UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-Q

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended November 30, 2008oro

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


Commission File Number 0-22183



MEADE INSTRUMENTS CORP.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction
of incorporation or organization)

95-2988062(I.R.S. Employer
Identification No.)6001 Oak Canyon, Irvine, CA(Address of principal executive offices)

92618(Zip Code)(949) 451-1450(Registrant's telephone number, including area code)


Indicate
by check mark if 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 ý No o

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of
"large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934.

Non-accelerated filer o

Large Accelerated filer o

Accelerated filer o

Smaller reporting company ý


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

As of January 16, 2009, there were 23,376,570 outstanding shares of the Registrant's common stock, par value $0.01 per share.



---





MEADE INSTRUMENTS CORP.    REPORT ON FORM 10-Q FOR THE QUARTER ENDED    NOVEMBER 30, 2008    TABLE OF CONTENTS

Page No.PART IFINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets (Unaudited)November 30, 2008 and February 29, 2008


2Consolidated Statements of Operations (Unaudited)Three and Nine Months Ended November 30, 2008 and 2007


3Consolidated Statements of Cash Flows (Unaudited)Nine Months Ended November 30, 2008 and 2007


4Notes to Consolidated Financial Statements (Unaudited)


5Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


16Item 3. Controls and Procedures


25PART IIOTHER INFORMATIONItem 1. Legal Proceedings


26Item 1A. Risk Factors


26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


26Item 3. Defaults Upon Senior Securities


26Item 4. Submission of Matters to a Vote of Security Holders


26Item 5. Other Information


26Item 6. Exhibits


26Signatures


27


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ITEM 1.    FINANCIAL STATEMENTS.

MEADE INSTRUMENTS CORP.        CONSOLIDATED BALANCE SHEETS(In Thousands, except per share data)(Unaudited)

November 30,
2008

February 29,
2008ASSETSCurrent assets:Cash

$
354

$
4,301Accounts receivable, less allowance for doubtful accounts of $537 at November 30, 2008, and $607 at February 29, 2008, respectively


18,539


8,424Inventories


16,249


22,659Prepaid expenses and other current assets


530


556Total current assets


35,672


35,940Goodwill


1,548


1,548Acquisition-related intangible assets, net


1,356


4,346Property and equipment, net


3,046


3,717Other assets, net


188


241$
41,810

$
45,792LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Bank lines of credit

$
5,967

$
5,877Accounts payable


7,150


6,650Accrued liabilities


5,376


5,770Accrued lease termination fee


1,200


Income taxes payable


838


450Current portion of long-term debt and capital lease obligations


174


213Total current liabilities


20,705


18,960Long-term debt and capital lease obligations


480


936Deferred income taxes


379


1,258Deferred rent


174


42Commitments and contingenciesStockholders' equity:Common stock; $0.01 par value; 50,000 shares authorized; 23,377 and 23,316 shares issued and outstanding at November 30, 2008 and February 29, 2008, respectively


233


233Additional paid-in capital


51,176


51,283Retained deficit


(31,880
)

(28,828
)Deferred stock compensation


(84
)

(93
)Accumulated other comprehensive income


627


2,70820,072


25,303Unearned ESOP shares





(707
)Total stockholders' equity


20,072


24,596$
41,810

$
45,792


See
accompanying notes to consolidated financial statements

2

---





MEADE INSTRUMENTS CORP.        CONSOLIDATED STATEMENTS OF OPERATIONS(In Thousands, expect per share data)(Unaudited)

Three Months Ended
November 30,

Nine Months Ended
November 30,2008

2007

2008

2007Net sales

$
23,429

$
51,441

$
47,963

$
85,256Cost of sales


17,910


42,789


37,289


72,477Gross profit


5,519


8,652


10,674


12,779Selling expenses


2,363


5,001


6,320


10,169General and administrative expenses


3,156


2,383


9,316


7,932Loss (Gain) on brand sales


62





(5,203
)

ESOP contribution expense





57


179


192Restructuring Costs


1,548


365


1,548


365Research and development expenses


441


437


1,301


1,446Operating income (loss)


(2,051
)

409


(2,787
)

(7,325
)Interest expense


85


555


203


880Loss before income taxes


(2,136
)

(146
)

(2,990
)

(8,205
)Income tax expense


654


1,476


62


1,638Net loss

$
(2,790
)
$
(1,622
)
$
(3,052
)
$
(9,843
)Net loss per sharebasic and diluted

$
(0.12
)
$
(0.07
)
$
(0.13
)
$
(0.47
)Weighted average number of shares outstandingbasic and diluted


23,377


22,973


23,360


20,916


See
accompanying notes to consolidated financial statements

3

---





MEADE INSTRUMENTS CORP.        CONSOLIDATED STATEMENTS OF CASH FLOWS(In Thousands)(Unaudited)

Nine Months Ended
November 30,2008

2007Cash flows from operating activities:Net loss

$
(3,052
)
$
(9,843
)Adjustments to reconcile net loss to net cash used in operating activities:Gain on brand sales


(5,203
)

Inventory impairment





3,376Gain on sale of fixed assets





24Depreciation and amortization expense


836


1,186ESOP contribution


179


192Change in allowance for doubtful accounts


70


(594
)Deferred income taxes


(762
)

(246
)Stock-based compensation


421


411Deferred rent amortization


132


(151
)Changes in assets and liabilities:Increase in accounts receivable


(12,660
)

(23,592
)Increase in inventories


(1,421
)

(2,525
)Increase in prepaid expenses and other assets


(49
)

(397
)Increase in accounts payable


729


4,530Decrease in accrued liabilities


(1,033
)

(1,978
)Increase in accrued lease termination fee


1,200


Increase (decrease) in income taxes payable


388


(4
)Net cash used in operating activities


(20,225
)

(29,611
)Cash flows from investing activities:Proceeds from brand sales


15,250


Capital expenditures


(387
)

(490
)Net cash provided by (used in) investing activities


14,863


(490
)Cash flows from financing activities:Net proceeds from stock offering





5,855Net borrowings under bank lines of credit


1,261


20,575Payments on long-term bank notes


(369
)

(343
)Payments under capital lease obligations


(6
)

(17
)Net cash provided by financing activities


886


26,070Effect of exchange rate changes on cash


529


173Net decrease in cash


(3,947
)

(3,858
)Cash at beginning of period


4,301


4,048Cash at end of period

$
354

$
190


See
accompanying notes to consolidated financial statements

4

---





MEADE INSTRUMENTS CORP.    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, except per share data)(Unaudited)

A.    The Consolidated Financial Statements Have Been Prepared by the Company and are Unaudited.

In management's opinion, the information and amounts furnished in this report reflect all adjustments (consisting of normal recurring adjustments) considered
necessary for the fair statement of the financial position and results of operations for the interim periods presented. These financial statements should be read in conjunction with the Company's
Annual Report on Form 10-K for the fiscal year ended February 29, 2008.

The
Company has experienced, and expects to continue to experience, substantial fluctuations in its sales, gross margins and profitability from quarter to quarter. Factors that influence
these fluctuations include the volume and timing of orders received, changes in the mix of products sold, market acceptance of the Company's products, competitive pricing pressures, the Company's
ability to meet demand and delivery schedules and the timing and extent of research and development expenses, marketing expenses and product development expenses. In addition, a substantial portion of
the Company's net sales and operating income typically occur in the third quarter of the Company's fiscal
year primarily due to disproportionately higher customer demand for less-expensive products during the holiday season. The results of operations for the quarters ended November 30,
2008 and 2007, respectively, are not necessarily indicative of the operating results for the entire fiscal year.

B.    Liquidity

The Company continues to depend on operating cash flow and availability under its bank lines of credit to provide short-term liquidity. Availability
under the U.S. revolving loan (which is subject to a borrowing base with standard advance rates against eligible accounts receivable and inventories) at November 30, 2008 was approximately
$2.5 million. The interest rate was 6.5% at November 30, 2008.

The
Company received an audit opinion from its independent public accountants in its fiscal 2008 Form 10-K as of June 13, 2008 that there is substantial doubt
about the Company's ability to continue as a going concern. The receipt of this opinion resulted in a technical default under the terms of the Company's credit facility at that date.

On
July 15, 2008, the Company entered into the Sixteenth Amendment to the Amended and Restated Credit Agreement dated as of October 25, 2002 (the "Sixteenth Amendment")
with Bank of America, N.A. ("Bank of America"). The Sixteenth Amendment made the following key changes to the credit agreement: (1) reduced the revolver line amount from $15 million
currently to $12 million at November 30, 2008 and $10 million at December 31, 2008; (2) decreased certain amounts of collateral to be used in the borrowing base
calculations; and (3) set minimum EBITDA, tangible net worth and capital expenditure requirements measured on a monthly basis and set minimum fixed charge coverage ratio covenants. Under the
Sixteenth Amendment, the Lender also waived the Company's non-compliance with the covenants under the credit agreement as of the Company's fiscal 2008 year-end and
brought the Company into compliance with all covenants.

At
November 30, 2008, the Company was not in compliance with the minimum EBITDA covenant as set forth in the Sixteenth Amendment. The Company is working with its lender to obtain
a waiver or amendment; however, there can be no assurance that such waiver will be obtained. In addition, there is no guarantee that the Company will be in compliance with the restrictive covenants in
the future, and in the event of noncompliance, there is no guarantee that the Company will be able to obtain an

5

---



amendment
or waiver. If no amendment or waiver is obtained, the Company will be in default under the provisions of the credit facility and the Company's lender may accelerate repayment. In this event,
the Company may need to raise funds to repay its lender, and there can be no assurance that such funds will be available.

In
addition, the Sixteenth Amendment to the Company's credit agreement with Bank of America also contained provisions that reduced the Company's collateral base and availability.
Depending on the Company's performance, the resulting availability may not be sufficient for the Company to fund its operations. In addition, the credit facility with Bank of America expires in
September 2009 and the Company expects that Bank of America may not extend the facility because the Company's projected borrowing requirements for fiscal 2010 do not satisfy the current minimum
thresholds required by Bank of America. As a result, the Company is planning to replace its current credit facility, but there can be no assurance the Company will be able to do so.

On
September 24, 2008, the Company entered into a loan agreement with VR-Bank Westmunsterland eG. The material terms and conditions of the Loan Agreement include a
revolving line of credit of up to €7,500,000 through February 28, 2009. The revolving line of credit bears interest at 8.35% and is variable, depending on certain market
conditions as set forth in the Loan Agreement. The interest rate on the Company's term loan adjusted to Euribor plus 2%. The revolving line of credit and term loan are collateralized by all of the
assets of Meade Europe and are further collateralized by a guarantee by Meade Instruments Corp. An additional condition to the Loan Agreement is a requirement that Meade Europe maintain a minimum
capitalization of approximately €5,000,000 and 30% of assets.

C.    Gain on Brand Sales

On April 17, 2008 the Company sold its Weaver brand and associated inventory to Ammunition Accessories, Inc., a subsidiary of Alliant
Techsystems Inc., for cash proceeds of $5.0 million. On April 18, 2008, the Company sold its Redfield brand to Leupold & Stevens, Inc. for cash proceeds of
$3.0 million. The gain on these brand sales was approximately $4.5 million.

On
June 12, 2008, a subsidiary of Meade Instruments Corp. (the "Company") entered into an agreement and sold its Simmons brand and associated inventory to Bushnell for gross cash
proceeds of $7.3 million. The gain on this brand sale was approximately $0.8 million. In connection with this sale, on June 12, 2008, the Company and certain of its subsidiaries
entered into the Fifteenth Amendment to the Amended and Restated Credit Agreement dated as of October 25, 2002 (the "Fifteenth Amendment") with Bank of America, N.A. (the "Lender"). The
Fifteenth Amendment released the Lender's lien on the assets divested and reduced the Company's credit facility from $20 million to $15 million.

D.    Restructuring Costs

On January 8, 2009, the Company signed a letter of intent with the lessor of its Irvine, California location to terminate its operating lease of that
facility prior to its expiration date of September 30, 2012, and to enter into a new lease on a smaller facility. While not binding, the letter of intent is expected to be the foundation for a
final agreement to be executed during the fourth quarter of fiscal 2009. In accordance the SFAS 5 "Accounting for Contingencies," the Company has recognized the

6

---



estimated
cost of the lease termination cost of $1.2 million in the third quarter ended November 30, 2008. The termination fee is likely to be paid as follows:

Due and payable on or before termination date

$
500May 1, 2009


200August 1, 2009


200November 1, 2009


300Total termination fee

$
1,200


The
expected new facility is approximately 25,000 square feet, compared to its existing facility of approximately 160,000 square feet, and will house the Company's corporate offices and
U.S. distribution center. Management believes that the new facility is adequate for its operations going forward now that manufacturing operations have been relocated to its Mexico operation. The
annual facility costs are expected to decrease by approximately $1.4 million annually.

The
additional restructuring costs of $0.3 million relate primarily to severance for headcount reductions that were enacted and paid during the third quarter ended
November 30, 2008 in accordance with SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities."

During
the third quarter ended November 30, 2007, the Company announced a restructuring that involved the closure of the Company's manufacturing operations in Irvine, California;
transfer of these production activities to the Company's manufacturing facility in Tijuana, Mexico; a reduction in the number of SKUs offered by the Company as a means of streamlining its
manufacturing operations; and a significant reduction in headcount in the Company's Irvine, California location. In connection with this, the Company recognized $0.3 million in restructuring
costs in the third quarter that relate exclusively to the severance costs incurred that were paid during the third quarter or are expected to be paid during the fourth quarter in accordance with
SFAS 146.

In
addition to the restructuring charge, the Company also recognized an inventory write off of approximately $3.4 million. Approximately $0.4 million of the write down
occurred in the normal course of the Company analyzing its inventory position relative to historical and projected usage of inventory. The additional write-down of $3.0 million
relates primarily to the Company's decision to reduce the number of SKUs to be produced and the write-down of additional inventory in the process of cleaning up and closing down
manufacturing operations, including decisions to scrap rather than transfer certain material to the new manufacturing location.

E.    Stock Based Compensation

The Company accounts for stock-based compensation in accordance with the provisions of Statement of Financial Accounting Standards 123R, ("SFAS 123R") Share-Based Payment, which establishes
accounting for equity instruments exchanged for employee services. Under the provisions of SFAS 123R, share-based compensation cost is measured at the grant date, based on the calculated fair
value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity grant). Share-based compensation expenses, included in
general and administrative expenses in the Company's consolidated statement of operations for the three months ended November 30, 2008 and 2007, were approximately $0.2 million and
$0.1 million, respectively, and were $0.4 million during the nine months ended November 30, 2008 and 2007. Due to deferred tax valuation allowances provided, no net benefit was
recorded against the share-based compensation charged.

The
Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the expected
option term, forfeiture rate, the expected volatility of the Company's stock over the option's expected term,

7

---



the
risk-free interest rate over the option's expected term, and the Company's expected annual dividend yield. The Company believes that the valuation technique and the approach utilized
to develop underlying assumptions are appropriate in calculating the fair values of the Company's stock options. Estimates of fair value are not intended to predict actual future events or the value
ultimately realized by persons who receive equity awards.

The
fair value of the Company's stock options granted in the nine months ended November 30, 2008 and 2007 was estimated on the grant date using the Black-Scholes option-pricing
model with the following assumptions:

2008

2007Expected life(1)


3.8


3.8Expected volatility(2)


72
%

69
%Risk-free interest rate(3)


2.9
%

4.3
%Expected dividends


None


None


---

As
of November 30, 2008, there was approximately $1.1 million of unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized
over a weighted-average period of approximately 4 years. At February 29, 2008, there was approximately $1.5 million of unrecognized compensation costs related to unvested stock
options.

F.     Bank, Other Debt

The Company continues to depend on operating cash flow and availability under its bank lines of credit to provide short-term liquidity. Availability
under the U.S. revolving loan (which is subject to a borrowing base with standard advance rates against eligible accounts receivable and
inventories) at November 30, 2008 was approximately $2.5 million. The interest rate was 6.5% at November 30, 2008.

The
Company received an audit opinion from its independent public accountants in its fiscal 2008 Form 10-K as of June 13, 2008 that there is substantial doubt
about the Company's ability to continue as a going concern. The receipt of this opinion resulted in a technical default under the terms of the Company's credit facility at that date.

On
July 15, 2008, the Company entered into the Sixteenth Amendment to the Amended and Restated Credit Agreement dated as of October 25, 2002 (the "Sixteenth Amendment")
with Bank of America, N.A. ("Bank of America"). The Sixteenth Amendment made the following key changes to the credit agreement: (1) reduced the revolver line amount from $15 million
currently to $12 million at November 30, 2008 and $10 million at December 31, 2008; (2) decreased certain amounts of collateral to be used in the borrowing base
calculations; and (3) set minimum EBITDA, tangible net worth and capital expenditure requirements measured on a monthly basis and set minimum fixed charge coverage ratio covenants. Under the
Sixteenth Amendment, the Lender also waived the Company's non-compliance with the covenants under the credit agreement as of the Company's fiscal 2008 year-end and
brought the Company into compliance with all covenants.

At
November 30, 2008, the Company was not in compliance with the minimum EBITDA covenant as set forth in the Sixteenth Amendment. The Company is working with its lender to obtain
a waiver or

8

---



amendment;
however, there can be no assurance that such waiver will be obtained. In addition, there is no guarantee that the Company will be in compliance with the restrictive covenants in the future,
and in the event of noncompliance, there is no guarantee that the Company will be able to obtain an amendment or waiver. If no amendment or waiver is obtained, the Company will be in default under the
provisions of the credit facility and the Company's lender may accelerate repayment. In this event, the Company may need to raise funds to repay its lender, and there can be no assurance that such
funds will be available.

In
addition, the Sixteenth Amendment to the Company's credit agreement with Bank of America also contained provisions that reduced the Company's collateral base and availability.
Depending on the Company's performance, the resulting availability may not be sufficient for the Company to fund its operations. In addition, the credit facility with Bank of America expires in
September 2009 and the Company expects that Bank of America may not extend the facility because the Company's projected borrowing requirements for fiscal 2010 do not satisfy the current minimum
thresholds required by Bank of America. As a result, the Company is planning to replace its current credit facility, but there can be no assurance the Company will be able to do so.

On
September 24, 2008, the Company entered into a loan agreement with VR-Bank Westmunsterland eG. The material terms and conditions of the Loan Agreement include a
revolving line of credit of up to €7,500,000 through February 28, 2009. The revolving line of credit bears interest at 8.35% and is variable, depending on certain market
conditions as set forth in the Loan Agreement. The interest rate on the Company's term loan adjusted to Euribor plus 2%. The revolving line of credit and term loan are collateralized by all of the
assets of Meade Europe and are further collateralized by a guarantee by Meade Instruments Corp. An additional condition to the Loan Agreement is a requirement that Meade Europe maintain a minimum
capitalization of approximately €5,000,000 and 30% of assets.

Amounts
outstanding under the Company's various bank and other debt instruments are as follows:

November 30,
2008

February 29,
2008U.S. bank revolving line of credit

$
385

$
5,877European bank revolving line of credit


5,582


Total bank revolving lines of credit

$
5,967

$
5,877European term loans

$
654

$
1,142Capital lease obligations





7Total debt and capital lease obligations


654


1,149Less current portion


(174
)

(213
)Total long-term debt and capital lease obligations

$
480

$
936


9

---



G.    Composition of Certain Balance Sheet Accounts

The composition of net inventories is as follows:

November 30,
2008

February 29,
2008Raw materials

$
3,324

$
3,418Work-in-process


1,684


2,335Finished goods


11,241


16,906$
16,249

$
22,659


The
composition of goodwill and acquisition-related intangible assets is as follows:

November 30, 2008

February 29, 2008Gross Carrying Amount

Accumulated Amortization

Gross Carrying Amount

Accumulated AmortizationGoodwill

$
1,548

$


$
1,548

$
Acquisition-related intangible assets:Brand names

$





$
2,041


Customer relationships








1,390


(695
)Trademarks


540


(239
)

1,938


(1,571
)Completed technologies


1,620


(565
)

1,620


(377
)Other


56


(56
)

56


(56
)Total acquisition-related intangible assets


2,216


(860
)

7,045


(2,699
)Total goodwill and acquisition-related intangible assets

$
3,764

$
(860
)
$
8,593

$
(2,699
)


During
the nine months ended November 30, 2008, the Company completed its sale of the Simmons, Redfield and Weaver brands. As a result, acquisition-related intangible assets were
reduced by $2.8 million.

The
changes in the carrying amount of goodwill and acquisition-related intangible assets for the nine months ended November 30, 2008, are as follows:

Non-amortizing intangible assets

Amortizing intangible assetsBalance, net, February 29, 2008

$
3,589

$
2,305Sale of brand names


(2,041
)

(751
)Amortization





(198
)Balance, net, November 30, 2008

$
1,548

$
1,356


10

---



Amortization
of trademarks, customer relationships and completed technologies over the next five fiscal years is estimated as follows:

Fiscal Year

Amortizing intangible assets2009

$
1982010


1972011


1972012


1972013


197Thereafter


370Total

$
1,356


The
composition of property and equipment is as follows:

November 30,
2008

February 29,
2008Buildings

$
3,508

$
3,508Molds and dies


6,627


6,948Machinery and equipment


4,424


4,354Furniture and fixtures


3,366


3,612Autos and trucks


292


246Leasehold improvements


1,512


1,50019,729


20,168Less accumulated depreciation and amortization


(16,683
)

(16,451
)$
3,046

$
3,717


H.    Commitments and Contingencies

The Company is involved from time to time in litigation incidental to its business. Management believes that the outcome of such litigation will not have a
material adverse effect on the financial position, results of operations or cash flows of the Company.

I.     Loss Per Share

Basic loss per share amounts exclude the dilutive effect of potential shares of common stock. Basic (loss) per share is based upon the weighted-average number of
shares of common stock outstanding, which excludes unallocated ESOP shares. Diluted (loss) per share is based upon the weighted-average number of shares of common stock and dilutive potential shares
of common stock outstanding for each period presented. Potential shares of common stock include outstanding stock options and restricted
stock, which may be included in the weighted average number of shares of common stock under the treasury stock method.

The
total number of options and restricted shares outstanding were as follows:

November 30,
2008

February 29,
2008Stock options outstanding


1,821


2,155Restricted shares outstanding


45


93


11

---



A
reconciliation of the basic weighted average number of shares outstanding and the diluted weighted average number of shares outstanding follows:

Three Months Ended
November 30,

Nine Months Ended
November 30,2008

2007

2008

2007Basic weighted average number of shares


23,377


22,973


23,360


20,916Dilutive potential shares of common stock











Diluted weighted average number of shares outstanding


23,377


22,973


23,360


20,916Number of options excluded from the calculation of weighted average shares because the exercise prices were greater than the average market price of the
Company's common stock


1,821


2,970


1,913


3,215Potential shares of common stock excluded from the calculation of weighted average shares





107





144


Weighted
average shares for the three and nine month period ended November 30, 2008 and 2007, exclude the aggregate dilutive effect of potential shares of common stock related to
stock options and restricted stock, because the Company incurred a loss and the effect would be anti-dilutive. Options with exercise prices greater than the average market price during the
periods presented are excluded from the calculation of weighted average shares outstanding because the effect would be anti-dilutive.

J.     Comprehensive Income (Loss)

Comprehensive loss is defined as a change in the equity of a business enterprise during a period from transactions and other events and circumstances from
non-owner sources and, at November 30, 2008 and 2007, includes foreign currency translation adjustments and adjustments to the fair value of highly effective derivative instruments.
For the three and nine months ended November 30, 2008 and 2007, respectively, the Company had other comprehensive income (loss) as follows:

Three Months
Ended
November 30,

Nine Months
Ended
November 30,2008

2007

2008

2007Net loss

$
(2,790
)
$
(1,622
)
$
(3,052
)
$
(9,843
)Currency translation adjustments


(1,527
)

667


(1,813
)

904Change in fair value of foreign currency forward contracts, net of tax


(86
)

216


(268
)

403Total other comprehensive income (loss)

$
(4,403
)
$
(739
)
$
(5,133
)
$
(8,536
)


K.    Product Warranties

The Company provides reserves for the estimated cost of product warranty-related claims at the time of sale, and periodically adjusts the provision to reflect
actual experience related to its standard product warranty programs and its extended warranty programs. The amount of warranty liability accrued reflects management's best estimate of the expected
future cost of honoring Company obligations under its warranty plans. Additionally, from time to time, specific warranty accruals may be made if unforeseen technical problems arise. Meade and Bresser
branded products, principally telescopes and binoculars, are generally covered by a two-year limited warranty. Most of the Coronado products have limited five-year warranties.
Included in the warranty accrual as of November 30, 2008, is $0.7 million related to the company's former sport optics brands that were sold in 2008 and for which

12

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the
Company agreed to retain certain warranty liabilities. Changes in the warranty liability, which is included as a component of accrued liabilities on the accompanying Consolidated Balance Sheets,
were as follows:

Three Months Ended
November 30,

Nine Months Ended
November 30,2008

2007

2008

2007Beginning balance

$
1,521

$
1,453

$
1,504

$
1,184Warranty accrual


(119
)

220


(20
)

1,193Labor and material usage


(38
)

(111
)

(120
)

(815
)Ending balance

$
1,364

$
1,562

$
1,364

$
1,562


L.    Derivative Instruments and Hedging Activities

The Company, at times, utilizes derivative financial instruments to manage its currency exchange rate and interest rate risks. The Company does not enter into
these arrangements for trading or speculation purposes. The Company's German subsidiary purchases inventory from Asian suppliers in U.S. dollars. A forward exchange contract is typically entered into
when the U.S. dollar amount of the inventory purchase is firm. Given our foreign exchange position, a change in foreign exchange rates upon which these foreign exchange contracts are based would
result in exchange gains and losses.

November 30, 2008

February 29, 2008Notional
amount

Fair Value

Notional
amount

Fair ValueForward currency contracts

$
1,650

$
1,381








At
November 30, 2008, the fair value of forward currency contracts is recorded in accrued liabilities on the accompanying consolidated balance sheets. Changes in the fair value of
the cash flow forward currency contracts have been recorded as a component of accumulated other comprehensive loss, net of tax, as these items have been designated and qualify as cash flow hedges. Due
to continuing taxable losses, the Company has provided an allowance against all tax benefits generated during the quarter. Therefore, the change in the fair value of the cash flow forward currency
contracts is presented in the accompanying consolidated financial statements with no net tax benefit. The settlement dates on the forward currency contracts vary based on the underlying instruments
through February 28, 2009.

M.   Employee Stock Ownership Plan ("ESOP")

The Company terminated its Employee Stock Ownership Plan ("ESOP") in August 2008, at which time all unearned ESOP shares were allocated to participants' accounts
in accordance with the terms of the plan.

N.    Income Taxes

The provision for income taxes as of November 30, 2008, relate almost exclusively to the Company's profitable European subsidiary.

During
the year ended February 29, 2008, the company recorded a full valuation allowance against its deferred tax assets. The Company determined, in accordance with SFAS
No. 109,Accounting for Income Taxes, that there was sufficient uncertainty surrounding the future realization of its deferred tax assets to
warrant the recording of a full valuation allowance. The valuation allowance was recorded based upon the Company's determination that there was insufficient objective evidence, at the time, to

13

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recognize
those assets for financial reporting purposes. For the period ended November 30, 2008, the Company has not changed its assessment regarding the recoverability of its deferred tax
assets.
Ultimate realization of the benefit of the deferred tax assets is dependent upon the Company generating sufficient taxable income in future periods, including periods prior to the expiration of
certain underlying tax credits.

The
Company adopted the provisions of FIN 48 on March 1, 2007. As a result of the implementation of FIN 48, the Company recognized no material increase in the
liability for unrecognized income tax benefits.

As
of August 31, 2008 and as of November 30, 2008, unrecognized tax benefits, all of which affect the effective tax rate if recognized, were $0.1 million and
$0.1 million, respectively. Management does not anticipate that there will be a material change in the balance of unrecognized tax benefits within the next 12 months.

The
Company recognizes interest and penalties related to uncertain tax positions in income tax expense. At November 30, 2008, accrued interest related to uncertain tax positions
and accrued penalty was less than $0.1 million.

O.    New Accounting Pronouncements

In May 2008, the FASB issued FAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("FAS No. 162"). This standard is intended to
improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with
generally accepted accounting principles in the United States for non-governmental entities. FAS No. 162 is effective 60 days following approval by the U.S. Securities and
Exchange Commission of the Public Company Accounting Oversight Board's amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles".
The Company does not expect FAS 162 to have a material impact on the preparation of its consolidated financial statements.

In
April 2008, the FASB issued FASB Staff Position No. FAS 142-3,"Determination of the Useful Life of Intangible
Assets"("FSP 142-3"). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142, "Goodwill and Other Intangible Assets"and requires enhanced
disclosures relating to: (a) the entity's accounting policy on the treatment of costs incurred to renew or extend the term of a recognized intangible asset; (b) in the period of
acquisition or renewal, the weighted-average period prior to the next renewal or extension (both explicit and implicit), by major intangible asset class and (c) for an entity that capitalizes
renewal or extension costs, the total amount of costs incurred in the period to renew or extend the term of a recognized intangible asset for each period for which a statement of financial position is
presented, by major intangible asset class. FSP 142-3 must be applied prospectively to all intangible assets acquired as of and subsequent to fiscal years beginning after
December 15, 2008, and interim
periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating the impact that FAS No. 142-3 will have on its financial statements.

In
March 2008, the FASB issued FAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133" ("FAS
No. 161"). FAS No. 161 requires enhanced disclosure related to derivatives and hedging activities and thereby seeks to improve the transparency of financial reporting. Under FAS
No. 161, entities are required to provide enhanced disclosures relating to: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge
items are accounted for under FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS No. 133"), and its related interpretations; and (c) how derivative
instruments and related hedged items affect an entity's financial position, financial

14

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performance,
and cash flows. FAS No. 161 must be applied prospectively to all derivative instruments and non-derivative instruments that are designated and qualify as hedging
instruments and related hedged items accounted for under FAS No. 133 for all financial statements issued for fiscal years and interim periods beginning after November 15, 2008, which
begins with the Company's 2010 fiscal year. The Company is currently evaluating the impact that FAS No. 161 will have on its financial statements.

In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that
require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement
does not require any new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. The Company adopted SFAS No. 157 on March 1, 2008. The adoption did not have a material impact on the Company's consolidated financial position, results of operations or
cash flows.

In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities. This
Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is
expected to expand the use of fair value measurement, which is consistent with the Board's long-term measurement objectives for accounting for financial instruments. Most of the provisions
of this Statement apply only to entities that elect the fair value option. However, the amendment to FASB Statement No. 115,Accounting for Certain Investments in Debt
and Equity Securities, applies to all entities with available-for-sale and trading securities. Some requirements apply differently to entities that do
not report net income. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company
adopted SFAS No. 159 on March 1, 2008. The adoption did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations("SFAS 141R"). SFAS 141R
establishes the requirements for how an acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill
acquired. SFAS 141R also establishes disclosure requirements for business combinations. SFAS 141R is effective for annual periods beginning after December 31, 2008 and should be
applied prospectively for all business combinations entered into after the date of adoption. SFAS 141R will have an impact on our accounting for business combinations once adopted on
March 1, 2009, but the effect will be dependent upon acquisitions after that date.

In
December 2007, the FASB approved the issuance of SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statementsan amendment of
ARB No. 51("SFAS 160"). SFAS 160 will change the accounting and reporting for minority interests, which will now be termed noncontrolling interests. SFAS 160
requires noncontrolling interest to be presented as a separate component of equity and requires the amount of
net income attributable to the parent and to the noncontrolling interest to be separately identified on the consolidated statement of operations. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008. We do not expect adoption of SFAS 160 to have any impact on our consolidated financial position, results of operations or cash flows.

15

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

The following discussion of our financial condition and results of operations should be read in conjunction
with our consolidated financial statements and related notes included in this Form 10-Q. This discussionmaycontain forward-looking
statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements due to known and unknown risks, uncertainties and
other factors, including those risks discussed in "Risk Factors" in the Company's annual report on Form 10-K. Those risk factors expressly qualify all subsequent oral and written
forward-looking statements attributable to us or persons acting on our behalf. We do not have any intention or obligation to update forward-looking statements included in this
Form 10-Q after the date of this Form 10-Q, except as required by law.

Overview of the Company

Meade Instruments Corp. is engaged in the design, manufacture, marketing and sales of consumer optics products, primarily telescopes
and binoculars. We design our products in-house or with the assistance of external consultants. Most of our products are manufactured overseas by contract manufacturers in Asia while our
high-end telescopes have historically been manufactured and assembled in our U.S. and Mexico facilities. During the third quarter of fiscal 2008, we announced the closure of our U.S.
manufacturing operations and the transition of high-end telescope production to our Mexico facilities. Although
substantially all of the manufacturing has been transferred, due to the transition our Mexico facility is not yet producing all high-end telescopes at levels that meet customer demand.
This has resulted in a backlog for certain high-end telescope products.

Sales
of our products are driven by an in-house sales force as well as a network of sales representatives throughout the North America and the rest of the world. We currently
operate out of three primary locations: Irvine, California; Tijuana, Mexico; and Rhede, Germany. Our California facility serves as the Company's corporate headquarters and U.S. distribution center;
our Mexico facilities perform manufacturing, assembly, repair, packaging, research and development, and other general and administrative functions. Our Germany location is primarily engaged in the
distribution of our finished products in Europe under the Meade, Coronado and Bresser® brand names. Our business is highly seasonal and our financial results vary significantly on a
quarter-by-quarter basis throughout each year.

We
believe that the Company holds valuable brand names and intellectual property that provides us with a competitive advantage in the marketplace. The Meade brand name is ubiquitous in
the consumer telescope market, while the Coronado brand name represents a unique niche in the area of solar astronomy. Our Bresser® brand covers a variety of optical and other products and
is primarily recognized in Europe.

During
the fiscal year ended February 29, 2008, our operating results were negatively impacted by the costs of the closure and transition of our U.S. manufacturing operations,
related headcount reductions and severance costs, and aggressive reductions in inventory. During fiscal 2009, our operating results reflect lower revenue for the Company's high-end
products coming out of Mexico due to the transition in manufacturing; lower revenue due to the divestiture of the Simmons, Weaver and Redfield sports optics brands; and overall weakness in demand for
our products in the recessionary economy. The Company believes that its products are largely discretionary in nature and that the current economic environment is likely to have a negative effect on
telescope sales. There is significant uncertainty over the level of revenues and the resulting impact on the Company's liquidity during the remainder of fiscal 2009 and fiscal 2010. The overall
turnaround of the Company is a continuing effort, and we will continue to evaluate long-term opportunities to further reduce our cost structure; these

16

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opportunities,
if executed upon, may result in additional short-term costs that must be recognized in our current consolidated financial statements.

The
Company's consolidated financial statements for the fiscal year ended February 29, 2008 were prepared assuming the Company would continue as a going concern; however, the
Company's recurring losses and accumulated deficit raise substantial doubts about its ability to continue as a going concern. The Company's ability to continue as a going concern is in doubt as a
result of a declining sales trend, recurring losses from operations and accumulated deficit and is subject to the Company's ability to
increase revenue, restructure the Company by significantly reducing its cost structure and/or consummating a strategic transaction.

During
the third quarter of fiscal 2008, our Board of Directors formed a special committee that engaged an investment bank to assist the Company in exploring strategic alternatives.
During fiscal 2009, we sold our Simmons, Weaver and Redfield sport optics brands for gross proceeds of $15 million. The exploration of strategic alternatives has been ongoing. Such alternatives
may involve a financial restructuring of the Company's capital structure or potentially the sale of all or a portion of the Company. At this time there can be no assurance that the Company will be
able to execute on any additional strategic alternatives.

During
the second quarter of fiscal 2008, we completed a private placement of 3.1 million shares of the Company's common stock for gross proceeds of $5.8 million. However,
due to the seasonality of the Company's business, we continue to rely on our domestic credit facility to meet much of our liquidity needs.

At
November 30, 2008, the Company was not in compliance with the minimum EBITDA covenant as set forth in the Sixteenth Amendment. The Company is working with its lender to obtain
a waiver or amendment; however, there can be no assurance that such waiver will be obtained. In addition, there is no guarantee that the Company will be in compliance with the restrictive covenants in
the future, and in the event of noncompliance, there is no guarantee that the Company will be able to obtain an amendment or waiver. If no amendment or waiver is obtained, the Company will be in
default under the provisions of the credit facility and the Company's lender may accelerate repayment. In this event, the Company may need to raise funds to repay its lender, and there can be no
assurance that such funds will be available.

Critical Accounting Policies and Estimates

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United
States of America. The preparation of these consolidated financial statements requires management to make certain estimates, judgments and assumptions that it believes are reasonable based upon the
information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues
and expenses during the periods presented. Actual results may differ from these estimates under different assumptions or conditions. The significant accounting policies which management believes are
the most critical to assist users in fully understanding and evaluating the Company's reported financial results include the following:

Revenue Recognition

The Company's revenue recognition policy complies with Securities and Exchange Commission ("SEC") Staff Accounting Bulletin
No. 104,Revenue Recognition in Financial Statements. Revenue from the sale of products is recognized when title and risk of loss has passed to
the customer, typically at the time of shipment, persuasive evidence of an arrangement exists, including a fixed price, and collectability is reasonably assured. Revenue is not recognized at the time
of shipment if these criteria are not met. Under certain circumstances, the Company accepts product returns or offers markdown

17

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incentives.
Material management judgments must be made and used in connection with establishing sales returns and allowances estimates. The Company continuously monitors and tracks returns and
allowances and records revenues net of provisions for returns and allowances. The Company's estimate of sales returns and allowances is based upon several factors including historical experience,
current market and economic conditions, customer demand and acceptance of the Company's products and/or any notification received by the Company of such a return. Historically, sales returns and
allowances have been within management's estimates; however, actual returns may differ significantly, either favorably or unfavorably, from management's estimates depending on actual market conditions
at the time of the return.

Inventories

Inventories are stated at the lower of cost, as determined using the first-in, first-out ("FIFO") method, or
market. Costs include materials, labor and manufacturing overhead. The Company evaluates the carrying value of its inventories taking into account such factors as historical and anticipated future
sales compared with quantities on hand and the price the Company expects to obtain for its products in their respective markets. The Company also evaluates the composition of its inventories to
identify any slow-moving or obsolete product. These evaluations require material management judgments, including estimates of future sales, continuing market acceptance of the Company's
products, and current market and economic conditions. Inventory may be written down based on such judgments for any inventories that are identified as having a net realizable value less than its cost.
However, if the Company is not able to meet its sales expectations, or if market conditions deteriorate significantly from management's estimates, reductions in the net realizable value of the
Company's inventories could have a material adverse impact on future operating results.

Goodwill and Intangible Assets

Goodwill and intangible assets are accounted for in accordance with SFAS No. 142,Goodwill and
Intangible Assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment annually and also in the
event of an impairment indicator. As required by SFAS No. 142, we evaluate the recoverability of goodwill based on a two-step impairment test. The first step compares the fair value
of each reporting unit with its carrying amount, including goodwill. If the carrying amount exceeds the fair value, then the second step of the impairment test is performed to measure the amount of
any impairment loss. Fair value is determined based on estimated future cash flows, discounted at a rate that approximates our cost of capital. Such estimates are subject to change and we may be
required to recognize an impairment loss in the future. Any impairment losses will be reflected in operating income.

Income taxes

A deferred income tax asset or liability is established for the expected future consequences of temporary differences in the financial
reporting and tax basis of assets and liabilities. Significant judgment is necessary in the determination of the recoverability of the Company's deferred tax assets. Deferred tax assets are reviewed
regularly for recoverability and the Company establishes a valuation allowance when it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The Company
assesses the recoverability of the deferred tax assets on an ongoing basis. In making this assessment, the Company is required to consider all available positive and negative evidence to determine
whether, based on such evidence, it is more likely than not that some portion, or all, of the net deferred assets will be realized in future periods. If it is determined that it is more likely than
not that a deferred tax asset will not be realized, the value of that asset will be reduced to its expected realizable value, thereby decreasing net income. If it is determined that a deferred tax
asset that had previously been written down will be realized in the future, the value of that deferred tax asset

18

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will
be increased, thereby increasing net income in the period when the determination is made. Actual results may differ significantly, either favorably or unfavorably, from the evidence used to
assess the recoverability of the Company's deferred tax assets.

The
Company adopted the provisions of FIN 48 on March 1, 2007. As of November 30, 2008 the liability for income taxes associated with uncertain tax positions is
$0.1 million.

Management
does not anticipate that there will be a material change in the balance of unrecognized tax benefits within the next 12 months. The Company recognizes interest and
penalties related to uncertain tax positions in income tax expense. As of the adoption date of March 1, 2007 and as of November 30, 2008, accrued interest related to uncertain tax
benefit was less than $0.1 million. The tax years 2004-2007 remain open to examination by the major taxing jurisdictions to which the Company is subject.

Results of Operations

The nature of the Company's business is highly seasonal. Historically, sales in the third quarter ended
November 30th each year have been significantly higher than sales achieved in each of the other three fiscal quarters of the year. Thus expenses and to a greater extent,
operating income may significantly vary by quarter. Therefore, caution is advised when appraising results for a period shorter than a full year, or when comparing any period other than to the same
period of the previous year.

Three Months Ended November 30, 2008 Compared to Three Months Ended November 30, 2007

Net sales during the third quarter of fiscal year 2009 were $23.4 million, down approximately $28.0 million or 54% from
the prior year's third quarter net sales of $51.4 million, due in part to a very challenging macro-economic environment. Reduced distribution outlets, increased competition and weak demand all
contributed to the decrease in net revenue. Net revenue was also impacted by the divestiture earlier in the year of the Company's Simmons, Weaver and Redfield sport optics brands. Further, the sales
decline was also due to lower sales of the Company's high-end telescopes and related accessories due to the continued ramp-up of the Company's manufacturing facility in Mexico,
which is still not producing high-end telescopes at levels that meet customer demand, resulting in backlog for certain high-end telescopes. Revenue associated with sports
optics products decreased $6.8 million from the third quarter in the prior year, primarily due to the divestiture of the sports optics brands.

Gross
profit for the quarter ending November 30, 2008 was $5.5 million or 24% of net sales compared with $8.7 million or 17% of net sales in the prior year's
comparable quarter. The improvement in gross profit margin was primarily driven by the non-recurrence of inventory write-downs that occurred during the third quarter of the prior year and
lower indirect manufacturing costs as a result of the closure of the Company's U.S. manufacturing operations. These improvements were partially offset by the lower sales volumes and lower average
selling prices due to changing product mix.

Selling
expenses for the quarter ending November 30, 2008 were $2.4 million, a 53% decrease from $5.0 million for the same quarter in the prior year. While the lower
sales volume was the primary contributor to the lower selling expenses such as freight out and commissions, the overall decrease was also driven by lower headcount and reduced discretionary spending.

General
and administrative expenses for the quarter ending November 30, 2008 were $3.2 million compared with $2.4 million in the same quarter in the prior year. Most
of the increase in general and administrative expenses was due to excess facility costs for our Irvine, California facility. This excess space has resulted in additional general &
administrative expense and the Company is actively seeking alternatives to the current facility, including sublease possibilities. In previous years, such expense was properly classified as cost of
sales.

19

---



Research
and development expenses for the quarter ending November 30, 2008 were $0.4 million, consistent with the expense level for the same quarter in the prior year. The
Company has maintained R&D spending in anticipation of certain new product introductions in calendar 2009.

ESOP
expense was $0 in the third quarter. During the second quarter of the current year, the Company terminated its ESOP and distributed the remaining shares to eligible employees.

Restructuring
costs of $1.5 million consisted of an anticipated $1.2 million lease termination fee expected to be incurred related to the Company's Irvine, CA facility and
$0.3 million in severance for headcount reductions enacted and paid during the quarter. The Company expects to pay the $1.2 million in lease terminations in installments during fiscal
2010.

Interest
expense was $0.1 million during the third quarter of fiscal 2009 compared with $0.6 million in the comparable period. The decrease was primarily due to lower
borrowings during the quarter.

Income
tax expense was $0.7 million on a consolidated basis compared with expense of $1.5 million in the same quarter of fiscal 2008. The tax expense relates almost
exclusively to the Company's profits in Europe. The Company did not record any income tax provision or benefit in the U.S. due to its loss from operations, level of net operating losses and valuation
allowances placed against the deferred tax assets.

Nine Months Ended November 30, 2008 Compared to Nine Months Ended November 30, 2007

Net sales during the first nine months of fiscal year 2009 were $48.0 million, down approximately 44% from the prior year's
first nine months net sales of $85.3 million, due in part to a very challenging macro-economic environment. Reduced distribution outlets, increased competition and weak demand all contributed
to the decrease in net revenue. Net revenue was also impacted by the divestiture earlier in the year of the Company's Simmons, Weaver and Redfield sport optics brands. Further, the sales decline was
also due to lower sales of the Company's high-end telescopes and related accessories due to the continued ramp-up of the Company's manufacturing facility in Mexico, which is
still not producing high-end telescopes at levels that meet customer demand, resulting in backlog for certain high-end telescopes. Revenue associated with sports optics
products decreased $10.5 million from the third quarter in the prior year, primarily due to the divestiture of the sports optics brands.

Gross
profit for the nine months ending November 30, 2008 was $10.7 million or 22% of net sales compared with $12.8 million or 15% of net sales in the prior year's
comparable nine month period. The improvement in gross profit margin was primarily driven by the non-recurrence of inventory write-downs that occurred during the prior year and lower
indirect manufacturing costs as a result of the closure of the Company's U.S. manufacturing operations. These improvements were partially offset by the lower sales volumes and lower average selling
prices due to changing product mix.

Selling
expenses for the nine months ending November 30, 2008 were $6.3 million, a 38% decrease from $10.2 million for the same nine month period in the prior year.
While the lower sales volume was the primary contributor to the lower selling expenses such as freight out and commissions, the overall decrease was also driven by lower headcount and reduced
discretionary spending.

General
and administrative expenses for the nine months ending November 30, 2008 were $9.3 million compared with $7.9 million in the same nine month period in the
prior year. Most of the increase in general and administrative expenses was due to excess facility costs for our Irvine, California facility. This excess space has resulted in additional
general & administrative expense and the Company is actively seeking alternatives to the current facility, including sublease possibilities. In previous years, such expense was properly
classified as cost of sales.

20

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Research
and development expenses for the nine months ending November 30, 2008 were $1.3 million compared with $1.4 million for the same nine month period in the
prior year. The decrease was principally due to headcount reductions and lower consulting fees associated with the ongoing restructuring of the Company, offset partially by higher spending on
development for certain new products expected to be released in calendar 2009.

Restructuring
costs of $1.5 million consisted of an anticipated $1.2 million lease termination fee expected to be incurred related to the Company's Irvine, CA facility and
$0.3 million in severance for headcount reductions enacted and paid during the quarter. The Company expects to pay the $1.2 million in lease terminations in installments during fiscal
2010.

During
the nine months ended November 30, 2008 the Company sold its Simmons, Weaver and Redfield sport optics brands and associated inventory to three separate buyers for gross
cash proceeds of approximately $15 million. These sales resulted in a gain of approximately $5.2 million. Excluding this gain, the Company would have reported a net loss of
$8.3 million, or $0.35 per share.

Interest
expense decreased to $0.2 million from $0.9 million in the comparable period. The decrease was primarily due to lower borrowings during the quarter. Income tax
expense was $0.1 million on a consolidated basis compared with expense of $1.6 million in the same quarter of fiscal 2008. The tax expense relates almost exclusively to the Company's
profits in Europe, which was offset by the write off of certain deferred tax liabilities associated with the intangible assets sold as part of the Simmons, Weaver and Redfield brand sales. The Company
did not record any income tax benefit in the U.S. due to its loss from operations, level of net operating losses and valuation allowances placed against the deferred tax assets.

Seasonality

The Company has experienced, and expects to continue to experience, substantial fluctuations in its sales, gross margins and
profitability from quarter to quarter. Factors that influence these fluctuations include the volume and timing of orders received, changes in the mix of products sold, market acceptance of the
Company's products, competitive pricing pressures, the Company's ability to meet fluctuating demand and delivery schedules, the timing and extent of research and development expenses, the timing and
extent of product development costs and the timing and extent of advertising expenditures. In addition, a substantial portion of the Company's net sales and operating income typically occurs in the
third quarter of the Company's fiscal year primarily due to disproportionately higher customer demand for less-expensive telescopes during the holiday season. The Company continues to
experience significant sales to mass merchandisers. Mass merchandisers, along with specialty retailers, purchase a considerable amount of their inventories to satisfy such seasonal customer demand.
These purchasing patterns have caused the Company to increase its level of inventory during its second and third quarters in response to such demand or
anticipated demand. As a result, the Company's working capital requirements have correspondingly increased at such times.

Liquidity and Capital Resources

During the nine months ended November 30, 2008, the Company funded its operations principally from proceeds of approximately
$15.3 million from the sale of its Simmons, Weaver and Redfield brands and related assets and by utilizing its cash on hand. Cash flow from operating activities was negatively affected
principally by operating losses for the period, excluding the gain on its brand sales of approximately $5.3 million.

Working
capital totaled approximately $15.0 million at November 30, 2008, compared to $17.0 million at February 29, 2008. Working capital requirements
fluctuate during the year due to the seasonal nature of the business. These requirements are typically financed through a combination of internally-generated cash flows from operating activities and
short-term bank borrowings.

21

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The
Company had $0.4 million in cash at November 30, 2008, a decrease compared to $4.3 million at February 29, 2008. The Company had $0.4 million of
borrowings on its domestic credit facility and $5.6 million of borrowings on its foreign credit facility at November 30, 2008, compared to $5.9 million of borrowings on its credit
facilities at February 29, 2008.

The
Company utilizes its availability on its bank lines of credit to fund operations. Availability under its domestic and foreign bank lines of credit at November 30, 2008 was
approximately $2.5 million and $3.9 million, respectively, in addition to the Company's cash on hand. During the nine months ended November 30, 2008, operations used approximately
$20.2 million in cash, offsetting the $15.3 million in proceeds from its brand sales, which the Company used to repay its domestic line of credit.

During
fiscal 2009, the Company sold three sports optics brands for gross cash proceeds of $15.3 million. The cash generated from the sale of these brands completely repaid the
Company's domestic credit facility balance. The Company plans further headcount reductions, facility consolidation, and reductions in corporate overhead and manufacturing costs. Cash flow projections
developed by management indicate the Company believes that it will have sufficient liquidity and capital resources to support current operations through fiscal 2009; however, such sufficiency cannot
be
assured. Further, the Company continues to depend on operating cash flow and availability under its bank lines of credit to provide short-term liquidity.

The
Company received an audit opinion from its independent public accountants in its fiscal 2008 Form 10-K as of June 13, 2008 that there is substantial doubt
about the Company's ability to continue as a going concern. The receipt of this opinion resulted in a technical default under the terms of the Company's credit facility at that date.

On
July 15, 2008, the Company entered into the Sixteenth Amendment to the Amended and Restated Credit Agreement dated as of October 25, 2002 (the "Sixteenth Amendment")
with Bank of America, N.A. ("Bank of America"). The Sixteenth Amendment made the following key changes to the credit agreement: (1) reduced the revolver line amount from $15 million
currently to $12 million at November 30, 2008 and $10 million at December 31, 2008; (2) decreased certain amounts of collateral to be used in the borrowing base
calculations; and (3) set minimum EBITDA, tangible net worth and capital expenditure requirements measured on a monthly basis and set minimum fixed charge coverage ratio covenants. Under the
Sixteenth Amendment, the Lender also waived the Company's non-compliance with the covenants under the credit agreement as of the Company's fiscal 2008 year-end and
brought the Company into compliance with all covenants.

At
November 30, 2008, the Company was not in compliance with the minimum EBITDA covenant as set forth in the Sixteenth Amendment. The Company is working with its lender to obtain
a waiver or amendment; however, there can be no assurance that such waiver will be obtained. In addition, there is no guarantee that the Company will be in compliance with the restrictive covenants in
the future, and in the event of noncompliance, there is no guarantee that the Company will be able to obtain an amendment or waiver. If no amendment or waiver is obtained, the Company will be in
default under the provisions of the credit facility and the Company's lender may accelerate repayment. In this event, the Company may need to raise funds to repay its lender, and there can be no
assurance that such funds will be available.

In
addition, the Sixteenth Amendment to the Company's credit agreement with Bank of America also contained provisions that reduced the Company's collateral base and availability.
Depending on the Company's performance, the resulting availability may not be sufficient for the Company to fund its operations. In addition, the credit facility with Bank of America expires in
September 2009 and the Company expects that Bank of America may not extend the facility because the Company's projected borrowing requirements for fiscal 2010 do not satisfy the current minimum
thresholds required by Bank

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of
America. As a result, the Company is planning to replace its current credit facility, but there can be no assurance the Company will be able to do so.

On
September 24, 2008, the Company entered into a loan agreement with VR-Bank Westmunsterland eG. The material terms and conditions of the Loan Agreement include a
revolving line of credit of up to €7,500,000 through February 28, 2009. The revolving line of credit bears interest at 8.35% and is variable, depending on certain market
conditions as set forth in the Loan Agreement. The interest rate on the Company's term loan adjusted to Euribor plus 2%. The revolving line of credit and term loan are collateralized by all of the
assets of Meade Europe and are further collateralized by a guarantee by Meade Instruments Corp. An additional condition to the Loan Agreement is a requirement that Meade Europe maintain a minimum
capitalization of approximately €5,000,000 and 30% of assets.

Capital
expenditures, including financed purchases of equipment, aggregated $0.4 million and $0.5 million for the nine months ended November 30, 2008 and 2007,
respectively. The Company had no material capital expenditure commitments at November 30, 2008.

Inflation

The Company believes that inflation in China has had a material effect on the results of operations. The Company has experienced cost
increases on product imported from China, but in many cases has not been able to pass on the price increases to customers due to U.S. market characteristics, thereby costing the Company margin. There
can be no assurance that the Company's business will not be further affected by inflation in fiscal 2010 and beyond.

New Accounting Pronouncements

In May 2008, the FASB issued FAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("FAS No. 162").
This standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are
presented in conformity with generally accepted accounting principles in the United States for non-governmental entities. FAS No. 162 is effective 60 days following approval
by the U.S. Securities and Exchange Commission of the Public Company Accounting Oversight Board's amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles". We do not expect FAS No. 162 to have a material impact on the preparation of the Company's consolidated financial statements.

In
April 2008, the FASB issued FASB Staff Position No. FAS 142-3,"Determination of the Useful Life of Intangible
Assets"("FSP 142-3"). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142, "Goodwill and Other
Intangible Assets"and requires enhanced disclosures relating to: (a) the entity's accounting policy on the treatment of costs incurred to renew or extend the term of a
recognized intangible asset; (b) in the period of acquisition or renewal, the weighted-average period prior to the next renewal or extension (both explicit and implicit), by major intangible
asset class and (c) for an entity that capitalizes renewal or extension costs, the total amount of costs incurred in the period to renew or extend the term of a recognized intangible asset for
each period for which a statement of financial position is presented, by major intangible asset class. FSP 142-3 must be applied prospectively to all intangible assets acquired as of and
subsequent to fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. We are currently evaluating the impact that FAS
No. 142-3 will have on our financial statements.

In
March 2008, the FASB issued FAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133" ("FAS
No. 161"). FAS No. 161 requires

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enhanced
disclosure related to derivatives and hedging activities and thereby seeks to improve the transparency of financial reporting. Under FAS No. 161, entities are required to provide
enhanced disclosures relating to: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge items are accounted for under FAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS No. 133"), and its related interpretations; and (c) how derivative instruments and related hedged
items affect an entity's financial position, financial performance, and cash flows. FAS No. 161 must be applied prospectively to all derivative instruments and non-derivative
instruments that are designated and qualify as hedging instruments and related hedged items accounted for under FAS No. 133 for all financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, which for us begins with our 2010 fiscal year. We are currently evaluating the impact that FAS No. 161 will have on our financial statements.

In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that
require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement
does not require any new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years.

Accordingly,
this Statement does not require any new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. The Company adopted SFAS No. 157 on March 1, 2008. The adoption did not have a material impact on the Company's
consolidated financial position, results of operations or cash flows.

In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities. This
Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is
expected to expand the use of fair value measurement, which is consistent with the Board's long-term measurement objectives for accounting for financial instruments. Most of the provisions
of this Statement apply only to entities that elect the fair value option. However, the amendment to FASB Statement No. 115,Accounting for Certain Investments in Debt
and Equity Securities, applies to all entities with available-for-sale and trading securities. Some requirements apply differently to entities that do
not report net income. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company
adopted SFAS No. 159 on March 1, 2008. The adoption did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations("SFAS 141R"). SFAS 141R
establishes the requirements for how an acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill
acquired. SFAS 141R also establishes disclosure requirements for business combinations. SFAS 141R is effective for annual periods beginning after December 31, 2008 and should be
applied prospectively for all business combinations entered into after the date of adoption. SFAS 141R will have an impact on our accounting for business combinations once adopted on
March 1, 2009, but the effect will be dependent upon acquisitions after that date.

In
December 2007, the FASB approved the issuance of SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statementsan amendment of
ARB No. 51("SFAS 160"). SFAS 160 will change

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the
accounting and reporting for minority interests, which will now be termednoncontrolling interests. SFAS 160 requires noncontrolling interest
to be presented as a separate component of equity and requires the amount of net income attributable to the parent and to the noncontrolling interest to be separately identified on the consolidated
statement of operations. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. We do not expect adoption of SFAS 160 to have any impact on our
consolidated financial position, results of operations or cash flows.

Forward-Looking Information

The preceding "Management's Discussion and Analysis of Financial Condition and Results of Operations" section contains various "forward
looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which represent the Company's reasonable
judgment concerning the future and are subject to risks and uncertainties that could cause the Company's actual operating results and financial position to differ materially, including the following:
the Company being able to see continued progress in its restructuring efforts, the timing of such restructuring efforts, and the fact that the restructuring efforts will result in positive financial
results in the future; the Company's expectation that it will be able to resolve its liquidity challenges through negotiation with its lenders and through restructuring its business to reduce its cost
structure; the Company's expectation that it can successfully transfer its manufacturing operations without significantly disrupting its supply chain; the Company's expectations in the amounts of cost
savings to be achieved through restructuring the Company; the Company's expectations that it will be able to successfully negotiate new covenants with its lender on terms favorable to the Company; in
the future the Company's ability to negotiate a potential strategic alternative, if at all; the Company's expectation that it will continue to experience fluctuations in its sales, gross margins and
profitability from quarter to quarter consistent with prior periods; the Company's expectation that contingent liabilities will not have a material effect on the Company's financial position or
results of operations; the Company's expectation that operating cash flow and bank borrowing capacity in connection with the Company's business should provide sufficient liquidity for the Company's
obligations for at least the next twelve months.

ITEM 3.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

The Company's management (with the participation of our Chief Executive Officer and Chief Financial Officer) evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as of the quarter ended November 30, 2008. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, have been or will be detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their
objectives.

The
Company's Chief Executive Officer and Chief Financial Officer concluded, based on their evaluation, that the Company's disclosure controls and procedures are effective for the
Company as of the end of the period covered by this report.

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PART IIOTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Not applicable.

ITEM 1A.    RISK FACTORS

Not applicable.

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

Not applicable.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5.    OTHER INFORMATION

Not applicable.

ITEM 6.    EXHIBITS

Exhibit No.

DescriptionExhibit 31.1

Sarbanes-Oxley Act Section 302 Certification by Steven L. Muellner*Exhibit 31.2

Sarbanes-Oxley Act Section 302 Certification by Paul E. Ross*Exhibit 32.1

Sarbanes-Oxley Act Section 906 Certification by Steven L. Muellner*Exhibit 32.2

Sarbanes-Oxley Act Section 906 Certification by Paul E. Ross*


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

MEADE INSTRUMENTS CORP.Dated: January 16, 2009

By:

/s/ STEVEN L. MUELLNER Steven L. Muellner President and Chief Executive OfficerBy:

/s/ PAUL E. ROSS Paul E. Ross Senior Vice PresidentFinance and
Chief Financial Officer


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