10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2005 or

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

For the transition period from                     to

Commission file number
000-26667

CRAFTMADE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	75-2057054
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
650 South Royal Lane, Suite 100, Coppell, Texas	75019
(Address of principal executive offices)	(Zip Code)

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 þ No o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

5,200,000 shares of the registrant’s common stock, $01 par value, were outstanding as of October 31, 2005.

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES

Index to Quarterly Report on Form 10-Q

 Modification, Renewal and Extension Agreement

 Amended and Restated Loan Agreement

 Arbitration and Notice of Final Agreement

 Certification of CEO Pursuant to Section 302

 Certification of CFO Pursuant to Section 302

 Certification of CEO Pursuant to Section 906

 Certification of CFO Pursuant to Section 906

2

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements.

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands except per share amounts)

(Unaudited)

Gross profit		8,746		8,520
Selling, general and administrative expenses		4,898		5,409
Interest expense, net		304		230
Depreciation and amortization		158		147
Total expenses		5,360		5,786
Income before income taxes and minority interests		3,386		2,734
Minority interests		734		566
Income before income taxes		2,652		2,168
Income taxes		920		770
Net income	$	1,732	$	1,398
Basic earnings per common share	$	0.33	$	0.27
Diluted earnings per common share	$	0.33	$	0.27
Cash dividends declared per common share	$	0.12	$	0.10

SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

3

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

ASSETS

	September 30,			June 30,
	2005			2005
	(Unaudited)
Current assets
Cash	$	3,454		$	9,145
Accounts receivable — net of allowance of $232 and $300, respectively		20,792			21,810
Inventories — net of allowance of $761 and $717, respectively		18,755			18,042
Deferred income taxes		1,637			1,224
Prepaid expenses and other current assets		468			374
Total current assets		45,106			50,595
Property and equipment
Land		1,535			1,535
Building		7,796			7,796
Office furniture and equipment		9,184			9,148
Leasehold improvements		279			279
		18,794			18,758
Less: accumulated depreciation		(10,416	)		(10,266	)
Total property and equipment, net		8,378			8,492
Other assets
Goodwill		11,480			11,480
Other intangibles — net of accumulated amortization of $17 and $10, respectively		183			190
Other assets		51			58
Total other assets		11,714			11,728
Total assets	$	65,198		$	70,815

SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

4

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands except share amounts)

LIABILITIES AND STOCKHOLDERS’ EQUITY

	September 30,			June 30,
	2005			2005
	(Unaudited)
Current liabilities
Note payable — current	$	1,050		$	1,319
Revolving line of credit		1,548			24,548
Accounts payable		9,422			9,299
Commissions payable		223			248
Income taxes payable		1,298			(33	)
Accrued customer allowances		4,731			4,164
Other accrued expenses		1,086			1,055
Total current liabilities		19,358			40,600
Other non-current liabilities
Note payable — long term		16,271			1,551
Other long-term expenses		860			860
Deferred income taxes		202			226
Total other non-current liabilities		17,333			2,637
Total liabilities		36,691			43,237
Minority interests		3,016			3,205
Commitments and contingencies (Note 5)
Stockholders’ equity
Series A cumulative, convertible callable preferred stock, $1.00 par value, 2,000,000 shares authorized; 32,000 shares issued		32			32
Common stock, $0.01 par value, 15,000,000 shares authorized and 9,699,920 shares issued		97			97
Additional paid-in capital		18,662			18,653
Retained earnings		46,707			45,598
Less: treasury stock, 4,499,920 common shares at cost, and 32,000 preferred shares at cost		(40,007	)		(40,007	)
Total stockholders’ equity		25,491			24,373
Total liabilities and stockholders’ equity	$	65,198		$	70,815

SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

5

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	FOR THE THREE MONTHS ENDED
	September 30,			September 30,
	2005			2004
Net cash provided by operating activities	$	3,426		$	5,057
Cash flows from investing activities
Additions to property and equipment		(36	)		(17	)
Cash used in investing activities		(36	)		(17	)
Cash flows from financing activities
Net payments on lines of credit		(8,010	)		(316	)
Principal payments on notes payable		(540	)		(789	)
Treasury stock repurchases		—			(993	)
Stock options exercised		—			10
Cash dividends		(531	)		(502	)
Distributions to minority interest members		—			(293	)
Net cash used in financing activities		(9,081	)		(2,883	)
Net increase/(decrease) in cash		(5,691	)		2,157
Cash at beginning of period		9,145			5,838
Cash at end of period	$	3,454		$	7,995
Supplemental disclosure of non-cash financing activities:
Minority interest earned but not paid	$	922		$	—

SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
AS OF AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2005

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 (“SEC”) 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 Craftmade International, Inc. (“Craftmade”), and its wholly-owned subsidiaries, including Trade Source International, Inc. (“TSI”), and two 50% owned limited liability companies, Prime/Home Impressions, LLC (“PHI”) and Design Trends, LLC (“Design Trends”). Craftmade and its subsidiaries including TSI, PHI and Design Trends are sometimes collectively referred to as the “Company”. 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, in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005 filed with the SEC on September 20, 2005. The financial data for the interim periods may not necessarily be indicative of results to be expected for the year.

Note 2 — EARNINGS PER SHARE

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

	FOR THE THREE MONTHS ENDED
	September 30,		September 30,
	2005		2004
	(In thousands,
	except per share data)
Basic and diluted earnings per share:
Numerator
Net income	$	1,732	$	1,398
Denominator for basic EPS
Common shares outstanding		5,200		5,084
Denominator for diluted EPS
Common shares outstanding		5,200		5,084
Incremental shares for stock options		10		40
Potentially dilutive common shares		5,210		5,124
Basic earnings per share	$	0.33	$	0.27
Diluted earnings per share	$	0.33	$	0.27

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
AS OF AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2005

Note 3 — STOCK-BASED COMPENSATION

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

For three months ended September 30, 2005, compensation expense from unvested options outstanding as of July 1, 2005 totaled $9,000. There were no options granted in the quarter ended September 30, 2005.

The following table shows pro forma net income for the three months ended September 30, 2004 had compensation expense for the Company’s stock option plans been determined based upon the fair value at the grant date for awards consistent with the methodology prescribed by SFAS 123. The pro forma results for the three months ended September 30, 2004 are compared to actual results for the three months ended September 30, 2005 where stock option expense is included in reported net income. The pro forma effects may not be representative of expense in future periods since the estimated fair value of stock options on the date of grant is amortized to expense over the vesting period and additional options may be granted or options may be cancelled in future years.

	FOR THE THREE MONTHS ENDED
	September 30,		September 30,
	2005		2004
	(In thousands,
	except per share data)
	Actual		Pro Forma
Net income, as reported	$	1,732	$	1,398
Compensation expense, net of related taxes		—		(31	)
Net income, proforma	$	1,732	$	1,367
Basic earnings per share, as reported	$	0.33	$	0.27
Basic earnings per share, proforma		0.33		0.27
Diluted earnings per share, as reported	$	0.33	$	0.27
Diluted earnings per share, proforma		0.33		0.27

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
AS OF AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2005

Note 4 — 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, 2005 as filed with the SEC on September 20, 2005. The Company evaluates the performance of its segments and allocates resources to them based on their net sales, income before minority interests and income taxes, 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, lamps, light bulbs, door chimes, ventilation systems and other lighting accessories 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 sales and income for the reportable segments:

	FOR THE THREE MONTHS ENDED
	September 30,		September 30,
	2005		2004
	(In thousands)
Net sales
Craftmade	$	16,511	$	14,600
TSI		13,958		14,425
Total	$	30,469	$	29,025
Income before minority interests and income taxes
Craftmade	$	2,104	$	1,515
TSI		1,282		1,219
Total	$	3,386	$	2,734
Net income
Craftmade	$	1,345	$	982
TSI		387		416
Total	$	1,732	$	1,398

Total assets for the TSI segment were $5,375,000 lower on September 30, 2005 than as reported on June 30, 2005. This is primarily due to a decrease of cash in the amount of $5,692,000. See the discussion in Item 2: Liquidity and Capital Resources for the uses of cash. The following table presents the total assets for the reportable segments:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
AS OF AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2005

Total Assets by Segment
(In thousands)

	September 30,		June 30,
	2005		2005		Change
TSI	$	14,605	$	19,980	$	(5,375	)
Craftmade		50,593		50,835		(242	)
Total	$	65,198	$	70,815	$	(5,617	)

Note 5 — COMMITMENTS AND CONTINGENCIES

As more fully described in the Company’s Form 10-K for the fiscal year ended June 30, 2005 as filed with the SEC on September 20, 2005, 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 have appealed the Judgment and Order, and the outcome of the appeal is uncertain. This appeal is pending in the United States Court of Appeals for the Federal Circuit.

Craftmade has an agreement with Dolan Northwest, LLC (the owner of the other 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. Dolan Northwest has also agreed to indemnify and hold harmless the Company from and against any and all liabilities, losses, damages, costs or other expenses associated with said judgment. Patrick 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. Pursuant to this agreement, Dolan Northwest filed a deposit in lieu of supersedeas bond with the court. Accordingly, given the agreement and deposit in lieu of supersedeas bond, management believes that there is no contingent liability for the Company.

10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
AS OF AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2005

Note 6 — SUBSEQUENT EVENTS

On October 31, 2005, the Company entered into a loan agreement (the “Agreement”) with Frost National Bank (“Frost”) that renews the Company’s promissory note in the amount of $20,000,000 at the interest rate of the LIBOR index plus the following amounts based on “Debt to Net Worth”. The Agreement is scheduled to mature on October 31, 2007. Additionally, the Agreement does not have a provision where the outstanding balance of this note can be due upon demand. Financial covenants of the Agreement are amended to remove the Interest Coverage Ratio and modify the Fixed Charge Coverage ratio from 1.5:1 to 1.25:1. Other covenants and restrictions that apply to this Agreement limit the Company’s debt to tangible net worth ratio to be less than 3.0 to 1.0 after December 31, 2005. The Company has agreed not to purchase its stock if its debt to tangible net worth exceeds 3.0 to 1.0. The Company’s debt to tangible net worth ratio totaled 2.8 to 1.0 at September 30, 2005.

Percentage	Debt to Net Worth Ratio
2.75%	>3.00 to 1.00
2.25%	>=2.50 to 1.00 or <=3.00 to 1.00
1.75%	>2.00 to 1.00 or <2.50 to 1.00
1.50%	<=2.00 to 1.00

In accordance with the terms of the SFAS 6, Classification of Short-Term Obligations Expected to be Refinanced, the Company reclassified $14,990,000 of its existing promissory note from short-term to long-term obligations at September 30, 2005.

Note 7 — RELATED PARTY

At September 30, 2005, the Company owed Home Impressions, LLP, the Company’s 50% partner in PHI, a payable totaling $1,289,000, primarily consisting of undistributed earnings.

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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 TSI, PHI and Design Trends 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 or Chinese yuan, 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, disruption or failure of management information systems, fluctuation of the results of operations from quarter to quarter, restrictions of the Company’s credit facility could restrict operational flexibility, retention of key personnel, as well as other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company. When used in this document, the words “believes,” “plans,” “estimates,” “expects,” “anticipates,” “intends,” “continue,” “may,” “will,” “should,” “projects,” “forecast,” “might,” “could” or the negative of such terms and similar expressions as they relate to Craftmade or its management are intended to identify forward-looking statements.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of the Company’s 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. As the financial statements contained herein are condensed, one should also read the Company’s Form 10-K for the year ended June 30, 2005 as filed with the SEC on September 20, 2005 regarding expanded information about our critical accounting policies and estimates.

Stock-Based Compensation

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

12

Company adopted SFAS 123R were based on the grant date fair value and attributes originally used to value those awards.

Overview

Management reviews a number of key indicators to evaluate the Company’s financial performance, including net sales, gross profit and selling, general and administrative expenses by segment. A condensed overview of results for the three months ended September 30, 2005 and the corresponding prior year period can be summarized as follows (in thousands):

	Three Months Ended									Three Months Ended
	September 30, 2005									September 30, 2004
	Craftmade			TSI			Total			Craftmade			TSI			Total
Net sales	$	16,511		$	13,958		$	30,469		$	14,600		$	14,425		$	29,025
Cost of goods sold		10,650			11,073			21,723			8,970			11,535			20,505
Gross profit		5,861			2,885			8,746			5,630			2,890			8,520
Gross margin		35.5	%		20.7	%		28.7	%		38.6	%		20.0	%		29.4	%
SG&A		3,331			1,567			4,898			3,787			1,622			5,409
As a % of net sales		20.2	%		11.2	%		16.1	%		25.9	%		11.2	%		18.6	%
Interest		278			26			304			197			33			230
Depreciation		148			10			158			131			16			147
Income before minority interests and income taxes	$	2,104		$	1,282		$	3,386		$	1,515		$	1,219		$	2,734
Minority interests		—			734			734			—			566			566
Provision for income taxes		759			161			920			533			237			770
Net income	$	1,345		$	387		$	1,732		$	982		$	416		$	1,398

Results of Operations

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

Net Sales. Net sales for the Company increased $1,444,000 or 5.0% to $30,469,000 for the quarter ended September 30, 2005, compared to $29,025,000 for the same period last year. The increase in sales was due to increased sales in the Craftmade segment partially offset by a decline in sales in the TSI segment.

Net sales from the Craftmade segment increased $1,911,000 or 13.1% to $16,511,000 for the quarter ended September 30, 2005, from $14,600,000 for the same period last year. The increase resulted from $2,014,000 of incremental net sales from the acquisition of Bill Teiber Co., Inc. (“Teiber”). The remaining $103,000 decrease in sales of the Craftmade segment resulted from a general decline across product lines.

Based on sales results from fiscal year 2005, management anticipates that net sales from the Craftmade segment, excluding results from the Teiber acquisition, will improve in fiscal year 2006 as newly introduced products become available, assuming continued strength in the housing sector and the overall U.S. economy. Management believes that the Teiber acquisition will continue to provide incremental growth opportunities throughout fiscal year 2006.

Net sales of the TSI segment declined $467,000 or 3.2% to $13,958,000 for the quarter ended September 30, 2005, from $14,425,000 for the same period last year, as summarized in the following table (in thousands except percentage data):

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Change in Net Sales of TSI Segment

							Prime/			TSI
	Trade			Design			Home			Segment
Quarter Ended	Source			Trends			Impressions			Total
September 30, 2005	$	5,114		$	5,429		$	3,415		$	13,958
September 30, 2004		5,795			6,145			2,485			14,425
Dollar change		(681	)		(716	)		930			(467	)
Percent change		-11.8	%		-11.7	%		37.4	%		-3.2	%

The TSI segment includes the Trade Source entity which is wholly owned by the Company and the Prime/Home Impressions (“PHI”) and Design Trends entities which are 50% owned companies. Hereafter, TSI refers to the segment and Trade Source to the entity. The net decrease in sales of Trade Source primarily resulted from a decrease in sales of the mix and match fan program to Wal-Mart and promotional indoor lighting products.

The decline in Design Trends’ net sales was primarily due the previously disclosed loss of four regional distribution centers which serve approximately 383 stores. More detail of this event is provided in the Company’s Form 10-K for the year ended June 30, 2005 as filed with the SEC on September 20, 2005, and the Company’s Form 8-K filing dated April 25, 2005. Design Trends is the primary vendor to Lowe’s for its mix and match portable lamp program, and such program is currently available in approximately 722 Lowe’s stores.

The increase in net sales of PHI primarily resulted from the annual reset of the fan accessory and lamp replacement parts business to Lowe’s.

Future growth of the TSI segment, exclusive of Design Trends, is contingent upon the success of the Company’s ongoing efforts to introduce new products to existing customers and to expand the business to new customers.

Gross Profit. Gross profit of the Company as a percentage of net sales decreased to 28.7% for the quarter ended September 30, 2005, compared to 29.4% for the same period last year. Gross profit as a percentage of net sales of the Craftmade segment decreased 3.1% to 35.5% for the quarter ended September 30, 2005, compared to 38.6% in the same period last year. The decline in the gross margin of the Craftmade segment was primarily the result of increased product costs due to a weaker U.S. dollar compared to the Taiwan dollar. The Company anticipates that margins for the Craftmade division will stabilize in the second quarter of fiscal 2006 due to a decrease in cost from a strengthening of the U.S. dollar compared to the Taiwan dollar and from establishing relationships with manufacturers that are located in other countries with a more favorable exchange rate.

The gross profit of the TSI segment increased to 20.7% of sales for the quarter ended September 30, 2005, compared to 20.0% of sales in the same prior year period, as summarized in the following table:

Change in Gross Margins of TSI Segment

							Prime/			TSI
	Trade			Design			Home			Segment
Quarter Ended	Source			Trends			Impressions			Total
September 30, 2005		10.2	%		21.9	%		34.4	%		20.7	%
September 30, 2004		15.9	%		19.5	%		31.0	%		20.0	%
Percent Change		-5.7	%		2.4	%		3.4	%		0.7	%

The net increase in gross margin as a percentage of sales for the TSI segment resulted from changes in mix of (i) vendor program accruals as a percentage of gross sales, (ii) sales mix, and (iii) changes in composition of shipment’s origin. Orders shipped directly from the Company’s vendors to its customers are typically at lower margins. Orders shipped domestically from the Company’s warehouse are typically at higher margins to offset the costs associated with storage and handling of products.

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Specifically, margins decreased at the Trade Source entity from (i) a 1.2% increase in vendor programs as a percentage of gross sales primarily related to annual product resets at Lowe’s and (ii) a increased product costs from changes in mix as described above. The improvement in gross margins at Design Trends resulted from lower sales discounts in the current year quarter from the sale of slow moving inventory and a 1.8% reduction in vendor programs as a percentage of gross sales, primarily from lower amounts set aside for product markdowns. The increase in margins at PHI resulted from the increased sale of higher margin products as a result of the annual reset which occurred in September 2005.

For fiscal year 2006, gross profit as a percentage of sales of the TSI segment is expected to remain consistent with the quarter ended September 30, 2005 provided that a similar sales mix, customer concentration and level of vendor program commitment continues for this segment in fiscal year 2006.

Selling, General and Administrative Expenses. Total selling, general and administrative (“SG&A”) expenses of the Company decreased $511,000 to $4,898,000 or 16.1% of net sales for the quarter ended September 30, 2005 from $5,409,000 or 18.6% of net sales for the prior year.

Total SG&A expense of the Craftmade segment decreased $456,000 to $3,331,000 or 20.2% of sales compared to $3,787,000 or 25.9% of sales for the same period in the previous year. The decrease in SG&A of the Craftmade segment is summarized as follows (in thousands):

					Change
	Quarter Ended				From
	September 30,				Prior Year
	2005		2004		Period
Accounting, legal and consulting	$	572	$	966		($394	)
Salaries and wages		1,116		905		211
Other		1,643		1,916		(273	)
	$	3,331	$	3,787		($456	)

Lower accounting, legal and consulting fees in the quarter ended September 30, 2005 were primarily due to higher costs incurred in the same period in the prior year to (i) address internal controls issues, (ii) evaluate the proper interpretation of FIN 46 with respect to the Company’s 50% owned subsidiaries and (iii) an increase in cost to comply with Section 404 of the Sarbanes-Oxley Act of 2002.

The increase in salaries and wages was impacted by higher salaries due to adjustments of current employees to remain competitive with market conditions as well as the addition of seven Teiber employees, and additional accounting and IT staff.

The decrease in other costs primarily resulted from lower advertising and health insurance costs.

Total SG&A expenses of the TSI segment decreased $55,000 to $1,567,000 or 11.2% of sales for the quarter ended September 30, 2005 from $1,622,000 or 11.2% of sales for the same period in the previous year.

Management anticipates that based on current market conditions, future SG&A expenses as a percentage of sales, excluding accounting, legal and consulting fees related to compliance with Section 404, will be relatively consistent with results generated in fiscal year 2005. Management anticipates that accounting, legal and consulting costs, including costs to comply with Section 404, will be reduced by approximately 35% to 50% of such costs in fiscal year 2005.

Interest Expense. Net interest expense of the Company increased $74,000 to $304,000 for the quarter ended September 30, 2005 from $230,000 for the same period in the previous year. This increase was primarily the result of higher outstanding balances from the Company’s revolving lines of credit, combined with higher interest rates in effect during the period. The balance on the Company’s revolving lines of credit increased primarily as a result of Craftmade’s borrowings to finance its acquisition of Teiber. In

15

addition, the outstanding balance on the Company’s facility note was lower than in the same period during fiscal 2005, and the interest rate on the facility note remained unchanged compared to the same period in the prior year. Management anticipates that in the future, lower outstanding balances on its lines of credit may offset expected increases in interest rates, resulting in total interest expense that is not significantly different from the expense generated in fiscal year 2005.

Minority Interests. Minority interests generated by the Company’s 50% owned subsidiaries increased $168,000 to $734,000 for the quarter ended September 30, 2005, compared to $566,000 for the same period in the previous year. The increase was primarily due to a $217,000 increase as a result of the increased sales and gross profit of PHI, partially offset by a decline of $49,000 as a result of the in sales and gross profit of Design Trends, as discussed above.

Provision for Income Taxes. The provision for income tax was $920,000 or 34.7% of income before income taxes for the quarter ended September 30, 2005, compared to $770,000 or 35.5% of income before taxes for the same quarter of the prior year. The decrease in percentage resulted from the tax benefit obtained from receiving an 85% dividends received deduction for the repatriation of undistributed 2005 foreign earnings under the American Jobs Creation Act of 2004. The Company expects to receive a similar benefit throughout calendar year 2006.

Liquidity and Capital Resources

The Company’s cash decreased $5,691,000 from $9,145,000 at June 30, 2005 to $3,454,000 at September 30, 2005. The Company’s operating activities provided cash of $3,426,000.

The $36,000 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 $9,081,000 was primarily the result (i) net payments on the Company’s revolving lines of credit of $8,010,000, (ii) principal payments on the Company’s notes payable of $540,000 and (iii) cash dividends of $531,000.

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 its projected growth over the next twelve months.

Management anticipates that future cash flows will be used primarily to retire existing debt, pay dividends, fund potential acquisitions and distribute earnings to minority interest members. The Company remains committed to its business strategy of creating long-term earnings growth, maximizing stockholder value through internal improvements, making selective acquisitions and dispositions of assets, focusing on cash flow and retaining quality personnel.

At September 30, 2005, 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”) at an interest rate of prime (6.75% at September 30, 2005) less 0.5% or LIBOR (4.4067% at September 30, 2005) plus 1.50% to 2.25% depending on the debt to worth ratio. The line of credit is scheduled to mature on October 31, 2005.

On October 31, 2005, the Company entered into a loan agreement with Frost that renews the Company’s promissory note in the amount of $20,000,000. This loan agreement is scheduled to mature on October 31, 2007. Information regarding the promissory note is set forth in Note 6 — “Subsequent Events” to the consolidated financial statements in Item 1 of Part I of this Form 10-Q.

On February 25, 2005, the line of credit was amended to provide, among other things, a $3,000,000 increase in the commitment initially through March 31, 2005 and subsequently through December 31, 2005. Accordingly, there was $14,990,000 outstanding under the $20,000,000 line of credit at September 30, 2005 and no outstanding balance on the $3,000,000 amendment.

Under this line of credit, for each one-percentage point (1%) incremental increase in LIBOR, the

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Company’s annualized interest expense would increase by approximately $150,000. 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 $750,000.

At September 30, 2005, Design Trends had a $2,000,000 loan agreement with Frost, of which none had been utilized. The loan matured on October 31, 2005 and was not extended.

One of the Company’s 50%-owned subsidiaries, PHI, has a $3,000,000 promissory note (the “$3 Million Line of Credit”) with Wachovia Bank, N.A. (“Wachovia”), at an interest rate equal to the monthly LIBOR index (3.8584% at September 30, 2005) plus 2%, which expired on October 15, 2005 and was subsequently renewed through December 15, 2006. The terms of the renewal remained substantially unchanged from the original $3 Million Line of Credit. There was an outstanding balance of $1,548,000 at September 30, 2005. The PHI members, which include TSI, agreed to be guarantors of the $3 Million Line of Credit in order to induce the lender to provide these loans to PHI.

Based on the amounts outstanding at September 30, 2005 under the $3 Million Line of Credit, for each one-percentage point (1%) incremental increase in LIBOR, the Company’s annualized interest expense would increase by approximately $15,000. 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 $77,000.

At September 30, 2005, $2,331,000 remained outstanding under the note payable for the Company’s 378,000 square foot operating facility. The loan is payable in equal monthly installments of $100,378 of principal and interest at 8.302%. 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 Electrical Corp. (“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.

TSI maintained inventory levels of $5,097,000 at September 30, 2005. TSI’s sales are highly concentrated with Lowe’s. 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.

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 Taiwan dollar by one Taiwan dollar or more, Fanthing’s prices will be accordingly adjusted by 2.5%.

The Company also purchases a substantial amount of other products of its Craftmade and TSI segments from numerous manufacturing companies located in the People’s Republic of China (“China”). On July

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21, 2005, China’s central bank adjusted the exchange rate of the Chinese yuan to the U.S. dollar and continuing fluctuations in the Chinese yuan against the U.S. dollar are expected. All transactions with Chinese manufacturers are denominated in U.S. dollars, but fluctuations in the exchange rate between the U.S. dollar and Chinese yuan could affect the pricing of items manufactured in China.

The following table summarizes the exchange rate of the United States dollar (“USD”) to the Taiwan dollar (“TWD”) and Chinese yuan (“YUAN”):

	USD:TWD		USD:YUAN
June 30, 2004	$	33.75	$	8.287
September 30, 2004		33.99		8.287
December 31, 2004		31.98		8.287
March 31, 2005		31.88		8.287
June 30, 2005		31.67		8.287
September 30, 2005		33.27		8.110

A sharp appreciation of the Taiwan dollar or the Chinese yuan 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 (i) the cost associated with such instruments would outweigh the benefits that would be obtained from utilizing such instruments and (ii) this risk is not unique to Craftmade as other competitors also purchase a majority of their product from Asian manufacturers.

During the fiscal quarter ended September 30, 2005, the Company purchased approximately $4,583,000 of products from Fanthing and $11,548,000 of products from Chinese manufacturing companies. The Company estimates that an appreciation of the Chinese yuan and the Taiwan dollar to the U.S. dollar of 1% would result in an estimated annual increase in cost of goods sold of approximately $920,000 and a decrease in net income of $527,000, based on the Company’s purchases during the quarter ended September 30, 2005 on an annualized basis. A 10% incremental appreciation of the Chinese yuan and the Taiwan dollar to the U.S. Dollar would result in an estimated annualized increase in cost of goods sold of approximately $5,994,000 and a decrease in net income of $3,204,000, based on the Company’s purchases during the quarter ended September 30, 2005 on an annualized basis. A 20% incremental appreciation of the Chinese yuan and the Taiwan dollar to the U.S. Dollar would result in an increase of approximately $12,447,000 and a decrease in net income of $6,702,000, on an annualized basis, based on the Company’s purchases during the quarter ended September 30, 2005 on an annualized basis. The amounts are estimates of the financial impact of an appreciation of the Chinese yuan and the Taiwan dollar relative to the U.S. dollar and are based on annualizations of the Company’s purchases from Chinese manufacturing companies and Fanthing for the quarter ended September 30, 2005. Consequently, these amounts are not necessarily indicative of the effect of such changes with respect to an entire year.

Other market risks at September 30, 2005 have not changed significantly from those discussed in Item 7A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2005 as filed with the SEC on September 20, 2005.

For a discussion of the effects of hypothetical changes in interest rates, see “Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — Liquidity and Capital Resources.”

Item 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

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

18

foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

Changes in Internal Controls There was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II
OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.

Information regarding our legal proceedings is set forth in Note 5 — Commitments and Contingencies to the consolidated financial statements in Item 1 of Part I of this Form 10-Q, which is incorporated herein by reference.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

     Not Applicable

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

Item 6. EXHIBITS.

Exhibits

10.1*	Modification, Renewal and Extension Agreement dated October 31, 2005 by and between Craftmade International, Inc. and The Frost National Bank.
10.2*	Amended and Restated Loan Agreement dated October 31, 2005 by and between Craftmade International, Inc. and The Frost National Bank.
10.3*	Arbitration and Notice of Final Agreement dated October 31, 2005 by and between Craftmade International, Inc. and The Frost National Bank.
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 J. Marcus Scrudder, Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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 J. Marcus Scrudder, 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.

* Each document marked with an asterisk is filed or furnished herewith.

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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.

	CRAFTMADE INTERNATIONAL, INC.
	(Registrant)
Date: November 8, 2005	/s/ James R. Ridings
	JAMES R. RIDINGS
	President and Chief
	Executive Officer
Date: November 8, 2005	/s/ J. Marcus Scrudder
	J. MARCUS SCRUDDER
	Chief Financial Officer

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Index to Exhibits

Exhibit
Number	Description
10.1*	Modification, Renewal and Extension Agreement dated October 31, 2005 by and between Craftmade International, Inc. and The Frost National Bank.
10.2*	Amended and Restated Loan Agreement dated October 31, 2005 by and between Craftmade International, Inc. and The Frost National Bank.
10.3*	Arbitration and Notice of Final Agreement dated October 31, 2005 by and between Craftmade International, Inc. and The Frost National Bank.
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 J. Marcus Scrudder, Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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 J. Marcus Scrudder, 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.

* Each document marked with an asterisk is filed or furnished herewith.

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EX-10.1

EXHIBIT 10.1

MODIFICATION, RENEWAL AND EXTENSION AGREEMENT

     THIS MODIFICATION, RENEWAL AND EXTENSION AGREEMENT (“Agreement”) is entered into effective as of the 31^st day of October, 2005, by and between THE FROST NATIONAL BANK, a national banking association (“Lender”), and CRAFTMADE INTERNATIONAL, INC., a Delaware corporation (“Borrower”).

R E C I T A L S:

     A.      Lender is the sole owner and holder of that one certain Revolving Promissory Note (the “$20,000,000.00 Note”), dated November 6, 2001, executed by Borrower and payable to the order of Lender in the original principal amount of Twenty Million and No/100 Dollars ($20,000,000.00), as modified by a Modification, Renewal and Extension Agreement entered into October 27, 2003 (the “Modification”).

     B.      Borrower and Lender entered into a Loan Agreement, dated November 6, 2001, as amended by a First Amendment to Loan Agreement, dated effective as of August 13, 2003, as modified by the Modification, as further amended by the Second Amendment to Loan Agreement, dated June 14, 2004, as further amended by a Third Amendment to Loan Agreement, dated February 25, 2005, and as further amended by the Modification, Renewal and Extension Agreement, dated effective as of May 31, 2005 (the “2005 Modification”) (collectively, the “Loan Agreement”).

     C.      Lender is the sole owner and holder of that one certain Promissory Note (the “$3,000,000.00 Note”) dated February 25, 2005, executed by Borrower and payable to the order of Lender in the original principal amount of Three Million and No/100 Dollars ($3,000,000.00), as renewed and extend by a Renewal and Extension Agreement, dated effective March 31, 2005, and as amended by the 2005 Modification.

     D.      The $20,000,000.00 Note and $3,000,000.00 Note are secured by a Security Agreement dated November 6, 2001, between Borrower and Lender, covering certain collateral as more particularly described therein; a Security Agreement dated November 6, 2001, between Trade Source International, Inc., a Delaware corporation, and Lender, covering certain collateral as more particularly described therein; a Security Agreement dated November 6, 2001, between Durocraft International, Inc., a Texas corporation, and Lender, covering certain collateral as more particularly described therein; and a Security Agreement dated November 6,2001, between Design Trends, LLC, a Delaware limited liability company, and Lender, covering certain collateral as more particularly described therein (collectively, the “Security Agreements”). The $20,000,000.00 Note, $3,000,000.00 Note, Loan Agreement, Security Agreements and all modifications, renewals and extensions described below are hereafter collectively referred to as the “Loan Documents.”

     E.      The $20,000,000.00 Note matured in accordance with its terms as of the date hereof.

MODIFICATION, RENEWAL AND EXTENSION AGREEMENT Page 1 of 6

     F.      Borrower has requested that Lender modify certain provisions of the Loan Agreement, all as hereinafter provided, and in consideration thereof Borrower has made certain agreements with Lender as hereinafter more fully set forth.

     G.      Lender has agreed to such requests, subject to the terms and conditions set forth herein.

     NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and agreed, Borrower and Lender hereby agree as follows:

     1.      Acknowledgment of Outstanding Balance. The parties hereto acknowledge that the outstanding principal balance of the $3,000,000.00 Note as of October 27, 2005 is ZERO AND NO/100 DOLLARS ($0.00) and $3,000,000.00 is available for draw and the outstanding principal balance of the $20,000,000.00 Note is FIFTEEN MILLION NINE HUNDRED SEVENTY ONE THOUSAND AND NO/100 DOLLARS ($15,971,000.00) and $4,029,000.00 is available for draw.

     2.      Renewal and Extension of Maturity. The $20,000,000.00 Note is hereby renewed and the maturity of the $20,000,000.00 Note is hereby extended to October 31, 2007.

     3.      Required Payments. From and after the effective date of this Agreement, principal and interest under the $20,000,000.00 Note shall be due and payable as follows:

Interest only on amounts outstanding hereunder shall be due and payable monthly as it accrues, on the last day of each and every calendar month, beginning November 30, 2005, and continuing regularly and monthly thereafter until October 31, 2007, when the entire amount hereof, principal and interest then remaining unpaid, shall be then due and payable; interest being calculated on the unpaid principal each day principal is outstanding and all payments made credited to any collection costs and late charges, to the discharge of the interest accrued and to the reduction of the principal, in such order as Lender shall determine.

     4.      Loan Agreement. The Loan Agreement is hereby substituted and replaced with an Amended and Restated Loan Agreement, dated as of the date hereof.

     5.      Usury. No provisions of this Agreement or the Loan Documents shall require the payment or permit the collection, application or receipt of interest in excess of the maximum permitted by applicable state or federal law. If any excess of interest in such respect is herein or in any such other instrument provided for, or shall be adjudicated to be so provided for herein or in any such instrument, the provisions of this paragraph shall govern, and neither Borrower nor any endorsers of the $20,000,000.00 Note or $3,000,000.00 Note nor their respective successors, assigns or personal representatives shall be obligated to pay the amount of such interest to the extent it is in excess of the amount permitted by applicable law. It is expressly stipulated and agreed to be the intent of Borrower and Lender to at all times comply with the usury and other laws relating to the Loan Documents and any subsequent revisions, repeals or judicial interpretations thereof, to the extent applicable thereto. In the event Lender or other holder of the $20,000,000.00

MODIFICATION, RENEWAL AND EXTENSION AGREEMENT Page 2 of 6

Note or $3,000,000.00 Note ever receives, collects or applies as interest any such excess, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance of the $20,000,000.00 Note or $3,000,000.00 Note and, if upon such application the principal balance of the $20,000,000.00 Note or $3,000,000.00 Note is paid in full, any remaining excess shall be forthwith paid to Borrower and the provisions of the Loan Documents shall immediately be deemed reformed and the amounts thereafter collectible thereunder reduced, without the necessity of execution of any new document, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount otherwise called for thereunder. In determining whether or not the interest paid or payable under any specific contingency exceeds the maximum interest allowed to be charged by applicable law, Borrower and Lender or other holder hereof shall, to the maximum extent permitted under applicable law, amortize, prorate, allocate and spread the total amount of interest throughout the entire term of the $20,000,000.00 Note or $3,000,000.00 Note so that the amount or rate of interest charged for any and all periods of time during the term of the $20,000,000.00 Note or $3,000,000.00 Note is to the greatest extent possible less than the maximum amount or rate of interest allowed to be charged by law during the relevant period of time. Notwithstanding any of the foregoing, if at any time applicable laws shall be changed so as to permit a higher rate or amount of interest to be charged than that permitted prior to such change, then unless prohibited by law, references in the $20,000,000.00 Note or $3,000,000.00 Note to “applicable law” for purposes of determining the maximum interest or rate of interest that can be charged shall be deemed to refer to such applicable law as so amended to allow the greater amount or rate of interest.

     6.      Release and Waiver of Claims. In consideration of (i) the modification of certain provisions of the Note, as herein provided, and (ii) the other benefits received by Borrower hereunder, Borrower hereby RELEASES, RELINQUISHES and forever DISCHARGES Lender, as well as its predecessors, successors, assigns, agents, officers, directors, employees and representatives, of and from any and all claims, demands, actions and causes of action of any and every kind or character, past or present, which Borrower may have against Lender and its predecessors, successors, assigns, agents, officers, directors, employees and representatives arising out of or with respect to (a) any right or power to bring any claim against Lender for usury or to pursue any cause of action against Lender based on any claim of usury, and (b) any and all transactions relating to the Loan Documents occurring prior to the date hereof, including any loss, cost or damage, of any kind or character, arising out of or in any way connected with or in any way resulting from the acts, actions or omissions of Lender, and its predecessors, successors, assigns, agents, officers, directors, employees and representatives, including any breach of fiduciary duty, breach of any duty of fair dealing, breach of confidence, breach of funding commitment, undue influence, duress, economic coercion, conflict of interest, negligence, bad faith, malpractice, intentional or negligent infliction of mental distress, tortious interference with contractual relations, tortious interference with corporate governance or prospective business advantage, breach of contract, deceptive trade practices, libel, slander or conspiracy, but in each case only to the extent permitted by applicable law.

     7.      Reaffirmation of Representations, Etc. Borrower hereby reaffirms to Lender each of the representations, warranties, covenants and agreements of Borrower set forth in the Loan Documents.

MODIFICATION, RENEWAL AND EXTENSION AGREEMENT Page 3 of 6

     8.      Enforceable Obligations. Borrower hereby ratifies, affirms, reaffirms, acknowledges, confirms and agrees that the Loan Documents represent valid and enforceable obligations of Borrower, and Borrower further acknowledges that there are no existing claims, defenses, personal or otherwise, or rights of setoff whatsoever with respect to the $20,000,000.00 Note and $3,000,000.00 Note, and Borrower further acknowledges and represents that no event has occurred and no condition exists which would constitute a default under the Loan Documents or this Agreement, either with or without notice or lapse of time, or both.

     9.      No Release of Liens. This Agreement in no way acts as a release or relinquishment of the liens, security interests and rights (the “Liens”) created or evidenced by the Security Agreements. The Liens are hereby ratified and confirmed by Borrower in all respects and are extended to secure (i) the principal amount of the $20,000,000.00 Note and $3,000,000.00 Note, (ii) all interest, charges and other sums payable with respect thereto, and (iii) the performance of all other obligations under the Security Agreements.

     10.      Additional Renewals and Extensions. Notwithstanding anything to the contrary contained herein or inferred hereby or in any other instrument executed by Borrower or in any other action or conduct undertaken by Borrower on or before the date hereof, the agreements, covenants and provisions contained herein shall constitute the only evidence of Lender’s consent to extend the terms and provisions of the Loan Documents in the manner set forth herein. No express or implied consent to any further extensions and/or modifications involving any of the matters set forth in this Agreement or otherwise, shall be inferred or implied from Lender’s execution of this Agreement. Further, Lender’s execution of this Agreement shall not constitute a waiver (either express or implied) of the requirement that any further extensions and/or modifications of the Loan Documents shall require the express written approval of Lender, no such approval (either express or implied) having been given as of the date hereof.

     11.      Miscellaneous. (a) As modified hereby, the provisions of the $20,000,000.00 Note and $3,000,000.00 Note and the Security Agreements shall continue in full force and effect, and the Borrower acknowledges and reaffirms its liability to Lender thereunder. In the event of any inconsistency between this Agreement and the terms of the Loan Documents, this Agreement shall govern.

     (b)      Borrower hereby agrees to pay all costs and expenses incurred by Lender in connection with the execution and administration of this Agreement and the modification of the Loan Documents including, but not limited to, all appraisal costs, title insurance costs, legal fees incurred by Lender and filing fees.

     (c)      Any default by Borrower in the performance of its obligations herein contained shall constitute a default under the Loan Documents and shall allow Lender to exercise all of its remedies set forth in the Loan Documents.

     (d)      Lender does not, by its execution of this Agreement, waive any rights it may have against any person not a party to this Agreement.

MODIFICATION, RENEWAL AND EXTENSION AGREEMENT Page 4 of 6

     (e)      In case any of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

     (f)      This Agreement and the Loan Documents shall be governed and construed according to the laws of the State of Texas (without regard to any conflict of laws principles) and the applicable laws of the United States.

     (g)      This Agreement shall be binding upon and inure to the benefit of Lender, Borrower and their respective successors, assigns and legal representatives.

     (h)      Borrower hereby acknowledges and agrees that it has entered into this Agreement of its own free will and accord and in accordance with its own judgment after advice of its own legal counsel, and states that it has not been induced to enter into this Agreement by any statement, act or representation of any kind or character on the part of the parties hereto, except as expressly set forth in this Agreement.

     (i)      This Agreement may be executed in multiple counterparts, each of which shall constitute an original instrument, but all of which shall constitute one and the same agreement.

     (j)      Except as modified herein, all other terms, conditions and provisions of Loan Documents shall remain in full force and effect as of the date thereof and Borrower acknowledges and reaffirms its liability to Lender thereunder.

     EXECUTED as of the day and year first above written.

BORROWER: CRAFTMADE INTERNATIONAL, INC., a Delaware corporation
By:	/s/ Brad Heimann
	Brad Heimann, Executive Vice President

LENDER: THE FROST NATIONAL BANK, a national banking association
By:	/s/ D. Michael Randall
	D. Michael Randall, Senior Vice President

MODIFICATION, RENEWAL AND EXTENSION AGREEMENT Page 5 of 6

Guarantor Ratification of Agreement

     By executing this Agreement, DUROCRAFT INTERNATIONAL, INC., a Texas corporation; TRADE SOURCE INTERNATIONAL, INC., a Delaware corporation; DESIGN TRENDS, LLC, a Delaware limited liability company; and C/D/R INCORPORATED, a Delaware corporation, as Guarantors of the indebtedness evidenced by the $20,000,000.00 Note and $3,000,000.00 Note, as set forth in Guaranty Agreements (collectively, the “Guarantys”) dated November 6, 2001, hereby expressly agree (a) to all of the terms and provisions of this Agreement, (b) to the continuing validity of the Guarantys and all duties and obligations thereunder, (c) that their liability under the Guarantys shall not be reduced, altered, limited, lessened or in any way affected by the execution and delivery of this Agreement by the parties hereto, and (d) that the Guarantys shall remain in full force and effect and enforceable in accordance with their terms.

DUROCRAFT INTERNATIONAL, INC., a Texas corporation
By:	/s/ Brad Heimann
	Brad Heimann, Secretary

TRADE SOURCE INTERNATIONAL, INC., a Delaware corporation
By:	/s/ Brad Heimann
	Brad Heimann, Secretary

DESIGN TRENDS, LLC, a Delaware limited liability company
By:	Craftmade International, Inc.,;nbsp;
	a Delaware corporation, its Manager
By:	/s/ Brad Heimann
	Brad Heimann, Executive Vice President

C/D/R INCORPORATED, a Delaware corporation
By:	/s/ Clifford Crimmings
	Clifford Crimmings, V.P. Marketing

MODIFICATION, RENEWAL AND EXTENSION AGREEMENT Page 6 of 6

EX-10.2

Exhibit 10.2

AMENDED AND RESTATED LOAN AGREEMENT

Between

CRAFTMADE INTERNATIONAL, INC.		THE FROST NATIONAL BANK
650 South Royal Lane	and	P.O. Box 1600
Coppell, Texas 75019		San Antonio, Texas 78205

October 31, 2005

     THIS AMENDED AND RESTATED LOAN AGREEMENT (the “Loan Agreement”) will serve to set forth the terms of the financing transactions by and between CRAFTMADE INTERNATIONAL, INC., a Delaware corporation (“Borrower”), and THE FROST NATIONAL BANK, a national banking association (“Lender”). Borrower and Lender entered into a Loan Agreement, dated November 6, 2001, as amended by a First Amendment to Loan Agreement, dated effective as of August 13, 2003, as modified by a Modification, Renewal and Extension Agreement, entered into October 27, 2003, as further amended by a Second Amendment to Loan Agreement, dated June 14, 2004, as further amended by a Third Amendment to Loan Agreement, dated February 25, 2005, and as further amended by a Modification, Renewal and Extension Agreement, dated effective as of May 31, 2005. Lender has agreed to modify, renew and extend the Borrowing Base Line of Credit (hereinafter defined), the terms and conditions which are set forth in this Loan Agreement.

          1.      Credit Facilities;Interest Rate Options. Subject to the terms and conditions set forth in this Loan Agreement and the agreements, instruments and documents evidencing, securing, governing, guaranteeing and/or pertaining to the Loans, as hereinafter defined (collectively, together with the Loan Agreement, referred to hereinafter as the “Loan Documents”), Lender hereby agrees to provide to Borrower the credit facility or facilities hereinbelow (whether one or more, the “Credit Facilities”):

     (a)     (I)     Borrowing Base Line of Credit. Subject to the terms and conditions set forth herein, Lender agrees to lend to Borrower, on a revolving basis from time to time during the period commencing on the date hereof and continuing through the maturity date of the promissory note evidencing this Credit Facility from time to time, such amounts as Borrower may request hereunder; provided, however, the total principal amount outstanding at any time shall not exceed the lesser of (i) an amount equal to the Revolving Borrowing Base (as such term is defined hereinbelow), or (ii) $20,000,000.00 (the “Borrowing Base Line of Credit”). If at any time the aggregate principal amount outstanding under the Borrowing Base Line of Credit shall exceed an amount equal to the Revolving Borrowing Base (as such term is defined hereinbelow), Borrower agrees to immediately repay to Lender such excess amount, plus all accrued but unpaid interest thereon. Subject to the terms and conditions hereof, Borrower may borrow, repay and reborrow hereunder. The sums advanced under the Borrowing Base Line of Credit shall be used for working capital

The term “Revolving Borrowing Base” shall have the meaning set forth hereinbelow:

An amount equal to 80% of the Borrower’s Eligible Accounts, plus 55% of the Borrower’s Eligible Inventory minus the outstanding principal balance of the Borrowing Base Advance Facility (hereinafter defined); provided, however, the outstanding amount Advanced against Eligible Inventory at any time shall not exceed 50% of total outstanding Advances (herein so called) under the Borrowing Base Line of Credit.

          (II)      Borrowing Base Advance Facility. Subject to the terms and conditions set forth herein, Lender agrees to lend to Borrower, on a revolving basis from time to time during the period commencing on the date hereof and continuing through the maturity date of the promissory note evidencing this Credit Facility from time to time, an aggregate amount not to exceed $3,000,000.00 in a single advance or in multiple advances, as may be requested by Borrower from time to time; provided, however, the total principal amount outstanding at any time shall not exceed the lesser of (i) an amount equal to the Advancing Borrowing Base (as such term is defined hereinbelow), or (ii) $3,000,000.00 (the “Borrowing Base Advance Facility”). All sums advanced under the Borrowing Base Advance Facility shall be used for inventory purposes.

The term “Advancing Borrowing Base” shall have the meaning set forth hereinbelow:

An amount equal to 80% of the Borrower’s Eligible Accounts, plus 55% of the Borrower’s Eligible Inventory minus the outstanding principal balance of the Borrowing Base Line of Credit; provided, however, the outstanding amount Advanced against Eligible Inventory at any time shall not exceed 50% of total outstanding Advances (herein so called) under the Borrowing Base Advance Facility.

As used in this Loan Agreement, the term “Borrowing Base” shall have the meaning set forth hereinbelow:

An amount equal to 80% of the Borrower’s Eligible Accounts, plus 55% of the Borrower’s Eligible Inventory; provided, however, the outstanding amount Advanced against Eligible Inventory at any time shall not exceed 50% of total outstanding Advances (herein so called) under the Borrowing Base Line of Credit (as hereinafter defined).

As used herein, the term “Eligible Accounts” shall mean at anytime, an amount equal to the aggregate net invoice or ledger amount owing on all trade accounts receivable of Borrower and any Affiliates for goods sold or leased or services rendered in the ordinary course of business, in which the Lender has a perfected, first priority lien, after deducting (without duplication): (i) each such account that is unpaid 60 days or more after the original invoice date thereof, or, in the case of Lowe’s, 90 days or more after the original invoice date thereof, (ii) the amount of all discounts, allowances, rebates, credits and adjustments to such accounts (iii) the amount of all contra accounts, setoffs, defenses or counterclaims asserted by or available to the account debtors, (iv) all accounts with

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respect to which goods are placed on consignment or subject to a guaranteed sale or other terms by reason of which payment by the account debtor may be conditional, (v) all accounts with respect to which a payment and/or performance bond has been furnished and that portion of any account for or representing retainage, if any, until all prerequisites to the immediate payment of retainage have been satisfied, (vi) all accounts owing by account debtors for which there has been instituted a proceeding in bankruptcy or reorganization under the United States Bankruptcy Code or other law, whether state or federal, now or hereafter existing for relief of debtors, (vii) all accounts owing by any Affiliates; (viii) all accounts in which the account debtor is the United States or any department, agency or instrumentality of the United States, except to the extent an acknowledgment of assignment to Lender of such account in compliance with the Federal Assignment of Claims Act and other applicable laws has been received by Lender, (ix) all accounts due by any account debtor whose principal place of business is located outside the United States of America and its territories, (x) all accounts subject to any provision prohibiting assignment or requiring notice of or consent to such assignment, (xi) that portion of all account balances owing by any single account debtor which exceeds 25% of the aggregate of all accounts otherwise deemed eligible hereunder which are owing by all account debtors, other than Lowe’s, and (xii) any other accounts deemed unacceptable by Lender in its sole and absolute discretion; provided, however, if more than 20% of the then balance owing by any single account debtor does not qualify as an Eligible Account under the foregoing provisions, then the aggregate amount of all accounts owing by such account debtor shall be excluded from Eligible Accounts.

As used herein, the term “Eligible Inventory” shall mean as of any date, the aggregate value of all inventory of raw materials and finished goods (excluding work in progress and packaging materials, supplies and any advertising costs capitalized into inventory) then owned by Borrower and any Affiliates and held for sale, lease or other disposition in the ordinary course of its business, in which Lender has a first priority lien, excluding (i) inventory which is damaged, defective, obsolete or otherwise unsaleable in the ordinary course of business, (ii) inventory which has been returned or rejected, and (iii) inventory subject to any consignment arrangement with any other person or entity. For purposes of this definition, Eligible Inventory shall be valued at the lower of cost (excluding the cost of labor) or market value.

All Advances under the Credit Facilities shall be collectively called the “Loans”. Lender reserves the right to require Borrower to give Lender not less than one (1) business day prior notice of each requested Advance under the Credit Facilities, specifying (i) the aggregate amount of such requested Advance, (ii) the requested date of such Advance, and (iii) the purpose of such Advance, with such Advances to be requested in a form satisfactory to Lender.

     (b)      Interest Rate. The interest to be paid by Borrower and collected by Lender on each Advance shall be at one of the following rates as requested by Borrower:

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     The lesser of (x) a rate equal to the London Interbank Offered Rate (as defined below) plus the following percentage based on Borrower’s “Debt to Worth Ratio” set forth in Paragraph 9(a) below:

Percentage	Debt to Worth Ratio
2.75%	>3.00 to 1.00
2.25%	>=2.50 to 1.00 or <=3.00 to 1.00
1.75%	>2.00 to 1.00 or <2.50 to 1.00
1.50%	<=2.00 to 1.00

as adjusted provided below, or (y) the highest rate permitted by applicable law, but in no event shall interest exceed the maximum interest permitted by law (“Libor Rate”). Such rate will be adjusted based upon Lender’s receipt of Borrower’s Compliance Certificate as provided in Section 10(c) of the Loan Agreement, with the “Debt to Worth Ratio” calculation. If Borrower fails to provide the Compliance Certificate as provided in Section 10(c) then the percentage will be 2.75% until the delivery of the next quarter’s Compliance Certificate.

As used herein, the “London Interbank Offered Rate” shall mean with respect to any Interest Period (defined below), the rate of interest per annum (rounded to the nearest 1/16 of 1%—and if the rate is equidistant to the lower and higher nearest 1/16 of 1%, rounded upwards to the nearest 1/16 of 1%) quoted in U.S. Dollars by the British Bankers’ Association at approximately 11:00 a.m. London time on the first day of such Interest Period on which deposits in immediately available funds are offered to first class banks in the interbank eurodollar market (as determined by Lender in its sole discretion), such deposits being for a one (1) month period (“Interest Period”), and in amounts equal to or comparable to the amount of the Advance. In the event that the London Interbank Offered Rate is no longer published or reported as specified above, then the Lender shall use the rate of interest published in The Wall Street Journal (Central Edition) in the “Money Rates” section as the “London Interbank Offered Rates (LIBOR)” for a period of time equal or comparable to the applicable Interest Period, as of five (5) Business Days preceding the date of the Advance. Each determination by Lender of the London Interbank Offered Rate shall be conclusive and binding, absent manifest error, and may be computed using any reasonable averaging and attribution method.

     (c)      Increased Cost. If any governmental agency, court, central bank or comparable authority shall impose any taxation, required level of reserves (except reserve requirements for certificates of deposit), deposits, insurance or capital, or similar requirements against assets, deposits or credit extended by Lender or shall impose on Lender or the eurodollar market any other condition affecting Advances, and the result of the foregoing is to increase the cost of Lender making or maintaining Advances or reduce

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any sums received or receivable by Lender under this Loan Agreement or the Notes by a material amount as determined by Lender in its sole discretion, then Borrower shall reimburse Lender for such increased costs or reduced sums upon demand. Nothing herein will be construed to require Borrower to pay any interest, fees, costs or charges greater than the highest rate permitted by law.

     2.      Promissory Notes. The Loans shall be evidenced by one or more promissory notes (whether one or more, together with any renewals, extensions and increases thereof, the “Notes”) duly executed by Borrower and payable to the order of Lender, in form and substance acceptable to Lender. Interest on the Notes shall accrue at the rate set forth herein. The principal of and interest on the Notes shall be due and payable in accordance with the terms and conditions set forth in the Notes and in this Loan Agreement.

     3.      Collateral. As collateral and security for the indebtedness evidenced by the Notes and any and all other indebtedness or obligations from time to time owing by Borrower to Lender, Borrower, Trade Source International, Inc., Durocraft International, Inc. and Design Trends, LLC (together hereinafter referred to as “Pledgors”) shall grant, and hereby grants, to Lender, its successors and assigns, a first and prior lien and security interest in and to the property described hereinbelow, together with any and all PRODUCTS AND PROCEEDS thereof (the “Collateral”):

     (a)      All present and future accounts, (including any right to payment for goods sold or services rendered arising out of the sale or delivery of personal property or work done or labor performed by Pledgors), now or hereafter owned, held, or acquired by Borrower and its Affiliates (as hereinafter defined), together with any and all books of account, customer lists and other records relating in any way to the foregoing.

     (b)      All present and hereafter acquired inventory (including without limitation, all raw materials, work in process and finished goods) held, possessed, owned, held on consignment, or held for sale, lease, return or to be furnished under contracts of service, in whole or in part, by Pledgors wherever located.

The term “Collateral” shall also include all records and data relating to any of the foregoing (including, without limitation, any computer software on which such records and data may be located). Pledgors shall execute such security agreements, assignments, deeds of trust and other agreements and documents as Lender shall deem appropriate and otherwise require from time to time to more fully create and perfect Lender’s lien and security interests in the Collateral.

     4.      Guarantors. Durocraft International, Inc., a Texas corporation; Trade Source International, Inc., a Delaware corporation; Design Trends, LLC, a Delaware limited liability company; and C/D/R Incorporated, a Delaware corporation, as guarantors of the indebtedness evidenced by the Notes, as set forth in Guaranty Agreements (collectively, the “Guarantys”) dated November 6, 2001, hereby expressly agree (a) to all of the terms and provisions of this Loan Agreement, (b) to the continuing validity of the Guarantys and all duties and obligations thereunder, (c) that their liability under the Guarantys shall not be reduced, altered, limited, lessened or in any

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way affected by the execution and delivery of this Agreement by the parties hereto, and (d) that the Guarantys shall remain in full force and effect and enforceable in accordance with their terms.

     5.      Representations and Warranties. Borrower hereby represents and warrants, and upon each request for an Advance under the Credit Facilities further represents and warrants, to Lender as follows:

     (a)      Existence. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and all other states where it is doing business, and has all requisite power and authority to execute and deliver the Loan Documents.

     (b)      Binding Obligations. The execution, delivery, and performance of this Loan Agreement and all of the other Loan Documents by Borrower have been duly authorized by all necessary action by Borrower, and constitute legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except as limited by Bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors’ rights and except to the extent specific remedies may generally be limited by equitable principles.

     (c)      No Consent. The execution, delivery and performance of this Loan Agreement and the other Loan Documents, and the consummation of the transactions contemplated hereby and thereby, do not (i) conflict with, result in a violation of, or constitute a default under (A) any provision of its articles or certificate of incorporation or bylaws, if Borrower is a corporation, or its partnership agreement, if Borrower is a partnership, or any agreement or other instrument binding upon Borrower, or (B) any law, governmental regulation, court decree or order applicable to Borrower, or (ii) require the consent, approval or authorization of any third party.

     (d)      Financial Condition. Each financial statement of Borrower supplied to the Lender truly discloses and fairly presents Borrower’s financial condition as of the date of each such statement. There has been no material adverse change in such financial condition or results of operations of Borrower subsequent to the date of the most recent financial statement supplied to Lender.

     (e)      Litigation. There are no actions, suits or proceedings, pending or, to the knowledge of Borrower, threatened against or affecting Borrower or the properties of Borrower, before any court or governmental department, commission or board, which, if determined adversely to Borrower, would have a material adverse effect on the financial condition, properties, or operations of Borrower.

     (f)      Taxes; Governmental Charges. Borrower has filed all federal, state and local tax reports and returns required by any law or regulation to be filed by it and has either duly paid all taxes, duties and charges indicated due on the basis of such returns

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and reports, or made adequate provision for the payment thereof, and the assessment of any material amount of additional taxes in excess of those paid and reported is not reasonably expected.

     6.      Conditions Precedent to Advances. Lender’s obligation to make any Advance under this Loan Agreement and the other Loan Documents shall be subject to the conditions precedent that, as of the date of such Advance and after giving effect thereto (i) all representations and warranties made to Lender in this Loan Agreement and the other Loan Documents shall be true and correct, as of and as if made on such date, (ii) no material adverse change in the financial condition of Borrower since the effective date of the most recent financial statements furnished to Lender by Borrower shall have occurred and be continuing, (iii) no event has occurred and is continuing, or would result from the requested Advance, which with notice or lapse of time, or both, would constitute an Event of Default (as hereinafter defined), and (iv) Lender’s receipt of all Loan Documents appropriately executed by Borrower and all other proper parties.

     7.      Affirmative Covenants. Until (i) the Notes and all other obligations and liabilities of Borrower under this Loan Agreement and the other Loan Documents are fully paid and satisfied, and (ii) the Lender has no further commitment to lend hereunder, Borrower agrees and covenants that it will, unless Lender shall otherwise consent in writing:

     (a)      Accounts and Records. Maintain its books and records in accordance with generally accepted accounting principles.

     (b)      Right of Inspection. Permit Lender to visit its properties and installations and to examine, audit and make and take away copies or reproductions of Borrower’s books and records, at all reasonable times.

     (c)      Right to Additional Information. Furnish Lender with such additional information and statements, lists of assets and liabilities, tax returns, and other reports with respect to Borrower’s financial condition and business operations as Lender may request from time to time.

     (d)      Compliance with Laws. Conduct its business in an orderly and efficient manner consistent with good business practices, and perform and comply with all statutes, rules, regulations and/or ordinances imposed by any governmental unit upon Borrower and its businesses, operations and properties (including without limitation, all applicable environmental statutes, rules, regulations and ordinances).

     (e)      Taxes. Pay and discharge when due all of its indebtedness and obligations, including without limitation, all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower’s properties, income,

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or profits; provided, however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (i) the legality of the same shall be contested in good faith by appropriate judicial, administrative or other legal proceedings, and (ii) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien or claim in accordance with generally accepted accounting principles, consistently applied.

     (f)      Insurance. Maintain insurance, including but not limited to, fire insurance, comprehensive property damage, public liability, worker’s compensation, business interruption and other insurance deemed necessary or otherwise required by Lender.

     (g)      Notice of Indebtedness. Promptly inform Lender of the creation, incurrence or assumption by Borrower of any actual or contingent liabilities not permitted under this Loan Agreement.

     (h)      Notice of Litigation. Promptly after the commencement thereof, notify Lender of all actions, suits and proceedings before any court or any governmental department, commission or board affecting Borrower or any of its properties.

     (i)      Notice of Material Adverse Change. Promptly inform Lender of (i) any and all material adverse changes in Borrower’s financial condition, and (ii) all claims made against Borrower which could materially affect the financial condition of Borrower.

     (j)      Additional Documentation. Execute and deliver, or cause to be executed and delivered, any and all other agreements, instruments or documents which Lender may reasonably request in order to give effect to the transactions contemplated under this Loan Agreement and the other Loan Documents.

     8.      Negative Covenants. Until (i) the Notes and all other obligations and liabilities of Borrower under this Loan Agreement and the other Loan Documents are fully paid and satisfied, and (ii) the Lender has no further commitment to lend hereunder, Borrower will not, without the prior written consent of Lender:

     (a)      Nature of Business. Make any material change in the nature of its business as carried on as of the date hereof.

     (b)      Liquidations, Mergers, Consolidations. Liquidate, merge or consolidate with or into any other entity.

     (c)      Sale of Assets. Sell, transfer or otherwise dispose of any of its assets or properties, other than in the ordinary course of business.

     (d)      Liens. Create or incur any lien or encumbrance on any of its assets, other than (i) liens and security interests securing indebtedness owing to Lender, (ii) liens for

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taxes, assessments or similar charges that are (1) not yet due or (2) being contested in good faith by appropriate proceedings and for which Borrower has established adequate reserves, (iii) liens and security interests existing as of the date hereof which have been disclosed to and approved by Lender in writing, and (iv) purchase money security interests covering assets other than the Collateral incurred in the normal course of business.

     (e)      Indebtedness. Create, incur or assume any indebtedness for borrowed money or issue or assume any other note, debenture, bond or other evidences of indebtedness, or guarantee any such indebtedness or such evidences of indebtedness of others, other than (i) borrowings from Lender, (ii) borrowings outstanding on the date hereof and disclosed in writing to Lender, and (iii) borrowings representing trade debt incurred in the normal course of business.

     (f)      Change in Management. Permit a change in the senior management of Borrower.

     (g)      Loans. Make any loans to any person or entity except for (i) loans to Affiliates, and (ii) loans to officers and directors of Borrower not to exceed $100,000.00 in the aggregate at any one time.

     (h)      Transactions with Affiliates. Enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliate (as hereinafter defined) of Borrower, except in the ordinary course of and pursuant to the reasonable requirements of Borrower’s business and upon fair and reasonable terms no less favorable to Borrower than would be obtained in a comparable arm’s-length transaction with a person or entity not an Affiliate of Borrower. As used in this Loan Agreement, the term “Affiliate” means (i) any individual or entity directly or indirectly controlling, controlled by, or under common control with, another individual or entity, and (ii) Design Trends, LLC.

     9.      Financial Covenants. Until (i) the Notes and all other obligations and liabilities of Borrower under this Loan Agreement and the other Loan Documents are fully paid and satisfied, and (ii) the Lender has no further commitment to lend hereunder, Borrower will maintain the following financial covenants on a consolidated basis:

     (a)      Debt to Worth Ratio. Borrower will maintain, at all times, a ratio of (a) total liabilities (excluding any Subordinated Debt), to (b) Tangible Net Worth of not greater than 3.5 to 1.0 beginning September 30, 2005; and 3.0 to 1.0 beginning December 31, 2005 and thereafter, tested quarterly. If Borrower’s Debt to Worth Ratio exceeds 3.0 to 1.0 then Borrower will not make any stock repurchases.

     (b)      Fixed Charge Coverage Ratio. Borrower will maintain, as of the end of each fiscal quarter, a ratio of (a) net income after taxes plus depreciation, amortization,

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other non-cash expenses and interest expense for the 4 most recently completed quarters ending with such fiscal quarter to (b) interest expense, dividends and capital expenditures and current portion of long-term debt for such 4 quarter period, of not less than 1.25 to 1.0.

As used herein, the term “Tangible Net Worth” means, as of any date, Borrower’s total assets excluding all intangible assets, less total liabilities excluding any Subordinated Debt. As used herein, the term “Subordinated Debt” means any indebtedness owing by Borrower which has been subordinated by written agreement to all indebtedness now or hereafter owing by Borrower to Lender, such agreement to be in form and substance acceptable to Lender. Unless otherwise specified, all accounting and financial terms and covenants set forth above are to be determined according to generally accepted accounting principles, consistently applied.

     10.      Reporting Requirements. Until (i) the Notes and all other obligations and liabilities of Borrower under this Loan Agreement and the other Loan Documents are fully paid and satisfied, and (ii) the Lender has no further commitment to lend hereunder, Borrower will, unless Lender shall otherwise consent in writing, furnish to Lender on a consolidated basis:

     (a)      Interim Financial Statements. As soon as available, and in any event within forty five (45) days after the end of each quarter of each fiscal year of Borrower, a balance sheet and income statement of Borrower as of the end of such fiscal quarter, all in form and substance and in reasonable detail satisfactory to Lender and duly certified (subject to year-end review adjustments) by the President and/or Chief Financial Officer of Borrower (i) as being true and correct in all material aspects to the best of his or her knowledge and (ii) as having been prepared in accordance with generally accepted accounting principles, consistently applied.

     (b)      Annual Financial Statements. As soon as available and in any event within ninety (90) days after the end of each fiscal year of Borrower, a balance sheet and income statement of Borrower as of the end of such fiscal year, in each case audited and unqualified by independent public accountants of recognized standing acceptable to Lender.

     (c)      Compliance Certificate. A certificate signed by the Chief Financial Officer of Borrower within forty five (45) days after the end of each quarter of each fiscal year of Borrower, stating that Borrower is in full compliance with all of its obligations under this Loan Agreement and all other Loan Documents and is not in default of any term or provisions hereof or thereof, and demonstrating compliance with all financial ratios and covenants set forth in the Loan Agreement.

     (d)      Borrowing Base Report. A borrowing base report for the Revolving Borrowing Base and the Advancing Borrowing Base signed by the Chief Financial Officer of Borrower within thirty (30) days after the end of each month of each fiscal year, in form and detail satisfactory to Lender.

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     (e)      Accounts Aging. An account receivable aging report within thirty (30) days after the end of each month of each fiscal year, in form and detail satisfactory to Lender.

     (f)      10K Filings. Borrower’s annual 10K filing with the Securities and Exchange Commission within (30) days after such filing.

     (g)      10Q Filings. Borrower’s quarterly 10Q filing with the Securities and Exchange Commission within forty five (45) days after the end of each quarter of each fiscal year of Borrower.

     (h)      Additional Information. Such other additional financial information as Lender may request from time to time, including, without, limitation, operating statements on any assets listed on Borrower’s financial statement.

     11.      Events of Default. Each of the following shall constitute an “Event of Default” under this Loan Agreement:

     (a)      The failure, refusal or neglect of Borrower to pay when due any part of the principal of, or interest on, the Notes or any other indebtedness or obligations owing to Lender by Borrower from time to time.

     (b)      The failure of Borrower or any Obligated Party (as defined below) to timely and properly observe, keep or perform any covenant, agreement, warranty or condition required herein or in any of the other Loan Documents.

     (c)      The occurrence of an event of default under any of the other Loan Documents or under any other agreement now existing or hereafter arising between Lender and Borrower.

     (d)      Any representation contained herein or in any of the other Loan Documents made by Borrower or any Obligated Party is false or misleading in any material respect.

     (e)      The occurrence of any event which permits the acceleration of the maturity of any indebtedness owing by Borrower to any third party under any agreement or understanding.

     (f)      If Borrower or any Obligated Party: (i) becomes insolvent, or makes a transfer in fraud of creditors, or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts as they become due; (ii) generally is not paying its debts as such debts become due; (iii) has a receiver, trustee or custodian appointed for, or take possession of, all or substantially all of the assets of such party, either in a proceeding brought by such party or in a proceeding brought against such party

11

and such appointment is not discharged or such possession is not terminated within sixty (60) days after the effective date thereof or such party consents to or acquiesces in such appointment or possession; (iv) files a petition for relief under the United States Bankruptcy Code or any other present or future federal or state insolvency, bankruptcy or similar laws (all of the foregoing hereinafter collectively called “Applicable Bankruptcy Law”) or an involuntary petition for relief is filed against such party under any Applicable Bankruptcy Law and such involuntary petition is not dismissed within sixty (60) days after the filing thereof, or an order for relief naming such party is entered under any Applicable Bankruptcy Law, or any composition, rearrangement, extension, reorganization or other relief of debtors now or hereafter existing is requested or consented to by such party; (v) fails to have discharged within a period of thirty (30) days any attachment, sequestration or similar writ levied upon any property of such party; or (vi) fails to pay within thirty (30) days any final money judgment against such party.

     (g)      If Borrower or any Obligated Party is an entity, the liquidation, dissolution, merger or consolidation of any such entity or, if Borrower or any Obligated Party is an individual, the death or legal incapacity of any such individual.

     (h)      The entry of any judgment against Borrower or the issuance or entry of any attachment or other lien against any of the property of Borrower for an amount in excess of $250,00.00, if undischarged, unbonded or undismissed within thirty (30) days after such entry.

Nothing contained in this Loan Agreement shall be construed to limit the events of default enumerated in any of the other Loan Documents and all such events of default shall be cumulative. The term “Obligated Party”, as used herein, shall mean any party other than Borrower who secures, guarantees and/or is otherwise obligated to pay all or any portion of the indebtedness evidenced by the Notes.

     12.      Remedies. Upon the occurrence of any one or more of the foregoing Events of Default, and upon the expiration of ten (10) days following the giving of notice in accordance with Section 16 hereof with respect to any Event of Default described in subparagraph 11(a) above (provided, however, that no more than two (2) such notices will be given during any calendar year) or upon the expiration of thirty (30) days following the giving of notice by Lender to Borrower in accordance with Section 16 hereof, with respect to any Event of Default described in any of subparagraphs 11(b) through (e), the entire unpaid balance of principal of the Notes, together with all accrued but unpaid interest thereon, and all other indebtedness owing to Lender by Borrower at such time shall, at the option of Lender, become immediately due and payable without further notice, demand, presentation, notice of dishonor, notice of intent to accelerate, notice of acceleration, protest or notice of protest of any kind, all of which are expressly waived by Borrower, and (b) Lender may, at its option, cease further advances under any of the Notes. All rights and remedies of Lender set forth in this Loan Agreement and in any of the other Loan Documents may also be exercised by Lender, at its option to be exercised in its sole discretion, upon the occurrence of an Event of Default.

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     13.      Rights Cumulative. All rights of Lender under the terms of this Loan Agreement shall be cumulative of, and in addition to, the rights of Lender under any and all other agreements between Borrower and Lender (including, but not limited to, the other Loan Documents), and not in substitution or diminution of any rights now or hereafter held by Lender under the terms of any other agreement.

     14.      Waiver and Agreement. Neither the failure nor any delay on the part of Lender to exercise any right, power or privilege herein or under any of the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No waiver of any provision in this Loan Agreement or in any of the other Loan Documents and no departure by Borrower therefrom shall be effective unless the same shall be in writing and signed by Lender, and then shall be effective only in the specific instance and for the purpose for which given and to the extent specified in such writing. No modification or amendment to this Loan Agreement or to any of the other Loan Documents shall be valid or effective unless the same is signed by the party against whom it is sought to be enforced.

     15.      Benefits. This Loan Agreement shall be binding upon and inure to the benefit of Lender and Borrower, and their respective successors and assigns, provided, however, that Borrower may not, without the prior written consent of Lender, assign any rights, powers, duties or obligations under this Loan Agreement or any of the other Loan Documents.

     16.      Notices. All notices, requests, demands or other communications required or permitted to be given pursuant to this Agreement shall be in writing and given by (i) personal delivery, (ii) expedited delivery service with proof of delivery, or (iii) United States mail, postage prepaid, registered or certified mail, return receipt requested, sent to the intended addressee at the address set forth on the first page hereof and shall be deemed to have been received either, in the case of personal delivery, as of the time of personal delivery, in the case of expedited delivery service, as of the date of first attempted delivery at the address and in the manner provided herein, or in the case of mail, upon deposit in a depository receptacle under the care and custody of the United States Postal Service. Either party shall have the right to change its address for notice hereunder to any other location within the continental United States by notice to the other party of such new address at least thirty (30) days prior to the effective date of such new address.

     17.      Construction, Venue. This Loan Agreement and the other Loan Documents have been executed and delivered in the State of Texas, shall be governed by and construed in accordance with the laws of the State of Texas, and shall be performable by the parties hereto in the county in Texas where the Lender’s address set forth on the first page hereof is located. In the event of a dispute involving this Loan Agreement or any other instruments executed in connection herewith, the undersigned irrevocably agrees that venue for such dispute shall lie in any court of competent jurisdiction in Tarrant County, Texas

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     18.      Invalid Provisions. If any provision of this Loan Agreement or any of the other Loan Documents is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and the remaining provisions of this Loan Agreement or any of the other Loan Documents shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance.

     19.      Expenses. Borrower shall pay all costs and expenses (including, without limitation, reasonable attorneys’ fees) in connection with (i) any action required in the course of administration of the indebtedness and obligations evidenced by the Loan Documents, and (ii) any action in the enforcement of Lender’s rights upon the occurrence of Event of Default.

     20.      Participation of the Loans. Borrower agrees that Lender may, at its option, sell interests in the Loans and its rights under this Loan Agreement to a financial institution or institutions and, in connection with each such sale, Lender may disclose any financial and other information available to Lender concerning Borrower to each prospective purchaser.

     21.      Conflicts. In the event any term or provision hereof is inconsistent with or conflicts with any provision of the other Loan Documents, the terms and provisions contained in this Loan Agreement shall be controlling.

     22.      Counterparts. This Loan Agreement may be separately executed in any number of counterparts, each of which shall be an original, but all of which, taken together, shall be deemed to constitute one and the same instrument.

     23.      Facsimile Documents and Signatures. For purposes of negotiating and finalizing this Loan Agreement, if this document or any document executed in connection with it is transmitted by facsimile machine (“fax”), it shall be treated for all purposes as an original document. Additionally, the signature of any party on this document transmitted by way of a facsimile machine shall be considered for all purposes as an original signature. Any such faxed document shall be considered to have the same binding legal effect as an original document. At the request of any party, any faxed document shall be re-executed by each signatory party in an original form.

If the foregoing correctly sets forth our mutual agreement, please so acknowledge by signing and returning this Loan Agreement to the undersigned.

NOTICE TO COMPLY WITH STATE LAW

For the purpose of this Notice, the term “WRITTEN AGREEMENT” shall include the document set forth above, together with each and every other document relating to and/or securing the same loan transaction, regardless of the date of execution.

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THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

BORROWER		LENDER:
CRAFTMADE INTERNATIONAL, INC.,		THE FROST NATIONAL BANK,
a Delaware corporation		a national banking association
By:	/s/ James R. Ridings	By:	/s/ D. Michael Randall
	James R. Ridings, President		D. Michael Randall, Senior Vice President

GUARANTORS   DUROCRAFT INTERNATIONAL, INC., a Texas corporation
By:	/s/ Brad Heimann
	Brad Heimann, Secretary

TRADE SOURCE INTERNATIONAL, INC., a Delaware corporation
By:	/s/ Brad Heimann
	Brad Heimann, Secretary

DESIGN TRENDS, LLC, a Delaware limited liability company
By:	Craftmade International, Inc.,  a Delaware corporation, its Manager
By:	/s/ Brad Heimann
	Brad Heimann, Executive Vice President

C/D/R INCORPORATED, a Delaware corporation
By:	/s/ Clifford Crimmings
	Clifford Crimmings, V.P. Marketing

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EX-10.3

Exhibit 10.3

ARBITRATION AND NOTICE OF FINAL AGREEMENT

To:	Craftmade International, Inc., a Delaware corporation
	650 S. Royal Lane
	Coppell, Texas 75019
	(collectively, whether one or more, “Borrower”)

As of the effective date of this Notice, Borrower and THE FROST NATIONAL BANK, a national banking association (“Lender”) have consummated a transaction pursuant to which Lender has agreed to renew and extend an existing loan to Borrower, in an aggregate amount up to $23,000,000.00 (collectively, whether one or more, the “Loan”).

ARBITRATION

Upon written request of either Lender or Borrower, any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to the Loan, any of the loan documents or any related agreements or instruments executed in connection with the Loan (the “Loan Documents”), including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Commercial Arbitration Rules of the American Arbitration Association, and the “Special Rules” set forth below unless both Lender and Borrower, in their respective sole discretion, agree in writing to mediate the dispute prior to submitting to binding arbitration. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Agreement may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this agreement applies in any court having jurisdiction over such action. The party that requests arbitration has the burden to initiate the arbitration proceedings pursuant to and by complying with the Commercial Arbitration Rules of the American Arbitration Association and shall pay all associated administrative and filing fees.

The arbitration shall be conducted in the City of Fort Worth, Tarrant County, Texas and administered by the American Arbitration Association. All arbitration hearings will be commenced within sixty (60) days of the written request for arbitration, and if the arbitration hearing is not commenced within the sixty (60) days, the party that requested arbitration shall have waived its election to arbitrate. Nothing in this Agreement shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Agreement; or (ii) be a waiver by Lender of the protection afforded to it by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the right of Lender hereto (A) to exercise self help remedies such as (but not limited to) setoff, or (B) to foreclose against any real or personal property collateral in accordance with applicable law, or (C) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief or the appointment of a receiver in accordance with applicable law. Lender may exercise such self help remedies, foreclose upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Agreement or

any other Loan Document. At Lender’s option, foreclosure under a deed of trust or mortgage may be accomplished by any of the following: the exercise of a power of sale under the deed of trust or mortgage, or by judicial sale under the deed of trust or mortgage, or by judicial foreclosure. Neither this exercise of self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in any such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies.

FACSIMILE DOCUMENTS AND SIGNATURES

For purposes of negotiating and finalizing the Written Loan Agreement (as hereinafter defined), if this document or any document executed in connection with the Loan is transmitted by facsimile machine (“fax”), it shall be treated for all purposes as an original document. Additionally, the signature of any party on this document transmitted by way of a facsimile machine shall be considered for all purposes as an original signature. Any such faxed document shall be considered to have the same binding legal effect as an original document. At the request of any party, any faxed document shall be re-executed by each signatory party in an original form.

WAIVER OF RIGHT TO TRIAL BY JURY

THE PARTIES TO THIS AGREEMENT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER TO ENFORCE THIS AGREEMENT, TO COLLECT DAMAGES FOR THE BREACH OF THIS AGREEMENT, OR WHICH IN ANY OTHER WAY ARISE OUT OF, ARE CONNECTED TO OR ARE RELATED TO THIS AGREEMENT OR THE SUBJECT MATTER OF THIS AGREEMENT. ANY SUCH ACTION SHALL BE TRIED BY THE JUDGE WITHOUT A JURY.

NOTICE OF FINAL AGREEMENT

In connection with the Loan, Borrower and Lender and the undersigned guarantors and other obligors, if any (collectively, whether one or more, “Other Obligors”) have executed and delivered and may hereafter execute and deliver certain agreements, instruments and documents (collectively hereinafter referred to as the “Written Loan Agreement”).

It is the intention of Borrower, Lender and Other Obligors that this Notice be incorporated by reference into each of the written agreements, instruments and documents comprising the Written Loan Agreement. Borrower, Lender and Other Obligors each warrants and represents that the entire agreement made and existing by or among Borrower, Lender and Other Obligors with respect to the Loan is and shall be contained within the Written Loan Agreement, as amended and supplemented hereby, and that no agreements or promises exist or shall exist by or among, Borrower, Lender and Other Obligors that are not reflected in the Written Loan Agreement.

THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

Executed effective as of October 31, 2005.

BORROWER		LENDER:
CRAFTMADE INTERNATIONAL, INC.,		THE FROST NATIONAL BANK,
a Delaware corporation		a national banking association
By:	/s/ Brad Heimann	By:	/s/ D. Michael Randall
	Brad Heimann, Executive Vice President		D. Michael Randall, Senior Vice President
OTHER OBLIGORS:
DESIGN TRENDS, LLC,
a Delaware limited liability company
By:	Craftmade International, Inc.,
	a Delaware corporation, Manager
By:	/s/ Brad Heimann
	Brad Heimann, Executive Vice President
DUROCRAFT INTERNATIONAL, INC.,
a Texas corporation
By:	/s/ Brad Heimann
	Brad Heimann, Secretary

TRADE SOURCE INTERNATIONAL, INC.,
a California corporation
By:	/s/ Brad Heimann
	Brad Heimann, Secretary
C/D/R INCORPORATED,
a Delaware corporation
By:	/s/ Clifford Crimmings
	Clifford Crimmings, V.P. Marketing

EX-31.1

Exhibit 31.1

Certification
Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002

I, James R. Ridings, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Craftmade International, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter in the case of this Quarterly Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2005	/s/ James R. Ridings
	James R. Ridings
	Chairman of the Board, President and
	Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification
Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002

I, J. Marcus Scrudder, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Craftmade International, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

c.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
d.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
e.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
f.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter in the case of this Quarter Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

g.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
h.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2005	/s/ J. Marcus Scrudder
	J. Marcus Scrudder
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES OXLEY ACT OF 2002

This certification is provided pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”) for the three months ended September 30, 2005 of Craftmade International, Inc. (the “Company”).

I, James R. Ridings, the Chairman of the Board, President and Chief Executive Officer of the Company, certify that, to my knowledge:

1.	the Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) as applicable, of the Securities Exchange Act of 1934; and
2.	the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.

Date: November 8, 2005	/s/ James R. Ridings
	James R. Ridings
	Chairman of the Board, President and
	Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES OXLEY ACT OF 2002

This certification is provided pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”) for the three months ended September 30, 2005 of Craftmade International, Inc. (the “Company”).

I, J. Marcus Scrudder, Chief Financial Officer of the Company, certify that, to my knowledge:

3.	the Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) as applicable, of the Securities Exchange Act of 1934; and
4.	the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.

Date: November 8, 2005	/s/ J. Marcus Scrudder
	J. Marcus Scrudder
	Chief Financial Officer