##### 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 August 31, 2005
 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
    
    95-2988062
(I.R.S. Employerof incorporation or organization)
    
    Identification No.)6001 Oak Canyon, Irvine, CA
    
    92618(Address of principal executive offices)
    
    (Zip Code)
 (949) 451-1450
(Registrants telephone number, including area code)
  þ o
  o þ
  o o




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MEADE INSTRUMENTS CORP.
 TABLE OF CONTENTS
 Page No.PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets (Unaudited)  August 31, 2005 and February 28, 2005
    
    
    1Consolidated Statements of Operations (Unaudited)  Three and Six Months Ended
August 31, 2005 and 2004
    
    
    2Consolidated Statements of Cash Flows (Unaudited)  Six Months Ended August 31, 2005 and 2004
    
    
    3Notes to Consolidated Financial Statements (Unaudited)
    
    
    4Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Quantitative and Qualitative Disclosures about Market Risk
    
    
    16Controls and Procedures
    
    
    16PART II  OTHER INFORMATIONLegal Proceedings
    
    
    17Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    17Defaults Upon Senior Securities
    
    
    17Submission of Matters to a Vote of Security Holders
    
    
    17Other Information
    
    
    17Exhibits
    
    
    17Signatures
    
    
    18EXHIBIT 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
 (Unaudited)
 August 31,
    
    
    February 28,2005
    
    
    2005ASSETSCurrent assets:Cash
    
    $
    962,000
    
    
    $
    3,929,000Accounts receivable, less allowance for doubtful accounts of
$655,000 at August 31, 2005 and $687,000 at February 28, 2005
    
    
    22,254,000
    
    
    
    17,549,000Inventories
    
    
    53,117,000
    
    
    
    47,149,000Deferred income taxes
    
    
    7,772,000
    
    
    
    6,738,000Prepaid expenses and other current assets
    
    
    1,047,000
    
    
    
    771,000Total current assets
    
    
    85,152,000
    
    
    
    76,136,000Goodwill
    
    
    2,115,000
    
    
    
    4,331,000Acquisition-related intangible assets, net
    
    
    5,338,000
    
    
    
    3,375,000Property and equipment, net
    
    
    5,875,000
    
    
    
    4,343,000Deferred income taxes
    
    
    329,000
    
    
    
    329,000Other assets, net
    
    
    324,000
    
    
    
    235,000$
    99,133,000
    
    
    $
    88,749,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank lines of credit
    
    $
    15,391,000
    
    
    $
    9,827,000Accounts payable
    
    
    12,940,000
    
    
    
    3,954,000Accrued liabilities
    
    
    7,760,000
    
    
    
    4,775,000Income taxes payable
    
    
    488,000
    
    
    
    3,225,000Current portion of long-term debt and capital lease obligations
    
    
    662,000
    
    
    
    776,000Total current liabilities
    
    
    37,241,000
    
    
    
    22,557,000Long-term debt and capital lease obligations
    
    
    851,000
    
    
    
    1,241,000Commitments and contingenciesStockholders equity:Common stock; $0.01 par value; 50,000,000 shares authorized;
20,004,000 and 20,002,000 shares issued and outstanding at August
31, 2005 and February 28, 2005, respectively
    
    
    200,000
    
    
    
    200,000Additional paid-in capital
    
    
    41,071,000
    
    
    
    40,442,000Retained earnings
    
    
    22,749,000
    
    
    
    25,016,000Deferred stock compensation
    
    
    (618,000
    )
    
    
    Accumulated other comprehensive (loss) income
    
    
    (499,000
    )
    
    
    1,374,00062,903,000
    
    
    
    67,032,000Unearned ESOP shares
    
    
    (1,862,000
    )
    
    
    (2,081,000
    )Total stockholders equity
    
    
    61,041,000
    
    
    
    64,951,000$
    99,133,000
    
    
    $
    88,749,000
  1




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MEADE INSTRUMENTS CORP.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedAugust 31,
    
    
    August 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    21,877,000
    
    
    $
    22,633,000
    
    
    $
    43,402,000
    
    
    $
    42,373,000Cost of sales
    
    
    16,883,000
    
    
    
    16,939,000
    
    
    
    32,429,000
    
    
    
    31,851,000Gross profit
    
    
    4,994,000
    
    
    
    5,694,000
    
    
    
    10,973,000
    
    
    
    10,522,000Selling expenses
    
    
    4,106,000
    
    
    
    3,850,000
    
    
    
    7,799,000
    
    
    
    7,252,000General and administrative
expenses
    
    
    3,059,000
    
    
    
    2,578,000
    
    
    
    5,957,000
    
    
    
    5,177,000ESOP expense
    
    
    79,000
    
    
    
    95,000
    
    
    
    171,000
    
    
    
    198,000Research and development expenses
    
    
    302,000
    
    
    
    442,000
    
    
    
    671,000
    
    
    
    967,000Operating loss
    
    
    (2,552,000
    )
    
    
    (1,271,000
    )
    
    
    (3,625,000
    )
    
    
    (3,072,000
    )Interest expense
    
    
    231,000
    
    
    
    199,000
    
    
    
    435,000
    
    
    
    350,000Loss before income taxes
    
    
    (2,783,000
    )
    
    
    (1,470,000
    )
    
    
    (4,060,000
    )
    
    
    (3,422,000
    )Benefit for income taxes
    
    
    (1,309,000
    )
    
    
    (589,000
    )
    
    
    (1,793,000
    )
    
    
    (1,382,000
    )Net loss
    
    $
    (1,474,000
    )
    
    $
    (881,000
    )
    
    $
    (2,267,000
    )
    
    $
    (2,040,000
    )Basic and diluted loss per share
    
    $
    (0.08
    )
    
    $
    (0.05
    )
    
    $
    (0.12
    )
    
    $
    (0.11
    )Weighted average number of shares
outstanding  basic and diluted
    
    
    19,317,000
    
    
    
    19,262,000
    
    
    
    19,285,000
    
    
    
    19,247,000
  2




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MEADE INSTRUMENTS CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months EndedAugust 31,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (2,267,000
    )
    
    $
    (2,040,000
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization expense
    
    
    1,149,000
    
    
    
    998,000ESOP contribution
    
    
    171,000
    
    
    
    198,000Changes in assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (4,931,000
    )
    
    
    2,162,000Increase in inventories
    
    
    (6,824,000
    )
    
    
    (16,068,000
    )Increase in prepaid expenses and other assets
    
    
    (441,000
    )
    
    
    (80,000
    )Increase in accounts payable
    
    
    9,319,000
    
    
    
    7,164,000Increase (decrease) in accrued liabilities
    
    
    805,000
    
    
    
    (1,966,000
    )Decrease in income taxes payable
    
    
    (2,729,000
    )
    
    
    (1,630,000
    )Net cash used in operating activities
    
    
    (5,748,000
    )
    
    
    (11,262,000
    )Cash flows from investing activities:Capital expenditures
    
    
    (2,542,000
    )
    
    
    (216,000
    )Net cash used in investing activities
    
    
    (2,542,000
    )
    
    
    (216,000
    )Cash flows from financing activities:Net borrowings under bank lines of credit
    
    
    5,590,000
    
    
    
    10,290,000Payments on long-term bank notes
    
    
    (438,000
    )
    
    
    (285,000
    )Payments under capital lease obligations
    
    
    (7,000
    )
    
    
    Net cash provided by financing activities
    
    
    5,145,000
    
    
    
    10,005,000Effect of exchange rate changes on cash
    
    
    178,000
    
    
    
    (332,000
    )Net decrease in cash
    
    
    (2,967,000
    )
    
    
    (1,805,000
    )Cash at beginning of period
    
    
    3,929,000
    
    
    
    7,806,000Cash at end of period
    
    $
    962,000
    
    
    $
    6,001,000Noncash investing and financing activities:Issuance of restricted stock
    
    $
    681,000
    
    
    
    Financed purchase of equipment under capital lease
    
    
    21,000
    
    
    
    
  3




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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. Stock Based Compensation
  Three months ended
    
    
    Six months endedAugust 31,
    
    
    August 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Reported net loss
    
    $
    (1,474,000
    )
    
    $
    (881,000
    )
    
    $
    (2,267,000
    )
    
    $
    (2,040,000
    )Add back restricted stock compensation expense recognized, net of tax
    
    
    31,000
    
    
    
    
    
    
    
    35,000
    
    
    
    Compensation expense determined under fair value
method, net of tax
    
    
    (118,000
    )
    
    
    (275,000
    )
    
    
    (213,000
    )
    
    
    (513,000
    )Pro forma net loss
    
    $
    (1,561,000
    )
    
    $
    (1,156,000
    )
    
    $
    (2,445,000
    )
    
    $
    (2,553,000
    )Reported net
loss per share  basic
and diluted
    
    $
    (0.08
    )
    
    $
    (0.05
    )
    
    $
    (0.12
    )
    
    $
    (0.11
    )Pro forma
net loss per share  basic and diluted
    
    $
    (0.08
    )
    
    $
    (0.06
    )
    
    $
    (0.13
    )
    
    $
    (0.13
    )
  Three months ended
    
    
    Six months endedAugust 31,
    
    
    August 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Weighted average expected life (years)
    
    
    6.0
    
    
    
    6.0
    
    
    
    6.0
    
    
    
    6.0Volatility
    
    
    33.1
    %
    
    
    69.3
    %
    
    
    33.1
    %
    
    
    69.3
    %Risk-free interest rate
    
    
    3.98
    %
    
    
    3.38
    %
    
    
    3.98
    %
    
    
    3.38
    %Expected dividends
    
    None
    
    None
    
    None
    
    NoneWeighted average fair value of options granted
    
    $
    2.28
    
    
    $
    1.99
    
    
    $
    2.28
    
    
    $
    1.99
 4




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C. Composition of Certain Balance Sheet Accounts
  August 31,
    
    
    February 28,2005
    
    
    2005Raw materials
    
    $
    8,017,000
    
    
    $
    7,449,000Work-in-process
    
    
    7,107,000
    
    
    
    6,023,000Finished goods
    
    
    37,993,000
    
    
    
    33,677,000$
    53,117,000
    
    
    $
    47,149,000
  August 31,
    
    
    February 28,2005
    
    
    2005Brand names
 non-amortizing
    
    $
    2,041,000
    
    
    $
    2,041,000Trademarks
    
    
    1,938,000
    
    
    
    1,398,000Customer relationships
    
    
    1,390,000
    
    
    
    1,390,000Completed technologies
    
    
    1,620,000
    
    
    
    Other
    
    
    56,000
    
    
    
    Accumulated amortization
    
    
    (1,707,000
    )
    
    
    (1,454,000
    )Total amortizing acquisition-related intangible assets
    
    
    3,297,000
    
    
    
    1,334,000Total acquisition-related intangible assets
    
    $
    5,338,000
    
    
    $
    3,375,000
  AmortizationAcquisition-related
    
    period
    
    Gross carryingintangible asset
    
    (in years)
    
    amountCompleted technologies
    
    
    12
    
    
    $
    1,620,000Trademarks
    
    
    9
    
    
    
    540,000Other
    
    
    1
    
    
    
    56,000Goodwill
    
    none
    
    
    
    567,000Total
    
    
    
    
    
    $
    2,783,000
  Fiscal Year
    
    Amount2006
    
    $
    565,0002007
    
    
    336,0002008
    
    
    336,0002009
    
    
    336,0002010
    
    
    336,000
  D. Commitments and Contingencies
  5




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E. Earnings (Loss) Per Share
  F. Comprehensive Income (Loss)
  Three months ended
    
    
    Six months endedAugust 31,
    
    
    August 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss
    
    $
    (1,474,000
    )
    
    $
    (881,000
    )
    
    $
    (2,267,000
    )
    
    $
    (2,040,000
    )Currency translation adjustments
    
    
    (122,000
    )
    
    
    (117,000
    )
    
    
    (514,000
    )
    
    
    (148,000
    )Change in fair value of interest rate swap, net of tax
    
    
    
    
    
    
    7,000
    
    
    
    
    
    
    
    15,000Change in fair value of foreign currency forward
contracts, net of tax
    
    
    539,000
    
    
    
    (441,000
    )
    
    
    (1,358,000
    )
    
    
    (839,000
    )Total other comprehensive loss
    
    $
    (1,057,000
    )
    
    $
    (1,432,000
    )
    
    $
    (4,139,000
    )
    
    $
    (3,012,000
    )
 G. Product Warranties
  Three months ended
    
    
    Six months endedAugust 31,
    
    
    August 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Beginning balance
    
    $
    1,183,000
    
    
    $
    1,204,000
    
    
    $
    1,173,000
    
    
    $
    1,427,000Warranty accrual
    
    
    24,000
    
    
    
    126,000
    
    
    
    186,000
    
    
    
    256,000Labor and material usage
    
    
    (105,000
    )
    
    
    (171,000
    )
    
    
    (257,000
    )
    
    
    (524,000
    )Ending balance
    
    $
    1,102,000
    
    
    $
    1,159,000
    
    
    $
    1,102,000
    
    
    $
    1,159,000
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H. Derivative Instruments and Hedging Activities
  August 31, 2005
    
    
    February 28, 2005Notional
    
    
    
    
    
    
    Notionalamount
    
    
    Fair Value
    
    
    amount
    
    
    Fair ValueForward currency contracts
    
    $
    10,194,000
    
    
    $
    (2,266,000
    )
    
    
    
    
    
    
    
  I. Bank Borrowings
     August 31, 2005
    
    
    February 28, 2005U.S. bank revolving line of credit
    
    $
    15,028,000
    
    
    $
    9,816,000European bank revolving line of credit
    
    
    363,000
    
    
    
    11,000Total bank lines of credit
    
    $
    15,391,000
    
    
    $
    9,827,000U.S. term loan
    
    $
    455,000
    
    
    $
    665,000European term loan no.1
    
    
    964,000
    
    
    
    1,129,000Notes payable and capital lease obligations
    
    
    94,000
    
    
    
    223,000Total debt and capital lease obligations
    
    
    1,513,000
    
    
    
    2,017,000Less current portion
    
    
    (662,000
    )
    
    
    (776,000
    )Total long-term debt and capital lease obligations
    
    $
    851,000
    
    
    $
    1,241,000
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J. Restricted stock
  K. New Accounting Pronouncements
  Accounting and Disclosure Guidance for
the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004
    8




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L. Reclassifications
  9




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 Results of Operations
  Overview
  Three Months Ended August 31, 2005 Compared to Three Months Ended August 31, 2004
     10




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Six Months Ended August 31, 2005 Compared to Six Months Ended August 31, 2004
       11




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Seasonality
  Liquidity and Capital Resources
    12




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New Accounting Pronouncements
  Accounting and Disclosure Guidance for
the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004
   13




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Forward-Looking Information
    
    
    a decline in general economic conditions;
    
    uncertainties affecting consumer spending; and
    
    changes in interest rates causing a reduction of investment income or in the value
of market interest rate sensitive instruments.
  
    
    the potential that we may be unable to obtain and maintain patents and copyrights
to protect our proprietary technologies;
    
    competitors infringement upon Meades existing and future intellectual property; and
    
    competitors intellectual property rights that may restrict our ability to compete effectively.
  
    
    a general decline in demand for the Companys products;
    
    an inability to continue to design and manufacture products that will achieve and maintain commercial success;
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
    
    the potential that we may fail to penetrate the binocular, riflescope and solar
observing markets and achieve meaningful sales;
    
    any significant interruption of our manufacturing abilities in our domestic or
Mexican facilities or in any of our suppliers located in the Far East;
    
    greater than anticipated competition;
    
    any loss of, or the failure to replace, any significant portion of the sales made
to any significant customer of the Company; and
    
    increasing ESOP charges in the event the market price of the Companys stock increases.
 
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   August 31, 2005
    
    
    February 28, 2005Notional amount
    
    
    Fair Value
    
    
    Notional amount
    
    
    Fair ValueForward currency contracts
    
    $
    10,194,000
    
    
    $
    (2,266,000
    )
    
    
    
    
    
    
    
   
 ITEM 4. CONTROLS AND PROCEDURES
    16




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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 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
   For
    
    WithheldRe-election of Vernon L. Fotheringham to the Companys
Board of Directors
    
    
    14,818,987
    
    
    
    218,667Re-election of Michael P. Hoopis to the Companys
Board of Directors
    
    
    14,818,987
    
    
    
    218,667
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  1.
    
    Exhibit 31.1 Sarbanes-Oxley Act Section 302 Certification by Steven G. Murdock2.
    
    Exhibit 31.2 Sarbanes-Oxley Act Section 302 Certification by Brent W. Christensen3.
    
    Exhibit 32.1 Sarbanes-Oxley Act Section 906 Certification by Steven G. Murdock4.
    
    Exhibit 32.2 Sarbanes-Oxley Act Section 906 Certification by Brent W. Christensen
 17




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SIGNATURES
   MEADE INSTRUMENTS CORP.By:
    
    /s/ STEVEN G. MURDOCKSteven G. MurdockPresident, Chief Executive Officer
and SecretaryBy:
    
    /s/ BRENT W. CHRISTENSENBrent W. ChristensenSenior Vice President, Finance and
Chief Financial Officer
 18




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EXHIBIT INDEX
 EXHIBIT NO.
    

DESCRIPTIONExhibit 31.1
    
    Sarbanes-Oxley Act Section 302 Certification by Steven G. MurdockExhibit 31.2
    
    Sarbanes-Oxley Act Section 302 Certification by Brent W. ChristensenExhibit 32.1
    
    Sarbanes-Oxley Act Section 906 Certification by Steven G. MurdockExhibit 32.2
    
    Sarbanes-Oxley Act Section 906 Certification by Brent W. Christensen