<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported):
JULY 1, 1998
CRAFTMADE INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
State of Delaware 033-33594-FW 75-2057054
(STATE OF INCORPORATION) (COMMISSION FILE NO.) (IRS EMPLOYER IDENTIFICATION NO.)
650 S. Royal Lane, Suite 100, Coppell, Texas 75019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (972) 393-3800
Not Applicable
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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<PAGE> 2
On July 15, 1998, Craftmade International, Inc., a Delaware
corporation (the "Company"), filed a current report on Form 8-K reporting that
the Company acquired Trade Source International, Inc., a California corporation
("TSI"), pursuant to the merger of TSI with and into Trade Source International,
Inc., a Delaware corporation and a wholly-owned subsidiary of the Company. This
amendment to that report is filed for the purpose of presenting the financial
statements and pro forma financial information required by Item 7 of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
The financial statements required by 7(a) of Form 8-K with respect
to TSI are included in this report as Exhibit 99.8 hereto and incorporated by
reference herein.
(b) Pro forma financial information.
The pro forma financial information required by Item 7(b) with
respect to the acquisition of TSI is included in this report as Exhibit 99.9
hereto and incorporated by reference herein.
(c) Exhibits
2.1 Agreement and Plan of Merger, dated as of July 1,
1998, by and among Craftmade International, Inc.,
Trade Source International, Inc., a Delaware
corporation, Neall and Leslie Humphrey, John DeBlois,
the Wiley Family Trust, James Bezzerides, the Bezzco
Inc. Employee Retirement Trust and Trade Source
International, Inc., a California corporation, filed
as Exhibit 2.1 to the Company's Current Report on
Form 8-K (File No. 33-33594-FW) and incorporated by
reference herein.
4.1 Certificate of Incorporation of the Company, filed as
Exhibit 3(a)(2) to the Company's Post Effective
Amendment No. 1 to Form S-18 (File No. 33-33594-FW)
and incorporated by reference herein.
4.2 Certificate of Amendment of Certificate of
Incorporation of the Company, dated March 24, 1992
and filed as Exhibit 4.2 to the Company's Form S-8
(File No. 333-44337) and incorporated by reference
herein.
4.3 Amended and Restated Bylaws of the Company, filed as
Exhibit 3(b)(2) to the Company's Post Effective
Amendment No. 1 to Form S-18 (File No. 33-33594-FW)
and incorporated by reference herein.
4.4 Specimen Common Stock Certificate, filed as Exhibit
4(a) to the Company's Registration Statement on Form
S-18 (File No. 33-33594-FW) and incorporated by
reference herein.
23.1* Consent of Campbell, Benn & Taylor.
2
<PAGE> 3
99.1 Voting Agreement, dated July 1, 1998, by and among
James R. Ridings, Neall Humphrey and John DeBlois,
filed as Exhibit 2.1 to the Company's Current Report
on Form 8-K (File No. 33-33594-FW) and incorporated
by reference herein.
99.2 Third Amendment to Credit Agreement, dated July 1,
1998, by and among Craftmade International, Inc., a
Delaware corporation, Trade Source International,
Inc., a Delaware corporation, Chase Bank of Texas,
National Association (formerly named Texas Commerce
Bank, National Association) and Frost National Bank
(formerly named Overton Bank and Trust), filed as
Exhibit 2.1 to the Company's Current Report on Form
8-K (File No. 33- 33594-FW) and incorporated by
reference herein.
99.3 Consent to Merger by Chase Bank of Texas, National
Association and Frost National Bank, filed as Exhibit
2.1 to the Company's Current Report on Form 8-K (File
No. 33-33594-FW) and incorporated by reference
herein.
99.4 Employment Agreement, dated July 1, 1998, by and
among Craftmade International, Inc., Trade Source
International, Inc., a Delaware corporation, and
Neall Humphrey, filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K (File No. 33-33594-FW) and
incorporated by reference herein.
99.5 Employment Agreement, dated July 1, 1998, by and
among Craftmade International, Inc., Trade Source
International, Inc., a Delaware corporation, and
Leslie Humphrey, filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K (File No.
33-33594-FW) and incorporated by reference herein.
99.6 Employment Agreement, dated July 1, 1998, by and
among Craftmade International, Inc., Trade Source
International, Inc., a Delaware corporation, and John
DeBlois, filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K (File No. 33-33594-FW) and
incorporated by reference herein.
99.7 Registration Rights Agreement, dated July 1, 1998, by
and among Craftmade International, Inc., Neall and
Leslie Humphrey and John DeBlois, filed as Exhibit
2.1 to the Company's Current Report on Form 8-K (File
No. 33- 33594-FW) and incorporated by reference
herein.
99.8* Audited consolidated financial statements of Trade
Source International, Inc., as of December 31, 1997,
and for the year then ended related footnotes and
the independent auditor's report thereon.
Unaudited condensed consolidated balance sheet
of Trade Source International, Inc., as of June 30,
1998, condensed consolidated statements of income and
of cash flows for the six months then ended and
related footnotes.
99.9* Unaudited proforma consolidated balance sheet of
Craftmade International, Inc., as of June 30, 1998,
unaudited proforma consolidated statement of income
for the year then ended and related footnotes.
- -------------------
* Filed herewith.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
CRAFTMADE INTERNATIONAL, INC.
Date: September 14, 1998 By: /s/ James R. Ridings
---------------------
Name: James R. Ridings
Title: President and Chief Executive
Officer
4
<PAGE> 5
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of July 1, 1998, by and among
Craftmade International, Inc., Trade Source International, Inc., a Delaware
corporation, Neall and Leslie Humphrey, John DeBlois, the Wiley Family
Trust, James Bezzerides, the Bezzco Inc. Employee Retirement Trust and Trade
Source International, Inc., a California corporation, filed as Exhibit 2.1
to the Company's Current Report on Form 8-K (File No. 33-33594-FW) and
incorporated by reference herein.
4.1 Certificate of Incorporation of the Company, filed as Exhibit 3(a)(2) to the
Company's Post Effective Amendment No. 1 to Form S-18 (File No. 33-33594-FW)
and incorporated by reference herein.
4.2 Certificate of Amendment of Certificate of Incorporation of the Company,
dated March 24, 1992 and filed as Exhibit 4.2 to the Company's Form S-8
(File No. 333-44337) and incorporated by reference herein.
4.3 Amended and Restated Bylaws of the Company, filed as Exhibit 3(b)(2) to the
Company's Post Effective Amendment No. 1 to Form S-18 (File No. 33-33594-FW)
and incorporated by reference herein.
4.4 Specimen Common Stock Certificate, filed as Exhibit 4(a) to the Company's
Registration Statement on Form S-18 (File No. 33-33594-FW) and incorporated
by reference herein.
23.1* Consent of Campbell, Benn & Taylor.
99.1 Voting Agreement, dated July 1, 1998, by and among James R. Ridings, Neall
Humphrey and John DeBlois, filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K (File No. 33-33594-FW) and incorporated by reference
herein.
99.2 Third Amendment to Credit Agreement, dated July 1, 1998, by and among
Craftmade International, Inc., a Delaware corporation, Trade Source
International, Inc., a Delaware corporation, Chase Bank of Texas, National
Association (formerly named Texas Commerce Bank, National Association) and
Frost National Bank (formerly named Overton Bank and Trust), filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K (File No. 33-33594-
FW) and incorporated by reference herein.
99.3 Consent to Merger by Chase Bank of Texas, National Association and Frost
National Bank, filed as Exhibit 2.1 to the Company's Current Report on Form
8-K (File No. 33-33594-FW) and incorporated by reference herein.
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
99.4 Employment Agreement, dated July 1, 1998, by and among Craftmade
International, Inc., Trade Source International, Inc., a Delaware
corporation, and Neall Humphrey, filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K (File No. 33-33594-FW) and incorporated by
reference herein.
99.5 Employment Agreement, dated July 1, 1998, by and among Craftmade
International, Inc., Trade Source International, Inc., a Delaware
corporation, and Leslie Humphrey, filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K (File No. 33-33594-FW) and incorporated by
reference herein.
99.6 Employment Agreement, dated July 1, 1998, by and among Craftmade
International, Inc., Trade Source International, Inc., a Delaware
corporation, and John DeBlois, filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K (File No. 33-33594-FW) and incorporated by reference
herein.
99.7 Registration Rights Agreement, dated July 1, 1998, by and among Craftmade
International, Inc., Neall and Leslie Humphrey and John DeBlois, filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K (File No. 33-33594-
FW) and incorporated by reference herein.
99.8* Audited consolidated financial statements of Trade Source International,
Inc., as of December 31, 1997, and for the year then ended, related
footnotes and the independent auditor's report thereon.
Unaudited condensed consolidated balance sheet of Trade Source
International, Inc., as of June 30, 1998, condensed consolidated statements
of income and of cash flows for the six months then ended and related
footnotes.
99.9* Unaudited pro forma consolidated balance sheet of Craftmade International,
Inc., as of June 30, 1998, unaudited proforma consolidated statement of
income for the year then ended and related footnotes.
</TABLE>
- -------------------
* Filed herewith.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Form 8-K of Craftmade International, Inc. of our
report dated February 13, 1998.
/s/ CAMPBELL, BENN & TAYLOR
Sacramento, California
September 11, 1998
<PAGE> 1
EXHIBIT 99.8
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Trade Source International, Inc.
El Dorado Hills, California
We have audited the accompanying consolidated balance sheet of Trade Source
International, Inc.(a California corporation) as of December 31, 1997 and the
related consolidated statements of income, retained earnings, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Trade Source
International, Inc. and subsidiaries as of December 31, 1997 and the results of
their operations and cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Campbell, Benn & Taylor
An Accountancy Corporation
February 13, 1998
Sacramento, California
1
<PAGE> 2
TRADE SOURCE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1997
<TABLE>
ASSETS
<S> <C>
Current Assets:
Cash $ 219,662
Accounts receivable:
Trade, less allowance of $20,444 for doubtful accounts - Note 3 3,817,794
Other 6,319
Inventories - Note 3 3,045,737
Prepaid expenses and other current assets 202,379
Prepaid income taxes --
Deferred taxes 56,586
----------
Total current assets 7,348,477
Deferred taxes 46,803
Property and equipment, net - Notes 2 and 4 766,681
----------
$8,161,961
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Cash overdraft $ 218,599
Line of credit - Note 3 637,661
Accounts payable 1,751,870
Accrued payroll and profit sharing 189,400
Accrued expenses 249,417
Income taxes payable 131,746
Current portion of long-term debt 17,496
----------
Total current liabilities 3,196,189
Long-term debt, net of current portion - Note 4 205,901
----------
Total liabilities 3,402,090
----------
Commitments and contingencies - Note 5
Shareholders' Equity:
Common stock, no par value, 50,000 shares authorized, 1,343
shares issued and outstanding 145,165
Retained earnings 4,614,706
----------
Total shareholders' equity 4,759,871
----------
$8,161,961
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
TRADE SOURCE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME
For The Year Ended December 31, 1997
<TABLE>
<S> <C>
Net sales $ 24,669,618
Cost of sales 18,718,531
------------
Gross profit 5,951,087
------------
Operating expenses:
Sales and marketing expenses 338,014
General and administrative expenses 3,572,787
------------
Total operating expenses 3,910,801
------------
Income from operations 2,040,286
------------
Other income (expense):
Interest income 15,274
Interest expense (219,948)
Other 8,681
------------
Total other income (expense) (195,993)
------------
Income before provision for income taxes 1,844,293
Provision for income taxes 604,653
------------
Net income $ 1,239,640
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
TRADE SOURCE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For The Year Ended December 31, 1997
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------
Retained
Shares Amount Earnings Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 11,343 $ 155,165 $ 3,658,416 $ 3,813,581
Distribution of TSI Prime common stock
and retained earnings to stockholders (10,000) (10,000) (283,350) (293,350)
Net income -- -- 1,239,640 1,239,640
----------- ----------- ----------- -----------
Balance, December 31, 1997 1,343 $ 145,165 $ 4,614,706 $ 4,759,871
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
TRADE SOURCE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Year Ended December 31, 1997
<TABLE>
<S> <C>
Net income $ 1,239,640
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 60,609
Net changes in:
Accounts receivable (1,254,365)
Inventories 312,280
Prepaid expenses and other current assets (139,693)
Accounts payable 156,813
Accrued expenses 104,454
Current and deferred income taxes payable 177,944
-----------
Net cash provided by operating activities 657,682
-----------
Cash Flows From Investing Activities:
Proceeds from sales of fixed assets 2,500
Capital expenditures (112,851)
-----------
Net cash used for investing activities (110,351)
-----------
Cash Flows From Financing Activities:
Increase in cash overdraft 218,599
Net payments on line-of-credit (1,183,780)
Payments to shareholders for dissolution of TSI Prime (293,350)
Principal payments on long-term debt (1,773)
-----------
Net cash used for financing activities (1,260,304)
-----------
Net decrease in cash (712,973)
Cash, beginning of year 932,635
===========
Cash, end of year $ 219,662
===========
Cash paid for interest $ 219,948
Cash paid for income taxes $ 389,559
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
TRADE SOURCE INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Trade Source International, Inc. (the "Company") was incorporated in
the State of California in 1984. The Company is a distributor of
residential interior and exterior lighting fixtures and ceiling fan
accessories, primarily to retail outlets and dealers.
The 1997 consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Elitex Development, Ltd.,
and TSI Prime Asia, Ltd. The Company dissolved TSI Prime, a former
subsidiary, and distributed the remaining assets to the shareholders in
1997. Significant intercompany accounts and transactions have been
eliminated in consolidation.
The following is a summary of significant accounting policies:
CASH
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents. The Company
maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. The Company also maintains accounts in banks
located in foreign countries which are not federally insured. The
Company has not experienced any loss in such accounts and believes it
is not exposed to any significant cash risk.
INVENTORIES
Inventories, consisting entirely of finished goods, are stated at the
lower of cost, determined on a weighted average method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line method over the
estimated useful lives of the assets which range from 5 to 40 Years.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes. Deferred taxes are recognized for differences between
the basis of assets and liabilities for financial statement and income
tax purposes. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either
be taxable or deductible when the assets and liabilities are recovered
or settled. Deferred taxes also are recognized for operating losses and
tax credits that are available to offset future taxable income.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.
SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company sells its products to customers located throughout the
United States. Five customers accounted for 22%, 19%, 12%, 10%, and 10%
of total sales. At December 31, 1997, accounts receivable were due from
two major customers representing 15% and 10% of total accounts
receivable. The Company performs ongoing credit evaluations of its
customer's financial condition and generally does not require
collateral. Management believes that an adequate allowance for doubtful
accounts has been provided.
6
<PAGE> 7
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MAJOR SUPPLIERS
The Company imports most of its products. Products purchased from one
supplier were approximately 28% of purchases for the year ended
December 31, 1997.
REVENUE RECOGNITION
The Company recognizes revenue at the time of shipment to the customer,
net of allowances for estimated future returns.
ESTIMATES AND ASSUMPTIONS IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2: PROPERTY AND EQUIPMENT
At December 31, 1997 property and equipment consisted of the following:
<TABLE>
<S> <C>
Land $ 86,801
Buildings 616,239
Equipment and vehicles 403,112
Furniture and fixtures 100,675
-----------
1,206,827
Less accumulated depreciation (440,146)
-----------
$ 766,681
===========
</TABLE>
Depreciation expense for the year ended December 31, 1997 was $60,609.
NOTE 3: LINE OF CREDIT
The Company has a $4,500,000 revolving credit agreement with a bank
which expires in May 1998. Borrowings bear interest at the prime rate
(8.5% at December 31, 1997) and are collateralized by accounts
receivable and inventory. At December 31, 1997, $637,661 was
outstanding under this agreement. The agreement contains certain
restrictive covenants which, among other things, require the Company to
maintain specified levels of working capital, debt to equity, and
profitability.
7
<PAGE> 8
NOTE 4: NOTE PAYABLE
The Company has a note payable to the U.S. Small Business
Administration ("SBA") loan which bears interest at 9.7%, principal
payments of $1,458 plus interest are due monthly through May 2010. The
SBA loan is personally guaranteed by certain shareholders and is
collateralized by land and buildings with a net book value of $579,793
at December 31, 1997. Principal maturities are due as follows:
<TABLE>
<S> <C>
1998 $ 17,496
1999 17,496
2000 17,496
2001 17,496
2002 17,496
Thereafter 135,917
---------
Total $ 223,397
=========
</TABLE>
NOTE 5: LEASE COMMITMENTS
The Company leases certain facilities under non-cancelable operating
leases. Rent expense of $293,728 was charged to operations during the
year ended December 31, 1997.
Future minimum rental commitments under non-cancelable leases as of
December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998 $ 283,029
1999 18,000
-----------
$ 301,029
-----------
</TABLE>
NOTE 6: INCOME TAXES
Income from operations before provision for income taxes at December
31, 1997 consisted of:
<TABLE>
<S> <C>
U.S. Income $ 1,180,661
Non U.S. Income 663,632
-----------
$ 1,844,293
===========
</TABLE>
The provision for income taxes consisted of the following for the year
ended December 31, 1997:
<TABLE>
<S> <C>
Currently payable:
Foreign $ 112,745
Federal 470,502
State 117,786
---------
701,033
---------
Deferred income taxes:
Federal (93,889)
State (2,491)
---------
(96,380)
---------
Total provision for income taxes $ 604,653
=========
</TABLE>
8
<PAGE> 9
NOTE 6: INCOME TAXES (CONTINUED)
The following table summarizes the significant differences between the
U.S. Federal statutory tax rate and the Company's effective tax rate
for financial statements purposes.
<TABLE>
<S> <C>
Statutory tax rate 34.0%
State and local taxes, net of Federal benefit 4.1%
Non U.S. income (12.2)%
Non U.S. taxes 6.1 %
Other .8%
---------------
Effective tax rate 32.8%
</TABLE>
Deferred tax assets at December 31, 1997 consist of the following
temporary tax differences:
<TABLE>
<S> <C>
Description
Allowance for doubtful accounts $ 7,321
Inventory 41,946
Depreciation 46,803
State tax deduction 7,319
-------------
$ 103,389
=============
</TABLE>
NOTE 7: PROFIT SHARING PLAN
The Company has a profit sharing plan for certain eligible employees.
The Company may make discretionary contributions to the Plan. During
the year ended December 31, 1997, the Company's contribution expense
was $120,000.
NOTE 8: EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITORS'
REPORT
On July 1, 1998, the Company was acquired by Craftmade International,
Inc. All of the Company's stock was purchased from shareholders for
cash of $3,621,050 and 655,907 shares of Craftmade common stock.
9
<PAGE> 10
TRADE SOURCE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1998
------------
<S> <C>
Net Sales $ 16,164,871
Cost of sales 13,478,083
------------
Gross profit 2,686,788
------------
Operating expenses:
Sales and marketing expenses 208,763
General and administrative expenses 1,628,050
------------
Total operating expenses 1,836,813
------------
Income from operations 849,975
------------
Other income (expense):
Interest expense, net (20,596)
Equity in income of 50% owned subsidiary 511,761
Other (174,054)
------------
Total other income 317,111
------------
Income before provision for income taxes 1,167,086
Provision for income taxes 420,151
------------
Net Income $ 746,935
============
</TABLE>
10
<PAGE> 11
TRADE SOURCE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
ASSETS
Current assets:
Cash $ 1,663,885
Accounts receivable:
Trade, less allowance for doubtful accounts of $200,433 5,332,577
Other 417,741
Inventories 2,522,262
Prepaid expenses and other 534,710
------------
Total current assets 10,471,175
Property and equipment, net 296,075
Equity investment in 50% owned subsidiary 161,282
------------
$ 10,928,532
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 906,535
Accounts payable 3,355,247
Income taxes payable 491,937
Accrued expenses 665,422
------------
Total current liabilities 5,419,141
------------
Shareholders' equity:
Common stock, no par value, 50,000 shares authorized,
1,343 shares issued and outstanding 92,337
Additional paid-in capital 55,413
Retained earnings 5,361,641
------------
Total shareholders' equity 5,509,391
------------
Commitments and contingencies
$ 10,928,532
============
</TABLE>
11
<PAGE> 12
TRADE SOURCE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1998
------------
<S> <C>
Net cash provided by operating activities $ 1,188,130
------------
Cash flows from investing activities:
Proceeds from sale of land and building 100,000
Capital expenditures (111,374)
------------
Net cash provided by investing activities (11,374)
------------
Cash flows from financing activities:
Net proceeds from line of credit 267,467
------------
Net increase in cash 1,444,223
Cash at beginning of period 219,662
------------
Cash at end of period $ 1,663,885
============
Supplemental disclosures of cash flow information:
Cash paid during the six months for:
Interest $ 56,765
============
Income taxes $ 59,960
============
</TABLE>
12
<PAGE> 13
TRADE SOURCE INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Preparation and Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission 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 TSI and its subsidiaries. Certain information
and footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. TSI believes that the
disclosures are adequate to make the information presented not misleading. The
financial data for the interim period may not necessarily be indicative of
results to be expected for the year.
Note 2 - 50% Owned Subsidiary
In January 1998, TSI entered into an agreement to purchase 50% of the issued and
outstanding shares of common stock of Prime Home Impressions LLC ("PHI") for
$10,000. PHI is a wholesale distributor of ceiling fan accessories. TSI
accounts for its investment on an equity basis. Thus, TSI's equity in the net
income of PHI was $511,761 and has been reflected in the accompanying unaudited
condensed consolidated statement of income. Summary details of PHI's operating
results for the six months ended June 30, 1998 are as follows:
Net sales $4,630,585
Cost of sales 3,499,107
----------
Gross profit 1,131,478
Selling, general
and administrative 107,957
----------
Net income $1,023,521
==========
Note 3 - Disposition of Assets
On June 30, 1998, TSI sold its land and office building to a then majority
shareholder of TSI. This transaction resulted in a loss on the disposition of
the building of $227,925 and is reflected in the accompanying condensed
consolidated statement of income for the six months ended June 30, 1998.
13
<PAGE> 1
EXHIBIT 99.9
CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial statements
have been prepared to give effect to the plan of merger with Trade Source
International, Inc., a California corporation, ("TSI - California"), using the
purchase method of accounting. Craftmade International, Inc. (the "Company")
acquired TSI - California from its existing shareholders and merged it into the
Company's wholly owned subsidiary, Trade Source International, Inc., a Delaware
corporation ("TSI - Delaware"). The total consideration given consisted of cash
of $3,621,050 and 655,907 shares of the Company's common stock, representing a
value of $7,378,950. The cash consideration was funded by additional borrowings
under the Company's line of credit.
The unaudited pro forma consolidated balance sheet as of June 30, 1998 reflects
the historical accounts of the Company as of that date, adjusted to give pro
forma effect to the acquisition of TSI - California as if the transaction had
occurred as of June 30, 1998.
The unaudited pro forma consolidated statement of income for the year ended June
30, 1998 reflects the historical accounts of the Company for such period,
adjusted to give pro forma effect to the acquisition of TSI - California as if
the transaction had occurred at the beginning of the period presented. The TSI
unaudited statement of income, for the year ended June 30, 1998, was prepared by
combining the audited results of operations of TSI - California for the year
ended December 31, 1997 and the unaudited results of operations of TSI -
California for the six months ended June 30, 1998 and subtracting the unaudited
results of operations of TSI - California for the six months ended June 30,
1997.
The pro forma financial information and the accompanying notes should be read in
conjunction with the description of the plan of merger filed with the Form 8-K
on July 15, 1998, the Company's Consolidated Financial Statements and related
footnotes as of and for the year ended June 30, 1998 included in the Company's
Form 10- K filed with the Securities and Exchange Commission and TSI's audited
consolidated financial statements and related footnotes as of and for the year
ended December 31, 1997 and TSI's unaudited condensed consolidated balance sheet
and condensed consolidated statements of income and of cash flows and related
footnotes as of and for the six months ended June 30, 1998, included herein. The
Company believes that the assumptions used in the following information provide
a reasonable basis on which to present the pro forma financial information. The
pro forma financial information is presented for illustrative purposes only and
are not necessarily indicative of the financial position or results of
operations which would have actually been reported had the acquisition been
consummated at the beginning of the period presented, or which may be reported
in the future.
1
<PAGE> 2
CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL PRO
CII (1) TSI (2) ADJUSTMENTS FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 40,902,587 $ 26,853,078 $ 0 $ 67,755,665
Cost of sales 24,577,950 21,160,786 0 45,738,736
------------ ------------ ------------ ------------
Gross profit 16,324,637 5,692,292 0 22,016,929
Selling, general and administrative 10,060,750 4,139,535 0 14,200,285
Depreciation and amortization 493,198 66,763 372,933 (3) 932,894
------------ ------------ ------------ ------------
Operating profit (loss) 5,770,689 1,485,994 (372,933) 6,883,750
------------ ------------ ------------ ------------
Other (income) expense:
Interest expense, net 1,231,169 114,315 253,474 (4) 1,598,958
Equity in income of 50% owned subsidiary 0 (511,761) 0 (511,761)
Other (240,145) 171,898 0 (68,247)
------------ ------------ ------------ ------------
Total other (income) expense 991,024 (225,548) 253,474 1,018,950
------------ ------------ ------------ ------------
Income before provision for income taxes 4,779,665 1,711,542 (626,407) 5,864,800
Provision for income taxes 1,733,221 601,547 (223,440)(5) 2,111,328
------------ ------------ ------------ ------------
Net Income $ 3,046,444 $ 1,109,995 $ (402,967) $ 3,753,472
============ ============ ============ ============
Basic and diluted earnings per share $ 0.70 $ 0.75
============ ============
Weighted average shares outstanding:
Basic 4,362,718 5,018,625 (6)
============ ============
Diluted 4,371,597 5,027,504 (6)
============ ============
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements
2
<PAGE> 3
CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL PRO FORMA PRO
CII (1) TSI ADJUSTMENTS FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 924,541 $ 1,663,885(8) $ $ 2,588,426
Accounts receivable, net 7,562,404 5,750,318(8) (185,753)(8),(9) 13,126,969
Inventories 9,508,290 2,522,262(8) 12,030,552
Deferred income taxes 475,731 103,389 (103,389)(9) 475,731
Prepaid expenses 502,432 431,321(8) 933,753
------------ ------------ ------------ ------------
Total current assets 18,973,398 10,471,175 (289,142) 29,155,431
Property and equipment, net 9,306,318 296,075(8) 9,602,393
Goodwill -- 5,593,998 (8) 5,593,998
Investments in subsidiaries 161,282(8) 161,282
Other 78,044 -- 78,044
------------ ------------ ------------ ------------
$ 28,357,760 $ 10,928,532 $ 5,304,856 $ 44,591,148
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable, current $ 679,369 $ -- $ 679,369
Line of credit 7,000,000 906,535(8) 3,621,051 (7) 11,527,586
Accounts and commissions payable 497,806 3,355,247(8) (185,753)(8) 3,667,300
Income taxes payable 366,997 491,937(8) 858,934
Accrued expenses 293,151 665,422(8) 958,573
------------ ------------ ------------ ------------
Total current liabilities 8,837,323 5,419,141 3,435,298 17,691,762
Deferred income taxes 106,171 -- 106,171
Note payable, long-term 6,076,581 -- 6,076,581
------------ ------------ ------------ ------------
Total liabilities 15,020,075 5,419,141 3,435,298 23,874,514
------------ ------------ ------------ ------------
Shareholders' equity:
Preferred stock 32,000 -- 32,000
Common stock 61,970 92,337 (85,778)(7),(9) 68,529
Additional paid-in capital 7,210,333 55,413 5,152,484 (7),(9) 12,418,230
Retained earnings 13,912,831 5,361,641 (5,361,641)(9) 13,912,831
Treasury stock (7,879,449) -- 2,164,493 (7) (5,714,956)
------------ ------------ ------------ ------------
Total shareholders' equity 13,337,685 5,509,391 1,869,558 20,716,634
------------ ------------ ------------ ------------
$ 28,357,760 $ 10,928,532 $ 5,304,856 $ 44,591,148
============ ============ ============ ============
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements
3
<PAGE> 4
FOOTNOTES
(1) Actual CII reflects the financial position and results of operations
of the Company as of and for the year ended June 30, 1998.
(2) TSI results of operations for the year ended June 30, 1998 reflect
the actual results of operations for the year ended December 31,
1997 and the unaudited results of operations for the six months
ended June 30, 1998 less the unaudited results of operations for the
six months ended June 30, 1997.
(3) Reflects additional amortization associated with goodwill of
$5,593,998 resulting from the purchase of TSI. The goodwill has a 15
year life.
(4) Reflects the increase in interest expense, using 7%, based on the
borrowing of $3,621,051 under the Company's line of credit to fund
the cash portion of the purchase price.
(5) Reflects the estimated income tax effect of adjustments (3) and (4)
described above.
(6) The pro forma basic and diluted earnings per share were calculated
assuming that the 655,907 shares issued in connection with the
acquisition of TSI were outstanding from the beginning of the period
presented.
(7) Reflects the purchase price of TSI consisting of the following:
$3,621,051 in cash derived from additional borrowings under the
Company's line of credit, bearing interest at 7%, and 655,907 shares
valued at $11.25 per share.
(8) Reflects the estimated allocation of the TSI purchase price based on
the estimated fair value of the assets and liabilities acquired. The
purchase price allocation consists of the following:
<TABLE>
<S> <C>
Working capital $ 4,948,645
Fixed and other assets 457,357
Goodwill 5,593,998
------------
$ 11,000,000
============
</TABLE>
(9) Elimination of certain intercompany balances, deferred taxes and the
equity of TSI at June 30, 1998.
4
