##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended May 31, 2009
 or
 o
    
    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.)27 Hubble, Irvine, CA
(Address of principal executive offices)
    
    92618
(Zip Code)
 (949) 451-1450
(Registrants telephone number, including area code)
 Yes þ No o
 o o
  Non-accelerated filer o
    
    Large Accelerated filer o
    
    Accelerated filer o
    
    Smaller reporting company þ
 Yes o No þ




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##### 



MEADE INSTRUMENTS CORP.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED
May 31, 2009
 TABLE OF CONTENTS
 Page No.PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets (Unaudited)  May 31, 2009 and February 28, 2009
    
    
    2Consolidated Statements of Operations (Unaudited)  Three Months Ended May 31, 2009 and 2008
    
    
    3Consolidated Statements of Cash Flows (Unaudited)  Three Months Ended May 31, 2009 and 2008
    
    
    4Notes to Consolidated Financial Statements (Unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosure abut Market Risk
    
    
    20Item 4T. Controls and Procedures
    
    
    21PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. Submission of matters to a vote of security holders
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    22Signatures
    
    
    23Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS.
 MEADE INSTRUMENTS CORP.
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share data)
 (Unaudited)
 May 31,
    
    
    February 28,2009
    
    
    2009ASSETSCurrent assets:Cash
    
    $
    4,428
    
    
    $
    5,890Restricted cash
    
    
    500
    
    
    
    700Accounts receivable, less allowance for
doubtful accounts of $604 at May 31,
2009 and $529 at February 28, 2009
    
    
    3,159
    
    
    
    2,488Inventories, net
    
    
    8,241
    
    
    
    8,895Prepaid expenses and other current assets
    
    
    735
    
    
    
    553Total current assets
    
    
    17,063
    
    
    
    18,526Property and equipment, net
    
    
    566
    
    
    
    665Acquisition-related intangible assets, net
    
    
    1,175
    
    
    
    1,217Other assets, net
    
    
    177
    
    
    
    158$
    18,981
    
    
    $
    20,566LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,634
    
    
    $
    1,702Accrued liabilities
    
    
    2,322
    
    
    
    2,630Accrued lease termination fee
    
    
    500
    
    
    
    700Total current liabilities
    
    
    4,456
    
    
    
    5,032Deferred rent
    
    
    4
    
    
    
    Commitments and contingenciesStockholders equity:Common stock; $0.01 par value; 50,000
shares authorized; 23,346 and 23,377
shares issued and outstanding at May 31,
2009 and February 28, 2009, respectively
    
    
    233
    
    
    
    233Additional paid-in capital
    
    
    51,395
    
    
    
    51,317Retained deficit
    
    
    (37,107
    )
    
    
    (35,941
    )Deferred stock compensation
    
    
    
    
    
    
    (75
    )Total stockholders equity
    
    
    14,521
    
    
    
    15,534$
    18,981
    
    
    $
    20,566
   2




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MEADE INSTRUMENTS CORP.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, expect per share data)
 (Unaudited)
 Three Months EndedMay 31,2009
    
    
    2008Net sales
    
    $
    4,233
    
    
    $
    7,165Cost of sales
    
    
    3,120
    
    
    
    6,275Gross profit
    
    
    1,113
    
    
    
    890Selling
    
    
    617
    
    
    
    1,169General and administrative
    
    
    1,424
    
    
    
    2,412Research and development
    
    
    257
    
    
    
    283ESOP contribution expense
    
    
    
    
    
    
    39Gain on brand sales
    
    
    
    
    
    
    (4,468
    )Operating (loss) income
    
    
    (1,185
    )
    
    
    1,455Interest (income) expense, net
    
    
    (6
    )
    
    
    90(Loss) income before income taxes
    
    
    (1,179
    )
    
    
    1,365Income tax benefit
    
    
    (13
    )
    
    
    (183
    )(Loss) income from continuing operations
    
    
    (1,166
    )
    
    
    1,548Income from discontinued operations, net of tax
    
    
    
    
    
    
    209Net (loss) income
    
    $
    (1,166
    )
    
    $
    1,757(Loss) income from continuing operations per sharebasic and diluted
    
    $
    (0.05
    )
    
    $
    0.07Income from discontinued operations, net of tax per sharebasic and diluted
    
    $
    
    
    
    $
    0.01Net (loss) income per sharebasic and diluted
    
    $
    (0.05
    )
    
    $
    0.08Weighted average common shares outstandingbasic and diluted
    
    
    23,357
    
    
    
    23,337
   3




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MEADE INSTRUMENTS CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Three Months EndedMay 31,2009
    
    
    2008Cash flows from operating activities:Net (loss) income
    
    $
    (1,166
    )
    
    $
    1,757Income from discontinued operations, net of tax
    
    
    
    
    
    
    209(Loss) income from continuing operations
    
    
    (1,166
    )
    
    
    1,548Adjustments to reconcile (loss) income from
continuing operations to net cash used in
operating activities:Gain on brand sales
    
    
    
    
    
    
    (4,468
    )Depreciation and amortization
    
    
    123
    
    
    
    268ESOP contribution
    
    
    
    
    
    
    110Allowance for doubtful accounts
    
    
    74
    
    
    
    8Deferred income taxes
    
    
    
    
    
    
    793Stock-based compensation
    
    
    153
    
    
    
    70Deferred rent amortization
    
    
    4
    
    
    
    96Gain on sale of fixed assets
    
    
    (3
    )
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (745
    )
    
    
    1,592Inventories
    
    
    650
    
    
    
    1,671Prepaid expenses and other current assets
    
    
    (182
    )
    
    
    (43
    )Accounts payable
    
    
    (68
    )
    
    
    (3,691
    )Accrued lease termination fee
    
    
    (200
    )
    
    
    Accrued liabilities
    
    
    (304
    )
    
    
    (1,569
    )Net cash used in operating activities
    
    
    (1,664
    )
    
    
    (3,615
    )Cash flows from investing activities:Proceeds from brand sales
    
    
    
    
    
    
    8,000Capital expenditures
    
    
    (1
    )
    
    
    (52
    )Reduction in restricted cash
    
    
    200
    
    
    
    Proceeds from sale of fixed assets
    
    
    3
    
    
    
    Net cash provided by investing activities
    
    
    202
    
    
    
    7,948Cash flows from financing activities:Net payments under bank lines of credit
    
    
    
    
    
    
    (5,195
    )Net cash used in financing activities
    
    
    
    
    
    
    (5,195
    )Cash flows from discontinued operations
    
    
    
    
    
    
    1,500Net increase (decrease) in cash
    
    
    (1,462
    )
    
    
    638Cash at beginning of period
    
    
    5,890
    
    
    
    970Cash at end of period
    
    $
    4,428
    
    
    $
    1,608
   4




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MEADE INSTRUMENTS CORP.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 A. The Consolidated Financial Statements Have Been Prepared by the Company and are Unaudited.
   B. Liquidity
     May 31,
    
    
    February 28,2009
    
    
    2009(In thousands)Current Ratio:Current assets
    
    $
    17,063
    
    
    $
    18,526Current liabilities
    
    $
    4,456
    
    
    $
    5,032Current ratio
    
    
    3.83
    
    
    
    3.68Quick Ratio:Current assets
    
    $
    17,063
    
    
    $
    18,526Inventories, net
    
    $
    (8,241
    )
    
    $
    (8,895
    )Quick assets
    
    $
    8,822
    
    
    $
    9,631Current liabilities
    
    $
    4,456
    
    
    $
    5,032Quick ratio
    
    
    1.98
    
    
    
    1.91Debt to Equity Ratio:Total liabilities
    
    $
    4,460
    
    
    $
    5,032Total equity
    
    $
    14,521
    
    
    $
    15,534Debt to equity ratio
    
    
    0.31
    
    
    
    0.32
  5




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MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
    C. Discontinued Operations
  Accounting for the Impairment or Disposal of
Long-Lived Assets
  Three Months EndedMay 31, 2008(in thousands)Net sales
    
    $
    4,807Cost of sales
    
    
    3,130Gross profit
    
    
    1,677Operating expenses
    
    
    1,366Operating income from discontinued operations
    
    
    311Gain on brand sales
    
    
    (164
    )Interest expense, net
    
    
    (1
    )Income from discontinued operations before income taxes
    
    
    476Provision for income taxes
    
    
    267Income from discontinued operations, net of tax
    
    $
    209
 D. Gain on Brand Sales
  Accounting for the Impairment or Disposal of Long-Lived Assets
  6




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MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
 E. Restructuring Costs
  EmployeeTermination
    
    
    FacilityBenefits
    
    
    Closure
    
    
    TotalAccrued restructuring costs at February 28, 2009
    
    $
    0.3
    
    
    $
    0.7
    
    
    $
    1.0Payments
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    (0.5
    )Accrued restructuring costs at May 31, 2009
    
    $
    
    
    
    $
    0.5
    
    
    $
    0.5
   Amount(In millions)August 1, 2009
    
    $
    0.2November 1, 2009
    
    
    0.3Total
    
    $
    0.5
 F. Stock Based Compensation
 Share-Based Payment
   7




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MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
  Expected life (1)
    
    
    5.5Expected volatility (2)
    
    
    103
    %Risk-free interest rate (3)
    
    
    2.3
    %Expected dividends
    
    None
 
 (1)
    
    The option term is expressed in years and was determined using the simplified method for
estimating expected option life.(2)
    
    The stock volatility for each grant is measured using the weighted average of historical
daily price changes of the Companys common stock over the most recent period equal to the
expected option life of the grant, adjusted for activity which is not expected to occur in the
future.(3)
    
    The risk-free interest rate for periods equal to the expected term of the share option is
based on the U.S. Treasury yield curve in effect at the time of grant.   G. Composition of Certain Balance Sheet Accounts
  May 31,
    
    
    February 28,2009
    
    
    2009(In thousands)Due from factor
    
    $
    993
    
    
    $
    Accounts receivables, other
    
    
    2,166
    
    
    
    2,488$
    3,159
    
    
    $
    2,488
   May 31,
    
    
    February 28,2009
    
    
    2009(In thousands)Raw materials
    
    $
    3,784
    
    
    $
    4,824Work-in-process
    
    
    1,953
    
    
    
    2,399Finished goods
    
    
    2,504
    
    
    
    1,672$
    8,241
    
    
    $
    8,895
  8




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MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
  Amortization
    
    
    May 31, 2009
    
    
    February 28, 2009Periods
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    Accumulated(In Years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(In thousands)Trademarks
    
    
    7-15
    
    
    $
    424
    
    
    $
    (263
    )
    
    $
    424
    
    
    $
    (254
    )Completed technologies
    
    
    12
    
    
    
    1,620
    
    
    
    (606
    )
    
    
    1,620
    
    
    
    (573
    )Total
    
    
    
    
    
    $
    2,044
    
    
    $
    (869
    )
    
    $
    2,044
    
    
    $
    (827
    )
  AmountsFiscal Year
    
    (In thousands)2010 (remaining nine months)
    
    $
    1282011
    
    
    1712012
    
    
    1712013
    
    
    1712014
    
    
    171Thereafter
    
    
    363Total
    
    $
    1,175
  May 31,
    
    
    February 28,2009
    
    
    2009(In thousands)Molds and dies
    
    $
    7,020
    
    
    $
    7,020Machinery and equipment
    
    
    4,850
    
    
    
    4,873Furniture and fixtures
    
    
    256
    
    
    
    357Autos and trucks
    
    
    199
    
    
    
    199Leasehold improvements
    
    
    138
    
    
    
    13812,463
    
    
    
    12,587Less accumulated depreciation and amortization
    
    
    (11,897
    )
    
    
    (11,922
    )$
    566
    
    
    $
    665
 H. Commitments and Contingencies
  I. Income (Loss) Per Share
   9




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MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
  May 31,
    
    
    February 28,2009
    
    
    2009(in thousands)Stock options outstanding
    
    
    1,097
    
    
    
    1,415Restricted shares outstanding
    
    
    
    
    
    
    30
  Three Months EndedMay 31,2009
    
    
    2008(in thousands)Basic weighted average number of shares
    
    
    23,357
    
    
    
    23,337Dilutive potential shares of common stock
    
    
    
    
    
    
    Diluted weighted average number of shares outstanding
    
    
    23,357
    
    
    
    23,337Number 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
    
    
    1,097
    
    
    
    2,078Potential shares of common stock excluded from the
calculation of weighted average shares
    
    
    
    
    
    
    
  J. Product Warranties
  Three Months EndedMay 31,2009
    
    
    2008(in thousands)Beginning balance
    
    $
    985
    
    
    $
    1,066Warranty accrual
    
    
    (53
    )
    
    
    39Labor and material usage
    
    
    (31
    )
    
    
    (51
    )Ending balance
    
    $
    901
    
    
    $
    1,054
 K. Employee Stock Ownership Plan (ESOP)
   10




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MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
 L. Income Taxes
  Accounting for Income Taxes
    M. Recent Accounting Pronouncements
 The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles  A Replacement of FASB Statement No.
162
 Subsequent Events
 1.
    
    The period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements.2.
    
    The circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements.3.
    
    The disclosures that an entity should make about events or transactions that occurred
after the balance sheet date.
  11




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MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
  Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly Fair Value Measurements
 Recognition and Presentation of Other-Than-Temporary Impairments
 Interim
Disclosures about Fair Value of Financial Instruments Disclosures about Fair
Value of Financial Instruments
 Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies Business
Combinations
  12




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MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
 Determination of the Useful Life
of Intangible Assets Goodwill and Other Intangible Assets
 Business Combinations
  13




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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 discussion contain 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
    Accounting for the Impairment or Disposal
of Long-Lived Assets
   14




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Critical Accounting Policies and Estimates
  Revenue Recognition
 Revenue Recognition in Financial Statements
 Inventories
  Goodwill and Intangible Assets
 Goodwill and
Intangible Assets
 Income taxes
   15




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Results of Operations
 th
 Three Months Ended May 31, 2009 Compared to Three Months Ended May 31, 2008
       16




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Seasonality
  Liquidity and Capital Resources
     17




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May 31,
    
    
    February 28,2009
    
    
    2009(In thousands)Current Ratio:Current assets
    
    $
    17,063
    
    
    $
    18,526Current liabilities
    
    $
    4,456
    
    
    $
    5,032Current ratio
    
    
    3.83
    
    
    
    3.68Quick Ratio:Current assets
    
    $
    17,063
    
    
    $
    18,526Inventories, net
    
    $
    (8,241
    )
    
    $
    (8,895
    )Quick assets
    
    $
    8,822
    
    
    $
    9,631Current liabilities
    
    $
    4,456
    
    
    $
    5,032Quick ratio
    
    
    1.98
    
    
    
    1.91Debt to Equity Ratio:Total liabilities
    
    $
    4,460
    
    
    $
    5,032Total equity
    
    $
    14,521
    
    
    $
    15,534Debt to equity ratio
    
    
    0.31
    
    
    
    0.32
     Inflation
   18




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New Accounting Pronouncements
 The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles  A Replacement of FASB Statement No.
162
 Subsequent Events
 1.
    
    The period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements.
 2.
    
    The circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements.
 3.
    
    The disclosures that an entity should make about events or transactions that occurred
after the balance sheet date.
  Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly Fair Value Measurements
 Recognition and Presentation of Other-Than-Temporary Impairments
 Interim
Disclosures about Fair Value of Financial Instruments Disclosures about Fair
Value of Financial Instruments
  19




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Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies Business
Combinations
 Determination of the Useful Life
of Intangible Assets Goodwill and Other Intangible Assets
 Business Combinations
 Forward-Looking Information
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
   20




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ITEM 4T. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
   Changes in Internal Control over Financial Reporting
   21




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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 Exhibit No.
    
    Exhibit Title or Description31.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification  Principal Executive Officer*31.2
    
    
    Rule 13a-14(a)/15d-14(a) Certification  Principal Financial Officer*32.1
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002  Chief
Executive Officer*32.2
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002  Chief
Financial Officer*
 
 *
    
    Filed herewith  22




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SIGNATURES
  MEADE INSTRUMENTS CORP.Dated: July 15, 2009
    By:
    /s/ STEVEN G. MURDOCKSteven G. MurdockChief Executive OfficerBy:
    /s/ JOHN A. ELWOODJohn A. ElwoodSenior Vice President  Finance and
Administration, Chief Financial Officer  23




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EXHIBIT INDEX
 Exhibit No.
    
    Exhibit Title or Description31.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification  Principal Executive Officer31.2
    
    
    Rule 13a-14(a)/15d-14(a) Certification  Principal Financial Officer32.1
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002  Chief
Executive Officer32.2
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002  Chief
Financial Officer
  24