856250--9/26/2008--CRAFTMADE_INTERNATIONAL

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{customer, product, revenue}

{operation, international, foreign}

{acquisition, growth, future}

{regulation, change, law}

{cost, operation, labor}

{product, liability, claim}

{stock, price, operating}

{system, service, information}

{condition, economic, financial}

{product, market, service}

{competitive, industry, competition}

{personnel, key, retain}

{debt, indebtedness, cash}

{gas, price, oil}

{tax, income, asset}

Strategic Risks and Strategy Execution Risks The industries we operate in are highly competitive, and we may not be able to compete successfully. If we fail to gain customer acceptance of our existing and new products, our operating results could suffer. Our failure in pursuing or executing any of our new business ventures, strategic alliances and acquisitions could have a material adverse impact on our business. Our revenues depend on our relationships with capable sales personnel as well as key customers, vendors, and manufacturers of the products that we distribute to our customers. Our future success is substantially dependent upon our senior management and retention of key personnel. Risks Associated with International Trade As we do not manufacture most of the products that we distribute, we are dependent upon third parties for the manufacture and supply of high quality competitive products on a timely basis. Risks Related to Profitable Growth A decline in general economic condition, particularly the housing, home construction, and remodel sectors, could lead to reduced demand for our products. The loss of certain of our customers that represent a significant percentage of our net sales could adversely affect our results of operations. Our mass merchandise customers may pressure us to lower our prices or take other actions that may adversely impact our results of operations. Our mass merchandise customers may choose to directly source many of the products we currently provide. To the extent our mass merchandiser customers purchase products in excess of consumer consumption in any period, our net sales in a subsequent period may be adversely affected as mass merchandisers seek to reduce their inventory levels. Increases in our shipping costs or service trouble with our third-party shippers could harm our business. We experience fluctuations in our quarterly earnings. As a result, we may fail to meet or exceed the expectations of securities analysts and investors, which could cause our stock price to decline or be highly volatile. Our common stock may be affected by limited trading volume and price fluctuations, each of which could adversely impact the value of our common stock. Our inability to meet financial covenants contained in our credit facilities could adversely impact our ability to fund our operations. We are exposed to the risk of an increase in interest rates. We are exposed to the risk of foreign currency appreciation. Risks Associated with Dependence on Technology We rely heavily on our management information systems for manufacturing, inventory management, distribution and other functions. If our systems fail to perform these functions adequately or if we experience an interruption in our operations, we could be materially adversely affected. Tax legislation initiatives could adversely affect our net earnings and tax liabilities. We are subject to increasingly complex corporate governance, public disclosure, accounting, and tax requirements that have increased our costs and the risk of our not being in compliance with these requirements. Recent changes in accounting rules, including the expensing of stock options granted to our employees, could have a material impact on our reported business and financial results. Employees could seek coverage under collective bargaining agreements, and drive significant increases in salaries and benefits. We are subject to inflation in labor costs if economic conditions impact prevailing wages in the geographic regions in which we operate. Risks Associated with Insurance / Product Liability Failure or flaws in our products could lead to product liability claims and payment of associated financial damages or penalties. Risks Associated with Balancing Inventory The Company could suffer financial losses due to carrying excessive inventory, or conversely due to having insufficient inventory on hand to meet the needs of our customers.

Full 10-K form ▸

856250--9/26/2008--CRAFTMADE_INTERNATIONAL_INC