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 March 31, 2009

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

CRAFTMADE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)		75-2057054 (I.R.S. employer identification no.)

650 SOUTH ROYAL LANE, SUITE 100
COPPELL, TEXAS 75019
(Address of principal executive offices)
(Zip code)

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was 5,704,500 as of April 30, 2009.

 

 

CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES

TABLE OF CONTENTS

Part I. Financial Information			1
Item 1. Financial Statements			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			36
Item 4. Controls and Procedures			36
Part II. Other Information			37
Item 1. Legal Proceedings			37
Item 1A. Risk Factors			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 3. Defaults Upon Senior Securities			37
Item 4. Submission of Matters to a Vote of Security Holders			37
Item 5. Other Information			37
Item 6. Exhibits			38
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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)

		Three Months Ended								Nine Months Ended
		March 31,				March 31,				March 31,				March 31,
		2009				2008				2009				2008
Net sales		$	52,000			$	54,918			$	119,427			$	98,468
Cost of goods sold			(43,407	)			(44,226	)			(94,658	)			(73,732	)
Gross profit			8,593				10,692				24,769				24,736
Gross profit as a percentage of net sales			16.5	%			19.5	%			20.7	%			25.1	%
Selling, general and administrative expenses			(7,886	)			(8,848	)			(23,416	)			(19,366	)
Depreciation and amortization			(294	)			(210	)			(794	)			(628	)
Total operating expenses			(8,180	)			(9,058	)			(24,210	)			(19,994	)
Income from operations			413				1,634				559				4,742
Interest expense, net			(333	)			(524	)			(1,108	)			(1,144	)
Other income (expense)			(125	)			139				(124	)			139
Income (loss) before income taxes and minority interest			(45	)			1,249				(673	)			3,737
Income tax (expense) / benefit			(1	)			(343	)			307				(929	)
Income (loss) before minority interest			(46	)			906				(366	)			2,808
Minority interest			(89	)			(267	)			(443	)			(1,069	)
Net income (loss)		$	(135	)		$	639			$	(809	)		$	1,739
Weighted average common shares outstanding:
Basic			5,705				5,694				5,705				5,366
Diluted			5,705				5,700				5,705				5,373
Basic earnings (loss) per common share		$	(0.02	)		$	0.11			$	(0.14	)		$	0.32
Diluted earnings (loss) per common share		$	(0.02	)		$	0.11			$	(0.14	)		$	0.32
Cash dividends declared per common share		$	—			$	0.12			$	—			$	0.36

SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

		March 31,				June 30,
		2009				2008
		(Unaudited)
ASSETS
Current assets
Cash		$	1,687			$	1,269
Accounts receivable, net			45,002				23,644
Inventories, net			23,267				22,420
Income taxes receivable			1,620				1,485
Deferred income taxes			1,312				1,332
Prepaid expenses and other current assets			2,400				2,574
Total current assets			75,288				52,724
Property and equipment, net			11,297				11,060
Goodwill			14,745				14,419
Other intangibles, net			1,146				1,300
Other assets			2,462				2,457
Total non-current assets			29,650				29,236
Total assets		$	104,938			$	81,960
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities
Book overdrafts		$	22			$	182
Accounts payable			17,659				8,411
Other accrued expenses			2,063				3,329
Current portion of long-term obligations			34,466				507
Total current liabilities			54,210				12,429
Non-current liabilities
Long-term obligations			9,983				27,759
Deferred income taxes			1,117				1,117
Total non-current liabilities			11,100				28,876
Total liabilities			65,310				41,305
Minority interest			3,254				3,562
Stockholders’ equity
Preferred stock, $1.00 par value, 2,000,000 shares authorized; nil shares issued			—				—
Common stock, $0.01 par value, 15,000,000 shares authorized; 10,204,420 shares issued			102				102
Additional paid-in capital			22,305				22,215
Retained earnings			52,093				52,902
Less: treasury stock, 4,499,920 common shares at cost			(38,126	)			(38,126	)
Total stockholders’ equity			36,374				37,093
Total liabilities, minority interest and stockholders’ equity		$	104,938			$	81,960

SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

		Nine Months Ended
		March 31,				March 31,
		2009				2008
Net cash used in operating activities		$	(13,498	)		$	(3,601	)
Cash flows from investing activities
Acquisition of assets of Woodard, LLC.			—				(16,135	)
Additional contingent consideration			(473	)			(486	)
Additions property, equipment and tooling			(908	)			(436	)
Cash used in investing activities			(1,381	)			(17,057	)
Cash flows from financing activities
Net proceeds from/(payments) on note payable			(344	)			10,668
Net proceeds from lines of credit			16,560				13,125
Cash dividends			—				(1,874	)
Distributions to minority interest members			(750	)			(1,225	)
Increase/(decrease) in book overdrafts			(158	)			47
Principal payments on capital lease			(11	)			(26	)
Net cash provided by financing activities			15,297				20,716
Net Increase in cash			418				58
Cash at beginning of period			1,269				928
Cash at end of period		$	1,687			$	986

SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — BASIS OF PREPARATION AND PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and with the rules and regulations of the Securities and Exchange Commission (“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., a Delaware corporation (“Craftmade”), and its wholly-owned subsidiaries, including Trade Source International, Inc., a Delaware corporation (“TSI”), Prime/Home Impressions, LLC, a North Carolina limited liability company (“PHI”), CM-Real Estate, LLC, a Texas limited liability company (“CM-Real Estate”), Woodard-CM, LLC, a Delaware limited liability company (“Woodard-CM”) and one 50% owned limited liability company, Design Trends, LLC, a Delaware limited liability company (“Design Trends”). References to “Craftmade,” “we,” “our,” “us,” “its,” and the “Company” refer to Craftmade and its subsidiaries, including TSI, PHI, CM-Real Estate, Woodard-CM and Design Trends unless the context requires otherwise.

The balance sheet at June 30, 2008, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Accordingly, 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. In management’s opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation.

As of December 31, 2008 the Company reclassified as current the outstanding balance on its line of credit with the Frost National Bank and other lenders (“Frost Line of Credit”) due to the maturity of the credit agreement on December 31, 2009. The Company is currently in discussions with several lenders in relation to refinancing the line of credit prior to the maturity of the existing agreement, but there can be no assurance that we will be able to finalize an agreement on terms acceptable to the Company or at all.

At December 31, 2008, the Company was not in compliance with the fixed charge coverage ratio covenant in the Frost Line of Credit. The Company secured a waiver related to the fixed charge coverage ratio for the quarter ended December 31, 2008. The Company incurred a $125,000 fee in conjunction with this waiver, which is recorded as Other Expense in the quarter ended March 31, 2009. No amendments were made to the Frost Line of Credit and there was no other effect on the Company’s consolidated financial statements as a result of the noncompliance or the corresponding grant of waiver. At March 31, 2009, the Company was in compliance with all financial covenants in the Frost Line of Credit.

The Company believes that the disclosures are adequate to provide fair presentation of the results of operations and financial position for the interim periods. The current interim period reported herein should be read in conjunction with the financial statements and the notes thereto in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008, filed with the SEC

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

on September 26, 2008. The financial data for the interim periods may not necessarily be indicative of results to be expected for the year. Certain amounts in the prior periods’ financial statements have been reclassified to conform to the current period presentation.

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 2 — ACQUISITIONS

Acquisition of Certain Assets of Woodard LLC.

On January 2, 2008, Woodard-CM completed the purchase of substantially all of the assets of Woodard, LLC (“Woodard”), a leading Chicago-based designer, manufacturer and distributor of a broad line of outdoor furniture products and related accessories pursuant to the Asset Purchase Agreement, dated as of December 18, 2007 (the “Agreement”), by and among Craftmade, Woodard and Henry Crown and Company d/b/a CC Industries, Inc. In the acquisition, the Company initially paid Woodard $19,265,000 plus a working capital adjustment of $954,000 and warrants (the “Warrants”) to purchase up to 200,000 shares of Craftmade common stock (the “Common Stock”) for 10 years from the date of issuance at a purchase price of $8.10 per share, valued at $279,000. The purchase price consideration included 500,000 shares of Common Stock valued at $8.10 per share based on the average closing price of the Common Stock for the three days prior to signing the Agreement for an aggregate price of $4,050,000 (price of Common Stock for financial reporting is $8.00 per share based on the average closing price of the Common Stock on the two days prior, two days after and day of the announcement of the signing of the Agreement, for an aggregate price of $4,000,000), with the remaining purchase price paid in cash at closing. The Agreement allowed the parties to adjust the purchase price to accurately reflect the working capital up to 60 days after the closing of the acquisition, resulting in a working capital adjustment of $1,272,000 due the Company. Including the working capital adjustment, the total adjusted cash consideration for the acquisition is $14,896,000.

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

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Purchase Price Summary
(Dollars in thousands)

Cash paid at closing		$	16,168
GAAP value of 500,000 shares issued			4,000	(1)
Value of 200,000 Warrants			279	(2)
Purchase price adjustment (Settled April, 2008)			(1,272	)
Total consideration		$	19,175

Expected volatility			33	%
Risk-free interest rate			3.81	%
Expected lives		10 years
Dividend yield			5.8	%

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

The excess value of certain assets acquired over purchase price has been recorded as a reduction of the fair value of the Owosso, Michigan facility that would otherwise have been recorded. As a result, management believes that the fair market value of this facility significantly exceeds its allocated cost.

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Purchase Price Allocation
Initial estimated purchase price						$	20,168
Less: Working capital adjustment							(1,272	)
Value of warrants							279
Total Purchase Consideration							19,175
Acquired Assets (Adjusted to estimated fair value)
Accounts receivable, net		$	12,708
Inventories, net			8,212
Prepaid expenses and other current assets			2,450
Plant, property and equipment			2,929
Other assets			1,528
Total Assets							27,827
Assumed Liabilities
Accounts payable		$	5,852
Other accrued expenses			1,702
Other liabilities incurred during transaction
Professional fees associated with acquisition			655
Restructuring reserve			692
Deferred tax asset for restructuring reserve			(249	)
Total Liabilities							8,652
Total Purchase Price						$	19,175

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

The pro forma amounts for the fiscal year ended June 30, 2008 do not purport to be indicative of the results that would have actually been obtained if the merger occurred as of the beginning of the period presented or that may be obtained in the future. As Woodard was acquired January 2, 2008 the information below for the three months and the nine months ended March 31, 2009 and the three months ended March 31, 2008, does not reflect any proforma effects.

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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

		Three Months Ended								Nine Months Ended
		March 31,				March 31,				March 31,				March 31,
		2009				2008				2009				2008
Net sales
As reported		$	52,000			$	54,918			$	119,427			$	98,468
Pro forma			52,000				54,918				119,427				125,468
Net income (loss)
As reported		$	(135	)		$	639			$	(809	)		$	1,739
Pro forma			(135	)			639				(809	)			487
Basic earnings (loss) per share
As reported		$	(0.02	)		$	0.11			$	(0.14	)		$	0.32
Pro forma		$	(0.02	)		$	0.11			$	(0.14	)		$	0.09
Diluted earnings (loss) per share
As reported		$	(0.02	)		$	0.11			$	(0.14	)		$	0.32
Pro forma		$	(0.02	)		$	0.11			$	(0.14	)		$	0.09
Basic Shares Outstanding			5,705				5,694				5,705				5,366
Proforma			5,705				5,694				5,704				5,704
Diluted Shares Outstanding			5,705				5,700				5,705				5,373
Proforma			5,705				5,700				5,704				5,704

The Company reserved $692,000 which was charged to the acquisition, related to restructuring costs at the date of the acquisition. In the quarter ended March 31, 2009 there were severance related cash payments of $186,000 charged to the reserve, and an aggregate of $331,000 has been paid since the date of acquisition.

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Acquisition of Marketing Impressions, Inc.

Effective July 1, 2006, TSI acquired Marketing Impressions, Inc., a Georgia corporation (“Marketing Impressions”). Marketing Impressions owned the remaining 50% interest in the Company’s limited liability company PHI and also supplied the Company with certain fan accessory products. This acquisition increased the Company’s effective ownership of PHI to 100% and has been accounted for using the purchase method of accounting. The acquisition is more fully described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2007.

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

Purchase Price Summary
(Dollars in thousands)

As of March 31, 2009:
Amount paid at closing, net of cash acquired		$	1,287
Contingent payments earned			2,797
Acquisition-related costs			220
Total consideration as of March 31, 2009		$	4,304
Percent of Adjusted Gross Profit July 1, 2006 to August 31, 2011			22	%
Additonal Percent of Adjusted Gross Profit July 1, 2006 to June 30, 2007 (not to exceed $750)			15	%

The Company has estimated the total remaining payout based on future levels of Adjusted Gross Profit through August 31, 2011, to be approximately $1,494,000. In accordance with SFAS No. 141, Business Combinations (“SFAS 141”), contingent consideration is recorded when a contingency is satisfied and additional consideration is issued or becomes issuable.

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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

Summary of Acquired Intangibles
(Dollars in thousands)

		Life				Gross
		in Years				Amount
Patents and trademarks			15			$	710
Non-compete covenants			7				820
						$	1,530

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

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 3 — EARNINGS (LOSS) PER SHARE

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

		Three Months Ended								Nine Months Ended
		March 31,				March 31,				March 31,				March 31,
		2009				2008				2009				2008
		(In thousands, except per share data)
Basic and diluted earnings (loss) per share:
Numerator
Net income (loss)		$	(135	)		$	639			$	(809	)		$	1,739
Denominator for basic earnings (loss) per share
Weighted average common shares outstanding			5,705				5,694				5,705				5,366
Denominator for diluted earnings (loss) per share
Weighted average common shares outstanding			5,705				5,694				5,705				5,366
Incremental shares for stock options/warrants			—				6				—				7
Dilutive weighted average common shares			5,705				5,700				5,705				5,373
Basic earnings (loss) per share		$	(0.02	)		$	0.11			$	(0.14	)		$	0.32
Diluted earnings (loss) per share		$	(0.02	)		$	0.11			$	(0.14	)		$	0.32

Anti-dilutive options and warrants have been excluded from the computation of diluted earnings per share because assumed proceeds upon exercise, as defined by SFAS No. 123(R), were greater than the cost to re-acquire the same number of shares at the average market price, and therefore the effect would be anti-dilutive. On March 31, 2009 and March 31, 2008 there were 360,200 and 100,000, respectively, common stock options outstanding that were anti-dilutive and therefore were excluded from the calculation of diluted earnings per share. As discussed further in Note 2 — Acquisitions, on January 2, 2008 the Company issued 200,000 warrants. Accordingly, the Company has included the dilutive effects, if any, of the warrants from its earnings per share calculation since January 2, 2008.

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 4 — SEGMENT INFORMATION

As of March 31, 2009, the Company operates in two reportable segments, Specialty and Mass. Prior to June 30, 2008, these segments were referred to as Craftmade and TSI, but were re-named to be more descriptive. The segment formerly identified as Craftmade International, Inc. or “Craftmade” is now referred to as “Specialty” and the segment formerly identified as Trade Source International, Inc. or “TSI” is now referred to as “Mass.” Hereafter, “Craftmade International, Inc.” and “Craftmade” refer to the Company and “Craftmade ceiling fans” refers to ceiling fan products sold primarily within the Specialty segment under the Craftmade trade name. Hereafter “TSI” refers specifically to the Trade Source International subsidiary rather than the entire Mass segment.

The Specialty segment primarily derives its revenue from home furnishings, including ceiling fans, light kits, bath-strip lighting, lamps, light bulbs, door chimes, ventilation systems, outdoor patio furniture and other accessories offered primarily through lighting showrooms, patio dealers, hospitality customers and catalog houses. The Mass segment derives its revenue from outdoor lighting, outdoor patio furniture, portable lamps, indoor lighting and fan accessories marketed solely to mass retailers and certain major retail chains.

The additional sales from the acquisition of certain net assets of Woodard, LLC are the result of sales to independent patio dealers, hospitality customers and mass retailers. Sales to the independent patio dealers and hospitality customers are included in the Specialty segment and sales to mass merchants are included in the Mass segment.

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, 2008, as filed with the SEC on September 26, 2008. The Company evaluates the performance of its segments and allocates resources to them based on their income from operations and cash flows. All prior year financial information has been renamed to be consistent with the current year disclosure.

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table presents net sales, gross profit, and income (loss) from operations for the reportable segments:

Summary of Segment Information

		Three Months Ended								Nine Months Ended
		March 31,				March 31,				March 31,				March 31,
		2009				2008				2009				2008
		(In thousands)
Net sales
Specialty		$	15,170			$	23,146			$	51,600			$	49,726
Mass			36,830				31,772				67,827				48,742
Total		$	52,000			$	54,918			$	119,427			$	98,468
Gross profit
Specialty		$	4,166			$	6,328			$	15,784			$	15,823
Mass			4,427				4,364				8,985				8,913
Total		$	8,593			$	10,692			$	24,769			$	24,736
Income (loss) from operations
Specialty		$	(155	)		$	486			$	672			$	2,388
Mass			568				1,148				(113	)			2,354
Total		$	413			$	1,634			$	559			$	4,742

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 5 — STOCK-BASED COMPENSATION

Effective July 1, 2005, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”). 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.

The options to purchase Common Stock are issued at fair market value on the date of the grant. Generally, the options vest and become exercisable ratably over a four-year period, commencing one year after the grant date, and expire ten years from issuance. The fair value of each option is recognized as compensation expense on a straight-line basis between the grant date and the date the options become fully vested. The Company has recognized compensation cost for all stock-based payments in the consolidated financial statements as follows:

Stock-Based Compensation Expense
(Dollars in thousands)

		Three Months Ended								Nine Months Ended
		March 31,				March 31,				March 31,				March 31,
		2009				2008				2009				2008
Stock-based compensation expense recognized:
Selling, general & administrative		$	30			$	30			$	90			$	86

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

Future Stock-Based Compensation Expense
(Dollars in thousands)

		Expected
		Future
		Compensation
Fiscal Year Ending		Cost
June 30, 2009 (remaining 3 months)		$	28
June 30, 2010			73
June 30, 2011			39
June 30, 2012			17
		$	157

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table summarizes information about outstanding and exercisable options at March 31, 2009:

Summary of Stock Options

						Weighted								Weighted
						Average				Exercise				Average
						Exercise				Price				Remaining
		Shares				Price				Range				Life (Years)
Outstanding at June 30, 2008			162,400				13.63
Granted			—				—
Exercised			—				—
Forfeited			(2,200	)			18.85
Outstanding at March 31, 2009			160,200			$	13.56			$	6.75-$25.20				7.8
Exercisable at March 31, 2009			48,600			$	17.74			$	6.75-$25.20				6.3

The fair value of each option grant is calculated on the date of grant using the Black-Scholes option pricing model.

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 6 — INCOME TAXES

The Company’s effective tax rate is summarized in the following table:

Summary of Effective Tax Rate

		Three Months Ended								Nine Months Ended
		March 31,				March 31,				March 31,				March 31,
		2009				2008				2009				2008
Effective tax rate			(0.7	%)			34.9	%			27.5	%			34.8	%

The effective tax rate is calculated by dividing income tax expense by income after minority interest and before income taxes. The effective tax rates presented are weighted averages of our multiple legal entities with effective income tax rates that differ from the statutory United States federal income tax rate of 34% due to the impact of state income taxes. The resulting consolidated effective rate can be significantly different than the statutory United States federal income tax rate of 34% due to the effect of operating losses in certain legal entities of the Company being offset by gains in other entities. The resulting consolidated effective tax rate is not necessarily representative of the effective tax rate in any of the individual tax entities of the Company. The Company expects to realize the benefit of current tax losses in future periods and therefore has not provided an allowance towards these losses. The tax provisions for the current fiscal year are based on our estimate of the Company’s annualized income tax rate.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The statute of limitations has lapsed for all U.S. federal returns prior to and including the fiscal year ended June 30, 2003. In May 2007, the Internal Revenue Service completed an examination of the Company’s U.S. income tax return for the fiscal year ended June 30, 2005. There were no material adjustments, penalties or interest resulting from this examination.

The Company believes that adequate amounts of tax, interest and penalties have been provided for in the accompanying financial statements for any adjustments that might be incurred due to state, local or foreign audits.

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

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

For the three months ended March 31, 2009, there was no change in our unrecognized income tax benefits:

Reconciliation of Unrecognized Tax Benefits
(Dollars in thousands)

						Increases/(Decreases) in Unrecognized
						Tax Benefits As a Result of
						Tax Positions from												Lapse in
		July 1,				Prior				Current								Statute of				March 31,
		2008				Periods				Period				Settlements				Limitations				2009
Unrecognized tax benefits		$	290				—				—				—				—			$	290

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax positions could significantly increase or decrease within the next 12 months as a result of settling ongoing tax matters. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.

The Company has historically recognized interest relating to income tax matters as a component of interest expense and recognized penalties relating to income tax matters as a component of selling, general and administrative expense. Such interest and penalties have historically been immaterial. Given the adoption of FIN 48, in the future the Company will recognize accrued interest and penalties related to income tax matters in income tax expense. There was $48,000 in interest and penalties related to unrecognized tax benefits accrued at the date of adoption and as of March 31, 2009.

Note 7 — RELATED PARTY TRANSACTIONS

The Company purchases much of its outdoor patio furniture from a Chinese factory that is 50% owned by an affiliate of Henry Crown and Company. Henry Crown and Company owns Woodard, LLC, from which the Company purchased certain assets in January 2008. As part of the purchase price in that transaction, Henry Crown and Company became the beneficial owner of more than 5% of our Common Stock. For the three months and the nine months ended March 31, 2009, the Company purchased approximately $11.1 million and $13.4 million respectively, in products from the joint venture, which were sold to various customers. For the same three month period in the prior fiscal year, the Company purchased approximately $15.3 million. Since the Woodard acquisition happened on January 2, 2008 the purchases for the comparable prior year nine month period were also $15.3 million. The Company currently does not have any agreements in place that compel either party to operate in any manner that differs from standard customer/vendor relationships. Based on this factor, the Company’s management has determined that the transactions between the two parties are at arms-length.

In addition, the Company formerly leased approximately 20,000 square feet of office space in Chicago, Illinois from an affiliate of Henry Crown and Company for $34,829 per month. This

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

lease covered the former Woodard, LLC Chicago offices and expired on February 28, 2009. The Company has initiated a new agreement with Henry Crown and Company for 1,989 square feet that commenced on January 15, 2009 and will expire on August 14, 2009. The Company pays $4,475 per month for this space. The Company’s management has determined that the terms of both agreements represent fair market value.

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

Effective March 16, 2009, Todd Teiber accepted the position of Senior Vice-President of Specialty Sales with the Company. The Company acquired Teiber Lighting from Mr. Teiber in 2005, and Mr. Teiber has been under a consulting agreement with the Company since that time, for which Mr. Teiber receives $100,000 per year. Under the terms of the Teiber Lighting acquisition, Mr. Teiber’s consulting agreement will end February 28, 2010. Mr. Teiber is also owner of Teiber Lighting Sales, which provides sales representation to the Company for its lighting and accessory products in the Specialty segment, in certain geographies. Mr. Teiber is no longer employed by Teiber Lighting Sales, but retains ownership of the company. Craftmade has paid commissions of $253,927 to Teiber Lighting Sales year to date in fiscal 2009. Based on an evaluation of similar transactions, the Company’s management has determined that the terms of Mr. Teiber’s employment as well as the use of Teiber Lighting Sales to represent Craftmade products both represent fair market value transactions.

Note 8 — COMMITMENTS AND CONTINGENCIES

In February of 2009, Craftmade agreed to settle a lawsuit with a former Woodard sales representative. The lawsuit was settled and dismissed with prejudice, with each party agreeing to release their respective claims with no payments by any party to any party. The Company incurred approximately $350,000 in attorney fees during the third quarter of fiscal 2009 in relation to this lawsuit, and approximately $500,000 in the nine months ended March 31, 2009.

The Company is involved in various claims, lawsuits and proceedings arising in the ordinary course of business. There are uncertainties inherent in the ultimate outcome of such matters and

CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

it is difficult to determine the ultimate costs that we may incur. We believe the resolution of such uncertainties and the incurrence of such costs will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Disclosure Regarding Forward-looking Statements

With the exception of historical information, the matters discussed in this document contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Craftmade to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements include, but are not limited to, (i) statements concerning future financial condition and operations, including future cash flows, revenues, gross margins, earnings and variations in quarterly results, (ii) statements relating to anticipated completion dates for new products and (iii) other statements identified by words such as “may,” “will,” “should,” “could,” “might,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “forecasts,” “intends,” “potential,” “continue,” and similar words or phrases. These factors that could affect our financial and other results can be found in the risk factors section of our Annual Report on Form 10-K for the fiscal year ended June 30, 2008, filed with the SEC on September 26, 2008. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this filing with the SEC, and we undertake no obligation to update the forward-looking statements to reflect subsequent events or other circumstances.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of the Company’s financial condition and results of operations is 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 change. The Company’s management believes that certain estimates, assumptions and judgments derived from the accounting policies have significant impact on its financial statements, so the Company considers these to be its critical accounting policies. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in the Company’s Annual Report on Form 10-K for the year ended June 30, 2008, as filed with the SEC on September 26, 2008.

Given the rapid economic downturn in the last months of calendar 2008, the Company felt it was appropriate to evaluate its goodwill for possible impairment as of December 31, 2008. The Company utilized a discounted cash flow analysis consistent with the approach used in its June 30, 2008, year end evaluation. This first step of the interim goodwill impairment analysis was performed at the reporting unit level, consistent with the approach taken previously.

As part of this analysis management considered historical trends in the Company’s revenue and cost of goods, and factored in current macroeconomic trends and forecasts of economic activity. We also considered the underlying cost structure of the Company and cost cutting plans being implemented, and the impact of these reductions on future cash flows. The Company also considered its current cost of both debt and equity financing, and the current weighting of these costs in developing an

appropriate Weighted Average Cost of Capital. While this analysis inherently entails a degree of subjectivity and potential variability, management looked at a variety of scenarios and sensitivities related to each of these areas and determined that given reasonable and probable assumptions regarding these future variables, no goodwill impairment existed at December 31, 2008.

The Company will continue to engage in interim testing for goodwill impairment if events or circumstances exist that create a significant likelihood that the fair value of a reporting unit has declined below its carrying amount. In doing so, the Company will follow the guidance given in paragraph 28 of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, to help determine if such an event is likely. Based on this guidance the Company does not believe that an event has occurred since December 31, 2008 that creates a significant likelihood that the fair value of a reporting unit has declined below its carrying amount, therefore no additional evaluation has been performed.

Results of Operations

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.

This discussion and analysis includes references to historical Craftmade. Historical Craftmade consists of ceiling fans, lighting, door chimes and pushbutton sales and related operations that have historically comprised the Company’s operations prior to the acquisition of certain net assets of Woodard, LLC.

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

An unaudited, condensed overview of results for the three months ended March 31, 2009, and the corresponding prior year period is summarized as follows:

Summary Income Statement by Segment
(Dollars in thousands)

		Three Months Ended												Three Months Ended
		March 31, 2009												March 31, 2008
		Specialty				Mass				Total				Specialty				Mass				Total
Net sales		$	15,170			$	36,830			$	52,000			$	23,146			$	31,772			$	54,918
Cost of goods sold			(11,004	)			(32,403	)			(43,407	)			(16,818	)			(27,408	)			(44,226	)
Gross profit			4,166				4,427				8,593				6,328				4,364				10,692
As a % of net sales			27.5	%			12.0	%			16.5	%			27.3	%			13.7	%			19.5	%
Selling, general and administrative			(4,092	)			(3,794	)			(7,886	)			(5,697	)			(3,151	)			(8,848	)
As a % of net sales			27.0	%			10.3	%			15.2	%			24.6	%			9.9	%			16.1	%
Depreciation and amortization			(229	)			(65	)			(294	)			(145	)			(65	)			(210	)
Total operating expenses			(4,321	)			(3,859	)			(8,180	)			(5,842	)			(3,216	)			(9,058	)
Income (loss) from operations		$	(155	)		$	568				413			$	486			$	1,148				1,634
Interest expense, net											(333	)											(524	)
Other income (expense)											(125	)											139
Income (loss) before income taxes and minority interest											(45	)											1,249
Income taxes expense											(1	)											(343	)
Income (loss) before minority interest											(46	)											906
Minority interest											(89	)											(267	)
Net income (loss)										$	(135	)										$	639

Net Sales. Net sales for the Company decreased $2,918,000 or 5% to $52,000,000 for the quarter ended March 31, 2009, from $54,918,000 for the quarter ended March 31, 2008. The decrease is due to the reduced sales in the Specialty segment, offset by an increase in sales in the Mass segment.

Management believes that the decline in the housing market and the overall economic downturn will

continue to negatively impact the sales of the Company’s various product lines, particularly in the Specialty segment which is more closely correlated to new home starts. The Company continues to pursue its strategic growth plans, while increasingly focusing on developing and implementing more immediate plans to mitigate the impact of the current economic downturn.

Net sales from the Specialty segment decreased $7,976,000 or 34% to $15,170,000 for the quarter ended March 31, 2009, compared to $23,146,000 for the quarter ended March 31, 2008, as summarized in the following table.

Net Sales of the Speciality Segment
(Dollars in thousands)

		Fans				Woodard
		Lighting &				Outdoor				Segment
Three Months Ended		Accessories				Furniture				Total
March 31, 2009		$	7,800			$	7,370			$	15,170
March 31, 2008			11,627				11,519				23,146
Dollar increase (decrease)		$	(3,827	)		$	(4,149	)		$	(7,976	)
Percent increase (decrease)			(33	%)			(36	%)			(34	%)

Sales of fans, lighting related products and outdoor furniture continue to be affected by the extremely weak overall housing market, a difficult credit environment and reduced consumer spending. Management continues to focus on introducing new products and expanding accounts to offset the weak housing market and economic downturn. Management believes that long-term growth will be favorably affected by additional product offerings through enhanced product development efforts, as well as cross-selling outdoor furniture products to lighting showrooms and outdoor lighting and ceiling fans to patio dealers, and focusing efforts on the hospitality markets.

Third quarter net sales of Woodard outdoor furniture increased marginally versus the second quarter primarily due to normal seasonality. Historically, sales of outdoor furniture to patio dealers are seasonally higher during the third and fourth quarters of the Company’s fiscal year, with the first and second quarter being considered the off-season for outdoor furniture sales.

Net sales of the Mass segment increased $5,058,000 or 16% to $36,830,000 for the quarter ended March 31, 2009, from $31,772,000 for the quarter ended March 31, 2008, as summarized in the following table:

Net Sales of Mass Segment
(Dollars in thousands)

		Fans				Woodard
		Lighting &				Outdoor				Segment
Three Months Ended		Accessories				Furniture				Total
March 31, 2009		$	5,062			$	31,768			$	36,830
March 31, 2008			7,445				24,327				31,772
Dollar increase (decrease)		$	(2,383	)		$	7,441			$	5,058
Percent increase (decrease)			(32	%)			31	%			16	%

The decrease in net sales of fans, lighting and accessories was primarily the result of a decline in: (i)

orders from Lowe’s for indoor lighting and outdoor lighting; (ii) non-core drop shipped products; (iii) sales of fan accessories; and (iv) sales of the mix and match portable lamps through Lowe’s.

Increased Woodard sales were primarily due to higher shipments to its various mass merchant customers. Most of its products are shipped directly from China. Due to the seasonal nature of outdoor furniture, the majority of sales to mass merchants occur from December to April each year.

Based on the most recent annual product line reviews, management believes that Lowe’s plans to continue the respective programs it currently has with the Company. Management believes that, based on the amount of product currently shipped to Lowe’s, the Company remains a primary vendor for Lowe’s mix and match portable lamp and fan accessory/ceiling medallion programs. Management has no reason to believe that the Company will not continue to be invited to participate in each of Lowe’s scheduled reviews for its existing and new product lines. The line reviews occur on an annual basis for each product category throughout the year and give us the potential to add new SKUs to the Lowe’s program. However, participation in line reviews could also result in a partial or complete reduction of the existing SKUs in the product lines currently offered by the Company to Lowe’s.

While competitive pricing is essential in the Mass segment, management believes that future growth is contingent upon the success of the Company’s ongoing efforts to introduce new products, styles and marketing concepts to existing customers and the expansion of the business to new customers.

Gross Profit. Gross profit of the Company as a percentage of net sales decreased 3.0% to 16.5% for the quarter ended March 31, 2009, from 19.5% for the quarter ended March 31, 2008, primarily due to a relative increase in the proportion of sales in the lower-margin Mass segment.

Gross profit as a percentage of net sales of the Specialty segment increased 0.2% to 27.5% for the quarter ended March 31, 2009, from 27.3% in the quarter ended March 31, 2008. The increase is summarized in the following table.

Gross Profit as a Percentage of Net Sales of Specialty Segment

		Fans				Woodard
		Lighting &				Outdoor				Segment
Three Months Ended		Accessories				Furniture				Total
March 31, 2009			33.8	%			20.7	%			27.5	%
March 31, 2008			33.1	%			21.5	%			27.3	%
Percent increase (decrease)			0.7	%			(0.8	%)			0.2	%

The gross margin for ceiling fans and lighting was up slightly due to sales mix, while outdoor furniture margins saw a slight decrease due to inefficiencies created by lower utilization of production facilities.

For fiscal year 2009, we expect gross profit as a percentage of net sales of ceiling fans and lighting in the Specialty segment to be down slightly versus the results generated in the fiscal year ended June 30, 2008, as the current economic downturn makes it more difficult for the Company to increase pricing to its customers. Gross profit as a percentage of net sales of Woodard outdoor furniture in the Specialty segment is expected to increase slightly over fiscal 2008, as the Company has implemented higher pricing for the 2009 season, to offset cost of goods increases from its suppliers.

Gross profit as a percentage of net sales of the Mass segment decreased 1.7% to 12.0% of net sales for the quarter ended March 31, 2009, from 13.7% of net sales in the same prior year period, as summarized in the following table:

Gross Profit as a Percentage of Net Sales of Mass

		Fans				Woodard
		Lighting &				Outdoor				Segment
Three Months Ended		Accessories				Furniture				Total
March 31, 2009			19.6	%			10.8	%			12.0	%
March 31, 2008			24.7	%			10.4	%			13.7	%
Percent increase (decrease)			(5.1	%)			0.4	%			(1.7	%)

Gross profit as a percentage of net sales for lighting and accessories in the Mass segment decreased partially due to higher material costs experienced in our Design Trends subsidiary. Mass gross profit as a percent of net sales for Woodard outdoor furniture is low relative to other channels as all sales are direct import. Although outdoor furniture gross margin was slightly up in the third quarter of fiscal 2009 compared to the same period in the prior year, an increase in the relative mix of outdoor furniture led to a significant decrease in weighted average gross margin for the segment.

For fiscal year 2009, gross profit as a percentage of net sales of fans, lighting and accessories is expected to decrease versus the fiscal year ended June 30, 2008, as a result of higher material and shipping costs, and difficulty in passing along pricing increases.

Selling, General and Administrative Expenses. Total selling, general and administrative (“SG&A”) expenses of the Company decreased $962,000 to $7,886,000 or 15.2% of net sales for the quarter ended March 31, 2009, from $8,848,000 or 16.1% of net sales for the same period last year.

Total Company
Selling, General and Administrative Expenses
(Dollars in thousands)

										Increase/
		Three Months Ended								(Decrease)
		March 31,				March 31,				Over Prior
		2009				2008				Year Period
Commissions			1,260				1,872				(612	)
Advertising		$	900			$	1,148			$	(248	)
Accounting, legal and consulting			1,027				1,100				(73	)
Travel			142				208				(66	)
Contract labor			210				265				(55	)
Bad debt			118				66				52
Salaries and wages			2,471				2,394				77
Other			1,758				1,795				(37	)
		$	7,886			$	8,848			$	(962	)

The decrease in expenses was primarily due to lower commissions and a reduction in advertising spending offset by an increase in salaries and wages and incremental bad debt expense. The increase in

salaries and wages was due to one-time restructuring costs of approximately $250,000 related to a company-wide reduction in force that was implemented in February of 2009.

Management is focused on reducing SG&A expenses and anticipates that SG&A expenses for the fourth quarter of fiscal year 2009 will decrease versus results generated in the each of the first three quarters of the year. The integration of the Woodard business has been completed, with most corporate functions having been relocated from Chicago, Illinois and integrated into the Coppell, Texas location. As of early February 2009 the former Woodard, LLC offices in Chicago have been closed, with the few remaining Chicago-based personnel moving into a much smaller office space, generating significant savings. The Company has also implemented a company-wide reorganization and reduction in force, impacting all locations and functions and resulting in a more than 5% decrease in the number of employees. Management anticipates that these actions will significantly reduce SG&A in future quarters.

Interest Expense. Net interest expense of the Company decreased $191,000 to $333,000 for the quarter ended March 31, 2009, from $524,000 for the quarter ended March 31, 2008. This decrease is primarily due to lower interest rates in effect as compared to the same period in the previous year, offset by increased working capital associated with the Mass segment.

Minority Interest. Minority interest expense decreased $178,000 to $89,000 for the quarter ended March 31, 2009, from $267,000 for the same period in the previous year. The decrease in minority interest resulted from lower profits at Design Trends as a result of the decline in net sales.

Provision for Income Taxes. The income tax benefit was $1,000 or 0.7% of loss before income taxes for the quarter ended March 31, 2009, compared to an income tax provision of $343,000 or 34.9% of income before income taxes for the quarter ended March 31, 2008. The effective tax rate is calculated by dividing income tax expense by income after minority interest and before income taxes. The effective tax rates presented are weighted averages of our multiple legal entities with effective income tax rates that differ from the statutory United States federal income tax rate of 34% due to the impact of state income taxes. The resulting consolidated effective rate can be significantly different than the statutory United States federal income tax rate of 34% due to the effect of operating losses in certain legal entities of the Company being offset by gains in other entities. The resulting consolidated effective tax rate is not necessarily representative of the effective tax rate in any of the individual tax entities of the Company. See Note 6 in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional detail regarding the Company’s policy for determining the provision for income taxes.

Nine Months Ended March 31, 2009 Compared to Nine Months Ended March 31, 2008

An unaudited, condensed overview of results for the nine months ended March 31, 2009, and the corresponding prior year period is summarized as follows:

Summary Income Statement by Segment
(Dollars in thousands)

		Nine Months Ended												Nine Months Ended
		March 31, 2009												March 31, 2008
		Specialty				Mass				Total				Specialty				Mass				Total
Net sales		$	51,600			$	67,827			$	119,427			$	49,726			$	48,742			$	98,468
Cost of goods sold			(35,816	)			(58,842	)			(94,658	)			(33,903	)			(39,829	)			(73,732	)
Gross profit			15,784				8,985				24,769				15,823				8,913				24,736
As a % of net sales			30.6	%			13.2	%			20.7	%			31.8	%			18.3	%			25.1	%
Selling, general and administrative			(14,514	)			(8,902	)			(23,416	)			(13,003	)			(6,363	)			(19,366	)
As a % of net sales			28.1	%			13.1	%			19.6	%			26.1	%			13.1	%			19.7	%
Depreciation and amortization			(598	)			(196	)			(794	)			(432	)			(196	)			(628	)
Total operating expenses			(15,112	)			(9,098	)			(24,210	)			(13,435	)			(6,559	)			(19,994	)
Income (loss) from operations		$	672			$	(113	)			559			$	2,388			$	2,354				4,742
Interest expense, net											(1,108	)											(1,144	)
Other income (expense)											(124	)											139
Income (loss) before income taxes and minority interest											(673	)											3,737
Income taxes (expense) / benefit											307												(929	)
Income (loss) before minority interest											(366	)											2,808
Minority interest											(443	)											(1,069	)
Net income (loss)										$	(809	)										$	1,739

Net Sales. Net sales for the Company increased $20,959,000 or 21% to $119,427,000 for the nine months ended March 31, 2009, from $98,464,000 for the nine months ended March 31, 2008. The increase is due to the acquisition of certain assets of Woodard, LLC, offset by declines in sales in historical Craftmade.

Net sales from the Specialty segment increased $1,874,000 or 4% to $51,600,000 for the nine months ended March 31, 2009, from $49,726,000 for the nine months ended March 31, 2008, as summarized in the following table.

Net Sales of the Speciality Segment
(Dollars in thousands)

		Fans				Woodard
		Lighting &				Outdoor				Segment
Nine Months Ended		Accessories				Furniture				Total
March 31, 2009		$	29,295			$	22,305			$	51,600
March 31, 2008			38,207				11,519				49,726
Dollar increase (decrease)		$	(8,912	)		$	10,786			$	1,874
Percent increase (decrease)			(23	%)			94	%			4	%

While the sales of fans and lighting-related products continue to be affected by the extremely weak overall housing market, a difficult credit environment and reduced consumer spending, overall segment sales increased due to the addition of outdoor furniture sales.

Management continues to focus on introducing new products and expanding accounts to offset the weak housing market and economic downturn. Management believes that long-term growth will be favorably affected by additional product offerings through enhanced product development efforts, as well as cross-selling outdoor furniture products to lighting showrooms and outdoor lighting and ceiling fans to patio dealers, and focusing efforts on the hospitality markets.

The net sales of Woodard outdoor furniture were higher due to the inclusion of nine full months of sales in fiscal 2009 versus only three months in the fiscal 2008 comparable period. Despite being affected by the weak economy, sales of outdoor furniture to patio dealers are seasonally higher during the third and fourth quarters of the Company’s fiscal year, with the first and second quarter being considered the off-season for outdoor furniture sales.

Net sales of the Mass segment increased $19,085,000 or 39% to $67,827,000 for the nine months ended March 31, 2009, from $48,742,000 for the nine months ended March 31, 2008, as summarized in the following table:

Net Sales of Mass Segment
(Dollars in thousands)

		Fans				Woodard
		Lighting &				Outdoor				Segment
Nine Months Ended		Accessories				Furniture				Total
March 31, 2009		$	19,053			$	48,774			$	67,827
March 31, 2008			24,415				24,327				48,742
Dollar increase (decrease)		$	(5,362	)		$	24,447			$	19,085
Percent increase (decrease)			(22	%)			100	%			39	%

The decrease in net sales of fans, lighting and accessories was primarily the result of a decline in: (i) orders from Lowe’s related to indoor lighting and outdoor lighting; (ii) non-core drop shipped products; (iii) sales of fan accessories; and (iv), sales of the mix and match portable lamps through Lowe’s.

Woodard sales were primarily comprised of sales to its various mass merchant customers. Most of its products are shipped directly from China. Due to the seasonal nature of outdoor furniture, the majority of sales to mass merchants occur from December to April each year. The net sales of Woodard outdoor furniture were higher due to the inclusion of nine full months of sales in fiscal 2009 versus only three months in the fiscal 2008 comparable period.

Based on the most recent annual product line reviews, management believes that Lowe’s plans to continue the respective programs it currently has with the Company. Management believes that, based on the amount of product currently shipped to Lowe’s, the Company remains a primary vendor for Lowe’s mix and match portable lamp and fan accessory/ceiling medallion programs. Management has no reason to believe that the Company will not continue to be invited to participate in each of Lowe’s scheduled reviews for its existing and new product lines. The line reviews occur on an annual basis for each product category throughout the year and give us the potential to add new SKUs to the Lowe’s program. However, participation in line reviews could also result in a partial or complete reduction of the existing SKUs in the product lines currently offered by the Company to Lowe’s.

While competitive pricing is essential in the Mass segment, management believes that future growth is contingent upon the success of the Company’s ongoing efforts to introduce new products, styles and marketing concepts to existing customers and the expansion of the business to new customers.

Gross Profit. Gross profit of the Company as a percentage of net sales decreased 4.4% to 20.7% for the nine months ended March 31, 2009, from 25.1% for the nine months ended March 31, 2008, primarily due to consolidated sales of Woodard products that carry a lower gross profit percentage than the Company’s historical operations, as well as a relative increase in the proportion of sales in the lower-margin Mass segment.

Gross profit as a percentage of net sales of the Specialty segment decreased 1.2% to 30.6% for the nine months ended March 31, 2009, from 31.8% in the nine months ended March 31, 2008. The decrease is summarized in the following table.

Gross Profit as a Percentage of Net Sales of Specialty Segment

		Fans				Woodard
		Lighting &				Outdoor				Segment
Nine Months Ended		Accessories				Furniture				Total
March 31, 2009			34.0	%			26.1	%			30.6	%
March 31, 2008			34.9	%			21.5	%			31.8	%
Percent increase (decrease)			(0.9	%)			4.5	%			(1.2	%)