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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 August 31, 2010
 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
    
    95-2988062(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)27 Hubble, Irvine, CA
    
    92618(Address of principal executive offices)
    
    (Zip Code)
 (949) 451-1450
(Registrants telephone number, including area code)
 þ o
 o o
  Non-accelerated filer o
    
    Large Accelerated filer o
    
    Accelerated filer o
    
    Smaller reporting company þ
 o þ




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MEADE INSTRUMENTS CORP.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED
August 31, 2010
 TABLE OF CONTENTS
 Page No.PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets (Unaudited)  August 31, 2010 and February 28, 2010
    
    
    2Consolidated Statements of Operations (Unaudited)  Three and Six Months Ended August 31,
2010 and 2009
    
    
    3Consolidated Statements of Cash Flows (Unaudited)  Six Months Ended August 31, 2010 and 2009
    
    
    4Notes to Consolidated Financial Statements (Unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    16Item 4T. Controls and Procedures
    
    
    16PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    17Item 1A. Risk Factors
    
    
    17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    17Item 3. Defaults Upon Senior Securities
    
    
    17Item 4. Reserved
    
    
    17Item 5. Other Information
    
    
    17Item 6. Exhibits
    
    
    17Signatures
    
    
    18Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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ITEM 1. FINANCIAL STATEMENTS.
 MEADE INSTRUMENTS CORP.
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share data)
 (Unaudited)
 August 31,
    
    
    February 28,2010
    
    
    2010ASSETSCurrent assets:Cash
    
    $
    2,879
    
    
    $
    5,055Accounts receivable, less allowance for
doubtful accounts of $416 at August 31,
2010 and February 28, 2010
    
    
    5,008
    
    
    
    2,183Inventories
    
    
    7,196
    
    
    
    7,494Prepaid expenses and other current assets
    
    
    457
    
    
    
    273Total current assets
    
    
    15,540
    
    
    
    15,005Property and equipment, net
    
    
    343
    
    
    
    496Acquisition-related intangible assets, net
    
    
    961
    
    
    
    1,046Other assets, net
    
    
    137
    
    
    
    109$
    16,981
    
    
    $
    16,656LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,265
    
    
    $
    1,711Accrued liabilities
    
    
    2,320
    
    
    
    2,324Total current liabilities
    
    
    5,585
    
    
    
    4,035Deferred rent
    
    
    20
    
    
    
    16Commitments and contingenciesStockholders equity:Common stock; $0.01 par value; 2,500
shares authorized; 1,167 shares issued
and outstanding at August 31, 2010 and
February 28, 2010
    
    
    12
    
    
    
    12Additional paid-in capital
    
    
    52,449
    
    
    
    52,249Accumulated deficit
    
    
    (41,085
    )
    
    
    (39,656
    )Total stockholders equity
    
    
    11,376
    
    
    
    12,605$
    16,981
    
    
    $
    16,656
   2




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MEADE INSTRUMENTS CORP.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, expect per share data)
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedAugust 31,
    
    
    August 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net sales
    
    $
    7,096
    
    
    $
    7,597
    
    
    $
    12,598
    
    
    $
    11,830Cost of sales
    
    
    5,916
    
    
    
    6,300
    
    
    
    10,284
    
    
    
    9,420Gross profit
    
    
    1,180
    
    
    
    1,297
    
    
    
    2,314
    
    
    
    2,410Selling
    
    
    607
    
    
    
    707
    
    
    
    1,160
    
    
    
    1,324General and administrative
    
    
    952
    
    
    
    1,570
    
    
    
    2,188
    
    
    
    2,994Research and development
    
    
    193
    
    
    
    150
    
    
    
    397
    
    
    
    407Operating loss
    
    
    (572
    )
    
    
    (1,130
    )
    
    
    (1,431
    )
    
    
    (2,315
    )Interest income
    
    
    (1
    )
    
    
    (21
    )
    
    
    (2
    )
    
    
    (27
    )Loss before income taxes
    
    
    (571
    )
    
    
    (1,109
    )
    
    
    (1,429
    )
    
    
    (2,288
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )Net loss
    
    $
    (571
    )
    
    $
    (1,109
    )
    
    $
    (1,429
    )
    
    $
    (2,275
    )Net loss per sharebasic and diluted
    
    $
    (0.49
    )
    
    $
    (0.95
    )
    
    $
    (1.22
    )
    
    $
    (1.95
    )Weighted average common shares
outstandingbasic and diluted
    
    
    1,167
    
    
    
    1,167
    
    
    
    1,167
    
    
    
    1,167
   3




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MEADE INSTRUMENTS CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)   (Unaudited)
 Six Months EndedAugust 31,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (1,429
    )
    
    $
    (2,275
    )Adjustments to reconcile loss from continuing operations
to net cash used in operating activities:Depreciation and amortization
    
    
    270
    
    
    
    269Bad debt expense
    
    
    
    
    
    
    (54
    )Stock-based compensation
    
    
    200
    
    
    
    392Deferred rent amortization
    
    
    4
    
    
    
    8Gain on sale of fixed assets
    
    
    
    
    
    
    (3
    )Changes in assets and liabilities:Accounts receivable
    
    
    (2,825
    )
    
    
    (3,490
    )Inventories
    
    
    298
    
    
    
    190Prepaid expenses and other current assets
    
    
    (213
    )
    
    
    165Accounts payable
    
    
    1,554
    
    
    
    1,449Accrued lease termination fee
    
    
    
    
    
    
    (400
    )Accrued liabilities
    
    
    (4
    )
    
    
    (381
    )Net cash used in operating activities
    
    
    (2,145
    )
    
    
    (4,130
    )Cash flows from investing activities:Capital expenditures
    
    
    (31
    )
    
    
    (45
    )Reduction in restricted cash
    
    
    
    
    
    
    400Proceeds from sale of fixed assets
    
    
    
    
    
    
    3Net cash (used in) provided by investing activities
    
    
    (31
    )
    
    
    358Cash flows from financing activities
    
    
    
    
    
    
    Net decrease in cash
    
    
    (2,176
    )
    
    
    (3,772
    )Cash at beginning of period
    
    
    5,055
    
    
    
    5,890Cash at end of period
    
    $
    2,879
    
    
    $
    2,118
  
  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
     5




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MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
    C. Stock Based Compensation
 Share-Based Payment
   August 31,
    
    
    August 31,2010
    
    
    2009Expected life (1)
    
    
    3.8
    
    
    
    5.5Expected volatility (2)
    
    
    199
    %
    
    
    107
    %Risk-free interest rate (3)
    
    
    1.4
    %
    
    
    2.6
    %Expected dividends
    
    None
    
    
    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.  6




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MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
   D. Composition of Certain Balance Sheet Accounts
  August 31,
    
    
    February 28,2010
    
    
    2010(In thousands)Due from factor
    
    $
    5,415
    
    
    $
    2,359Accounts receivable, other
    
    
    (407
    )
    
    
    (176
    )$
    5,008
    
    
    $
    2,183
    August 31,
    
    
    February 28,2010
    
    
    2010(In thousands)Raw materials
    
    $
    3,362
    
    
    $
    2,957Work-in-process
    
    
    1,747
    
    
    
    2,426Finished goods
    
    
    2,087
    
    
    
    2,111$
    7,196
    
    
    $
    7,494
  Amortization
    
    August 31, 2010
    
    
    February 28, 2010Periods
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net Book
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net Book(In Years)
    
    Amount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    Value(In thousands)Trademarks
    
    7-15
    
    $
    424
    
    
    $
    (308
    )
    
    $
    116
    
    
    $
    424
    
    
    $
    (290
    )
    
    $
    134Completed
technologies
    
    12
    
    
    1,620
    
    
    
    (775
    )
    
    
    845
    
    
    
    1,620
    
    
    
    (708
    )
    
    
    912Total
    
    
    
    $
    2,044
    
    
    $
    (1,083
    )
    
    $
    961
    
    
    $
    2,044
    
    
    $
    (998
    )
    
    $
    1,046
  7




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MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
  AmortizingIntangibleAssets(In thousands)Balance, net, February 28, 2010
    
    $
    1,046Amortization
    
    
    (85
    )Balance, net, August 31, 2010
    
    $
    961
  AmountsFiscal Year
    
    (In thousands)2011 (remaining six months)
    
    $
    852012
    
    
    1712013
    
    
    1712014
    
    
    1622015
    
    
    135Thereafter
    
    
    237Total
    
    $
    961
  August 31,
    
    
    February 28,2010
    
    
    2010(In thousands)Molds and dies
    
    $
    7,339
    
    
    $
    7,317Machinery and equipment
    
    
    4,465
    
    
    
    4,455Furniture and fixtures
    
    
    256
    
    
    
    256Autos and trucks
    
    
    199
    
    
    
    199Leasehold improvements
    
    
    139
    
    
    
    13912,398
    
    
    
    12,366Less accumulated depreciation and amortization
    
    
    (12,055
    )
    
    
    (11,870
    )$
    343
    
    
    $
    496
 E. Commitments and Contingencies
  F. Reverse Stock Split and Income (Loss) Per Share
   8




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MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
   August 31,
    
    
    February 28,2010
    
    
    2010(In thousands)Stock options outstanding
    
    
    79
    
    
    
    78
  Six Months EndedAugust 31,2010
    
    
    2009(In thousands)Basic weighted average number of shares
    
    
    1,167
    
    
    
    1,167Dilutive potential shares of common stock
    
    
    
    
    
    
    Diluted weighted average number of shares
outstanding
    
    
    1,167
    
    
    
    1,167Number 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
    
    
    79
    
    
    
    55Potential shares of common stock excluded
from the calculation of weighted average
shares
    
    
    
    
    
    
    
   9




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MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
 G. Product Warranties
  Three Months Ended
    
    
    Six Months EndedAugust 31,
    
    
    August 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Beginning balance
    
    $
    859
    
    
    $
    901
    
    
    $
    883
    
    
    $
    985Warranty accrual
    
    
    82
    
    
    
    44
    
    
    
    144
    
    
    
    (8
    )Labor and material usage
    
    
    (77
    )
    
    
    (81
    )
    
    
    (163
    )
    
    
    (113
    )Ending balance
    
    $
    864
    
    
    $
    864
    
    
    $
    864
    
    
    $
    864
 H. Income Taxes
 Accounting for Income Taxes
     I. Recent Accounting Pronouncements
 The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles  A Replacement of FASB Statement No.
162
  10




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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
   Critical Accounting Policies and Estimates
  Revenue Recognition
   11




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Inventories
  Intangible Assets
 Business Combinations Goodwill
and Other Intangible Assets
 Income taxes
 Accounting for Income Taxes
      12




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Results of Operations
 st th
 Three Months Ended August 31, 2010 Compared to Three Months Ended August 31, 2009
       Six Months Ended August 31, 2010 Compared to Six Months Ended August 31, 2009
   13




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Seasonality
  Liquidity and Capital Resources
    14




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Inflation
  New Accounting Pronouncements
 The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles  A Replacement of FASB Statement No.
162
  15




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Forward-Looking Information
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 ITEM 4T. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
   Changes in Internal Control over Financial Reporting
   16




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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. RESERVED
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 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
  17




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SIGNATURES
  MEADE INSTRUMENTS CORP.Dated: October 14, 2010
    By:
    /s/ STEVEN G. MURDOCKSteven G. MurdockChief Executive OfficerBy:
    /s/ JOHN A. ELWOODJohn A. ElwoodSenior Vice President  Finance and
Administration, Chief Financial Officer  18




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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
  19