’s 50%-owned subsidiaries, PHI, has a $2,000,000 line of credit (the “$2 Million Line of Credit”) with Wachovia Bank, N.A. (“Wachovia”), at an interest rate equal to the Monthly LIBOR index plus 2%, which expires October 15, 2005. There was an outstanding balance of $1,548,000 on the $2 Million Line of Credit at September 30, 2004. PHI has a $500,000 three-year note payable to Wachovia (the “$500,000 Note”) maturing on July 29, 2005, of which $153,000 was outstanding at September 30, 2004. The $500,000 Note bears interest at a rate equal to 1-month LIBOR plus 2.5%. In addition, on November 24, 2003, PHI entered into a loan agreement with Wachovia (the “$2.1 Million Note”) whereby Wachovia agreed to advance up to $2,100,000 to PHI, subject to PHI’s continued compliance with certain loan covenants specified by the agreement. The $2.1 Million Note bears interest at a rate equal to the 1-month LIBOR plus 2.5%. At September 30, 2004, there was a $1,050,000 balance outstanding under the $2.1 million Note, which is scheduled to mature on March 15, 2005. The PHI members agreed to be guarantors of the $2 Million Line of Credit, the $500,000 Note and the $2.1 Million Note for business purposes, in order to induce the lender to provide these loans to PHI.

At September 30, 2004, $3,618,000 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.

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

Management does not anticipate that the covenants and restrictions of its lines of credit and loan agreements will limit the Company’s growth potential.

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During fiscal year 2004, the Company extended its accounts receivable payment terms with its largest mass retail customer to 60 days from a previous range of 30 to 45 days. The Company does not anticipate that this will have a material impact on the availability of future cash collections to meet the Company’s expected future cash obligations.

TSI maintained inventory levels of $4,963,000 at September 30, 2004. TSI’s sales are highly concentrated with one mass retail customer. Should the revenues generated by TSI from its programs with this customer be at levels significantly lower than originally anticipated, the Company would be required to find other customers for this inventory. There can be no assurances that the Company would be able to obtain additional customers for this inventory or that any alternative sources would generate similar sales levels and profit margins as anticipated with the current mass merchandiser customer.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information set forth below constitutes a “forward looking statement.” See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cautionary Statement.

At September 30, 2004, the Company had a $20,000,000 line of credit with The Frost National Bank (the “Craftmade Line of Credit”) at an interest rate of prime (4.75% at September 30, 2004) less .5%, of which $14,261,000 was outstanding. The line of credit is due on demand; however, if no demand is made, it is scheduled to mature October 31, 2005.

At September 30, 2004, PHI had a $2 Million Line of Credit with Wachovia at an interest rate equal to the one-month LIBOR plus 2%. At September 30, 2004, the one-month LIBOR rate was equal to 1.84%. There was a $1,548,000 outstanding balance on the line of credit at September 30, 2004. The $2 Million Line of Credit is due on demand; however, if no demand is made, it is scheduled to mature October 15, 2005.

PHI has a $500,000 note payable to Wachovia maturing on July 29, 2005, of which $153,000 was outstanding at September 30, 2004. The note bears interest at a rate equal to the Monthly LIBOR Index plus 2.5%. In addition, on November 24, 2003, PHI entered into the $2.1 million Note with Wachovia whereby Wachovia agreed to advance up to $2,100,000 to PHI, subject to PHI’s continued compliance with certain loan covenants specified by the agreement. At September 30, 2004, there was a $1,050,000 balance outstanding under the $2.1 Million

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Note, which is scheduled to mature on March 15, 2005.

The short-term nature of each of the Craftmade Line of Credit and the $2 Million Line of Credit, the $500,000 Note and the $2.1 Million Note (collectively, the “PHI Lines of Credit”), the Company is subject to market-risk-associated, adverse changes in interest rates. A sharp rise in interest rates could materially adversely affect the financial condition and results of operations of the Company. The Company has not entered into any instruments to minimize this market risk of adverse changes in interest rates because the Company believes the cost associated with such instruments would outweigh the benefits that would be obtained from utilizing such instruments.

Under the Craftmade Line of Credit, for each one-percentage point (1%) incremental increase in the prime rate, the Company’s annualized interest expense would increase by approximately $143,000. Consequently, an increase in the prime rate of five percentage points (5%) would result in an estimated annualized increase in interest expense for the Company of approximately $713,000.

Under the PHI Lines of Credit, for each one-percentage point (1%) incremental increase in LIBOR, the Company’s annualized interest expense would increase by approximately $17,000. Consequently, an increase in LIBOR of five percentage points (5%) would result in an estimated annualized increase in interest expense for the Company of approximately $85,000.

The Company currently purchases a substantial amount of ceiling fans and other products of its Craftmade segment 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 30, 2004 one U.S. dollar equaled $33.99 Taiwanese dollars. A sharp appreciation of the Taiwanese dollar relative to the U.S. dollar could materially adversely affect the financial condition and results of operations of the Company. The Company has not entered into any instruments to minimize this market risk of adverse changes in currency rates because the Company believes the cost associated with such instruments would outweigh the benefits that would be obtained from utilizing such instruments. All other purchases of the Company from foreign vendors are denominated in U.S. dollars and are not subject to adjustment provisions with respect to foreign currency fluctuations. As a result, the Company does not believe that it is subject to any material foreign currency exchange risk with respect to such purchases.

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During the fiscal quarter ended September 30, 2004, the Company purchased approximately $4,572,000 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 $457,000, based on the Company’s purchases during the fiscal quarter ended September 30, 2004, (on an annualized basis). A $5 incremental appreciation of the Taiwanese dollar would result in an estimated annualized increase in cost of goods sold of approximately $2,286,000, based on the Company’s purchases during the fiscal quarter ended September 30, 2004(on an annualized basis). A $10 incremental appreciation of the Taiwanese dollar would result in an increase of approximately $4,572,000 on an annualized basis, based on the Company’s purchases during the fiscal quarter ended September 30, 2004(on an annualized basis). These amounts are estimates of the financial impact of an appreciation of the Taiwanese dollar relative to the U.S. dollar and are based on annualizations of the Company’s purchases from Fanthing for the fiscal quarter ended September 30, 2004. Consequently, these amounts are not necessarily indicative of the effect of such changes with respect to an entire year.

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ITEM 4. CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and interim Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and interim Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report were not designed nor were functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This conclusion is based on the identified material weakness in internal control over financial reporting previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004.

Change in Internal Control over Financial Reporting

In connection with the audit of the Company’s consolidated financial statements for the fiscal year ended June 30, 2004, PricewaterhouseCoopers, LLP (“PwC”), the Company’s registered independent public accounting firm, informed the Company’s Audit Committee that it believed that the personnel and management of the Company who perform its accounting and financial reporting functions were not sufficiently expert in U.S. GAAP and the requirements of the SEC and the Public Company Accounting Oversight Board, and this lack of expertise represented a material weakness (as defined under standards established by the American Institute of Certified Public Accountants (“AICPA”)) in the operation of internal control over financial reporting.

In response to the foregoing material weakness, management of the Company, with the guidance of the Company’s Audit Committee has been engaged in remediation efforts to ensure that the preparation of the Company’s consolidated financial statements, including the process to review and analyze elements of the Company’s financial statement close process, is in accordance with U.S. GAAP. In addition, the plan will ensure that the personnel involved in this process have available to them the relevant information about U.S. GAAP, SEC financial reporting requirements, and the requirements of the Public Company Accounting Oversight Board necessary for them to be able to prepare the Company’s financial statements.

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Pursuant to the remediation efforts described above, the Company recently hired a Chief Accounting Officer (the “CAO”) and accepted the resignation of its Chief Financial Officer, which management of the Company believes are steps necessary to remedy the material weakness. The CAO has over ten years of public company accounting experience with a national accounting firm and has also served as the Chief Financial Officer of a privately held company. The Board of Directors of the Company has appointed the Company’s Executive Vice President to serve as the Company’s interim Chief Financial Officer.

The CAO and senior Company finance and accounting staff responsible for the preparation of U.S. GAAP financial reports and SEC disclosures will be increasing their level of attendance at targeted U.S. GAAP and SEC reporting courses. The Company plans to subscribe during the second quarter of fiscal year 2005 to additional information networks that provide publications and updates of SEC and U.S. GAAP releases and rule changes and of information about the requirements of the Public Company Accounting Oversight Board. In addition, the Company is continuing to implement additional internal controls remediation efforts prior to the 2005 audit. To assist it with the testing of the Company’s internal controls to ensure they are operating effectively, the Company intends to engage an outside internal control consultant in the second quarter of fiscal year 2005.

Until management of the Company is satisfied that it has addressed its need for sufficient expertise in preparing financial statements required in its filings under the securities laws, the Company will seek to mitigate this weakness by conferring with its outside accounting advisers with respect to the technical requirements applicable to the Company’s financial statements.

The implementation of the plan described above is among the Company’s highest priorities. The Company’s Board of Directors, in coordination with the Company’s Audit Committee, will continually assess the progress and sufficiency of the plan and make adjustments as and when necessary. As of the date of this report, management of the Company believes that the plan, when completely implemented prior to June 30, 2005, will eliminate the material weakness in internal accounting control as described above. However, a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues have been detected.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

On August 8, 2001, Lamps Plus, Inc. and Pacific Coast Lighting (collectively “Lamps Plus”) sued several defendants, including Patrick S. Dolan, Dolan Northwest, LLC, Design Trends, and Craftmade International, Inc. (collectively, the “Craftmade Parties”), for alleged patent infringement in the United States District Court for the Northern District of Texas. The suit alleged that the Craftmade Parties infringed two patents – a design patent and a utility patent – held by Lamps Plus related to a design for a free-standing torchiere lamp with attached sidelights. The suit sought a declaration that the two patents were infringed, treble damages, a preliminary and permanent injunction from further alleged infringement, attorneys’ fees, and other unspecified damages. The Craftmade Parties denied the allegations of patent infringement, asserting affirmative defenses, and counterclaimed for a declaration that the patents are invalid, not infringed, and unenforceable.

On November 3, 2003, the lawsuit went to trial and on November 20, 2003, the jury found that the Craftmade Parties directly and indirectly infringed the utility patent with four of the five lamp models, and that their infringement was willful. The jury found that the Craftmade Parties did not infringe the design patent for any of the five accused lamp models. The jury further found that neither patent was invalid or unenforceable, and awarded damages against Dolan, Design Trends L.L.C., and Craftmade International, Inc., jointly and severally, in the amount of $143,385.00. On September 14, 2004, the Court entered a Judgment and Permanent Injunction and issued an Order Awarding Attorneys’ Fees. The Judgment awards Lamps Plus $143,385 in actual damages plus costs of court. The Order awards $600,000 in attorneys’ fees to Lamps Plus. Dolan, Design Trends, and Craftmade have been enjoined from selling infringing lamps including 4 of the 5 models at issue in the case. Management believes that the exclusion of these lamp models would not have a material adverse effect on the business of the Company. The outcome of this litigation is uncertain. Dolan, Design Trends, and Craftmade intend to appeal the Judgment and Order.

With regard to the foregoing litigation (the “Lawsuit”), the Craftmade Parties entered into an agreement (the “Agreement”), that sets forth the responsibilities of the Craftmade Parties for payment of additional fees, costs and expenses of the Lawsuit, along with the rights to any recovery that might be had by reason of the Lawsuit. Pursuant to the Agreement, Design Trends (which is owned jointly by Craftmade and Dolan Northwest, LLC) agreed to pay the first $150,000

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of legal fees and expenses incurred by the Parties after February 21, 2003. On April 16, 2003, Dolan Northwest became responsible for all legal fees and expenses incurred by the Craftmade Parties in connection with the Lawsuit from that date forward, and agreed to indemnify and hold harmless Craftmade and Design Trends from and against any and all claims, liabilities, or losses arising out of the legal fees and expenses incurred in the defense of the Lawsuit after February 21, 2003.

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

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

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

ISSUER PURCHASES OF EQUITY SECURITIES

On December 9, 2003 the Company’s Board of Directors authorized the Company’s management to repurchase up to 500,000 shares of the Company’s outstanding common stock. No expiration date was specified for the repurchase program; however, it is estimated to be completed within twelve months of the authorization. No shares were purchased by the Company other than through publicly announced plans or programs.

Item 3. Defaults Upon Senior Securities.

     not applicable

Item 4. Submission of Matters to a Vote of Security Holders.

     not applicable

Item 5. Other Information

     not applicable

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Item 6. 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 10-Q 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 10-Q for the quarter ended December 31, 1995, and herein incorporated by reference.

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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 10-Q 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 10-Q 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 10-Q 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 10-K 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.

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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		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, Inc.,

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		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.
10.15		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.
10.16		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.
10.17		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.
10.18		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.

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		000-26667) and herein incorporated by reference.
10.19		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.
10.20		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.
10.21		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 Annual Report on Form 10-K filed May 14, 2001(File No. 000-26667) and herein incorporated by reference.
10.22		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.
10.23		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.

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		000-26667) and herein incorporated by reference.
10.24		Termination Agreement dated November 16, 2001, by and between Craftmade International, Inc., a Delaware corporation, and JP Morgan Chase Bank, filed as Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q filed February 14, 2002 (File No. 000-26667) and herein incorporated by reference.
10.25		Loan Agreement dated April 17, 2002, by and between Prime/Home Impressions, LLC, a North Carolina limited liability company, and Wachovia Bank, N.A., with Note and Security Agreement of Prime/Home Impressions, LLC, Guaranty Agreement of Craftmade International, Inc., Guaranty Agreement of Trade Source International, Inc., and Guaranty Agreement of Home Impressions, Inc., filed as Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q filed November 14, 2002 (File No. 000-26667) and herein incorporated by reference.
10.26		Note and Security Agreement dated April 29, 2002, by Prime/Home Impressions LLC, a North Carolina limited liability company, to Wachovia Bank, N.A., with Security Agreement of Prime/Home Impressions, LLC, Guaranty Agreement of Craftmade International, Inc., and Guaranty Agreement of Trade Source International, Inc., filed as Exhibit 10.26 to the Company’s Quarterly Report on Form 10-Q filed November 14, 2002 (File No. 000-26667) and herein incorporated by reference.
10.27		Modification, Renewal and Extension Agreement dated October 27, 2003, by and between The Frost National Bank, a national banking association, and Craftmade International, Inc., a Delaware corporation, filed as Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q filed November 14, 2003 (File No. 000-26667) and herein incorporated by reference.
10.28		Note and Security Agreement dated November 24,

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		2003 by Prime/Home Impressions LLC, a North Carolina limited liability company, to Wachovia Bank, N.A., with Security Agreement of Prime/Home Impressions, LLC, and Guaranty Agreement of Craftmade International, Inc., filed as Exhibit 10.28 to the Company’s Quarterly Report on Form 10-Q filed February 17, 2004 (File No. 000-26667) and herein incorporated by reference.
10.29		Agreement regarding Lamps Plus, Inc. Litigation, entered into on December 31, 2003 and effective February 21, 2003, by and among Craftmade International, Inc., a Delaware corporation, Design Trends, LLC, a Delaware limited liability company, Dolan Northwest, LLC, an Oregon limited liability company and Patrick S. Dolan, filed as Exhibit 10.29 to the Company’s Quarterly Report on Form 10-Q filed February 17, 2004 (File No. 000-26667) and herein incorporated by reference.
10.30		Business Loan Agreement dated June 14, 2004, by and between The Frost National Bank, a national banking association, and Design Trends, LLC, a Delaware limited liability company filed as Exhibit 10.31 to the Company’s Annual Report on Form 10-K filed September 28, 2004 (File No. 000-26667) and herein incorporated by reference.
10.31		Second Amendment to Loan Agreement dated June 14, 2004, by and between The Frost National Bank, a national banking association, and Craftmade International, Inc., a Delaware corporation filed as Exhibit 10.32 to the Company’s Annual Report on Form 10-K filed September 28, 2004 (File No. 000-26667) and herein incorporated by reference.
*31.1		Certification of James R. Ridings, Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2		Certification of Brad D. Heimann, Interim Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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*32.1		Certification of James R. Ridings, Chief Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2		Certification of Brad D. Heimann, Interim Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

     Pursuant to the requirements 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.

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Index to Exhibits

38

39

40

41

42

43