**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-K**

**ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

**(Mark One)**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**For the Fiscal Year Ended February 28, 2007**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Commission File No. 0-22183**

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**MEADE INSTRUMENTSCORP.**

(Exact Name of Registrant asSpecified in Its Charter)

| **Delaware**                                      | ** ** | **95-2988062**                    |
|---------------------------------------------------|------------|-----------------------------------|
| (State or Other  Jurisdiction of Incorporation or |       | (I.R.S. Employer  Identification) |
| Organization)                                     |       |                              |
| **6001  Oak Canyon, Irvine, California**          |       | **92618**                         |
| (Address of principal  executive offices)         |       | (Zip Code)                        |

 

Registrant’s telephonenumber, including area code: (949) 451-1450

**Securities registered pursuant to section 12(b) of the Act:**

|                                | **Title of Each Class** | ** **              | ** ** | ** ** | **Name of Each Exchange on Which Registered** | ** ** |
|--------------------------------|----------------------------------------|-------------------------|------------|------------|-----------------------------------------------------------------------------|------------|
| Common stock, $0.01 par  value |                                   | NASDAQ Stock Market LLC |

 

**Securities registeredpursuant to Section 12(g) of the Act:**

None

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No x

Indicate by check mark if the registrant is notrequired to file reports pursuant To Section 13 or Section 15(d) ofthe Act. Yes o   No x

Indicate by check mark if the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x   No o

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of Registrant’s knowledge in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and “largeaccelerated filer” in Rule 12(b)-2 of the Exchange Act.

| Large Accelerated Filer   o |   | Accelerated Filer   o |   | Non-accelerated Filer   x |
|---------------------------------------|--------|---------------------------------|--------|-------------------------------------|

 

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

As of August 31, 2006, the aggregate marketvalue of the shares of common stock held by non-affiliates of the Registrant,computed based on the closing sale price of $2.22 per share as reported byNASDAQ, was approximately $30 million.

Asof March 31, 2007, there were 20,086,355 outstanding shares of the Registrant’scommon stock, par value $0.01 per share.

 

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**TABLEOF CONTENTS**
|                   | ** ** | ** **                                                                                                          | ** ** | **Page** | ** ** |
|-------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| **PART I**   |       |
| Item 1            |       | Business                                                                                                            |       |     | 1          |   |
| Item 1.A.         |       | Risk Factors                                                                                                        |       |     | 12         |   |
| Item 2.           |       | Properties                                                                                                          |       |     | 18         |   |
| Item 3.           |       | Legal Proceedings                                                                                                   |       |     | 18         |   |
| Item 4.           |       | Submission of  Matters to a Vote of Security Holders                                                                |       |     | 20         |   |
| **PART II**  |       |
| Item 5.           |       | Market for Registrant’s  Common Equity, Related Stockholder Matters and Issuer Purchases of Equity  Securities |       |     | 21         |   |
| Item 6.           |       | Selected Financial  Data                                                                                            |       |     | 23         |   |
| Item 7.           |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |       |     | 24         |   |
| Item 7A.          |       | Quantitative  and Qualitative Disclosures About Market Risk                                                         |       |     | 36         |   |
| Item 8.           |       | Financial  Statements and Supplementary Data                                                                        |       |     | 37         |   |
| Item 9.           |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                               |       |     | 38         |   |
| Item 9A.          |       | Controls and  Procedures                                                                                            |       |     | 38         |   |
| Item 9B.          |       | Other Information                                                                                                   |       |     | 39         |   |
| **PART III** |       |
| Item 10.          |       | Directors,  Executive Officers and Corporate Governance                                                             |       |     | 40         |   |
| Item 11.          |       | Executive  Compensation                                                                                             |       |     | 41         |   |
| Item 12.          |       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters      |       |     | 41         |   |
| Item 13.          |       | Certain  Relationships and Related Transactions, and Director Independence                                          |       |     | 41         |   |
| Item 14.          |       | Principal  Accountant Fees and Services                                                                             |       |     | 41         |   |
| **PART IV**  |       |
| Item 15.          |       | Exhibits and  Financial Statement Schedules                                                                         |       |     | 42         |   |

 
| **CONSOLIDATED FINANCIAL STATEMENTS AND NOTES**                                                                                                          |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Report of Independent Registered Public Accounting  Firm                                                                                                 |   | F-1 |   |
| Report of Independent Registered Public Accounting  Firm                                                                                                 |   | F-2 |   |
| Consolidated  Balance Sheets at February 28, 2007 and 2006                                                                                          |   | F-3 |   |
| Consolidated  Statements of Operations for the three years in the period ended  February 28, 2007                                                   |   | F-4 |   |
| Consolidated Statements of Stockholders’ Equity for  the three years in the period ended February 28, 2007       |   | F-5 |   |
| Consolidated Statements of Cash Flows for the three  years in the period ended February 28, 2007                                                    |   | F-6 |   |
| Notes to Consolidated Financial Statements                                                                                                               |   | F-7 |   |

 

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**PART I**

**Item 1.**                        *Business*

**General**

Meade Instruments Corp. (“Meade”or the “Company”) is a multinational consumer optics company that designs,manufactures, imports and distributes telescopes, telescope accessories,binoculars, riflescopes, spotting scopes, microscopes, and other consumeroptical products. Meade is dedicated to bringing innovative, cutting-edge,consumer-friendly products to the consumer optics marketplace. The Company’sbrands, which include Meade®, Bresser®,Simmons®, Weaver®, Redfield®, and Coronado®, are recognized throughout the world andare associated with innovation in the amateur astronomy, consumer optical andsporting goods markets. Products such as the recently announced mySKYTM, an easyto-use multi-media night sky exploration guide, the RCX400TM high-end telescopesfeaturing an Advanced Ritchey-Chrétien (“ARC”) optical design, the LX200®R series of telescopes thatcombine the state-of-the-art LX200 with the precision of the ARC optics, theLX90GPSTM that brings GPS capabilities to a moderately priced Schmidt-Cassegraintelescope, the Deep Sky ImagerTM (“DSI”) series of high-performancecharge-coupled device (“CCD”) cameras that have advanced astro-imaging to nearpoint-and-shoot simplicity, and NightViewTM, a compact night vision monocularbuilt on an innovative and proprietary digital imaging technology, help sustainthe Meade brand as a brand known for innovation in amateur astronomy and otherconsumer optical products. The Bresser brand, active in the European market fornearly 30 years, is known for its wide range of modestly-priced productsincluding binoculars and smaller-aperture telescopes. In October 2002, theCompany acquired Simmons Outdoor Corp. (“Simmons Outdoor”) to expand its brandname offerings and extend its reach into the worldwide sporting goodsmarketplace. With the purchase of Simmons Outdoor the Company acquired theSimmons, Weaver and Redfield brand names. The Simmons, Weaver and Redfieldbrand names have long histories in the sporting goods channel (the Redfield brandname will be 100 years old next year). In December 2004, in its continuingefforts to expand the Company’s product offerings, the Company purchasedsubstantially all of the assets and assumed substantially all of theliabilities of Coronado Technology Group, LLC, a supplier of high-endhydrogen-alpha solar filters and high-end dedicated solar telescopes, as wellas various related accessories and more modestly priced dedicated solarobservation equipment.

The Company offersnumerous different telescope, riflescope and binocular models as well ashundreds of accessory products for amateur astronomy and sporting goodsconsumers. The Company’s telescopes range in aperture from under 2 inches to 20inches and in retail price from less than $50 to almost $50,000. The Companyoffers several families of binoculars and riflescopes under its various brandnames at retail price points from about $10 to approximately $500. Whether aconsumer is a serious amateur astronomer, an avid naturalist, a hunter orsomeone just looking for a good binocular, Meade offers a complete range ofquality products to satisfy the consumer optics buyer.

Founded in 1972, Meade hasa reputation for providing the amateur astronomer with technicallysophisticated products at competitive prices. Combining its manufacturingexpertise with its dedication to innovation, quality and value, Meade hasdeveloped and produced some of the industry’s most technologically advancedconsumer telescopes at affordable prices. Capitalizing on its brand name recognitionamong serious amateur astronomers and its ability to bring advanced technologyto lower price points, the Company has marketed its less-expensive telescopesto beginning and intermediate amateur astronomers. The Company is a supplier ofconsumer optics to such retailers as Lidl (in Europe), Wal-Mart, Costco, Dick’sSporting Goods, Sam’s Club and Cabela’s Inc.

Meade has consistentlyemphasized a business plan that is concentrated on new product development andeffective targeted marketing. As an indication of its commitment to productdevelopment, the Company spent $1.8 million, $1.5 million and $2.0 million onresearch and development during fiscal 2007, 2006 and 2005, respectively, andhas, over the last five fiscal years, expended $10.8 million in the aggregate 

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onresearch and development. These research and development expenditures werecentered on the development of technologically advanced telescopes and otherastronomy related products, breakthrough riflescopes for the shooting andhunting markets and other new products for the general consumer and sportsoptics markets as well as product improvement and industrial applications ofthe Company’s existing technologies.

The Company manufactures acomplete line of advanced astronomical telescopes. Parts and components for theadvanced telescopes are manufactured and assembled in various plants located inthe United States, Mexico, Taiwan and China. The advanced optical systems aremanufactured in a company-owned plant in Irvine, California. Many of theCompany’s less-expensive telescopes and its binoculars and riflescopes, as wellas certain component parts for its small to midrange telescopes, aremanufactured under proprietary designs by manufacturers located in Asia,including mainland China, Taiwan, Korea, and Japan. The Company also assemblesmany of its products and accessories into finished products in the Company’sMexican assembly plant (See Item 2. Properties).

The Company complementsits efforts in new product development with an aggressive marketing plan. TheCompany’s marketing plan includes a state-of-the-art web site, printadvertising in astronomy, outdoor and hunting related magazines and, at times,in general consumer magazines, as well as jointly developed advertisingcampaigns with many of the Company’s key retail partners, and point-of-salemarketing displays. In addition, Meade publishes comprehensive, full-color,high-quality product catalogs that provide significant product exposure for abroad range of consumers including the serious amateur astronomer, the avidbirder, the weekend sports enthusiast or the hunter.

On September 1, 1999the Company acquired 100% of the equity interests in Bresser Optik GmbH &Co. KG and Bresser Optik Geschaftsfuhrung und Verwaltungs GmbH (collectively “Bresser”),for $5.0 million in cash and 201,830 shares of the Company’s common stockvalued at approximately $2.0 million. Bresser is a German distributor ofbinoculars, telescopes, microscopes and other consumer optical products.Bresser has provided the Company greater foreign distribution opportunities forthe Company’s products. Moreover, Bresser’s significant presence in thebinocular and low-priced telescope market in Europe has strengthened theCompany’s penetration into these markets. The cost structure at Meade Europe(formerly Bresser), operating as a distribution company with the majority ofits sales coming from product manufactured in Asia, has resulted in steadyprofitability for these operations since the Company acquired Bresser in 1999.In January 2000, the Company also purchased what was formerly its Germandistributor for approximately $1.1 million cash.

On October 25, 2002,the Company acquired 100% of the outstanding common stock of Simmons OutdoorCorp. for $20.8 million cash ($16.0 million was paid at close; the balance waspaid in December, 2002). Simmons Outdoor, a designer and distributor ofriflescopes, binoculars and other consumer sports optics, offers products underthe Simmons, Weaver and Redfield brand names. To fund a portion of the purchaseprice, the Company sold 3,292,000 shares of its common stock in a privateplacement for net cash proceeds of $7.3 million. The balance of the purchaseprice was funded through borrowings on the Company’s bank line of credit.

On December 1, 2004,the Company acquired substantially all of the assets and assumed substantiallyall of the liabilities of Coronado Technology Group, LLC, for approximately$2.5 million in cash plus contingent consideration. A final payment ofapproximately $1 million was paid in May 2006, based upon the financialperformance of the acquired operations for the twelve months ended December 31,2005. Coronado is a supplier of high-quality hydrogen-alpha filters anddedicated solar telescopes, as well as various related accessories, designed tomeet the needs of amateur as well as professional solar observers. Theacquisition of Coronado added a respected name in the solar observation marketsto Meade’s suite of brands, adding to the Company’s product offerings, particularlyin the telescope and accessory lines.

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In the United States andCanada, the Company distributes its products through a network of more than 400specialty retailers, distributors and mass merchandisers, which offer theCompany’s products in more than 12,000 retail store locations. The Company alsosells certain of its products to selected national mail order dealers. Inaddition to products sold through Meade Europe (formerly Bresser) channels,Meade sells its products internationally through a network of over 40 foreigndistributors, many of which service dealer locations in their respectivecountries. Revenues from customers outside North America were $44.8 million,$45.3 million and $32.1 million for the years ended February 28, 2007,2006 and 2005, representing approximately 44.1%, 37.8%, and 28.7% of theCompany’s net revenues, respectively (See Note 9 of Notes to ConsolidatedFinancial Statements). The Company intends to continue to pursue an integratedstrategy of product line expansion, aggressive marketing, and expansion of theCompany’s domestic and international distribution networks.

During fiscal 2002, theCompany began to pursue industrial applications for its technologies and itsproduct development and manufacturing capabilities. To that end, the Companyannounced several relationships with companies involved in free-space opticscommunication technologies and digital imaging applications in the scientificresearch and medical diagnostic equipment markets. Many of those companies havesince ceased doing business. Meade’s principal source of revenue in theindustrial marketplace is the sale of digital CCD imagers used in a lifesciences research system manufactured and sold by the Eastman Kodak Company’sScientific Imaging Systems group (based in Rochester, NY and New Haven, CT).Sales to Eastman Kodak amounted to approximately 1% of net sales for each ofthe years ended February 28, 2007, 2006 and 2005, respectively. TheCompany does not believe sales of products into industrial markets willcontribute meaningfully to top-line sales or profitability in the near future.

**Industry Overview**

Market-size data for theconsumer optics industry are difficult to obtain because nearly all of thecompanies in the industry are privately held. The Company believes the overallsize of the consumer optics market is driven, in part, by the introduction ofnew products.

The Company offersproducts at numerous price points in the consumer optics market, from advancedastronomical telescopes, state-of-the-art riflescopes and cutting-edgebinoculars with integrated digital cameras to less-expensive telescopes forbeginning amateur astronomers and low-priced binoculars and riflescopes for thecasual user.

The advanced astronomicaltelescope market is characterized by frequent technological developments,including the relatively recent introduction of innovative optical designs andcomputer-aided features. Serious amateur astronomers demand that the optical,electronic and mechanical performance of the telescopes and accessories theypurchase be of very high quality. These advanced telescopes continue to drivethe technological advances specifically in the telescope industry and generallyin the consumer optics industry.

Telescopes are generallyoffered in three different optical configurations: (a) refractingtelescopes, which use a lens at the upper end of the optical tube to collectlight; (b) reflecting telescopes, which use a concave mirror as theprimary optical element; and (c) catadioptric (mirror-lens) telescopes,which employ a combination of mirrors and lenses to form the image. Each typehas its own advantages: refractors are easy to maintain, yield sharp images andare relatively inexpensive in smaller apertures; reflectors generally are thelowest-cost means of purchasing larger apertures and are well suited to theintermediate amateur astronomer; and mirror-lens telescopes are more portablein larger apertures.

The binocular market istypically characterized less by technological developments than by styling,features and price. However, the Company believes its introduction in 2002 ofthe CaptureView binocular 

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with anintegrated digital camera demonstrated that innovation can drive binocularsales as well. The principal features considered by binocular buyers include: (1) thediameter of the objective lenses, which serve to collect light, (2) thetypes of prisms used to right the visual image—either porro prisms (which givesome binoculars the familiar zig-zag profile) or roof prisms that permitstraight line designs, and (3) the magnification, or power, of the opticalsystem. A binocular’s field of view, anti-reflective lens coatings and eyerelief are also considered by consumers buying binoculars. Binoculars typicallyrange in size from mini binoculars that generally have objective lenses notlarger than 26mm to professional-level binoculars that can support objectivelenses exceeding 60mm in diameter. Binocular retail prices range from under tendollars to several thousand dollars. The Company’s binoculars, offered underthe Meade, Bresser, Simmons, Weaver and Redfield brand names, as well asvarious private label names, generally sell for between $10 and $400 at retail.

The riflescope marketdemands a product that is rugged, waterproof and unerringly accurate. Like thebinocular and telescope markets, features, styling price and brand reputationare prime motivators in the riflescope market. The principal product featuresconsidered by rifle and pistol scope buyers include: (1) light gatheringability and light transmission which are principally dependent on the diameterof the objective lens and the effectiveness of the anti-reflective coatingsapplied to the various lens surfaces in the scope, (2) waterproof/fogproof/shockproofintegrity and durability of construction, (3) eye relief, which measuresthe distance from the shooter’s eye to the surface of the ocular lens, (4) easeof adjustment for windage and elevation, and (5) magnification—riflescopestypically offer variable magnification but come in fixed magnifications aswell. Riflescopes are sized by the diameter of the objective lens, whichtypically ranges from 20mm to 56mm, and are priced from under $30 to nearly$2,000 at retail. The Company’s rifle and pistol scopes, offered under theSimmons, Weaver and Redfield brand names, generally sell from $30 toapproximately $500 at retail.

Meade believes that it iswell positioned in the marketplace to capitalize on its strong family of brandnames, its research and development resources, its history of innovation andits manufacturing capabilities, to bring new and innovative products to market.

**Products**

Meade has developed andexpanded its product line to include a full line of telescopes and accessoriesfor the beginning, intermediate and serious amateur astronomer. The Companyoffers a complete line of binoculars from small aperture theater glasses tofull-size waterproof roof-prism glasses and the Company’s CaptureView binocularwith an integrated digital camera. The Company’s product offerings also includea complete line of riflescopes from the lower-to-moderately priced Simmons lineto the higher priced precision scopes in the Weaver and Redfield lines. Duringfiscal 2004, under the Meade and Weaver brand names, the Company introduced anew compact night vision monocular that is built on an innovative andproprietary digital imaging technology that yields crisp, detail-rich images.Moreover, in addition to adding new products, the Company continually refinesand improves its existing products. Certain of Meade’s products are describedin greater detail below:

*Advanced Astronomical Telescopes.  *Among the Company’smost sophisticated products are its RCX and LX series ARC andSchmidt-Cassegrain telescopes and the recently introduced MAX MountTM, a fullyintegrated robotic German equatorial mount for the most advanced amateurastronomer. The RCX and LX telescopes incorporate optical systems that providehigh-quality resolution, contrast and light transmission and offer the seriousamateur astronomer a broad range of products, from the attractively pricedAutostar-controlled LX90GPS, to the state-of-the-art RCX400 and LX200R lines.The RCX400 telescopes, currently available in 10, 12, 14, 16 and 20 inchapertures, are the Company’s newest state-of-the-art large-aperture scopesspecifically targeting serious amateur astronomers interested in astrophotography.The RCX line makes observatory-grade optics, mechanics and electronicsavailable at 

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commercial prices.The LX200R telescopes, available in 8, 10, 12, 14 and 16-inch apertures,are the most popular of the Company’s telescopes among serious amateur astronomers.Both the RCX and the LX200R telescopes feature the Company’s proprietary ARCoptics, a Global Positioning System (“GPS”) receiver for automatic telescopealignment and a built-in computer library of more than 145,000 celestialobjects. These objects are cataloged in the Company’s proprietary hand-heldcomputerized Autostar II control system. By entering any of the celestialobjects presented on the Autostar II display, the telescope automaticallylocates and tracks the selected object. Advanced telescopes also include theCompany’s LX90GPS, a moderately priced line of Schmidt-Cassegrain telescopesavailable in 8, 10 and 12 inch apertures. The Company’s LXD75 series and TrussDobsonian telescopes offer the more serious amateur a wide variety of advancedfeatures on larger aperture telescopes at economical prices. With theacquisition of Coronado in December 2004, the Company added sophisticated,dedicated solar viewing telescopes to its advanced telescope lines. TheSolarMaxTM telescopes, ranging in aperture from 40mm to 90mm, feature Coronado’spatented hydrogen-alpha (“H-alpha”) etalon filters. Coronado’s H-alpha etalonsisolate the hydrogen-alpha wavelength while rejecting all others allowing “naked-eye”observation of the sun, its flares, prominences, filaments, spiculae, faculae,and active regions. The Company has recently introduced, under the Coronadobrand, two telescopes that isolate Calcium K (“CaK”) solar emissions. TheSolarMax 70 CaK and PST CaK solar observing telescopes isolate ionized calciumemissions of the sun allowing for a different view than that produced by theH-alpha wavelength filters. Advanced astronomical telescopes collectivelyrepresented approximately 3%, 2%, and 1% of telescope units shipped andapproximately 17%, 17% and 11% of the Company’s net sales for the years ended February 28,2007, 2006 and 2005, respectively.

*Entry-Level Telescopes.  *Designedspecifically for the beginning to intermediate amateur astronomer orterrestrial observer, the Company’s less-expensive 50mm to 130mm refracting,reflecting and spotting scopes and the ETX series telescopes include many ofthe features of the more advanced telescopes at economical prices. With the NGand NGC series of telescopes (the “NG telescopes”) and the Digital Electronic Series telescopes(the “DS telescopes”), with apertures ranging from 60mm to 130mm, and the ETXseries, with apertures ranging from 60mm to 125mm, some of the mostsophisticated features of the Company’s advanced telescopes are made availableat some of the Company’s lowest retail price points. Equipped with thehand-held Autostar Computer Controller, the ETX series and the DS telescopescan find and track any one of one thousand or more celestial objects at thepush of a button. The Autostar, with its “go to” capability, brings to thegeneral consumer, for prices starting at a few hundred dollars, features thathave previously been available only on the most sophisticated high-endtelescopes selling for thousands of dollars. The Company offers severalvariations of its small refracting and reflecting telescopes (including itstraditional models, the NG telescopes and the DS telescopes) for distributionon a semi-exclusive basis to specific specialty retailers. With the acquisitionof Coronado in December 2004, in addition to the advanced H-alpha and CaKscopes described above, the Company added dedicated solar-viewing telescopes toits entry-level offerings. The Coronado Personal Solar Telescope (“PST”) is a40mm dedicated solar telescope that makes solar viewing possible at a moreconsumer friendly price. The PST uses a filtering technology similar to thatwhich goes into a SolarMax telescope but with a few unique designcharacteristics that allow for a lower price to the consumer. These varioustelescope models comprise the lower-priced end of the Company’s telescopeproduct lines. Sales of entry-level telescopes comprised approximately 97%, 98%and 99% of the Company’s telescope units shipped and approximately 36%, 38% and34% of the Company’s net sales for the years ended February 28, 2007, 2006and 2005, respectively.

*Binoculars.  *The Companyexpanded its market presence in binoculars with the acquisition of SimmonsOutdoor in 2002 and Bresser in 1999. The Simmons Outdoor brands are widelyrecognized in the sports optics marketplace as quality products at competitiveprices. The Bresser name is equally well recognized in Germany and othercountries in Europe as a quality supplier of a wide range of binoculars. Salesof Bresser branded binoculars accounted for approximately one third of MeadeEurope’s sales 

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during each of theyears ended February 28, 2007, 2006 and 2005, respectively. The Companyalso sells a complete line of consumer binoculars through its existing domesticdistribution network under the Meade brand name. The Company’s CaptureView lineof binoculars with integrated digital cameras is sold under the Meade andSimmons brand names. The binoculars sold by the Company are purchased frommanufacturers outside the United States. Binocular sales in each of the yearsended February 28, 2007, 2006 and 2005, represented approximately 21%, 21%and 23% of the Company’s net sales during those fiscal years, respectively.

*Riflescopes, shotgun scopes andpistol scopes.  *The Company added riflescopes, shotgunscopes and pistol scopes to its product offerings with the acquisition ofSimmons Outdoor in October 2002. Meade now sells riflescopes under theSimmons, Weaver and Redfield brand names. Riflescope sales accounted for mostof the Company’s sales attributed to Simmons Outdoor during fiscal 2007, 2006and 2005. The riflescopes sold by the Company are purchased from manufacturersoutside the United States. Riflescopes represented approximately 11%, 10% and20% of the Company’s net sales for the years ended February 28, 2007, 2006and 2005, respectively.

*Accessories.  *The Company alsooffers accessories for each of its principal product lines that range fromadditional eyepieces and multi-media celestial observation guides (such as theCompany’s recently announced mySky) and software that enhance the consumer’s telescopeexperience to bore sighters for riflescopes. The Coronado acquisition addedseveral high-end H-alpha etalon filters and CaK filters to the list oftelescope accessories for the serious amateur astronomer. Sales of accessoriesrepresented approximately 7%, 7% and 8% of the Company’s net sales for theyears ended February 28, 2007, 2006 and 2005, respectively. Othermiscellaneous products such as industrial optical and digital imaging products,microscopes, rangefinders, night vision and other consumer optical productsaccounted for approximately 8%, 7% and 4% of the Company’s net sales for theyears ended February 28, 2007, 2006 and 2005, respectively.

**Operations**

*Supply Chain Management.  *Completeand on-time delivery of the Company’s products to its customers is a key tenetof the Company’s mission and strategy. Management of the supply chain iscritical to that end. The Company made significant changes in its operationsand supply chain management during fiscal 2007 with the appointment of a newsenior vice president of operations, the addition of several new professionalsto the operations staff and the execution of an agreement with Three SixtySourcing Ltd., a Hong Kong corporation (“360 Sourcing”). 360 Sourcing willprovide the Company with assistance for virtually all aspects of its exclusivesourcing in China; including, without limitation, identification and managementof Chinese suppliers, quality control and assurance, logistics services,business development support, and administrative services.

The Company works closely with factories in China todevelop proprietary product designs. In an effort to mitigate the risksassociated with reliance on any one supplier, Meade has engaged 360 Sourcing toassist it in sustaining its relationships with multiple suppliers in China andto broaden the number of suppliers of its products worldwide. Many of theCompany’s products purchased during the three fiscal years ending inFebruary 2007 were supplied by Chinese manufacturers. The Company owns manyof the key designs, molds and dies used by such suppliers.

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*Materials and Supplies.**  *The Company purchases high gradeoptical glass for its higher-end telescopes in order to avoid imperfectionsthat can degrade optical performance. Lenses and mirrors for the Company’sdomestically manufactured telescopes are individually polished and figured bymaster opticians to precise tolerances to achieve a high level of resolution.The Company purchases metal telescope components from numerous foundries, metalstamping and metal working companies. Certain of the Company’s products containcomputerized drive systems and other electronic circuitry. The components ofthese computerized drive and electronic systems are purchased from varioussuppliers and are generally assembled by third party vendors.

*Optical Testing.**  *As each of Meade’s ARC andSchmidt-Cassegrain optical sets, or parabolic Newtonian primary telescopemirrors progress through the grinding, polishing and figuring stages ofdevelopment, they are repeatedly tested and re-tested for irregularities,smoothness of figure and correction. Optical testing of the Company’s productsproduced outside of the United States is performed by trained opticaltechnicians to comply with strict quality standards. The Company maintainsstrict quality standards for all of its optics included in the Company’sproducts from telescopes and eyepieces to riflescopes and binoculars.

*Optical Alignment andCentration.**  *Finished,individually-matched and figured high-end optical sets are sent to the opticalalignment and centration process, where each optical set is placed into aspecial optical tube that permits rotation of the optical elements about theiroptical axes. A variation of this alignment and centration process is performedon all of the Company’s optical products from riflescopes and binoculars toeyepieces and small telescopes.

The Company also utilizesits 50,000 sq. ft. assembly facility in Tijuana, Mexico (the “Mexico Facility”).This facility employs from 50 to over 150 people (based upon product saleslevels and seasonal demand) engaged in the assembly of several productsincluding telescopes, electronic sub-assemblies, and accessory products.

**Intellectual Property**

The Company relies on acombination of patents, trademarks and trade secrets to establish and protectits proprietary rights and its technology. In general, the Company pursuespatent protection both in the United States and selected foreign countries forsubject matter considered patentable and important to the Company’s businessstrategy. The Company has patents either issued and/or pending in the U.S. andin several foreign jurisdictions including Europe, Australia, Canada, Japan andChina.

Generally, patents issuedin the U.S. are effective for 20 years from the original date of application.The duration of foreign patents varies in accordance with applicable foreignlocal law. While the duration of the Company’s patents varies, most of its mostimportant patents have been issued within the last ten years.

The Company believes thatits patents, proprietary technology, know-how and trademarks providesignificant protection for the Company’s competitive position and the Companyintends to protect and enforce its intellectual property assets. Nevertheless,there can be no assurance that the steps taken by the Company in this regardwill be adequate to prevent misappropriation or infringement of itstechnologies or that the Company’s competitors will not independently developtechnologies that are substantially equivalent or superior to the Company’stechnologies. Effective protection of intellectual property rights may belimited or unavailable in certain foreign countries.

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**Seasonality**

The Company has experienced, and expects to continueto experience, substantial fluctuations in its sales, gross margins andprofitability from quarter to quarter. Factors that influence thesefluctuations include the volume and timing of orders received, changes in themix of products sold, market acceptance of the Company’s products, competitivepricing pressures, the Company’s ability to meet increasing demand and deliveryschedules, the timing and extent of research and development expenses, thetiming and extent of product development costs and the timing and extent ofadvertising expenditures. In addition, a substantial portion of the Company’snet sales and operating income typically occurs in the third quarter of theCompany’s fiscal year primarily due to disproportionately higher customerdemand for less-expensive consumer products during the holiday season. TheCompany continues to experience significant sales to mass merchandisers. Massmerchandisers, along with specialty retailers, purchase a considerable amountof their inventories during the Company’s third fiscal quarter to satisfy suchseasonal consumer demand. These purchasing patterns have caused the Company toincrease its level of inventory during its second and third quarters inresponse to such demand or anticipated demand. As a result, the Company’sworking capital requirements have correspondingly increased at such times.

**Sales and Marketing**

The Company’s products aresold through a domestic network of mail order and internet dealers, specialtyretailers, distributors and mass merchandisers. Internationally, the Company’sproducts are sold through its wholly owned subsidiary in Germany to specialtyretailers and mass merchandisers and through a network of foreign distributorsand dealers in other countries around the world. The Company’s high-endtelescopes are generally sold through mail order and internet dealers or singleand multiple-location specialty retailers. Meade’s less-expensive telescopesare sold in similar venues but are sold principally through mass merchandisers.The Company’s binoculars and riflescopes are sold principally through a networkof domestic distributors, as well as through specialty retailers and massmerchandisers. The Company maintains direct contact with its larger dealers andits domestic and foreign distributors through the Company’s salesprofessionals. A network of independent representatives is used to maintaincontact with its smaller specialty retailers. Included among the Company’scustomers are the following: Wal-Mart, Costco, Lidl, Sam’s Club, Dick’sSporting Goods and Cabela’s. For additional information about geographic areas,see Note 9 of Notes to Consolidated Financial Statements.

The Company’s sales forceworks closely with its dealers, specialty retailers, distributors and massmerchandisers on product quality, technical knowledge and customer service. TheCompany employs a large sales and customer service force in the U.S. and Europetrained to assist the Company’s customers in all facets of its products’ operations.The Company’s internal sales personnel are supplemented by a network ofregional sales representatives. Together, these individuals advise the Company’sspecialty retailers about the quality features of the Company’s products andprovide answers to questions from specialty retailers as well as directly fromend users of the Company’s products. The Company stresses service to both itscustomers and end users by providing marketing assistance in the form ofhang-tags, catalog layouts and other print media as well as dedicated toll-freecustomer service telephone numbers. In addition to giving its customerspersonal attention, the Company believes toll-free telephone numbers also helpreduce the number of product returns from end users who are generallyunfamiliar with the assembly and operation of telescopes, binoculars andriflescopes. The Company’s dedication to providing a high level of customerservice is one factor that management believes sets Meade apart from itscompetition.

The Company’s telescopeproducts are regularly advertised in all major domestic and most internationaltelescope and astronomy-related magazines with comprehensive, full color,technically informative advertisements which present a consistent message ofinnovation and quality about the Company and its products. Innovation andquality is also the theme in the Simmons, Weaver and Redfield 

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advertisingand marketing programs. The hunting brands are regularly advertised in most ofthe widely circulated hunting and outdoors consumer magazines. The Company alsofocuses advertising dollars on point-of-sale promotions and displays inpartnership with its retail customers to jointly market the Company’s productsto the end consumer.

Throughout fiscal 2007,the Company sold its products to mail order dealers, to distributors, and tomore than 400 specialty retailers and mass merchandisers that offer Meade’sproducts in more than 12,000 retail store outlets. During fiscal years 2007 and2006 Lidl, a European retailer, accounted for approximately 20% and 15% of theCompany’s net sales, respectively. During the fiscal years ended 2007 and 2005Wal-Mart (not including Sam’s Club in 2007, including Sam’s Club in 2005),accounted for approximately 10% and 11% of the Company’s net sales, respectively.In fiscal 2005, not including Sam’s Club, Wal-Mart accounted for approximately9% of net sales. The Company’s ten largest customers, in the aggregate,accounted for approximately 49%, 30% and 35% of the Company’s net sales for theyears ended February 28, 2007, 2006 and 2005, respectively. The loss of,or the failure to replace, any significant portion of the sales made to anysignificant customer could adversely affect results of operations of theCompany to the extent the Company did not replace any such lost sales withincreased sales to existing or new customers.

**Competitive Strengths**

The Company believes thatit derives significant benefits from its position as a leading designer anddistributor of telescopes, binoculars, riflescopes, spotting scopes,microscopes, night vision and other consumer optical related products. Thesebenefits include its ability to offer its customers a broad and innovative,product line embodying both high quality and value. The Company believes it hasthe following competitive strengths:

*New Products/Research andDevelopment.**  *TheCompany places a primary emphasis on product innovation and quality through itsresearch and development efforts. The Company employs an in-house engineeringstaff at its Irvine, CA facility that develops new products and appliestechnological advances and improvements to existing products. The Company isable to obtain additional benefits by out-sourcing certain research anddevelopment services to supplement its internal expertise. Meade believes thatthe members of its engineering team are among the most experienced in theconsumer optics industry. The Company, its management and its employees arededicated to the goal of producing technically superior yet price-competitiveproducts and have been responsible for some of the consumer optics industry’smost technically advanced, easy to use, consumer optical products.

*Broad Line of Products.**  *The Company has pursued a strategyin which it uses the advancements in microprocessor technology to build on itsexisting know-how in advanced telescope design and operation to bring computertechnology and features to consumer optical products at lower and lower pricepoints. Through its acquisitions of Bresser in 1999, Simmons Outdoor in 2002and Coronado in 2004, the Company has expanded its product lines to include awide variety of binoculars and telescopes under the Bresser brand name (awell-known and respected brand in Germany and throughout Europe), completelines of riflescopes, pistol scopes and binoculars under the Simmons, Weaverand Redfield brand names, and a broad assortment of solar viewing equipmentunder the Coronado brand name. As a result, the Company offers numerousdifferent telescope, riflescope, spotting scope and binocular models withseveral different optical configurations, as well as hundreds of accessoryproducts for the consumer optics and sports optics buyers. The Company’stelescopes range in aperture from under 2 to 20 inches and in retail price fromless than $50 to almost $50,000. The Company offers several families ofriflescopes and binoculars (including digital camera binoculars) under itsseveral brand names at retail price points from about $10 to approximately$500. During fiscal 2004, Meade and Weaver introduced a compact night visionmonocular that is built on an innovative and proprietary digital imagingtechnology that yields crisp, 

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detail-rich images.Whether a consumer is a serious amateur astronomer, an avid hunter, or someonejust looking for a good binocular, Meade offers a wide range of qualityproducts to satisfy the consumer optics buyer.

*Optical Systems Expertise.**  *Meade has made substantialinvestments to develop an expertise in optical engineering, providing it withthe ability to produce high quality optics. Meade employs highly skilledopticians who use sophisticated manufacturing techniques and equipment,including specialized optical polishing machines and vacuum-coating machines,to produce what the Company believes to be the highest quality optics availablein the more advanced consumer telescope market. Meade uses its opticalengineering expertise to ensure that the optics in its foreign-sourced productsmeet the strictest of standards.

*Quality Control.**  *Meade’s manufacturing andengineering personnel coordinate and oversee the manufacturing process in orderto ensure that product quality is maintained at a high level within anefficient cost structure. The Company has in place quality controls covering allaspects of the manufacturing process of its products, from each product’sprecision optical system to its final assembly and testing. Parts andcomponents for the advanced telescopes are manufactured and assembled invarious plants located in the United States, Mexico and China. The productionof the most advanced optical systems, which are critical components of theadvanced telescopes are manufactured in a Company-owned plant in Irvine,California. Many of the Company’s less-expensive telescopes and its binoculars,riflescopes and microscopes, as well as certain component parts for its smallto midrange telescopes, are manufactured under proprietary designs bymanufacturers located in Asia, including mainland China, Taiwan, Korea, thePhilippines and Japan. The Company also assembles many of its products andaccessories into finished products in the Company’s Mexican assembly plant.

*Broad DistributionNetwork.**  *TheCompany’s sales force in the U.S. and in Germany works closely with specialtyretailers, distributors and mass merchandisers on product quality, technicalknowledge and customer service. Meade has its own on-site graphic artsdepartments in Irvine, CA and Rhede, Germany to work with specialty retailers,distributors and mass merchandisers to produce print advertising, hang-tags fordisplays within retail outlets and other point-of-sale support. This capabilityprovides the Company’s customers with a comprehensive marketing program toassist in their sales efforts. As a result of these efforts, Meade has become amajor supplier of consumer optics to such major retailers as Discovery ChannelStore, Lidl (in Europe), Wal-Mart, Sam’s Club, Costco, Dick’s Sporting Goodsand Cabela’s. Meade Europe also has continued to expand the Company’sinternational presence.

*Superior Customer Service.**  *The Company believes that its highlevel of customer service and technical support are important factors thatdifferentiate it from its competitors. In addition to providing toll-free phoneaccess to customers in an effort to provide superior post-sale service, Meadehas consolidated its various customer service departments and increased itstechnical support staff for all of its product offerings. Communicationsinfrastructure has been upgraded with a new phone system integrated with CRMsoftware, and an on-line automated service request system that tracks repairsand replacement parts while automatically reporting back to the customer thatsubmitted the request. The Company’s internet support pages also includevideo how-to instruction for many of Meade’s products, as well as technicalmanuals to further educate users about product operation.

**Competition**

The consumer optics marketis competitive and sensitive to consumer needs and preferences. In thetelescope market, Meade competes in the United States and Canada with SWTechnology Corporation (“Celestron”), and Bushnell Performance Optics, Inc.(“Bushnell”) and, to a lesser extent, with other smaller companies whichservice niche markets. In April 2005, SW Technology Corporation (aDelaware corporation), an affiliate of Synta Technology Corporation of Taiwan,a long-time supplier to Celestron, 

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acquiredall of the outstanding members’ ownership interests in Celestron AcquisitionLLC. The Company has begun to see increased pricing pressure as a result of thechange in ownership at Celestron. The Company continues to execute on itsstrategy to be the lowest cost producer to answer the pricing pressure broughton by the acquisition of Celestron by one of its largest suppliers in China. InEurope and Japan, the Company competes primarily with Celestron, Vixen OpticalIndustries, Ltd., and with other smaller regional telescope importers andmanufacturers. Some of the Company’s current and potential competitors in thetelescope market may possess greater financial or technical resources andcompetitive cost advantages due to a number of factors, including, withoutlimitation, lower taxes and lower costs of labor associated with manufacturing.

The binocular andriflescope markets are generally more competitive than the telescope marketwith a greater number of competitors at each price point. In the binocular market,the Company competes primarily with Bushnell, Nikon Inc., Pentax Corporation,Barska Optics and various smaller manufacturers and resellers. In theriflescope market, the Company competes primarily with Bushnell, Leupold &Stevens, Inc., Nikon Inc., BSA Optics, Inc., and Burris Company. Manyof these competitors in the binocular and riflescope market have significantlygreater brand name recognition and financial and technical resources than thoseof the Company, and many have long-standing positions, customer relationshipsand established brand names in their respective markets.

**Employees**

As of February 28,2007, Meade had 308 full-time employees, worldwide. The Company believes thatit offers competitive compensation and benefits and that its employee relationsare good. None of the Company’s United States-based employees is represented bya union. The Company’s employees at the Mexico Facility are represented by aunion. The success of the Company’s future operations depends in large part onthe Company’s ability to attract and retain highly skilled technical, marketingand management personnel. There can be no assurance that the Company will besuccessful in attracting and retaining such key personnel.

In order to enable itsemployees to share in the Company’s growth and to receive the benefits ofownership, Meade established the Meade Instruments Corp. Employee StockOwnership Plan (the “ESOP”), effective March 1, 1996. The ESOP providesparticipating United States-based employees an opportunity to receivebeneficial ownership of Meade’s common stock.

**Available Information**

Meade’s website is locatedat http://www.meade.com. The Company makes available free of charge, on orthrough our website, our annual, quarterly and current reports, and anyamendments to those reports, as soon as reasonably practicable afterelectronically filing such reports with the Securities and Exchange Commission(“SEC”). The information contained on the Company’s website is not part of thisreport. The public may read and copy any materials filed by the Company withthe SEC at the SEC’s Public Reference Room at 100 F Street, NE,Washington, DC 20549. The public may obtain information on the operation of thePublic Reference Room by calling the SEC at 1-800-SEC-0330.The SEC maintains an Internet site that contains reports, proxy and informationstatements and other information regarding issuers that file electronicallywith the SEC at http://www.sec.gov.

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**Item 1.A.**             *Risk Factors*

**We rely onindependent contract manufacturers and, as a result, we are exposed topotential disruptions in product supply.**

All of our consumer optics products with retail pricesunder $500 are currently manufactured by independent contract manufacturers,principally located in China. We do not have long-term contracts with our Asianmanufacturers, and we compete with other consumer optics companies forproduction facilities. We have experienced, and continue to experience,difficulties with these manufacturers, including reductions in the availabilityof production capacity, failure to meet our quality control standards, failureto meet production deadlines and increased manufacturing costs. Somemanufacturers in China are facing labor shortages as migrant workers seekbetter wages and working conditions. If this trend continues, our currentmanufacturers’ operations could be adversely affected.

If our currentmanufacturers cease doing business with us, we could experience an interruptionin the manufacture of our products. Although we believe that we could findalternative manufacturers, we may be unable to establish relationships withalternative manufacturers that will be as favorable as the relationships wehave now. For example, new manufacturers may have higher prices, less favorablepayment terms, lower manufacturing capacity, lower quality standards or higherlead times for delivery. If we are unable to provide products to our customersthat are consistent with our standards or the manufacture of our products isdelayed or becomes more expensive, this could result in our customers cancelingorders, refusing to accept deliveries or demanding reductions in purchaseprices, any of which could have a material adverse effect on our business andresults of operations.

**Our failure tocomply with any of the financial covenants in our U.S. line of credit facilityor other debt agreements could have a material adverse impact on our business.**

We depend on operatingcash flow and availability under our bank lines of credit to provide short-termliquidity. For the year ended February 28, 2007 we incurred significantoperating and net losses which diminished the availability under our U.S.credit agreement and consumed a significant portion of our net assets.Continued operating losses could adversely affect our ability to maintainrequired financial covenants under our various debt agreements. Due tooperating losses over the past three years, we have, several times,renegotiated the financial covenants contained in our U.S. credit agreement. Iffinancial covenants are not maintained, the creditors will have the option torequire immediate repayment of all outstanding debt under the related debtagreements. In such an event, we may be required to renegotiate certain termsof these agreements, obtain waivers from the creditors, look for additionalsources of liquidity such as equity financings or obtain new debt agreementswith other creditors, which may contain less favorable terms. We can not assurethat such additional sources of capital will be available on reasonable terms,if at all. If we are unable to renegotiate acceptable terms, obtain necessarywaivers or secure new debt or equity financing, this could have a materialadverse effect on our business, results of operations and financial condition.

**Our future successdepends upon our ability to respond to changing consumer demands andsuccessfully market new products.**

The consumer opticsindustry is subject to changing consumer demands and technology trends.Accordingly, we must identify those trends and respond in a timely manner.Demand for and market acceptance of new products are uncertain and achievingmarket acceptance for new products generally requires substantial productdevelopment and marketing efforts and expenditures. If we do not continue tomeet changing consumer demands and develop successful products in the future,our growth and profitability will be negatively impacted. We frequently makedecisions about product designs and marketing expenditures several months toyears in advance of the time when consumer acceptance can be 

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determined.If we fail to anticipate, identify or react appropriately to changes in trendsor are not successful in marketing new products, we could experience excessinventories, higher than normal markdowns or an inability to profitably sellour products. Because of these risks, the consumer optics industry hasexperienced periods of growth in revenues and earnings and thereafter periodsof declining sales and losses. Similarly, these risks could have a materialadverse effect on our results of operations, financial condition or cash flows.

**Our business andthe success of our products could be harmed if we are unable to maintain ourbrand image.**

Our principal brandsinclude Meade®,Bresser®, Simmons®, Weaver®, Redfield® andCoronado®. If we areunable to timely and appropriately respond to changing consumer demand, ourbrand names and brand images may be impaired. Even if we react appropriately tochanges in consumer preferences, consumers may consider these brands to beoutdated or undesirable. If we fail to maintain and develop our principalbrands, our sales and profitability will be adversely affected.

**Our business couldbe harmed if we fail to maintain appropriate inventory levels.**

We place orders withsuppliers for many of our products prior to the time we receive all of ourcustomers’ orders. We do this to minimize purchasing costs, the time necessaryto fill customer orders and the risk of non-delivery. We, at times, alsomaintain an inventory of certain products that we anticipate will be in greaterdemand. However, we may be unable to sell the products we have ordered inadvance from manufacturers or that we have in our inventory. Inventory levelsin excess of customer demand may result in inventory write-downs, and the saleof excess inventory at discounted prices could significantly impair our brandimage and have a material adverse effect on our operating results and financialcondition. Conversely, if we underestimate consumer demand for our products orif our suppliers fail to supply the products that we require with the qualityand at the time we need them, we may experience inventory shortages. Inventoryshortages might delay shipments to our customers, negatively impact ourretailer and distributor relationships, and diminish brand loyalty.

**We face intensecompetition, including competition from companies with significantly greaterresources, and, if we are unable to compete effectively with these competitors,our market share may decline and our business could be harmed.**

We face intense competition from other establishedcompanies. A number of our competitors have significantly greater financial,technological, engineering, manufacturing, marketing and distribution resourcesthan we do. Their greater capabilities in these areas may enable them to betterwithstand periodic downturns in the consumer optics market, compete moreeffectively on the basis of price and production and more quickly develop newproducts. In addition, new companies may enter the markets in which we compete,further increasing competition in the consumer optics industry.

We believe that ourability to compete successfully depends on a number of factors, including thetype and quality of our products and the strength of our brand names, as wellas many factors beyond our control. We may not be able to compete successfullyin the future, and increased competition may result in price reductions,reduced profit margins, loss of market share and an inability to generate cashflows that are sufficient to maintain or expand the development and marketingof new products, any of which would adversely impact our results of operationsand financial condition.

**We depend upon arelatively small group of customers for a large portion of our sales.**

During fiscal 2007, 2006and 2005, net sales to our ten largest customers accounted for approximately49%, 30% and 35% of total net sales, respectively. During the fiscal year 2007,2006 and 2005 our top two 

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customersaccounted for approximately 30%, 23% and 16%, respectively. Although we havelong-term relationships with many of our customers, those customers do not havecontractual obligations to purchase our products and we cannot be certain thatwe will be able to retain our existing major customers. Furthermore, the retailindustry regularly experiences consolidation, contractions and closings whichmay result in a loss of customers or the loss of our ability to collectaccounts receivable from major customers in excess of amounts that we haveinsured. If we lose a major customer, experiences a significant decrease insales to a major customer or are unable to collect the accounts receivable of amajor customer in excess of amounts insured, our business could be harmed.

**Our internationalsales and third-party manufacturing operations are subject to the risks ofdoing business abroad, particularly in China, which could affect our ability tosell or manufacture our products in international markets, obtain products fromforeign suppliers or control product costs.**

A significant portion of our net sales for the yearsended February 28, 2007, 2006 and 2005 were derived from sales of productsmanufactured in foreign countries, with most manufactured in China. We alsosell our products in several foreign countries and plan to increase ourinternational sales efforts as part of our growth strategy. Foreignmanufacturing and sales are subject to a number of risks, including thefollowing: political and social unrest, including that related to the U.S.military presence in Iraq; changing economic conditions; currency exchange ratefluctuations; international political tension and terrorism; labor shortagesand work stoppages; electrical shortages, transportation delays; loss or damageto products in transit; expropriation; nationalization; the imposition ofdomestic and international tariffs and trade duties, import and export controlsand other non-tariff barriers, exposure to different legal standards (particularlywith respect to intellectual property), compliance with foreign laws, andchanges in domestic and foreign governmental policies. We have not, to date,been materially affected by any such risks, but we cannot predict thelikelihood of such developments occurring or the resulting long-term adverseimpact on our business, results of operations or financial condition.

In particular, because most of our products aremanufactured in China, adverse changes in trade or political relations withChina, political instability in China, the occurrence of a natural disastersuch as an earthquake or hurricane in China or the outbreak of a pandemicdisease such as Severe Acute Respiratory Syndrome (SARS) or the Avian Flu inChina would severely interfere with the manufacture of our products and wouldhave a material adverse effect on our operations. In addition, electricalshortages, labor shortages or work stoppages may extend the productiontime necessary to produce our orders, and there may be circumstances in the futurewhere we may have to incur premium freight charges to expedite the delivery ofproduct to our customers. If we incur a significant amount of premium chargesto airfreight product for our customers, gross profit will be negativelyaffected if we are unable to pass those charges on to our customers.

Also, the manufacturers ofour products that are located in China may be subject to the effects ofexchange rate fluctuations should the Chinese currency not remain stable withthe U.S. dollar. The value of the Chinese currency depends to a large extent onthe Chinese government’s policies and China’s domestic and internationaleconomic and political developments. The valuation of the Yuan may increaseincrementally over time should the Chinese central bank allow it to do so,which could significantly increase labor and other costs incurred in theproduction of our products in China.

**Our business couldbe harmed if our contract manufacturers or suppliers violate labor, trade orother laws.**

We require our independent contract manufacturers tooperate in compliance with applicable United States and foreign laws andregulations. Manufacturers may not use convicted, forced or indentured labor(as defined under United States law) nor child labor (as defined by the manufacturer’scountry) in the production process. Compensation must be paid in accordancewith local law and factories must be in 

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compliance with localsafety regulations. Although we promote ethical business practices and sendsourcing personnel periodically to visit and monitor the operations of ourindependent contract manufacturers, we do not control them or their laborpractices. If one of our independent contract manufacturers violates labor orother laws or diverges from those labor practices generally accepted as ethicalin the United States, it could result in the loss of certain of our majorcustomers, adverse publicity for us, damage our reputation in the United Statesor render our conduct of business in a particular foreign country undesirable orimpractical, any of which could harm our business.

In addition, if we, or ourforeign manufacturers, violate United States or foreign trade laws orregulations, we may be subject to extra duties, significant monetary penalties,the seizure and the forfeiture of the products we are attempting to import orthe loss of our import privileges. Possible violations of United States orforeign laws or regulations could include inadequate record keeping of importedproducts, misstatements or errors as to the origin, quota category,classification, marketing or valuation of our imported products, fraudulentvisas or labor violations. The effects of these factors could render ourconduct of business in a particular country undesirable or impractical and havea negative impact on our operating results.

**We may be unable tosuccessfully execute our growth and profitability strategies.**

Our net sales andoperating results have fluctuated significantly over the past five fiscal yearsand we may experience similar fluctuations in the future. Our ability to growin the future depends upon, among other things, our ability to return toprofitability, the maintenance and enhancement of our brand image and expansionof our product offerings and distribution channels. Furthermore, if ourbusiness becomes larger, we may not be able to effectively manage our growth.We anticipate that as the business grows, we will have to improve and enhanceour overall financial and managerial controls, reporting systems andprocedures. We may be unable to successfully implement our current growth andprofitability strategies or other growth strategies or effectively manage ourgrowth, any of which would negatively impact our business, results ofoperations and financial condition.

**The disruption,expense and potential liability associated with existing and unanticipatedfuture litigation against us could have a material adverse effect on ourbusiness, results of operations, financial condition and cash flows.**

We are subject to variouslegal proceedings and threatened legal proceedings from time to time. Anyunanticipated litigation in the future, regardless of its merits, couldsignificantly divert management’s attention from our operations and result insubstantial legal fees being borne by us. Further, there can be no assurancethat any actions that have been or will be brought against us will be resolvedin our favor or, if significant monetary judgments are rendered against us,that we will have the ability to pay such judgments. Such disruptions, legalfees and any losses resulting from these claims could have a material adverseeffect on our business, results of operations financial condition and cashflows.

**Our business may benegatively impacted as a result of changes in the economy.**

Our business depends onthe general economic environment and levels of consumer spending that affectnot only the ultimate consumer, but also retailers, our primary directcustomers. Purchases of consumer optics tend to decline in periods of recessionor uncertainty regarding future economic prospects, when consumer spending,particularly on discretionary items, declines. During periods of recession oreconomic uncertainty, we may not be able to maintain or increase our sales toexisting customers, make sales to new customers, maintain or increase ourinternational operations on a profitable basis, or maintain or improve ourearnings from operations as a percentage of net sales. As a result, ouroperating results may be materially adversely affected by downward trends inthe economy or the occurrence of events that adversely affect the economy ingeneral.

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**Our quarterlyrevenues and operating results fluctuate as a result of a variety of factors,including seasonal fluctuations in the demand for consumer optics, delivery datedelays and potential fluctuations in our annualized tax rate, which may resultin volatility of our stock price.**

Our quarterly revenues andnet operating results have varied significantly in the past and can be expectedto fluctuate in the future due to a number of factors, many of which are beyondour control. Our major customers generally have no obligation to purchaseforecasted amounts and may cancel orders, change delivery schedules or changethe mix of products ordered with minimal notice and without penalty. As aresult, we may not be able to accurately predict our quarterly sales or netoperating results. In addition, sales of consumer optics have historically beenseasonal in nature and tied to the winter holiday shopping season, with thestrongest sales generally occurring in our third fiscal quarter. Holidayshopping sales typically begin to ship in August, and delays in the timing,cancellation, or rescheduling of the related orders by our wholesale customerscould negatively impact our net sales and results of operations. Morespecifically, the timing of when products are shipped is determined by thedelivery schedules set by our wholesale customers, which could cause sales toshift between our second, third and fourth quarters. Because our expense levelsare partially based on our expectations of future net sales, expenses may bedisproportionately large relative to our revenues, and we may be unable toadjust spending in a timely manner to compensate for any unexpected revenueshifts or shortfalls, which could have a material adverse effect on our netoperating results. Also, our annualized tax rate is based upon projections ofour domestic and international operating results for the year, which arereviewed and revised by management as necessary at the end of each quarter, andit is highly sensitive to fluctuations in the projected mix of internationaland domestic earnings. Any quarterly fluctuations in our annualized tax ratethat may occur could have a material impact on our quarterly net operatingresults. As a result of these specific and other general factors, our netoperating results vary from quarter to quarter and the results for anyparticular quarter may not be necessarily indicative of results for the fullyear which may lead to volatility in the our stock price.

**Changes in currencyexchange rates could affect our revenues and operating results.**

A significant portion ofour production is accomplished offshore, principally in China. In addition,approximately 37% of our net sales for the year ended February 28, 2007were denominated in foreign currencies and are subject to exchange ratefluctuation risk. Although we engage in some hedging activities to reduceforeign exchange transaction risk, changes in the exchange rates between theU.S. dollar and the currencies of Europe and Asia could make our products lesscompetitive in foreign markets, and could reduce the sales and operatingresults represented by foreign currencies. Additionally, such fluctuation couldresult in an increase in cost of products sold in foreign markets reducingmargins and earnings.

**Our trademarks,design patents, utility patents and other intellectual property rights may notbe adequately protected outside the United States.**

We believe that ourtrademarks, design patents, utility patents and other proprietary rights areimportant to our business and our competitive position. We devote substantialresources to the establishment and protection of our trademarks, design patentsand utility patents on a worldwide basis. Nevertheless, we cannot assure thatthe actions we have taken to establish and protect our trademarks and otherproprietary rights outside the United States will be adequate to preventinfringement of our technologies or trade names by others or to prevent othersfrom seeking to block sales of our products as a violation of the trademarksand proprietary rights of others. Also, we cannot assure that others will notassert rights in, or ownership of, our trademarks, patents, designs and otherproprietary rights or that we will be able to successfully resolve these typesof conflicts to our satisfaction. In addition, the laws of certain foreigncountries may not protect proprietary rights to the same extent as do the lawsof the United States. We may face significant expenses and liability inconnection with the protection of our intellectual 

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propertyrights outside the United States, and if we are unable to successfully protectour rights or resolve intellectual property conflicts with others, our businessor financial condition may be adversely affected.

**Our ability tocompete could be jeopardized if we are unable to protect our intellectualproperty rights or if we are sued for intellectual property infringement.**

We use trademarks onvirtually all of our products and believe that having distinctive marks thatare readily identifiable is an important factor in creating a market for ourproducts, in identifying the Company and in distinguishing our goods from thegoods of others. We consider our Meade®, Bresser®, Simmons®, Weaver®, Redfield® andCoronado® trademarks and brand names to be among ourmost valuable assets and we have registered these trademarks in many countries.In addition, we own many other trademarks and trade names, which we utilize inmarketing our products. We continue to vigorously protect our trademarksagainst infringement. We also have a number of utility patents and designpatents covering components and features used in many of our telescope,riflescope, binocular and other products. We believe our success depends moreupon skills in design, research and development, production and marketingrather than upon our patent position. However, we have followed a policy offiling applications for United States and foreign patents on designs andtechnologies that we deem valuable as critical contributors to our business.

**We are exposed topotential risks from recent legislation requiring public companies to evaluatecontrols under Section 404 of the Sarbanes-Oxley Act of 2002.**

We are subject to various regulatory requirements,including the Sarbanes-Oxley Act of 2002. We, like all other public companies,are incurring expenses and diverting management’s time in an effort to complywith Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). We area non-accelerated filer and we are in the early stages of process documentationand evaluation of our systems of internal control. We are required to assessour compliance with Section 404 for the year ending February 29, 2008. Weexpect to devote the necessary resources, including additional internal andsupplemental external resources, to support our assessment. If, in the future, weidentify one or more material weaknesses, or our external auditors are unableto attest that our management’s report is fairly stated or to express anopinion on the effectiveness of our internal controls, this could result in aloss of investor confidence in our financial reports, have an adverse effect onour stock price and/or subject us to sanctions or investigation by regulatoryauthorities.

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**Item 2.**                        *Properties*

During fiscal 2007, theCompany leased a 161,000 square foot manufacturing, distribution and corporatefacility located in Irvine, California. This facility lease had an expirationdate of September 30, 2007. In December 2006, the Company renewedthis lease for an additional five year term. This lease renews as of October 1,2007, expires on September 30, 2012 and is renewable at the Company’soption for one additional five-year term. During fiscal 2007 the SimmonsOutdoor operation was housed in a leased 96,000 square foot distributionfacility in Thomasville, Georgia that included 6,000 square feet of officespace. The Simmons Outdoor facility lease expires in December 2007, withan option for the Company to renew for up to four four-year terms. As of February 28,2007, the Company had consolidated the Simmons Outdoor operation into itsIrvine facility, closed operations in Georgia and sublet the Thomasvillefacility through December 2007. The Company will not exercise its optionto renew the Thomasville lease upon its expiration in December 2007. TheCompany also leases a 50,000 square foot manufacturing and assembly plant inTijuana, Mexico. The Tijuana lease expires in 2010 with two, five-year optionsremaining. The Company owns a 30,000 square foot distribution facility locatedin Borken, Germany,and a 44,000 square foot office and distribution facility inRhede, Germany. The Company leased a 1,200 square foot office space, inGraefelfing, Germany that was terminated in May of 2006. The Company alsoleased 8,300 square feet of office and manufacturing space in Tuscon, Arizonafor its Coronado Instruments subsidiary. The Company did not renew the Coronadolease and operations were moved to the Company’s Irvine, California facilityupon expiration of the Coronado lease in August 2006. The Company’smanagement believes that all facilities occupied by the Company are adequatefor present requirements, and that the Company’s current equipment is in goodcondition and suitable for the operations involved.

**Item 3.**                        *Legal Proceedings*

1.     Thefollowing purported shareholder derivative action has been filed challengingconduct by certain of the Company’s current and former board members andofficers in connection with various stock option grants:

a.      *In re Meade Instruments Corp. Derivative Litigation*, No. 06CC 205, Superior Court of the State of California for the County of Orange,filed October 6, 2006. On November 22, 2006, the court consolidated under theabove caption two state derivative actions: (i) *Barclay v.Diebel,* et al., No. 06 CC 205, Superior Court of the Stateof California for the County of Orange, filed October 6, 2006 and (ii) *Bryant v. Diebel*, et al., No. 06 CC 206, Superior Court ofthe State of California for the County of Orange, filed October 6, 2006. Theplaintiffs filed a consolidated complaint on December 22, 2006, and thedefendants filed demurrers to the complaint on February 5, 2007. Under thecurrent scheduling order, the plaintiffs are expected to file their oppositionto the demurrers by June 22, 2007. The consolidated complaint asserts causes ofaction for breach of fiduciary duty, accounting, abuse of control, grossmismanagement, constructive trust, corporate waste, rescission, unjustenrichment, and violation of California Corporations Code in connection withthe Company’s option granting practices. On May 23, 2007, the parties in boththis action and the class action discussed below participated in a mediation.As a result of this mediation, the parties in both actions reached apreliminary settlement understanding, which includes corporate governancereforms and an amount to cover plaintiffs’ attorneys fees. The Companyanticipates that the monetary portion of the proposed settlement will becovered by the Company’s director and officer liability insurance. The partiesare in the process of finalizing their settlement agreements. These settlementsare conditioned upon court approval.

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2.     The following putative federal securities class action has alsobeen filed challenging conduct by the Company and certain of its current andformer board members and officers in connection with various stock optiongrants:

a.      *Grecian v. Meade Instruments Corp., et al.*, No. SA CV 06 908AG (JTLx), United states District Court for the Central District of California,filed September 27, 2006. On January 8, 2007, the court granted the namedplaintiffs’ motion to be appointed lead plaintiffs. On February 22, 2007, theplaintiffs filed their second amended complaint, which asserts claims for violationsof Section 10(b), 14(a) and 20(a) of the Securities Exchange Act in connectionwith the Company’s option granting practices. Under the current schedulingorder, the plaintiffs can file a third amended complaint by June 1, 2007. Thedefendants do not believe that the third amended complaint will differmaterially from its predecessor. The defendants’ motion to dismiss the thirdamended complaint will be due on July 16, 2007. On May 23, 2007, the parties inboth this action and the derivative action discussed above participated in amediation. As a result of this mediation, the parties in both actions reached apreliminary settlement understanding, which includes corporate governancereforms and an award to the class, from which plaintiffs’ attorneys fees andadministrative costs would be paid. The Company anticipates that the monetaryportion of the proposed settlement will be covered by the Company’s directorand officer liability insurance. The parties are in the process of finalizingtheir settlement agreements. These settlements are conditioned upon courtapproval.

3.     On September 28,2006, Daniel Azari and Paul T. Jones, dba Star Instruments and RC OpticalSystems, Inc. filed an action against Meade and certain Meade dealers inthe United States District Court for the Southern District of New York,alleging the following claims: (1) violation of the Racketeer InfluencedAnd Corrupt Organization Act (“RICO”); (2) violation of New York GeneralBusiness Law §§ 349 and 350; (3) violation of California Business andProfessions Code § 17200; (4) unfair competition; and (5) productdisparagement. The gravamen of the complaint is that Meade and other defendantsallegedly falsely advertise Meade’s Advanced Ritchey-Chretien products as beingRitchey-Chretien products. On October 31, 2006, Plaintiffs filed anAmended Complaint, adding claims for violation of the Lanham Act. On January 3,2007, the United States District Court for the Southern District of New Yorkgranted a motion filed by Meade and ordered the case transferred to the UnitedStates District Court for the Central District of California. In March 2007,the court dismissed the following claims: (1) violation of the RICO Act; (2) violationof New York General Business Law §§ 349 and 350; and (3) productdisparagement. The complaint seeks injunctive relief, compensatory damages, andattorneys’ fees and costs.

4.     On June 13,2006, the Company issued a press release announcing that it had receivednotification from the Securities and Exchange Commission (the “SEC”) of aninformal inquiry into the Company’s past stock option grant practices. TheCompany cooperated with the SEC in connection with that inquiry.

Due to the uncertainties of litigation, the Company isunable to provide an evaluation of the likelihood of either a favorable orunfavorable outcome in the above mentioned cases.

In addition to the above,the Company is involved from time to time in litigation incidental to itsbusiness. Management believes that the outcome of such litigation will not havea material adverse effect on the financial position, results of operations orcash flows of the Company.

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

In connection withthe Company’s Annual Meeting of Stockholders, held on January 31, 2007,the stockholders of the Company took the following actions:

i.       Paul D.Sonkin, Steven G. Murdock and Harry L. Casari were elected to the Board ofDirectors (the “Board”) for a one-year term expiring at the 2007 Annual Meetingof Stockholders;

ii.     Amendmentsto the Company’s Certificate of Incorporation to declassify the Board ofDirectors, to eliminate the provision limiting the removal of directors to only“for cause” removal and to eliminate references to the Series A and Series BCommon Stock of the Company were approved;

iii.    Theappointment of Moss Adams LLP as the Company’s independent registered publicaccounting firm for fiscal 2007 was ratified;

iv.     AStand-Alone Nonqualified Stock Option Agreement between the Company and StevenL. Muellner was approved; and

v.      Certainamendments to the Company’s 1997 Stock Incentive Plan were approved.

Frederick H. Schneider Jr., James M. Chadwick, TimothyC. McQuay and Steven L. Muellner continued in their capacity as directors afterthe Annual Meeting.

The voting results were as follows:

| ** **                                                                                                                                                                                                                                                                                                                           | ** ** | **For**    | ** ** | **Withheld** | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker  non-vote** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|--------------|------------|-------------|------------|-------------|------------|----------------------|------------|
| Election of Paul D. Sonkin  to the Company’s Board of Directors                                                                                                                                                                                                                                                            |       | 17,889,030 |       | 84,053       |       |        |       |        |       |                 |       |
| Election of Steven G. Murdock to the  Company’s Board  of Directors                                                                                                                                                                                                                                                             |       | 16,321,113 |       | 1,651,970    |       |        |       |        |       |                 |       |
| Election of Harry L. Casari to  the Company’s Board of Directors                                                                                                                                                                                                                                                           |       | 16,090,486 |       | 1,882,597    |       |        |       |        |       |                 |       |
| Approval of amendments to the Company’s Certificate of  Incorporation to declassify the Board of Directors, to eliminate the  provision limiting the removal of directors to only “for cause” removal  and to eliminate references to the Series A and Series B  Common Stock of the Company |       | 11,970,314 |       |         |       | 38,265      |       | 13,840      |       | 5,950,664            |       |
| Ratification of the appointment of Moss Adams LLP as the  Company’s independent registered public accounting firm for fiscal  2007                                                                                                                                                                                    |       | 17,860,528 |       |         |       | 53,351      |       | 59,203      |       |                 |       |
| Approval of a Stand-Alone Nonqualified Stock Option  Agreement between the Company and Steven L. Muellner                                                                                                                                                                                                                       |       | 11,354,555 |       |         |       | 604,704     |       | 63,160      |       | 5,950,664            |       |
| Approval  of certain amendments to the Company’s 1997 Stock Incentive Plan                                                                                                                                                                                                                                                      |       | 11,644,885 |       |         |       | 327,623     |       | 49,911      |       | 5,950,664            |       |

 

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**PART II**

**Item 5.**                        *Market for Registrant’s Common Equity and Related Stockholder Mattersand Issuer Purchases of Equity Securities*

TheCompany’s common stock is listed on the Nasdaq National Market under the symbol“MEAD”. The high and low sales prices on a per share basis for the Company’scommon stock during each quarterly period for the fiscal years ended February 28,2007 and 2006, respectively, were:

| **Year Ended February 28, 2007** | ** ** | ** ** | ** ** | **High** | ** ** | **Low** | ** ** |
|------------------------------------------------------|------------|------------|------------|----------|------------|---------|------------|
| Fourth quarter                                       |       | $          | 3.10       |     | $          | 1.90    |       |
| Third quarter                                        |       | $          | 2.30       |     | $          | 1.67    |       |
| Second quarter                                       |       | $          | 2.88       |     | $          | 2.10    |       |
| First quarter                                        |       | $          | 3.15       |     | $          | 2.60    |       |

 

| **Year Ended February 28, 2006:** | ** ** | ** ** | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------------------------------------------------|------------|------------|------------|----------|------------|---------|------------|
| Fourth quarter                                        |       | $          | 3.10       |     | $          | 2.59    |       |
| Third quarter                                         |       | $          | 2.95       |     | $          | 2.35    |       |
| Second quarter                                        |       | $          | 2.89       |     | $          | 2.19    |       |
| First quarter                                         |       | $          | 3.47       |     | $          | 2.45    |       |

 

The reported closing sales price of the Company’scommon stock on the Nasdaq National Market on May 21, 2007 was $2.13. Asof May 21, 2007, there were 109 holders of record of the Company’s commonstock.

Other than dividends paidto the Company’s ESOP in August 1996, the Company has not paid any cashdividends on its common stock and does not anticipate declaring or paying anycash dividends on its common stock in the foreseeable future. Although theCompany intends to make future contributions to the ESOP upon Board approval,no cash dividends (other than dividends paid to all holders of common stock)will be paid to the ESOP with respect to future periods.

**Equity CompensationPlan Information**

Thefollowing table provides information as of February 28, 2007 with respectto shares of Meade common stock that may be issued under the Company’s variousequity compensation plans.

| ** **                                              | ** ** | **A**      | ** ** | **B**                                                                                                        | ** ** | **C**                                                                            | ** ** |
|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **Plan Category**                                  | ** ** | ** ** | ** ** | **Number of  Securities to be  Issued upon Exercise  of Outstanding  Options** | ** ** | **Weighted Average  Exercise Price of  Outstanding Options** | ** ** | **Number of  Securities  Remaining Available  for Future Issuance  Under Equity  Compensation Plans  (Excluding  Securities  Reflected in Column  A)** | ** ** |
| Equity  compensation plans approved by shareholders     |       |       | 2,741,000  |                                                                                                         |       |                                                                             | $          | 3.88 |   |   |   | 1,843,000 |   |   |
| Equity  compensation plans not approved by shareholders |       |       | 250,000    |                                                                                                         |       |                                                                             | 5.01       |   |   |   | 0 |   |   |
| Total                                                   |       |       | 2,991,000  |                                                                                                         |       |                                                                             | $          | 3.97 |   |   |   | 1,843,000 |   |   |
|                                                         |            |            |            |                                                                                                              |            |                                                                                  |            |  |  |  |  |  |  |  |  |  |

 

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**Performance Graph**

The following graph showsa five-year comparison of cumulative total returns(1) for (i) theCompany, (ii) the Nasdaq U.S. Composite Index and (iii) the Russell2000 Index(2).

******

| ** **                  | ** ** | **2/28/02** | ** ** | **2/28/03** | ** ** | **2/29/04** | ** ** | **2/29/05** | ** ** | **2/28/06** | ** ** | **2/28/07** | ** ** |
|-----------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                  | ** ** | **($)(3)**  | ** ** | **($)**     | ** ** | **($)**     | ** ** | **($)**     | ** ** | **($)**     | ** ** | **($)**     | ** ** |
| Nasdaq Stock  Market (U.S.) |       | 100.00      |       | 77.98       |       | 117.44      |       | 119.24      |       | 133.56      |       | 141.75      |       |
| Russell 2000  Index         |       | 100.00      |       | 76.81       |       | 124.76      |       | 135.09      |       | 155.67      |       | 171.03      |       |
| Meade Instruments Corp.     |       | 100.00      |       | 115.29      |       | 146.67      |       | 121.57      |       | 111.76      |       | 91.76       |       |

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(1)          Total returns assumesreinvestment of dividends.

(2)          The Russell 2000 Indexis comprised of 2000 small U.S. company stocks (companies with a median marketcapitalization of approximately $600 million).

(3)          Assumes $100 invested onFebruary 28, 2002.

**IT SHOULD BE NOTEDTHAT THIS GRAPH REPRESENTS HISTORICAL STOCK PRICE PERFORMANCE AND IS NOTNECESSARILY INDICATIVE OF ANY FUTURE STOCK PRICE PERFORMANCE.**

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**Item 6.**                        *Selected Financial Data*

**SELECTEDCONSOLIDATED FINANCIAL INFORMATION**

Thefollowing selected consolidated financial data have been derived from theCompany’s consolidated financial statements, including the audited consolidatedbalance sheets at February 28, 2007 and 2006 and the audited consolidatedstatements of operations for the three years ended February 28, 2007 andthe notes thereto appearing elsewhere herein and should be read in conjunctionwith such financial statements. Such data should also be read in conjunctionwith “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” included in this report. The consolidated balance sheet data asof February 28, 2005, February 29, 2004 and February 28, 2003,and the consolidated income statement data for each of the two fiscal years inthe period ended February 29, 2004, are derived from consolidatedfinancial statements of the Company, which are not included herein. Historicalresults are not necessarily indicative of future results; and the results forthe years presented should not be considered indicative of future performance.

| ** **                                              | ** ** | **Year Ended February 28/29**                                                                   | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|
| ** **                                              | ** ** | **2007(d)**                                                                                                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003(a)** | ** ** |
| ** **                                              | ** ** | **(In thousands of dollars, except share and per share amounts)** | ** ** |
| **Consolidated Statements of  Operations Data:**        |       |                                                                                                           |       |   |   |   |   |   |   |   |   |
| Net  sales                                              |       | $                                                                                                              | 101,535    |   | $ | 119,835 |   | $ | 111,799 |   | $ | 138,281 |   | $ | 110,817 |   |
| Cost  of sales                                          |       | 84,065                                                                                                         |       | 90,333 |   | 83,608 |   | 99,499 |   | 77,205 |   |
| Gross  profit                                           |       | 17,470                                                                                                         |       | 29,502 |   | 28,191 |   | 38,782 |   | 33,612 |   |
| Selling  expenses                                       |       | 17,646                                                                                                         |       | 18,286 |   | 16,063 |   | 18,223 |   | 14,509 |   |
| General  and administrative expenses(b)                 |       | 15,173                                                                                                         |       | 13,082 |   | 10,251 |   | 13,117 |   | 13,720 |   |
| ESOP  contribution expense                              |       | 302                                                                                                            |       | 343 |   | 419 |   | 859 |   | 905 |   |
| Research  and development expenses                      |       | 1,840                                                                                                          |       | 1,464 |   | 2,032 |   | 2,133 |   | 3,298 |   |
| Operating  income (loss)                                |       | (17,491                                                                                                        | )          | (3,673 | ) | (574 | ) | 4,450 |   | 1,180 |   |
| Interest  expense                                       |       | 803                                                                                                            |       | 1,203 |   | 888 |   | 1,046 |   | 1,137 |   |
| Income  (loss) before income taxes                      |       | (18,294                                                                                                        | )          | (4,876 | ) | (1,462 | ) | 3,404 |   | 43 |   |
| Income  tax provision (benefit)(c)                      |       | 888                                                                                                            |       | 9,104 |   | (531 | ) | 1,651 |   | 135 |   |
| Net  income (loss)                                      |       | $                                                                                                              | (19,182    | ) | $ | (13,980 | ) | $ | (931 | ) | $ | 1,753 |   | $ | (92 | ) |
| Per share information:                                  |       |                                                                                                           |       |   |   |   |   |   |   |   |   |
| Net  income (loss)—basic                           |       | $                                                                                                              | (0.98      | ) | $ | (0.72 | ) | $ | (0.05 | ) | $ | 0.09 |   | $ | (0.01 | ) |
| Net  income (loss)—diluted                         |       | $                                                                                                              | (0.98      | ) | $ | (0.72 | ) | $ | (0.05 | ) | $ | 0.09 |   | $ | (0.01 | ) |
| Weighted average common shares outstanding—basic   |       | 19,608                                                                                                         |       | 19,419 |   | 19,288 |   | 18,983 |   | 16,410 |   |
| Weighted average common shares outstanding—diluted |       | 19,608                                                                                                         |       | 19,419 |   | 19,288 |   | 19,174 |   | 16,410 |   |
| **Consolidated Balance  Sheet Data:**                   |       |                                                                                                           |       |   |   |   |   |   |   |   |   |
| Working  capital                                        |       | $                                                                                                              | 24,389     |   | $ | 41,825 |   | $ | 53,579 |   | $ | 57,523 |   | $ | 51,275 |   |
| Total  assets                                           |       | 55,129                                                                                                         |       | 72,240 |   | 90,021 |   | 89,819 |   | 86,276 |   |
| Total  current liabilities                              |       | 17,836                                                                                                         |       | 17,340 |   | 22,557 |   | 20,901 |   | 21,403 |   |
| Long-term  debt, net of current portion                 |       | 1,186                                                                                                          |       | 1,410 |   | 1,241 |   | 1,729 |   | 2,139 |   |
| Deferred  rent                                          |       | 195                                                                                                            |       | 222 |   | 349 |   | 389 |   | 427 |   |
| Additional  paid-in capital                             |       | 45,104                                                                                                         |       | 44,890 |   | 44,323 |   | 44,324 |   | 44,109 |   |
| Retained  earnings                                      |       | (11,096                                                                                                        | )          | 8,086 |   | 22,066 |   | 22,997 |   | 21,244 |   |
| Deferred  compensation                                  |       | (148                                                                                                           | )          | (507 | ) | (8 | ) | (117 | ) | (1,081 | ) |
| Stockholders’ equity                               |       | 34,476                                                                                                         |       | 51,728 |   | 65,874 |   | 65,746 |   | 61,109 |   |

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(a)           The Companyacquired Simmons Outdoor on October 25, 2002 (see Item 1. Business.herein).

(b)           The Companyadopted SFAS No. 142 on March 1, 2002 and as such ceased amortizinggoodwill (see Note 3. of Notes to Consolidated Financial Statements).

(c)            The Companyrecorded a full valuation allowance against its deferred tax assets for theyear ended February 28, 2006. The Company continued to provide a fullvaluation allowance against its deferred tax assets for the year ended February 28,2007 (see Note 8. of Notes to Consolidated Financial Statements).

(d)          The Company adopted SFAS No. 123Ron March 1, 2006 and as such began accounting for stock-based compensationunder the fair-value method (see Note 3. of Notes to Consolidated FinancialStatements).

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**Item 7.**                        *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations*

*The following discussion of our financial conditionand results of operations should be read in conjunction with our consolidatedfinancial statements and related notes included elsewhere in this Form 10-K.This discussion contains forward-looking statements that involve risks anduncertainties. Our actual results may differ materially from those anticipatedin these forward-looking statements due to known and unknown risks,uncertainties and other factors, including those risks discussed in “RiskFactors” and elsewhere in this Form 10-K. Those risk factorsexpressly qualify all subsequent oral and written forward-looking statementsattributable to us or persons acting on our behalf. We do not have anyintention or obligation to update forward-looking statements included in this Form 10-Kafter the date of this Form 10-K, except as required by law.*

**Overview**

Net sales during fiscal 2007 decreased approximately15% from the prior year. Sales were down, on a world wide basis in nearly everymajor category. Several factors influenced the reduction in sales, including,but not limited to: 1) lack of adequate supply of ETX products and riflescopesfrom its foreign-sourced suppliers and lower than expected supply of productsmanufactured domestically, principally Meade and Coronado branded higher-endproducts; 2) diminished demand and pricing pressure for the Company’s lowestpriced telescope and binocular products and 3) more aggressive pricecompetition, principally in the pricing of certain higher-end scopes by Meade’sprimary competitor in that market niche. Euro denominated sales at the Company’sEuropean subsidiary were relatively flat as compared to the prior year. However,due to the strengthened Euro as compared to the prior year, U.S. dollar salesattributable to the Company’s European subsidiary increased approximately 5%over the prior year. Sales to Lidl, a large German-based European retailer andthe Company’s largest customer, increased approximately 8% over the prior year,and represent over 50% of Meade Europe’s net sales and approximately 20% ofconsolidated net sales for fiscal 2007.

In keeping with the Company’s strategy to outsourceits production to low cost producers, the Company transitioned the productionof its mid-level ETX products to a supplier in China during fiscal 2007. Thoseproducts had previously been manufactured, primarily, in the Company’s Irvine,California facility. Delays at the Chinese supplier led to significantreduction in availability of those ETX products which severely affected salesof those products during the year. Unit and dollar sales of mid-level ETXproducts were down approximately 50% from prior year levels. Sales ofriflescopes were also negatively affected during fiscal 2007 because ofcontinuing supply problems. Sales of riflescopes were down approximately 12%from fiscal 2006 levels following a 44% decline in fiscal 2006 from fiscal 2005levels principally due to lack of supply. Management took two major stepsduring fiscal 2007 to improve supply chain management at the Company. First,management appointed a new senior vice president of operations and, with that,restructured the operations department, adding two additional senior levelmanagers and emphasizing a process-driven supply chain organization. Second,management signed an agreement with Three Sixty Sourcing Ltd., a Hong Kongcorporation (“360 Sourcing”). 360 Sourcing will provide the Company with assistancefor virtually all aspects of its exclusive sourcing in China; including,without limitation, identification and management of Chinese suppliers, qualitycontrol and assurance, logistics services, business development support, andadministrative services. Management believes that the restructuring of theCompany’s operations department and the agreement with 360 Sourcing willmitigate the current supply chain problems and eliminate the severe shortagesin key products (principally riflescopes and mid-priced telescopes) that theCompany has experienced over the past two fiscal years.

Sales of the Company’s higher-end products were downsignificantly in fiscal 2007. Factors influencing the decline include bothdiminished supply coming from the Company’s production facilities (sales ofCoronado branded high-end products were especially affected by the closing ofthe Coronado production facility in Arizona and delays experienced in gettingthe production on-line in California) and pricing pressure from the Company’sprincipal competitor in the high-end market. Sales of telescope accessories 

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were also downsignificantly during the year reflecting lower sales of the Company’s DSIastro-imagers and lower sales of other accessories following the decline intelescope sales overall. Management can not apportion how much of the high enddecline is attributable to lack of supply versus diminished demand due toincreased competition. However, management believes that: 1) a majority of itshigh-end products are in production and that production will be able to fullymeet demand; and 2) that the combination of new products, effective marketingand appropriate pricing will stimulate demand for the Company’s higher-endproducts.

The Company alsoexperienced a decline in unit and dollar sales of its lower-end products,specifically sales of its low-end telescopes and binoculars. This decline wasinfluenced in part by management’s decision to be more selective in the retailersthat sell these products, eschewing retailers with so called “guaranteed sale”requirements. Management believes that the costs (including, but not limitedto, inventory requirements, freight and handling, inspection and repair) exceedthe benefits of selling on a guaranteed sale basis. Apart from the effects ofbeing more selective with the retailers, sales of lower-end telescope andbinocular products declined at most of the Company’s major retailers. Demandfor the products was diminished compared to the prior year and the Companyexperienced some pricing pressure as well. Management believes that competitionfor these types of low-end products will continue to be acute. However,management also believes that it may be able to increase demand for theseproducts with enhanced and new product introductions, targeted marketing andcompetitive pricing.

**Critical AccountingPolicies and Estimates**

The Company’s financialstatements are prepared in accordance with accounting principles generallyaccepted in the United States. The preparation of these financial statementsrequires management to make certain estimates, judgments and assumptions thatit believes are reasonable based upon the information available. Theseestimates and assumptions affect the reported amounts of assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the periods presented. Actual results may differ from theseestimates under different assumptions or conditions. The significant accountingpolicies which management believes are the most critical to aid in fullyunderstanding and evaluating the Company’s reported financial results includethe following:

*Revenue Recognition*

The Company recognizesrevenue when persuasive evidence of an arrangement exists, delivery hasoccurred, the price to the buyer is fixed or determinable, and collectibilityis reasonably assured. Those criteria are typically met when product isshipped. Revenue is not recognized at the time of shipment if these criteriaare not met. Although there are many factors that influence revenuerecognition, the principal reason the Company may not recognize revenue at thetime of shipment is if the substance of the transaction is a consignment.Consignment type arrangements have happened on a limited basis in the past.Management has, however, decided that, as a standard policy, it will no longerenter into consignment type arrangements. Under certain circumstances, theCompany accepts product returns or offers markdown incentives. Product returnsand markdown incentives are principally related to lower-end Meade brandedproducts. Management judgments must be made and used in connection withestablishing the sales return and incentive allowance estimates. The Companycontinuously monitors and tracks returns and allowances and records revenuesnet of provisions for returns and allowances. The Company’s estimate of salesreturns and allowances is based upon several factors including historical returnor markdown experience, current market and economic conditions, customer demandand acceptance of the Company’s products and/or any notification received bythe Company of such a return. Historically, sales returns and allowances havebeen concentrated on the Company’s lower-end product lines, have been withinmanagement’s estimates and were approximately 15%, 18% and 20% of gross salesof such lower-end products for the years ended February 28, 2007, 2006 and2005, respectively. However, actual returns 

25

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andallowances may differ significantly, either favorably or unfavorably, frommanagement’s estimates depending on actual market conditions at the time of thereturn or allowance. The Company has not identified any trends, events oruncertainties that would require a change in management’s methodologies orassumptions related to sales return and allowance estimates.

*Inventories*

Inventories are stated atthe lower of cost, as determined using the first-in, first-out (“FIFO”) method,or market. Costs include materials, labor and manufacturing overhead. TheCompany evaluates the carrying value of its inventories taking into accountsuch factors as historical and anticipated future sales compared withquantities on hand and the price the Company expects to obtain for its productsin their respective markets. The Company also evaluates the composition of itsinventories to identify any slow-moving or obsolete product. These evaluationsrequire material management judgments, including estimates of future sales,continuing market acceptance of the Company’s products, and current market andeconomic conditions. Inventory reserves are established, based on suchjudgments, for any inventories that are identified as having a net realizablevalue less than its cost. Inventory reserves represented 20%, 17% and 16% ofgross inventory value at February 28, 2007, 2006 and 2005, respectively(see Item 15. Exhibits and Financial Statement Schedules—Schedule II Valuationand Qualifying Accounts). Historically, the net realizable value of the Company’sinventories has generally been within management’s estimates. However, if theCompany is not able to meet its sales expectations, or if market conditionsdeteriorate significantly from management’s estimates, reductions in the netrealizable value of the Company’s inventories could have a material adverseimpact on future operating results. The Company has not identified any trends,events or uncertainties that would require a change in management’smethodologies or assumptions related to determining the net realizable value ofits inventories.

*Goodwill andIntangible Assets*

Goodwill and intangibleassets are accounted for in accordance with SFAS No. 142, *Goodwill and Intangible Assets*. Under SFASNo. 142, goodwill and intangible assets with indefinite lives are notamortized but are tested for impairment annually and also in the event of animpairment indicator. As required by SFAS No. 142, the Company evaluatesthe recoverability of goodwill based on a two-step impairment test. The firststep compares the fair value of each reporting unit with its carrying amount,including goodwill. If the carrying amount exceeds the fair value, then thesecond step of the impairment test is performed to measure the amount of anyimpairment loss. Fair value is determined based on estimated future cash flows,discounted at a rate that approximates the Company’s cost of capital. Suchestimates are subject to change and the Company may be required to recognize animpairment loss in the future. Any impairment losses will be reflected inoperating income.

*Income taxes*

A deferred income taxasset or liability is established for the expected future consequences oftemporary differences in the financial reporting and tax bases of assets andliabilities. Significant judgment is necessary in the determination of therecoverability of the Company’s deferred tax assets. Deferred tax assets arereviewed regularly for recoverability and the Company establishes a valuationallowance when it is more likely than not that some portion, or all, of thedeferred tax assets will not be realized. The Company assesses therecoverability of the deferred tax assets on an ongoing basis. In making thisassessment the Company is required to consider all available positive andnegative evidence to determine whether, based on such evidence, it is morelikely than not that some portion, or all, of the net deferred assets will berealized in future periods. If it is determined that it is more likely than notthat a deferred tax asset will not be realized, the value of that asset will bereduced to its expected realizable value, thereby decreasing net income. If itis determined that a deferred tax asset that had previously been written down 

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will berealized in the future, the value of that deferred tax asset will be increased,thereby increasing net income in the period when the determination is made.Actual results may differ significantly, either favorably or unfavorably, fromthe evidence used to assess the recoverability of the Company’s deferred taxassets. The Company has not identified any trends, events or uncertainties thatwould require a change in management’s methodologies or assumptions related tothe valuation of its deferred tax assets.

**Results ofOperations**

Thefollowing table sets forth, for the periods indicated, certain items from theCompany’s statements of operations as a percentage of net sales for the periodsindicated.

| ** **                            | ** ** | **Year Ended February 28 ,** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|
| ** **                            | ** ** | **2007**                                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net sales                             |       | 100.0                                            | %          | 100.0 | % | 100.0 | % |
| Cost of sales                         |       | 82.8                                             |       | 75.4 |   | 74.8 |   |
| Gross profit                          |       | 17.2                                             |       | 24.6 |   | 25.2 |   |
| Operating  expenses:                  |       |                                             |       |   |   |   |   |
| Selling expenses                      |       | 17.4                                             |       | 15.3 |   | 14.4 |   |
| General and administrative expenses   |       | 14.9                                             |       | 10.9 |   | 9.2 |   |
| ESOP contribution expense             |       | 0.3                                              |       | 0.3 |   | 0.3 |   |
| Research and development expenses     |       | 1.8                                              |       | 1.2 |   | 1.8 |   |
| Total operating expenses              |       | 34.4                                             |       | 27.7 |   | 25.7 |   |
| (Loss) income  from operations        |       | (17.2                                            | )          | (3.1 | ) | (0.5 | ) |
| Interest expense                      |       | 0.8                                              |       | 1.0 |   | 0.8 |   |
| (Loss) income  before income taxes    |       | (18.0                                            | )          | (4.1 | ) | (1.3 | ) |
| (Benefit)  provision for income taxes |       | 0.9                                              |       | 7.6 |   | (0.5 | ) |
| Net (loss) income                     |       | (18.9                                            | )          | (11.7 | ) | (0.8 | ) |

 

**Fiscal 2007Compared to Fiscal 2006**

Net sales decreased from $119.8 million in fiscal 2006to $101.5 million in fiscal 2007, a decrease of 15.3%. Sales of the Company’shigher-end telescope products decreased in the aggregate by approximately $3million from the prior year. Related telescope accessories also decreased fromthe prior year by approximately $2 million. Sales of the Company’s mid-levelETX products decreased by approximately $9 million and sales of the Company’sless-expensive, smaller-aperture telescopes decreased from the prior yearperiod by approximately $2 million. Binocular sales were down approximately $3million and riflescope sales declined by approximately $2 million from prioryear sales levels. Partially offsetting these sales declines was an increase insales of spotting scopes of approximately $2 million, principally on increasedsales of spotters to Lidl in Europe. Also offsetting the sales declines was anincrease of nearly $2 million in sales of microscopes and magnifiers.Management believes that as supply problems are resolved, sales of the Company’shigher-end products and accessories and sales of mid-level ETX products willimprove. Management also believes that as the Company introduces new andinnovative products into the telescope markets (several of which are slated forintroduction during fiscal 2008 and 2009) that demand for a broad range ofproducts in that category will be stimulated. Management believes that demandfor the Company’s less-expensive telescope and binocular products can beenhanced with new product introductions, targeted marketing and competitivepricing. Included in the above discussion of specific year over year changes isthe positive effect of the stronger euro versus the dollar compared to theprior year (European U.S. dollar sales were positively affected byapproximately $1.6 million).

Gross profit decreased from $29.5 million (24.6% ofnet sales) in fiscal 2006 to $17.5 million (17.2% of net sales) in fiscal 2007,a decrease of 40.1%. The dollar decrease followed the $18.3 million decrease in

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net sales and the 7.4percentage point decrease in gross margin (gross profit as a percent of netsales) for the period. A combination of significantly reduced sales volume ofhigher-end products during the current year not covering fixed costs to theextent those costs were covered in the prior year, unit cost increasesoutpacing average selling price (“ASP”) increases, unit cost decreases notcompensating for discounted ASPs, (the previous two conditions reflecting theaggressive inventory rationalization undertaken by management during the year),and SKU reduction led to the overall declines in gross margins. Among theproduct types that the Company buys as finished goods from its varioussuppliers (principally located in China), small imported telescope, mid-levelETX products, microscopes and magnifiers saw an increase in ASPs over the ASPsfor fiscal 2006. ASPs for the Company’s higher-end manufactured productcategories (those sold under the Meade and Coronado brand names) alsoexperienced higher overall ASPs during fiscal 2007 as compared to the prioryear. Other imported finished goods including riflescopes, binoculars, and themajority of the Company’s accessories, all experienced decreases in ASPs forfiscal 2007 as compared to fiscal 2006. Discounts, markdowns and product mixchange were the principal drivers of the lower ASPs during fiscal 2007. Despitethe improvements in ASPs for certain imported product types and for thedomestically manufactured higher-end products, all of the Company’s importedand domestically manufactured higher-end product categories experienced decreasedgross margins from the prior year (except for binoculars which was the onlyproduct category to show gross margin improvement over the prior year). Addingmarginally to the decrease in gross profit was approximately $0.5 million inseverance for certain employees in the manufacturing and operations departmentsincluded in cost of sales during fiscal 2007. There was no correspondingseverance included in cost of sales in the prior year. The strengthened euroversus the dollar did not have a significant effect on gross margin because theEuropean subsidiary utilizes forward contracts on substantially all of itssignificant dollar inventory purchases.

Selling expenses decreased from $18.3 million (15.3%of net sales) in fiscal 2006 to $17.6 million (17.4% of net sales) in fiscal2007, a decrease of 3.5%. The dollar decrease was primarily due to: 1) areduction in marketing and advertising expenses of approximately $1 million asthe Company rationalized its advertising expenses against lower sales; 2)freight cost reductions of approximately $0.5 million on lower sales; 3)commission expense reduction of approximately $0.2 million on lowercommissionable sales; and 4) a decrease of approximately $0.8 million in salesrelated compensation costs that was completely offset by approximately $0.8 millionin severance costs during fiscal 2007. Partially offsetting the decreases wereincreases in temporary labor of approximately $0.3 million and increased baddebt expense of approximately $0.7 million. The increase in selling expenses asa percent of sales compared to the prior year is attributable to thevariability of the expenses being less than the variability of sales.

General and administrative expenses increased from$13.1 million (10.9% of net sales) in fiscal 2006 to $15.2 million (14.9% ofnet sales) in fiscal 2007, an increase of 16.0%. The dollar increase in generaland administrative expenses was primarily due to: 1) an increase ofapproximately $0.6 million in stock compensation costs related to the Company’sadoption of FAS 123R; 2) an increase of approximately $0.9 million inaccounting and legal fees that were principally related to the Company’sinternal stock option investigation and the related preparation of the Company’srequired filings; and 3) increased temporary labor of approximately $0.3million. General and administrative compensation costs included approximately$0.8 and $0.5 million related to severance costs during fiscal 2007 and 2006,respectively. Not including severance costs, compensation costs decreasedapproximately $0.3 million in fiscal 2007 as compared to the prior year.Including severance costs, general and administrative compensation costs wereunchanged from the prior year. Severance costs incurred during fiscal 2007 wererelated to the departure of the Company’s general counsel and chief financialofficer. Severance during the prior year related to the departure of theCompany’s then chief executive officer. The increase in general andadministrative expenses as a percent of sales compared to the prior year is partiallydue to the “one time” nature of several of the charges during the year and therelatively fixed nature of other costs incurred. Stock-based compensationexpenses, included in general and administrative expenses, related to stockoptions with 

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exercise prices deemed tobe below the fair market value at the measurement date were zero in fiscal2007, and approximately $3,000 in fiscal 2006, respectively.

ESOP contribution expense was relatively flat from theprior year at approximately $0.3 million in each of the two years; 0.3% of netsales in fiscal 2006 and 2007, respectively. Changes in this non-cash chargeare principally due to changes in the average market value of the Company’scommon stock during the year. The non-cash ESOP contribution expense mayfluctuate as the number of shares allocated and the market value of the Company’scommon stock changes.

Research and development expenses increased to $1.8million (1.8% of net sales) in fiscal 2007 from $1.5 million in fiscal 2006(1.2% of net sales), an increase of 25.7%. The increase was principally due toan increase in external research and development consulting costs. Research anddevelopment expenses continue to be focused on new product development andproduct improvement in the Company’s core consumer product categories.

Interest expense decreased from $1.2 million forfiscal 2006 (1.0% of net sales) to $0.8 million for fiscal 2007 (0.8% of netsales), a decrease of 33.3%. This decrease was principally due to lower averageborrowings as compared to the prior year.

The tax provision was $0.9 million on consolidatedpre-tax losses of $18.3 million for fiscal 2007. This was the result of: 1) theCompany recording a provision for income taxes on pre-tax income generated inEurope at an estimated rate of 33% (the European pre-tax income wasapproximately $3.6 million for the fiscal 2007 year); and 2) no tax benefitrecognized on pre-tax losses generated by the Company’s domestic operations(domestic operations’ pre-tax loss was approximately $22.0 million for theyear). The Company did not recognize tax benefit on its domestic pre-tax lossesdue to the uncertainty of realizing those benefits. The Company is notrecognizing tax benefits for financial reporting purposes because it continuesto believe, consistent with its determination made at February 28, 2006,that those tax benefits should not be recognized due to insufficient objectiveevidence at this time to support recognition of those benefits for financialreporting purposes. The effective tax rate for the year ended February 28,2006 was significantly affected by recording a valuation allowance to recognizethe uncertainty of realizing the benefits of the Company’s domestic netdeferred tax assets. The valuation allowance was recorded because there wasinsufficient objective evidence at that time to recognize those assets forfinancial reporting purposes. At February 28, 2006, a valuation allowanceof approximately $12.5 million was recorded to offset the Company’s deferredtax assets. Ultimate realization of any tax benefits is dependent upon theCompany generating sufficient taxable income in future periods, includingperiods prior to the expiration of certain underlying tax credits.

**Fiscal 2006Compared to Fiscal 2005**

Net sales increased from $111.8 million in fiscal 2005to $119.8 million in fiscal 2006, an increase of 7.2%. Sales of the Company’shigher-end telescopes and telescope accessory products increased in theaggregate by approximately $8 million over the prior year. Management believesthat the increase in high-end sales reflects the market’s favorable response tonew products introduced late in fiscal 2005 and during fiscal 2006. Included inthe approximate $8 million increase in high-end product is approximately $2million related to increased Coronado brand product sales. The prior yearreflects only four months of Coronado sales compared to a full year in thecurrent period. Sales of the Company’s less-expensive, smaller-aperturetelescopes increased over the prior year period by approximately $8 million onstronger demand, principally related to the Company’s ETX product lines.Included in the approximate $8 million increase in small telescopes isapproximately $1 million from Coronado sales. Sales of microscopes, magnifyingglasses, laser rangefinders, OEM camera products and other miscellaneousproducts increased, in the aggregate, by approximately $3 million compared tothe prior year. Sales increases were offset principally by a decrease in salesof riflescopes of approximately $10 million and a decrease in binocular salesof just under $1 million. Included in the above discussion of specific yearover year changes is the 

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negative effect of thestronger dollar versus the euro compared to the prior year (European U.S.dollar sales were negatively affected by approximately $1.6 million).

Gross profit increased from $28.2 million (25.2% ofnet sales) in fiscal 2005 to $29.5 million (24.6% of net sales) in fiscal 2006,an increase of 4.7%. The dollar increase followed the increase in net sales andrelatively flat gross margin (gross profit as a percent of net sales) for theperiod. Gross margin was down six tenths of a point compared to the prior yearas improvements coming from sales trending to several higher margin productswere offset by lower margins at Simmons Outdoor principally due to discounts onprior year, older-technology, products and air freight expenses on the newSimmons products. The air-freight was incurred in an effort to provide theCompany’s customers with the Simmons products in as timely a manner aspossible. The strengthened dollar versus the euro did not have a significanteffect on gross margin because the European subsidiary utilizes forwardcontracts on substantially all of its significant dollar inventory purchases.Stock-based compensation expenses, included in cost of sales, related to stockoptions with exercise prices deemed to be below the fair market value at themeasurement date were zero in fiscal 2006 compared to $19,000 in fiscal 2005.

Selling expenses increased from $16.1 million (14.4%of net sales) in fiscal 2005 to $18.3 million (15.3% of net sales) in fiscal2006, an increase of 13.8%. The dollar increase was primarily due to highervariable costs, principally freight (up over $1 million from the prior year),on higher net sales, plus increases in advertising and personnel expenses (upapproximately $0.7 million, each). The increase as a percent of sales wasprincipally due to marketing and advertising costs related to the introductionof the new Simmons riflescopes that the Company was not able to cancelsubsequent to the identification of the significantly lower than expectedshipments of Simmons riflescopes from the Company’s Asian supplier. Stock-basedcompensation expenses, included in selling expenses, related to stock optionswith exercise prices deemed to be below the fair market value at themeasurement date were zero in fiscal 2006 compared to $17,000 in fiscal 2005.

General and administrative expenses increased from$10.3 million (9.2% of net sales) in fiscal 2005 to $13.1 million (10.9% of netsales) in fiscal 2006, an increase of 27.6%. The increase in general andadministrative expenses includes approximately $0.5 million in severancepayments for the Company’s outgoing chief executive officer, approximately $0.3million in executive search fees related to the search for a new chiefexecutive officer and the addition of personnel in the Company’s financedepartment, and nearly $0.5 million related to management consultants thatadvised the Company on operational matters and internal control documentation.Expenses at the Company’s European subsidiary increased nearly $1.0 million onhigher consulting fees related to product testing to meet European Unionrequirements (approximately $0.3 million), higher personnel costs and lowerforeign currency exchange gains (approximately $0.2 million, each) and thebalance in higher facilities related costs. Also contributing to the increasewas approximately $0.7 million for Coronado general and administrative coststhat were not included in the prior year period. Stock-based compensationexpenses, included in general and administrative expenses, related to stockoptions with exercise prices deemed to be below the fair market value at themeasurement date were approximately $3,000 in fiscal 2006 compared to $64,000in fiscal 2005.

ESOP contribution expense decreased from $0.4 million(0.4% of net sales) in fiscal 2005 to $0.3 million (0.3% of net sales) infiscal 2006, a decrease of 18.1%. The decrease in this non-cash charge wasprincipally due to a decrease in the average market value of the Company’scommon stock over the current year. The non-cash ESOP contribution expense mayfluctuate as the number of shares allocated and the market value of the Company’scommon stock changes.

Research and development expenses decreased to $1.5million (1.2% of net sales) in fiscal 2006 from $2.0 million in fiscal 2005(1.8% of net sales), a decrease of 28.0%. The decrease was principally due to adecrease in external research and development consulting costs as well asdecreased in-house personnel 

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costs. Research anddevelopment expenses continue to be focused on new product development andproduct improvement in the Company’s core consumer product categories. Stock-basedcompensation expenses, included in research and development expenses, relatedto stock options with exercise prices deemed to be below the fair market valueat the measurement date were zero in fiscal 2006 compared to $14,000 in fiscal2005.

Interest expense increased from $0.9 million forfiscal 2005 (0.8% of net sales) to $1.2 million for fiscal 2006 (0.1% of netsales), an increase of 35.5%. This increase was principally due to higher costsof funds as compared to the prior year.

The effective tax rate forthe year ended February 28, 2006 was significantly affected by recording avaluation allowance to recognize the uncertainty of realizing the benefits ofthe Company’s domestic net deferred tax assets. The valuation allowance wasrecorded because there was insufficient objective evidence at the time torecognize those assets for financial reporting purposes. Ultimate realizationof the benefit of the deferred tax assets is dependent upon the Companygenerating sufficient taxable income in future periods including periods priorto the expiration of certain underlying tax credits. At February 28, 2006,a valuation allowance of approximately $12.5 million was recorded to offset theCompany’s deferred tax assets.

**Liquidity andCapital Resources**

The Company incurred net losses of ($19,182,000),($13,980,000) and ($931,000) for the years ended February 28, 2007, 2006and 2005, respectively. The net loss in fiscal 2006 was significantly affectedby a $12,504,000 valuation allowance recorded against the Company’s deferredtax assets. During fiscal 2007 the Company continued to maintain a fullvaluation allowance on its deferred tax assets. The net loss for the year endedFebruary 28, 2007, therefore, reflects no tax benefits on the Company’sU.S.-based pre-tax losses which aggregated ($21,885,000). On a consolidatedbasis, the Company incurred pre-tax losses of ($18,294,000), ($4,876,000) and($1,462,000), for the years ended February 28, 2007, 2006 and 2005,respectively. Net sales during fiscal 2007 decreased approximately 15% fromfiscal 2006 levels. For the fiscal year 2007, sales were negatively affected assupply shortages expanded to include not just riflescopes but many of theCompany’s foreign-sourced and domestically produced telescopes as well. Managementcan not apportion how much of the decline in sales may be attributable to lackof supply versus diminished market demand. However, the supply problems duringfiscal 2007 were severe. Gross margins dropped over seven percentage pointsduring fiscal 2007 as compared to the prior year. The combination ofsignificantly reduced sales volume of higher-end products during the currentyear not covering fixed costs to the extent those costs were covered in theprior year, average selling prices dropping or not keeping pace with averagecost per unit increases (reflecting the aggressive inventory rationalizationundertaken by management during fiscal 2007), and SKU reduction led to theoverall declines in gross margins. Operating margins fell significantly duringfiscal 2007 as the effects of significant severance costs and increased legaland accounting costs (related to late filing of the prior years’ requiredfilings) added to the effects of lower gross margins.

With respect to sales recovering from the declinesexperienced during fiscal 2007, management believes that: 1) sufficientquantities of riflescope and telescope products (both domestically produced andforeign sourced) are in production and that production will be able to fullymeet demand; 2) a combination of new products, effective marketing andappropriate pricing will stimulate demand for the Company’s higher-endproducts; and 3) while competition for low-end products will continue to be acutethe Company may be able to increase demand for these products with enhanced andnew product introductions, targeted marketing and competitive pricing.

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Supply chain management will be critical to theCompany’s success in achieving its fiscal 2008 targets and beyond. Managementtook two major steps during fiscal 2007 to improve supply chain management atthe Company. First, management appointed a new senior vice president ofoperations and, with that, restructured the operations department, adding twoadditional senior level managers and emphasizing a process-driven supply chainorganization. Second, management signed an agreement with Three Sixty Sourcing Ltd.,a Hong Kong corporation (“360 Sourcing”). 360 Sourcing will provide the Companywith assistance for virtually all aspects of its exclusive sourcing in China.Management believes that the restructuring of the Company’s operationsdepartment and the agreement with 360 Sourcing will mitigate the current supplychain problems and eliminate the severe shortages in key products (principallyriflescopes and mid-priced telescopes) that the Company has experienced overthe past two fiscal years.

As of February 28, 2007, the Company had $4.0million in cash. The Company funded its operations during the fiscal year withcash and other working capital. Operations generated approximately $2.6 millionin cash, overcoming a $19.2 million net loss with approximately $2 million indepreciation, amortization and ESOP expenses, approximately $0.6 million instock-based compensation expenses, approximately $0.5 million in bad debtallowances and approximately $10 million and $4 million reductions ininventories and accounts receivable, respectively. Also adding to cash flowfrom operations was approximately $4.5 million in increased short-termliabilities. Inventories decreased as management continued to focus oninventory reduction through aggressive discounts on older inventories andplanned SKU count reductions. Lack of sufficient supply of several of theCompany’s primary products also affected inventory levels. Inventories atFebruary 28, 2007 were $25.3 million on fiscal year sales of $101.5million. Inventories at February 28, 2007 were at the lowest level at ayear end reporting period since February 28, 1999 when inventories were$14.2 million on fiscal year sales of $76.3 million. Overall inventory turnsincreased to 2.8 times during fiscal 2007, up from 2.2 times in fiscal 2006. Inaddition, cash from operations was used to pay down the Company’s bank lines ofcredit by approximately $3 million bringing the balance owed on its bank linesto $0.9 million at February 28, 2007. Accounts receivable decreased on lowersales during the Company’s fourth fiscal quarter as compared to the prioryear’s fourth quarter. Accounts payable, accrued liabilities and income taxespayable all increased from the prior year and were influenced by the timing ofcertain expenses and deliberate cash management. Working capital requirementsfluctuate during the year due to the seasonal nature of the business. Theserequirements are typically financed through a combination of internallygenerated cash flow from operating activities and short-term bank borrowings.

Continuing losses for the year ended February 28,2007 led the Company to conclude that it would not be in compliance with theminimum EBITDA requirement as set forth in the U.S. credit agreement for theperiod then ended. Accordingly, on May 31, 2007, in anticipation of suchnon-compliance, the Company executed the Eleventh Amendment to Amended andRestated Credit Agreement (the “Eleventh Amendment”). The Eleventh Amendment makesthe following key changes to the U.S. credit agreement: (1) extends theexpiration date to September 30, 2009; (2) reduces the facility to$30,000,000; (3) adjusts the pricing grid based on the Company’scalculated fixed charge coverage ratio; (4) removes the $4 million reservepreviously established in the Fifth Amendment; (5) sets minimum EBITDA,tangible net worth and capital expenditure requirements measured on a rollingfour quarter basis beginning with the quarter ending May 31, 2007 andminimum fixed charge coverage ratio covenants measured on a rolling fourquarter basis beginning with the quarter ending on May 31, 2008; (6)requires payment of an intercompany loan to the Company’s European subsidiaryin the amount of approximately $2,000,000 by not later than July 31, 2007; and (7) establishesprepayment penalties. The fee for the amendment was $125,000. Upon execution ofthe Eleventh Amendment the Company was in compliance with all of its bankcovenants.

Availability under the U.S. revolving loan (which issubject to a borrowing base with standard advance rates against eligibleaccounts receivable and inventories) at February 28, 2007 wasapproximately $3 million. The credit facility expires in September 2009,is collateralized by substantially all of the domestic 

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assets of the Company andits domestic subsidiaries and contains certain financial covenants including,but not limited to, minimum EBITDA levels, minimum tangible net worth targets,minimum fixed charge coverage ratios and certain limits on capitalexpenditures. Amounts outstanding under the U.S. revolving loan bear interestat the bank’s base rate (or LIBOR rate) plus applicable margins (10.25% at February 28,2007).

On July 29, 2005, the Company’s Europeansubsidiary purchased a building for cash of approximately 1,487,000 Euro(approximately $1,805,000 USD at that date). The approximately 50,000 sq. ftbuilding, located in Rhede, Germany, is being used as office and warehousespace. The building is being depreciated straight-line over twenty-five years.In addition to an already existing long term loan with its bank (“European termloan no. 1”) the European subsidiary obtained a 1,375,000 Euro (approximately$1,814,000 USD at February 28, 2007) long-term loan commitment (“Europeanterm loan no. 2”) toward the purchase of the building. European term loan no. 2bears interest fixed at 4.55% with monthly principal payments due ofapproximately 11,500 Euro (approximately $15,200 USD at February 28, 2007)for ten years. On September 9, 2005, the European subsidiary drew down the1,375,000 Euro term loan no. 2 (approximately $1,705,000 USD at thatdate).

The European subsidiary renegotiates the terms of itsshort-term revolving lines on an annual basis. Currently the European line is2,000,000 Euro (approximately $2,638,000 USD at February 28, 2007)increasing to a maximum of 9,000,000 Euro (approximately $11,872,000 USD at February 28,2007) during fiscal 2008. The line bears interest at EURIBOR plus 2%. The lineincreases to 3,500,000 Euro (approximately $4,617,000 USD at February 28,2007) from August 1, 2007 through August 31, 2007, then increases to9,000,000 Euro from September 1, 2007 through February 29, 2008. FromMarch 1, 2008 through August 31, 2008 the line returns to 2,000,000Euro. The aforementioned lines of credit are provided on the condition that anintercompany loan of $2,000,000 be repaid to the Company’s European subsidiaryby July 31, 2007. The European line of credit and term loans are collateralizedby all of the principal assets of the subsidiary; are further collateralized bya guarantee from the U.S. parent company in the amount of 2,600,000 Euro(approximately $3,430,000 USD at February 28, 2007); and require a minimumcapitalization of 3,500,000 Euro (approximately $4,617,000 USD at February 28,2007) at the subsidiary.

The Company continues to depend on operating cash flowand availability under its bank lines of credit to provide short-termliquidity. In the event the Company’s plans require more capital than ispresently anticipated, additional sources of liquidity such as debt or equityfinancings, may be required to meet its capital needs. There can be noassurance that such additional sources of capital will be available on reasonableterms, if at all. However, management believes that operating cash flow andbank borrowing capacity in connection with the Company’s business shouldprovide sufficient liquidity for the Company’s obligations for at least thenext twelve months.

Capital expenditures aggregated $0.4 million, $2.8million and $0.9 million for the fiscal years ended February 28, 2007,2006, and 2005, respectively.

Contributions to the Company’s Employee StockOwnership Plan (“ESOP”) are accounted for as a contribution expense on theCompany’s statement of operations and are accrued quarterly based upon theexpected annual contribution amount. As quarterly contributions are accrued,the corresponding number of shares is added to the Weighted Average CommonShares Outstanding and Unearned ESOP Shares on the Company’s Balance Sheet arereduced. The ESOP uses the contributions to repay amounts due on the ESOP Loan.The ESOP contribution expense is a net non-cash charge which is added back tonet income to arrive at cash flows provided by operating activities. As theCompany makes these non-cash contributions to the ESOP to fund the repayment ofthe ESOP Loan, the Company will realize cash tax savings equal to the productof the tax basis of the contributions, multiplied by the applicable statutorytax rates in effect at the time.

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Thefollowing table summarizes the Company’s contractual obligations as of February 28,2007, and the effect such obligations are expected to have on its liquidity andcash flows in future periods:

| ** **                                                         | ** ** | ** ** | ** ** | **Payments due by period:** | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|--------------------------------------------|------------|
| **Contractual Obligations:**                                  | ** ** | ** ** | ** ** | **Total**                                  | ** ** | **Up to  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **After  5 years** | ** ** |
| Long-term debt                                                     |       | $          | 1,360,000  |                                       | $          | 182,000 |   | $ | 364,000 |   | $ | 364,000 |   | $ | 450,000 |   |
| Non-cancelable  operating leases and other contractual obligations |       | 7,562,000  |       | 1,501,000                                  |       | 2,530,000 |   | 2,705,000 |   | 826,000 |   |
| Total contractual cash  obligations                                |       | $          | 8,922,000  |                                       | $          | 1,683,000 |   | $ | 2,894,000 |   | $ | 3,069,000 |   | $ | 1,276,000 |   |
|                                                                    |            |            |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

On December 1, 2004,the Company acquired substantially all of the assets and assumed substantiallyall of the liabilities of Coronado Technology Group, LLC, for approximately$2.5 million in cash plus contingent consideration. A final payment ofapproximately $1 million was paid in May 2006, based upon the financialperformance of the acquired operations for the twelve months ended December 31,2005.

**Inflation**

The Company does notbelieve that inflation has had a material effect on the results of operationsduring the past three years. There can be no assurance that the Company’sbusiness will not be affected by inflation in the future.

**New Accounting Pronouncements**

In November 2004, theFinancial Accounting Standards Board (the “FASB”) issued SFAS No. 151,Inventory Costs—an amendment of ARB No. 43, Chapter 4. This Statementamends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” toclarify the accounting for abnormal amounts of idle facility expense, freight,handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter4, previously stated that “. . . under some circumstances, itemssuch as idle facility expense, excessive spoilage, double freight, andrehandling costs may be so abnormal as to require treatment as current periodcharges. . . .” This Statement requires that those items berecognized as current-period charges regardless of whether they meet thecriterion of “so abnormal.” In addition, this Statement requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities. SFAS No. 151 iseffective for fiscal years beginning after June 15, 2005. The Companyadopted SFAS No. 151 as of March 1, 2006. The adoption of SFAS No. 151did not have a material impact on the Company’s results of operations orfinancial position.

In June 2006, theFASB issued FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN48 clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with FASB Statement No. 109,“Accounting for Income Taxes”, and prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. FIN 48 alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure and transition. The Company isrequired to adopt the provisions of FIN 48 beginning in its fiscal year 2008.The Company is currently in the process of assessing what impact FIN 48 mayhave on its consolidated financial position, results of operations or cashflows.

In September 2006,the FASB issued SFAS No. 157, “Fair Value Measurements.” This Statementdefines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles, and expands disclosures about fairvalue measurements. This Statement applies under other accountingpronouncements that require or permit fair value measurements, the FASB havingpreviously concluded in those accounting pronouncements that fair value is therelevant measurement attribute. 

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Accordingly,this Statement does not require any new fair value measurements. This Statementis effective for financial statements issued for fiscal years beginning after November 15,2007 and interim periods within those fiscal years. The Company does not expectthe adoption of SFAS No. 157 in fiscal 2009 to have a material impact onits results of operations or financial position.

In September 2006,the FASB issued SFAS No. 158, “Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans—an amendment of FASB Statements No. 87,88, 106, and 132(R).” This Statement requires employers to recognize theoverfunded or underfunded status of a defined benefit postretirement plan(other than a multiemployer plan) as an asset or liability in its statement offinancial position and to recognize changes in that funded status in the yearin which the changes occur through comprehensive income of a business entity orchanges in unrestricted net assets of a not-for-profit organization. ThisStatement also improves financial reporting by requiring an employer to measurethe funded status of a plan as of the date of its year-end statement offinancial position, with limited exceptions. An employer with publicly tradedequity securities is required to initially recognize the funded status of adefined benefit postretirement plan and to provide the required disclosures asof the end of the fiscal year ending after December 15, 2006. The Companydoes not expect the adoption of SFAS No. 158 in fiscal 2008 to have anyimpact on its results of operations or financial position as the Company doesnot currently have any defined benefit postretirement plans.

In September 2006,the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin(“SAB”) No. 108 regarding the process of quantifying financial statementmisstatements. SAB No. 108 states that registrants should use both abalance sheet approach and an income statement approach when quantifying andevaluating materiality of a misstatement. The interpretations in SAB No. 108contain guidance on correcting errors under the dual approach as well asprovide transition guidance for correcting errors. This interpretation does notchange the requirements within SFAS No. 154 for the correction of an errorin financial statements. SAB No. 108 is effective for annual financialstatements covering the first fiscal year ending after November 15, 2006.The Company’s adoption of this interpretation did not have a material impact onits results of operations or financial position.

In February 2007,the FASB issued SFAS No. 159, “The Fair ValueOption for Financial Assets and Financial Liabilities”. This Statement permits entities to choose tomeasure many financial instruments and certain other items at fair value. Theobjective is to improve financial reporting by providing entities with theopportunity to mitigate volatility in reported earnings caused by measuringrelated assets and liabilities differently without having to apply complexhedge accounting provisions. This Statement is expected to expand the use offair value measurement, which is consistent with the Board’s long-termmeasurement objectives for accounting for financial instruments. Most of theprovisions of this Statement apply only to entities that elect the fair valueoption. However, the amendment to FASB Statement No. 115, Accounting forCertain Investments in Debt and Equity Securities, applies to all entities withavailable-for-sale and trading securities. Some requirements apply differentlyto entities that do not report net income. This Statement is effective forfinancial statements issued for fiscal years beginning after November 15,2007 and interim periods within those fiscal years. The Company does not expectthe adoption of SFAS No. 159 in fiscal 2009 to have a material impact onits results of operations or financial position.

**Forward-Looking Information**

The preceding “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”section contains various “forward looking statements” within the meaning of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of the Securitiesand Exchange Act of 1934, as amended, which represent the Company’s reasonablejudgment concerning the future and are subject to risks and uncertainties thatcould cause the Company’s actual operating results and financial position todiffer materially, including the following: the Company’s ability to expand themarkets for telescopes, binoculars, riflescopes, microscopes, night vision andother optical products; the Company’s ability to continue to develop and bringto market new and innovative products that will be accepted by consumers; 

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theCompany’s ability to differentiate itself through its customer service; theCompany’s ability, through the restructuring of its operations department andagreement with 360 Sourcing, to mitigate its current supply chain problems andeliminate the severe shortages in key products that the Company has experiencedover the past two fiscal years; the Company’s ability to increase production ofits high-end products and stimulate demand for those products; the Company’sability to overcome intense competition in its low-end products and increasedemand for those products; the Company’s ability to further develop its whollyowned manufacturing facility in Mexico in combination with its existingmanufacturing capabilities; the Company expanding its distribution network; theCompany’s ability to further develop the business of its European subsidiary;the Company experiencing fluctuations in its sales, gross margins andprofitability from quarter to quarter consistent with prior periods; theCompany’s expectation that its contingent liabilities will not have a materialeffect on the Company’s financial position or results of operations; the extentto which the Company will be able to leverage its design and manufacturingexpertise into markets outside its core consumer markets; and the Company’sexpectation that it will have sufficient funds to meet any working capitalrequirements during the foreseeable future with internally generated cash flowand borrowing ability.

**Item7A.**                *Quantitative and Qualitative Disclosures About Market Risk*

The Company is exposed tocertain levels of market risks, including changes in foreign currency exchangerates and interest rates. Market risk is the potential loss arising fromadverse changes in market rates and prices, such as foreign currency exchangeand interest rates. The Company conducts business in a number of foreigncountries and is primarily exposed to currency exchange-rate risk with respectto its transactions and net assets denominated in the Euro. Business activitiesin various currencies expose the Company to the risk that the eventual netUnited States dollar cash inflows resulting from transactions with foreigncustomers and suppliers denominated in foreign currencies may be adverselyaffected by changes in currency exchange rates. In prior years foreign currencyfluctuations have not had a material impact on Meade’s revenues or results ofoperations. There can be no assurance that European or other currencies willremain stable relative to the U.S. dollar or that future fluctuations in thevalue of foreign currencies will not have a material adverse effect on theCompany’s business, operating results, financial condition or cash flows.

TheCompany has adopted a hedging program to manage its foreign currency exchangerate and, at times, interest rate risks. Upon continuing evaluation and whendeemed appropriate by management, the Company may enter into hedginginstruments to manage its foreign currency exchange and interest rate risks.From time to time, the Company enters into forward exchange contracts toestablish with certainty the U.S. dollar amount of future firm commitmentsdenominated in a foreign currency. The notional amounts of the forward exchangecontracts vary, typically with the seasonal inventory requirements of theCompany’s German subsidiary. The Company’s German subsidiary purchasesinventory from Asian suppliers in U.S. dollars. A forward exchange contract istypically entered into when the U.S. dollar amount of the inventory purchase isfirm. Given the Company’s foreign exchange position, a change in foreignexchange rates upon which these foreign exchange contracts are based wouldresult in exchange gains and losses. In all material aspects, these exchange gainsand losses would be fully offset by exchange gains and losses on the underlyingnet monetary exposures for which the contracts are designated as hedges. TheCompany does not expect material exchange rate gains and losses from unhedgedforeign currency exposures. As of February 28, 2007, the Company did nothave any outstanding forward exchange contracts.

The Company’s financialinstruments consist of cash, accounts receivable, accounts payable, short-termobligations, and long-term obligations. The Company’s principal exposure tointerest rate fluctuations relates primarily to the U.S. revolving and termloans. The debt under the U.S. revolving and term loans bears interest at afloating rate tied to either the LIBOR rate or the bank prime rate of interest.Had U.S. interest rates been one percentage point higher during fiscal 2007,interest expense for the year ended February 28, 2007 would have increasedby less than $0.1 million.

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**Item 8.**                        *Financial Statements and Supplementary Data*

The consolidated financialstatements commence at page F-1 of this report and an index theretois included in Part IV, Item 15 of this report.

**SELECTED QUARTERLYFINANCIAL DATA (UNAUDITED)**

The following table (inthousands of dollars, except per share amounts) presents unaudited financialresults for each of the eight quarters in the period ended February 28,2007. The Company believes that all necessary adjustments have been included tostate fairly the quarterly information when read in conjunction with theconsolidated financial statements and notes included elsewhere in this Report.The operating results for any quarter are not necessarily indicative of theresults for any subsequent quarter.

**Fiscal 2007 (in thousands of dollars except per shareamounts)**

| ** **                                          | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
|-----------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
| Net sales                                           |       | $                  | 18,745     |                | $          | 18,585             |       | $                   | 48,498     |   | $ | 15,707 |   |
| Cost of sales                                       |       | 15,297             |       | 15,674              |       | 38,189             |       | 14,905              |       |
| Gross profit                                        |       | 3,448              |       | 2,911               |       | 10,309             |       | 802                 |       |
| Selling expenses                                    |       | 3,359              |       | 4,423               |       | 5,502              |       | 4,362               |       |
| General and  administrative expenses                |       | 3,044              |       | 3,994               |       | 3,866              |       | 4,269               |       |
| ESOP expenses                                       |       | 78                 |       | 72                  |       | 79                 |       | 73                  |       |
| Research and  development expenses                  |       | 327                |       | 379                 |       | 467                |       | 667                 |       |
| Operating income  (loss)                            |       | (3,360             | )          | (5,957              | )          | 395                |       | (8,569              | )          |
| Interest expense                                    |       | 99                 |       | 116                 |       | 277                |       | 311                 |       |
| Income (loss)  before income taxes                  |       | (3,459             | )          | (6,073              | )          | 118                |       | (8,880              | )          |
| Provision  (benefit) for income taxes               |       | 117                |       | (140                | )          | 1,299              |       | (388                | )          |
| Net income (loss)                                   |       | $                  | (3,576     | )                   | $          | (5,933             | )          | $                   | (1,181     | ) | $ | (8,492 | ) |
| Net income (loss) per  share—basic and diluted |       | $                  | (0.18      | )                   | $          | (0.30              | )          | $                   | (0.06      | ) | $ | (0.43 | ) |

 

**Fiscal 2006 (in thousands of dollars except per shareamounts)**

| ** **                                          | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
|-----------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
| Net sales                                           |       | $                  | 21,525     |                | $          | 21,877             |       | $                   | 53,092     |   | $ | 23,341 |   |
| Cost of sales                                       |       | 15,533             |       | 16,870              |       | 38,424             |       | 19,506              |       |
| Gross profit                                        |       | 5,992              |       | 5,007               |       | 14,668             |       | 3,835               |       |
| Selling expenses                                    |       | 3,693              |       | 4,106               |       | 6,528              |       | 3,959               |       |
| General and  administrative expenses                |       | 2,880              |       | 3,041               |       | 3,010              |       | 4,151               |       |
| ESOP expenses                                       |       | 92                 |       | 79                  |       | 91                 |       | 81                  |       |
| Research and  development expenses                  |       | 369                |       | 302                 |       | 395                |       | 398                 |       |
| Operating income  (loss)                            |       | (1,042             | )          | (2,521              | )          | 4,644              |       | (4,754              | )          |
| Interest expense                                    |       | 204                |       | 231                 |       | 419                |       | 349                 |       |
| Income (loss)  before income taxes                  |       | (1,246             | )          | (2,752              | )          | 4,225              |       | (5,103              | )          |
| Provision  (benefit) for income taxes               |       | (464               | )          | (1,288              | )          | 2,744              |       | 8,112               |       |
| Net income (loss)                                   |       | $                  | (782       | )                   | $          | (1,464             | )          | $                   | 1,481      |   | $ | (13,215 | ) |
| Net income (loss) per  share—basic and diluted |       | $                  | (0.04      | )                   | $          | (0.08              | )          | $                   | 0.08       |   | $ | (0.68 | ) |

 

Quarterly results can beaffected by a number of factors including the timing of orders, productiondelays or inefficiencies, and raw materials availability.

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**Item 9.**                        *Changes in and Disagreements With Accountants On Accounting andFinancial Disclosure*

None.

**Item 9A.**                *Controls and Procedures*

**Evaluation ofDisclosure Controls and Procedures.**

The Company’s management (with the participation ofour Chief Executive Officer and Chief Financial Officer) evaluated theeffectiveness of the Company’s disclosure controls and procedures (as definedin Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”)), as of theend of the period covered by this report. Disclosure controls and proceduresare designed to ensure that information required to be disclosed by the Companyin the reports it files or submits under the Exchange Act is recorded,processed, summarized and reported on a timely basis and that such informationis accumulated and communicated to management, including the Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure. A control system, no matter how well designedand operated, can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Further, because of the inherentlimitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues and instances of fraud, if any, havebeen or will be detected.

The Company’s Chief Executive Officer and Chief FinancialOfficer concluded, based on their evaluation, that the Company’s disclosurecontrols and procedures are effective for the Company as of the end of theperiod covered by this report.

A material weakness is a control deficiency, orcombination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected.

The Company determined that two material weaknesses inits internal control over financial reporting existed as of February 28,2006. Specifically, as a result of the independent investigation into theCompany’s stock option accounting practices, management determined that theCompany did not maintain effective controls over the completeness and accuracyof its accounting for and monitoring of its non-cash stock-based compensationexpense and related financial statement disclosures, including the validity ofits recording of various stock option transactions. This control deficiencyresulted in management’s failure to detect errors with regard to the accountingfor certain stock option grants and resulted in the restatement of the Company’sconsolidated financial statements and related disclosures, as set forth in theCompany’s Annual Report for the year ended February 28, 2006.Additionally, this control deficiency could result in a misstatement ofnon-cash stock-based compensation expense, additional paid-in capital,accumulated deficit and deferred compensation and financial statement disclosuresrelated to stock options that could result in a material misstatement of theinterim or annual consolidated financial statements that would not be preventedor detected. Accordingly, the Company determined that this control deficiencyconstituted a material weakness. The Company also determined that, as of February 28,2006, it did not maintain adequate controls over the preparation, analysis,documentation, and review of the income tax provision calculation and relatedfinancial statement disclosures.

Therefore, the Company’s thenChief Executive Officer and then Chief Financial Officer concluded that, as of February 28,2006, the Company’s disclosure controls and procedures were not effective forthe reasons described in the preceding paragraph.

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**Remediation of Material Weakness in Internal Controlover Financial Reporting of Stock-Based Compensation Expense**

To address the findings ofthe independent investigation and the Company’s subsequent analysis which ledto the determination of the existence of a material weakness in the Company’sinternal control over financial reporting related to non-cash stock-basedaccounting, the Company agreed to implement a series of remedial actions duringthe third and fourth quarters of fiscal year 2007, including: (i) theinstitution of polices and procedures regarding the pricing and dating ofoption grants to new hires; (ii) the use of fixed, pre-determined datesfor the issuance of options to employees and directors other than new hires; (iii) requireddocumentation of approval of all option grants in Compensation Committee and/orBoard minutes, not via the use of unanimous written consents; (iv) aprohibition against the exercise of discretionary authority by any employeeover any aspect of the Company’s stock option plan; (v) thecontemporaneous preparation and dating of Compensation Committee minutes andrelated documentation; and (vi) the utilization of nationally recognizedstock option accounting software. Management believes that these correctiveactions, taken during the fourth quarter of fiscal 2007 and taken as a whole,have mitigated the material weakness described above as of the end of theperiod covered by this report.

**Remediationof Controls over the Preparation, Analysis, Documentation, and Review of theIncome Tax Provision Calculation**

The remediation plan overthe preparation, analysis, documentation and review of the income tax provisioncalculation, is focused on outsourcing the calculation to a qualified taxprofessional combined with appropriate internal knowledge to maintain effectivecontrols over the documentation and review of the Company’s income taxprovision calculation. Management believes that outsourcing the calculation toa qualified tax professional combined with appropriate internal knowledge issufficient and results in effective controls over the documentation and reviewof the Company’s income tax provision calculation.

**Changes in Internal Control over Financial Reporting**

During the fourth quarterof fiscal 2007, the remediation of the material weakness over financialreporting of stock-based compensation expense was finalized upon approval, bythe Company’s compensation committee of the Board of Directors, of the Company’sequity compensation award grant procedures which encapsulated the remedialactions described above. Also during the fourth quarter of fiscal 2007, theCompany engaged a qualified tax professional to aid the Company in thepreparation, analysis, documentation and review of its income tax provisioncalculation. Management believes that these actions taken during the fourthquarter of fiscal 2007 corrected, as of the end of the period covered in thisreport, the material weaknesses in the Company’s internal control overfinancial reporting as described herein.

**Limitations on Effectiveness of Controls.**

Company management hasconcluded that the disclosure controls and procedures and internal controlsprovide reasonable assurance that the objectives of our control system are met.However, Company management (including the Chief Executive Officer and ChiefFinancial Officer) does not expect that the disclosure controls and proceduresor internal controls will prevent all errors and all fraud. A control system,no matter how well designed and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met. Further,the design of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to theircosts. Due to the inherent limitations in all control systems, no evaluation ofcontrols can provide absolute assurance that all control issues, errors andinstances of fraud, if any, within the Company have been or will be detected.

**Item 9B.**               *Other Information*

None.

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**PART III**

**Item 10.**                 *Directors, Executive Officers and Corporate Governance*

Information with respectto this item is incorporated by reference from the Company’s definitive ProxyStatement to be filed with the Commission within 120 days after the close ofthe Company’s fiscal year.

***Executive Officers of the Registrant***

Setforth below are the names, ages, titles and present and past positions of thepersons serving as executive officers of the Company as of May 21, 2007:

| **Name**            | ** ** | ** ** | ** ** | **Age** | ** ** | **Position**                                                    | ** ** |
|---------------------|------------|------------|------------|---------|------------|-----------------------------------------------------------------|------------|
| Steven L.  Muellner |       |       | 57         |    |       | Chief  Executive Officer, President, Director                   |       |
| Paul E. Ross        |       |       | 33         |    |       | Senior  Vice President—Finance and Chief Financial Officer |       |
| Robert L. Davis     |       |       | 40         |    |       | Senior  Vice President—Sales                               |       |
| Donald Finkle       |       |       | 49         |    |       | Senior  Vice President—Operations                          |       |
| Kenneth W. Baun     |       |       | 59         |    |       | Senior Vice  President—Engineering                         |       |

 

**StevenL. Muellner**has been the Company’s President, Chief ExecutiveOfficer and a member of the Board since May 8, 2006. From December 2004until April 2006, Mr. Muellner was a private investor. From August 1998to December 2004, Mr. Muellner served as President of Variflex, Inc.,an outdoor sports products supplier. From July 1996 to May 1998, Mr. Muellnerwas President and Co-Chief Executive Officer of Applause Enterpirses, a distributorof children’s toys and licensed merchandise. From 1995 to 1996, Mr. Muellnerserved as executive vice president of sales and marketing at Caradon Doors andWindows, a leading provider of custom doors and windows. From 1987 to 1994, Mr. Muellnerserved in various capacities, including, president, vice president of sales andmarketing and vice president of marketing at LouverDrape, Inc., adistributor of window coverings, and from 1983 to 1987, Mr. Muellnerserved in various capacities, including product manager, at Frito-Lay, Inc.Mr. Muellner received his Masters degree in business administration fromCornell University and BS from the University of Minnesota in Minneapolis.

**Paul E. Ross**hasbeen the Company’s Senior Vice President—Finance and Chief Financial Officersince March 2007. From May 2005 to March 2007, Mr. Ross wasthe chief financial officer and treasurer of Power-One, Inc., aNasdaq-listed manufacturer of power supply products for use in communication,semiconductor, testing, medical, industrial and other electronic instruments.From April 2001 to May 2005, Mr., Ross held various positions withPower-One including finance and corporate controller, director of corporatefinance, and manager of financial planning and reporting. From December 1998to April 2001, Mr. Ross was the senior financial analyst of theexternal reporting group with BP/Atlantic Richfield Company (ARCO). From September 1996to December 1998, Mr. Ross was an audit associate and then senioraudit associate with PricewaterhouseCoopers LLP. Mr. Ross received his BAdegree from UCLA in 1996 and his MBA degree from USC in 2002.

**Robert L. Davis**hasbeen the Company’s Senior Vice President—Sales since July 2006 and itsSenior Vice President—Corporate Development since March 2003. Mr. Daviswas the Company’s Senior Vice President and Assistant General Counsel from March 2002to February 2003. Mr. Davis was the Company’s Vice President andAssistant General Counsel from December 1999 to February 2002. From September 1996to December 1999, Mr. Davis was an attorney with O’Melveny &Myers LLP, specializing in corporate and securities law. From August 1994to September 1996 he worked as an attorney with Morrison &Foerster LLP, specializing in corporate finance and labor and employment law. Mr. Davisreceived a BA degree in English and a JD degree from Brigham Young University.

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**Donald W. Finkle**hasbeen the Company’s Senior Vice President—Operations since August 2006.From January 2004 to August 2006, Mr. Finkle served as Presidentand Chief Executive Officer of Southwest Business Systems, a private integratorof software and hardware operating solutions for the hospitality industry. FromSeptember 2001 to July 2003, he served as Group Vice President ofR&D for BIC Corporation, a consumer packaged goods company. From May 1998to September 2001, Mr. Finkle was Director of Product Development andEngineering at Avery Dennison Corporation, a manufacturer of pressure sensitivematerials and consumer packaged goods. From 1990 to 1998 Mr. Finkle wasemployed by Toro Corporation, where he held various positions includingMaterials and Logistics Manager and Total Quality Manager. Mr. Finklereceived a BS degree in Business and a MS degree in Systems and IndustrialEngineering from the University of Arizona.

**Kenneth W. Baun** has been theCompany’s Senior Vice President—Engineering since March 2002. From June 1995to March 2002, Mr. Baun served as the Company’s Vice President—Engineering.From March 1995 to June 1995, he worked as an engineering manager forthe Company. From 1991 to 1995, Mr. Baun was the President of SummitInstruments Corp., a producer of disk drive test equipment. In addition, from1973 to 1980, Mr. Baun worked as an engineering department manager atUNISYS. Mr. Baun received a BA degree in electrical engineering and an MSdegree in computer science from the University of California at Los Angeles.

A purported shareholderderivative action and a putative federal securities class action have beenfiled challenging conduct by certain of the Company’s current and former boardmembers and officers in connection with various stock option grants (see Item3. *Legal Procedings*)*.*

**Item 11.**                 *Executive Compensation*

Information with respectto this item is incorporated by reference from the Company’s definitive ProxyStatement to be filed with the Commission within 120 days after the close ofthe Company’s fiscal year. Information with respect to this item isincorporated by reference from the Company’s definitive Proxy Statement to befiled with the Commission within 120 days after the close of the Company’sfiscal year.

**Item12.**                 *Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters*

Information with respect to this item is incorporatedby reference from the Company’s definitive Proxy Statement to be filed with theCommission within 120 days after the close of the Company’s fiscal year.

**Item 13.**                 *Certain Relationships and Related Transactions, and Director Independence*

Information with respectto this item is incorporated by reference from the Company’s definitive ProxyStatement to be filed with the Commission within 120 days after the close ofthe Company’s fiscal year.

**Item 14.**                 *Principal Accountant Fees and Services*

Information with respect to this item is incorporatedby reference from the Company’s definitive Proxy Statement to be filed with theCommission within 120 days after the close of the Company’s fiscal year.

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**PART IV**

**Item15.****                 *Exhibits and Financial Statement Schedules***

(a)           Thefollowing documents are filed as part of this report:

| ** **                                                                                                                   | ** ** | **Page  Number** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|
| 1. Financial Statements:                                                                                                     |       |             |       |   |   |
| Report of Independent Registered Public Accounting  Firm                                                                     |       |             | F-1        |   |   |
| Report of Independent Registered Public Accounting  Firm                                                                     |       |             | F-2        |   |   |
| Consolidated Balance Sheets at February 28,  2007 and 2006                                                              |       |             | F-3        |   |   |
| Consolidated Statements of Operations for each of  the three years in the period ended February 28, 2007                |       |             | F-4        |   |   |
| Consolidated Statements of Stockholders’ Equity for  each of the three years in the period ended February 28, 2007 |       |             | F-5        |   |   |
| Consolidated Statements of Cash Flows for each of  the three years in the period ended February 28, 2007                |       |             | F-6        |   |   |
| Notes to Consolidated Financial Statements                                                                                   |       |             | F-7        |   |   |
| 2. Financial Statement  Schedule:                                                                                            |       |             |       |   |   |
| For each of the  three years in the period ended February 28, 2006—II—Valuation and  Qualifying Accounts      |       |             |       |   |   |
| 3. Exhibits included or incorporated herein: See Exhibit Index                                                          |       |             |       |   |   |

 

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Stockholders and Board of Directors of MeadeInstruments Corp.

We have audited the accompanying consolidated balancesheets of Meade Instruments Corp. and subsidiaries as of February 28, 2007and 2006, and the related consolidated statements of operations, stockholders’equity and cash flows for the year then ended. Our audit also included thefinancial statement schedule listed in Item 15. These consolidated financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the consolidated financial statements. An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provide a reasonable basis for ouropinion.

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Meade InstrumentsCorp. as of February 28, 2007 and 2006 and the consolidated results of itsoperations and its cash flows for the year ended February 28, 2007 and2006, in conformity with accounting principles generally accepted in the UnitedStates of America. Also, in our opinion, such financial statement schedule,when considered in relation to the basic consolidated financial statementstaken as a whole, presents fairly, in all material respects, the informationset forth therein.

/s/ MOSS ADAMS LLP

Irvine, CA

June 1, 2007

F-1

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To The Board of Directors and Stockholders ofMeade Instruments Corp.

In our opinion, theconsolidated statements of operations, of stockholders’ equity and of cashflows for the year ended February 28, 2005 present fairly, in all materialrespects, the results of operations of Meade Instruments Corp. and itssubsidiaries and their cash flows for the year ended February 28, 2005, inconformity with accounting principles generally accepted in the United Statesof America. In addition, in our opinion, the financial statement schedule forthe year ended February 28, 2005 presents fairly, in all materialrespects, the information set forth therein when read in conjunction with therelated consolidated financial statements. These financial statements andfinancial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements and financial statement schedule based on our audit. We conductedour audit of these statements in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basisfor our opinion.
| /s/ PRICEWATERHOUSECOOPERS LLP |   |
|--------------------------------|--------|

 

Orange County, CaliforniaMay 27, 2005, except for the restatement discussed in Note 3 (notpresented herein) to the consolidated financial statements appearing under Item15 of the Company’s 2006 Annual Report on Form 10-K, as to which thedate is November 27, 2006.

F-2

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**MEADE INSTRUMENTSCORP.**

**CONSOLIDATEDBALANCE SHEETS**

| ** **                                                                                                                                                              | ** ** | **February 28,  2007** | ** ** | **February 28,  2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ASSETS                                                                                                                                                                  |       |                        |       |                        |       |
| Current assets:                                                                                                                                                         |       |                        |       |                        |       |
| Cash                                                                                                                                                                    |       | $                           | 4,048,000  |                        | $          | 7,589,000 |   |
| Accounts receivable, less allowance for doubtful  accounts of $1,048,000 in 2007 and $483,000 in 2006                                                                   |       | 12,445,000                  |       | 16,822,000                  |       |
| Inventories, net                                                                                                                                                        |       | 25,289,000                  |       | 34,359,000                  |       |
| Prepaid expenses and other current assets                                                                                                                               |       | 443,000                     |       | 395,000                     |       |
| Total current assets                                                                                                                                                    |       | 42,225,000                  |       | 59,165,000                  |       |
| Goodwill                                                                                                                                                                |       | 3,141,000                   |       | 2,115,000                   |       |
| Acquisition-related intangible assets, net                                                                                                                              |       | 4,682,000                   |       | 5,018,000                   |       |
| Property and equipment, net                                                                                                                                             |       | 4,851,000                   |       | 5,371,000                   |       |
| Other assets, net                                                                                                                                                       |       | 230,000                     |       | 571,000                     |       |
|                                                                                                                                                                    |       | $                           | 55,129,000 |                        | $          | 72,240,000 |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                                              |       |                        |       |                        |       |
| Current liabilities:                                                                                                                                                    |       |                        |       |                        |       |
| Bank lines of credit                                                                                                                                                    |       | $                           | 860,000    |                        | $          | 4,229,000 |   |
| Accounts payable                                                                                                                                                        |       | 8,551,000                   |       | 5,899,000                   |       |
| Accrued liabilities                                                                                                                                                     |       | 6,810,000                   |       | 5,773,000                   |       |
| Income taxes payable                                                                                                                                                    |       | 1,415,000                   |       | 133,000                     |       |
| Current portion of long-term debt and capital lease  obligations                                                                                                        |       | 200,000                     |       | 1,306,000                   |       |
| Total current liabilities                                                                                                                                               |       | 17,836,000                  |       | 17,340,000                  |       |
| Long-term debt  and capital lease obligations                                                                                                                           |       | 1,186,000                   |       | 1,410,000                   |       |
| Deferred income  taxes                                                                                                                                                  |       | 1,436,000                   |       | 1,540,000                   |       |
| Deferred rent                                                                                                                                                           |       | 195,000                     |       | 222,000                     |       |
| Commitments and  contingencies Stockholders’ equity:                                                                                                               |       |                        |       |                        |       |
| Common stock; $0.01 par value; 50,000,000 shares  authorized; 20,086,000 and 20,004,000 shares issued and outstanding at  February 28, 2007 and 2006, respectively |       | 201,000                     |       | 200,000                     |       |
| Additional paid-in capital                                                                                                                                              |       | 45,104,000                  |       | 44,890,000                  |       |
| Retained earnings                                                                                                                                                       |       | (11,096,000                 | )          | 8,086,000                   |       |
| Deferred compensation                                                                                                                                                   |       | (148,000                    | )          | (507,000                    | )          |
| Accumulated other comprehensive income                                                                                                                                  |       | 1,580,000                   |       | 682,000                     |       |
|                                                                                                                                                                    |       | 35,641,000                  |       | 53,351,000                  |       |
| Unearned ESOP  shares                                                                                                                                                   |       | (1,165,000                  | )          | (1,623,000                  | )          |
| Total stockholders’ equity                                                                                                                                         |       | 34,476,000                  |       | 51,728,000                  |       |
|                                                                                                                                                                    |       | $                           | 55,129,000 |                        | $          | 72,240,000 |   |

 

See accompanying notes to consolidated financial statements.

F-3

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**MEADE INSTRUMENTS CORP.CONSOLIDATED STATEMENTS OF OPERATIONS**

| ** **                                               | ** ** | **Year Ended February 28** | ** **  |
|----------------------------------------------------------|------------|-------------------------------------------|-------------|
| ** **                                               | ** ** | **2007**                                  | ** **  | **2006** | ** ** | **2005** | ** ** |
| Net sales                                                |       | $                                         | 101,535,000 |   | $ | 119,835,000 |   | $ | 111,799,000 |   |
| Cost of sales                                            |       | 84,065,000                                |        | 90,333,000 |   | 83,608,000 |   |
| Gross profit                                             |       | 17,470,000                                |        | 29,502,000 |   | 28,191,000 |   |
| Selling expenses                                         |       | 17,646,000                                |        | 18,286,000 |   | 16,063,000 |   |
| General and  administrative expenses                     |       | 15,173,000                                |        | 13,082,000 |   | 10,251,000 |   |
| ESOP contribution  expense                               |       | 302,000                                   |        | 343,000 |   | 419,000 |   |
| Research and  development expenses                       |       | 1,840,000                                 |        | 1,464,000 |   | 2,032,000 |   |
| Operating loss                                           |       | (17,491,000                               | )           | (3,673,000 | ) | (574,000 | ) |
| Interest expense                                         |       | 803,000                                   |        | 1,203,000 |   | 888,000 |   |
| Loss before income taxes                                 |       | (18,294,000                               | )           | (4,876,000 | ) | (1,462,000 | ) |
| Provision  (benefit) for income taxes                    |       | 888,000                                   |        | 9,104,000 |   | (531,000 | ) |
| Net loss                                                 |       | $                                         | (19,182,000 | ) | $ | (13,980,000 | ) | $ | (931,000 | ) |
| Net loss per  share—basic and diluted               |       | $                                         | (0.98       | ) | $ | (0.72 | ) | $ | (0.05 | ) |
| Weighted average  common shares outstanding—basic   |       | 19,608,000                                |        | 19,419,000 |   | 19,288,000 |   |
| Weighted average  common shares outstanding—diluted |       | 19,608,000                                |        | 19,419,000 |   | 19,288,000 |   |

 

See accompanying notes to consolidated financial statements.

F-4

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**MEADE INSTRUMENTS CORP.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

| ** **                                                                      | ** ** | **Common Stock** | ** ** | **Additional  Paid-in** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Deferred**           | ** ** | **Retained**     | ** ** | **Unearned** | ** ** | ** **           | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|---------------------------------------|------------|------------------------|------------|------------------|------------|--------------|------------|----------------------|------------|
| ** **                                                                      | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Capital**                           | ** ** | **Income (Loss)** | ** ** | **Compensation** | ** ** | **Earnings** | ** ** | **ESOP Shares** | ** ** | **Total** | ** ** |
| Balance at February 29,  2004                                              |       | 19,989,000            |       | $                       | 200,000    |                                  | $          | 44,324,000             |       |             | $          | 882,000      |       |                 |       | $ | (117,000 | ) |   | $ | 22,997,000 |   | $ | (2,540,000 | ) | $ | 65,746,000 |   |
| Release of ESOP shares                                                          |       | —                |       | —                  |       | (40,000                               | )          |                   | —     |             |       |         | —     |                 |       | — |   | 459,000 |   | 419,000 |   |
| Exercise of stock options                                                       |       | 13,000                |       | —                  |       | 32,000                                |       |                   | —     |             |       |         | —     |                 |       | — |   | — |   | 32,000 |   |
| Tax benefit of stock options  exercised and forfeited                           |       | —                |       | —                  |       | 2,000                                 |       |                   | —     |             |       |         | —     |                 |       | — |   | — |   | 2,000 |   |
| Amortization of stock-based  compensation                                       |       | —                |       | —                  |       | —                                |       |                   | —     |             |       |         | 114,000    |                 |       | — |   | — |   | 114,000 |   |
| Reversal of deferred  compensation for option forfeitures and cancellations     |       | —                |       | —                  |       | 5,000                                 |       |                   | —     |             |       |         | (5,000     | )                    |       | — |   | — |   | — |   |
| Comprehensive  income (loss):                                                   |       |                  |       |                    |       |                                  |       |                   |       |             |       |         |       |                 |       |   |   |   |   |   |   |
| Currency translation  adjustment                                                |       | —                |       | —                  |       | —                                |       |                   | 378,000    |             |       |         | —     |                 |       | — |   | — |   | 378,000 |   |
| Interest rate swap valuation                                                    |       | —                |       | —                  |       | —                                |       |                   | 17,000     |             |       |         | —     |                 |       | — |   | — |   | 17,000 |   |
| Reclassification of realized  loss on sale of marketable securities, net of tax |       | —                |       | —                  |       | —                                |       |                   | 97,000     |             |       |         | —     |                 |       | — |   | — |   | 97,000 |   |
| Net loss                                                                        |       | —                |       | —                  |       | —                                |       |                   | —     |             |       |         | —     |                 |       | (931,000 | ) | — |   | (931,000 | ) |
| Total comprehensive loss                                                        |       | —                |       | —                  |       | —                                |       |                   | —     |             |       |         | —     |                 |       | — |   | — |   | (439,000 | ) |
| Balance at February 28,  2005                                              |       | 20,002,000            |       | 200,000                 |       | 44,323,000                            |       |                   | 1,374,000  |             |       |         | (8,000     | )                    |       | 22,066,000 |   | (2,081,000 | ) | 65,874,000 |   |
| Release of ESOP shares                                                          |       | —                |       | —                  |       | (115,000                              | )          |                   | —     |             |       |         | —     |                 |       | — |   | 458,000 |   | 343,000 |   |
| Exercise of stock options                                                       |       | 2,000                 |       | —                  |       | 4,000                                 |       |                   | —     |             |       |         | —     |                 |       | — |   | — |   | 4,000 |   |
| Tax benefit of stock options  exercised and forfeited                           |       | —                |       | —                  |       | (1,000                                | )          |                   | —     |             |       |         | —     |                 |       | — |   | — |   | (1,000 | ) |
| Amortization of stock-based  compensation                                       |       | —                |       | —                  |       | —                                |       |                   | —     |             |       |         | 3,000      |                 |       | — |   | — |   | 3,000 |   |
| Reversal of deferred  compensation for option forfeitures and cancellations     |       | —                |       | —                  |       | (2,000                                | )          |                   | —     |             |       |         | 2,000      |                 |       | — |   | — |   | — |   |
| Issuance of restricted stock                                                    |       | —                |       | —                  |       | 681,000                               |       |                   | —     |             |       |         | (681,000   | )                    |       | — |   | — |   | — |   |
| Amortization of restricted  stock                                               |       | —                |       | —                  |       | —                                |       |                   | —     |             |       |         | 177,000    |                 |       | — |   | — |   | 177,000 |   |
| Comprehensive  income (loss):                                                   |       |                  |       |                    |       |                                  |       |                   |       |             |       |         |       |                 |       |   |   |   |   |   |   |
| Currency translation  adjustment                                                |       | —                |       | —                  |       | —                                |       |                   | (692,000   | )                |       |         | —     |                 |       | — |   | — |   | (692,000 | ) |
| Net loss                                                                        |       | —                |       | —                  |       | —                                |       |                   | —     |             |       |         | —     |                 |       | (13,980,000 | ) | — |   | (13,980,000 | ) |
| Total comprehensive loss                                                        |       | —                |       | —                  |       | —                                |       |                   | —     |             |       |         | —     |                 |       | — |   | — |   | (14,672,000 | ) |
| Balance at February 28,  2006                                              |       | 20,004,000            |       | $                       | 200,000    |                                  | $          | 44,890,000             |       |             | $          | 682,000      |       |                 |       | $ | (507,000 | ) |   | $ | 8,086,000 |   | $ | (1,623,000 | ) | $ | 51,728,000 |   |
| Release of ESOP shares                                                          |       | —                |       | —                  |       | (156,000                              | )          |                   | —     |             |       |         | —     |                 |       | — |   | 458,000 |   | 302,000 |   |
| Vested restricted stock                                                         |       | 82,000                |       | 1,000                   |       | (1,000                                | )          |                   | —     |             |       |         | —     |                 |       | — |   | — |   | — |   |
| Forfeiture of restricted  stock                                                 |       | —                |       | —                  |       | (193,000                              | )          |                   | —     |             |       |         | 193,000    |                 |       | — |   | — |   | — |   |
| Stock option compensation                                                       |       | —                |       | —                  |       | 564,000                               |       |                   | —     |             |       |         | —     |                 |       | — |   | — |   | 564,000 |   |
| Amortization of restricted  stock                                               |       | —                |       | —                  |       | —                                |       |                   | —     |             |       |         | 166,000    |                 |       | — |   | — |   | 166,000 |   |
| Comprehensive  income (loss):                                                   |       |                  |       |                    |       |                                  |       |                   |       |             |       |         |       |                 |       |   |   |   |   |   |   |
| Currency translation  adjustment                                                |       | —                |       | —                  |       | —                                |       |                   | 898,000    |             |       |         | —     |                 |       | — |   | — |   | 898,000 |   |
| Net loss                                                                        |       | —                |       | —                  |       | —                                |       |                   | —     |             |       |         | —     |                 |       | (19,182,000 | ) | — |   | (19,182,000 | ) |
| Total comprehensive loss                                                        |       | —                |       | —                  |       | —                                |       |                   | —     |             |       |         | —     |                 |       | — |   | — |   | (18,284,000 | ) |
| Balance at February 28, 2007                                               |       | 20,086,000            |       | $                       | 201,000    |                                  | $          | 45,104,000             |       |             | $          | 1,580,000    |       |                 |       | $ | (148,000 | ) |   | $ | (11,096,000 | ) | $ | (1,165,000 | ) | $ | 34,476,000 |   |

 

See accompanying notes to consolidated financial statements.

F-5

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**MEADE INSTRUMENTS CORP.CONSOLIDATED STATEMENTS OF CASH FLOWS**

| ** **                                                                                 | ** ** | **Year Ended February 28,** | ** **  |
|--------------------------------------------------------------------------------------------|------------|--------------------------------------------|-------------|
| ** **                                                                                 | ** ** | **2007**                                   | ** **  | **2006** | ** ** | **2005** | ** ** |
| Cash flows from  operating activities:                                                     |       |                                       |        |   |   |   |   |
| Net loss                                                                                   |       | $                                          | (19,182,000 | ) | $ | (13,980,000 | ) | $ | (931,000 | ) |
| Adjustments to reconcile  net loss to net cash provided by (used in) operating activities: |       |                                       |        |   |   |   |   |
| Depreciation and amortization                                                              |       | 1,869,000                                  |        | 2,385,000 |   | 2,014,000 |   |
| ESOP contribution                                                                          |       | 302,000                                    |        | 343,000 |   | 419,000 |   |
| Allowance for doubtful accounts                                                            |       | 543,000                                    |        | 310,000 |   | 203,000 |   |
| Deferred income taxes                                                                      |       | —                                     |        | 9,826,000 |   | (439,000 | ) |
| Stock-based compensation                                                                   |       | 564,000                                    |        | 3,000 |   | 114,000 |   |
| Deferred rent amortization                                                                 |       | (27,000                                    | )           | (127,000 | ) | (40,000 | ) |
| Loss on disposal of fixed assets                                                           |       | 29,000                                     |        | — |   | — |   |
| Changes in assets and  liabilities, net of effects of acquisitions:                        |       |                                       |        |   |   |   |   |
| Accounts receivable                                                                        |       | 4,263,000                                  |        | 225,000 |   | 4,869,000 |   |
| Inventories                                                                                |       | 9,523,000                                  |        | 12,030,000 |   | (6,658,000 | ) |
| Prepaid expenses and other current assets                                                  |       | (46,000                                    | )           | 352,000 |   | (289,000 | ) |
| Other assets                                                                               |       | 247,000                                    |        | (393,000 | ) | 321,000 |   |
| Accounts payable                                                                           |       | 2,519,000                                  |        | 2,123,000 |   | (1,823,000 | ) |
| Accrued liabilities                                                                        |       | 875,000                                    |        | 1,132,000 |   | (2,565,000 | ) |
| Income taxes payable                                                                       |       | 1,150,000                                  |        | (2,716,000 | ) | 114,000 |   |
| Net cash provided by (used in) operating activities                                        |       | 2,629,000                                  |        | 11,513,000 |   | (4,691,000 | ) |
| Cash flows from investing  activities:                                                     |       |                                       |        |   |   |   |   |
| Capital expenditures                                                                       |       | (443,000                                   | )           | (2,815,000 | ) | (898,000 | ) |
| Contingent acquisition consideration                                                       |       | (1,026,000                                 | )           | — |   | (2,474,000 | ) |
| Net cash used in investing activities                                                      |       | (1,469,000                                 | )           | (2,815,000 | ) | (3,372,000 | ) |
| Cash flows from financing  activities:                                                     |       |                                       |        |   |   |   |   |
| Payments on long-term debt                                                                 |       | (1,488,000                                 | )           | (824,000 | ) | (583,000 | ) |
| Borrowing on a long-term bank note                                                         |       | —                                     |        | 1,675,000 |   | — |   |
| Net (payments) borrowings under bank lines of credit                                       |       | (3,369,000                                 | )           | (5,598,000 | ) | 4,768,000 |   |
| Exercise of stock options, with tax benefit                                                |       | —                                     |        | 4,000 |   | 37,000 |   |
| Payments under capital lease obligations                                                   |       | (28,000                                    | )           | (17,000 | ) | (27,000 | ) |
| Net cash (used in) provided by financing activities                                        |       | (4,885,000                                 | )           | (4,760,000 | ) | 4,195,000 |   |
| Effect of  exchange rate changes on cash                                                   |       | 184,000                                    |        | (278,000 | ) | (9,000 | ) |
| Net (decrease)  increase in cash                                                           |       | (3,541,000                                 | )           | 3,660,000 |   | (3,877,000 | ) |
| Cash at beginning  of year                                                                 |       | 7,589,000                                  |        | 3,929,000 |   | 7,806,000 |   |
| Cash at end of  year                                                                       |       | $                                          | 4,048,000   |   | $ | 7,589,000 |   | $ | 3,929,000 |   |
| Supplemental disclosures  of cash flow information:                                        |       |                                       |        |   |   |   |   |
| Interest paid                                                                              |       | $                                          | 803,000     |   | $ | 1,203,000 |   | $ | 888,000 |   |
| Issuance of restricted stock                                                               |       | —                                     |        | 681,000 |   | — |   |
| Purchase of equipment under capital lease                                                  |       | —                                     |        | 21,000 |   | — |   |
| Income taxes                                                                               |       | 778,000                                    |        | 2,295,000 |   | (245,000 | ) |

 

See accompanying notes to consolidated financial statements.

F-6

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.**                 TheCompany and Operations

**The Company**

Meade Instruments Corp.(the “Company”), a Delaware corporation, is a multinational consumer andindustrial optics company that designs, manufactures, imports and distributestelescopes, telescope accessories, binoculars, riflescopes, spotting scopes,microscopes, night vision and other consumer optical products. The Company hasoperations in the United States, Germany, Mexico and China.

**2.**                 Liquidity

The Company incurred net losses of ($19,182,000),($13,980,000) and ($931,000) for the years ended February 28, 2007, 2006and 2005, respectively. The net loss in fiscal 2006 was significantly affectedby a $12,504,000 valuation allowance recorded against the Company’s deferredtax assets. During fiscal 2007 the Company continued to maintain a fullvaluation allowance on its deferred tax assets. The net loss for the year endedFebruary 28, 2007, therefore, reflects no tax benefits on the Company’sU.S.-based pre-tax losses which aggregated ($21,885,000). On a consolidatedbasis, the Company incurred pre-tax losses of ($18,294,000), ($4,876,000) and($1,462,000), for the years ended February 28, 2007, 2006 and 2005,respectively. Net sales during fiscal 2007 decreased approximately 15% fromfiscal 2006 levels. For the fiscal year 2007, sales were negatively affected assupply shortages expanded to include not just riflescopes but many of theCompany’s foreign-sourced and domestically produced telescopes as well.Management can not apportion how much of the decline in sales may beattributable to lack of supply versus diminished market demand. However, thesupply problems during fiscal 2007 were severe. Gross margins dropped overseven percentage points during fiscal 2007 as compared to the prior year. Thecombination of significantly reduced sales volume of higher-end products duringthe current year not covering fixed costs to the extent those costs werecovered in the prior year, average selling prices dropping or not keeping pacewith average cost per unit increases (reflecting the aggressive inventoryrationalization undertaken by management during fiscal 2007), and SKU reductionled to the overall declines in gross margins. Operating margins fellsignificantly during fiscal 2007 as the effects of significant severance costsand increased legal and accounting costs (related to late filing of the prioryears’ required filings) added to the effects of lower gross margins.

With respect to sales recovering from the declinesexperienced during fiscal 2007, management believes that: 1) sufficientquantities of riflescope and telescope products (both domestically produced andforeign sourced) are in production and that production will be able to fullymeet demand; 2) a combination of new products, effective marketing andappropriate pricing will stimulate demand for the Company’s higher-endproducts; and 3) while competition for low-end products will continue to beacute the Company may be able to increase demand for these products withenhanced and new product introductions, targeted marketing and competitivepricing.

Supply chain management will be critical to theCompany’s success in achieving its fiscal 2008 targets and beyond. Managementtook two major steps during fiscal 2007 to improve supply chain management atthe Company. First, management appointed a new senior vice president ofoperations and, with that, restructured the operations department, adding twoadditional senior level managers and emphasizing a process-driven supply chainorganization. Second, management signed an agreement with Three Sixty SourcingLtd., a Hong Kong corporation (“360 Sourcing”). 360 Sourcing will provide theCompany with assistance for virtually all aspects of its exclusive sourcing inChina. Management believes that the restructuring of the Company’s operationsdepartment and the agreement with 360 Sourcing will mitigate 

F-7

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

the current supply chainproblems and eliminate the severe shortages in key products (principallyriflescopes and mid-priced telescopes) that the Company has experienced overthe past two fiscal years.

The fiscal 2007 operating results led to significantlydiminished net assets as compared to the prior year. Management’s aggressiveinventory rationalization led to an over $9 million drop in inventories. Thesales declines, especially in the fourth quarter, led to declines in accountsreceivable and increases in payables. On May 31, 2007, the Company renewedits U.S. bank line of credit which, management believes, will providesufficient liquidity to allow the Company to execute its business plan. TheCompany  depends on operating cash flowand availability under its bank lines of credit to provide short-termliquidity. In the event the Company’s plans require more capital than ispresently anticipated, additional sources of liquidity such as debt or equityfinancings, may be required to meet its capital needs. There can be noassurance that such additional sources of capital will be available onreasonable terms, if at all.

Management believes thatthe Company can return to profitability as: 1) the supply problems arecorrected; 2) new products are introduced; 3) sales are concentrated more onfirst-line, higher margin products than on significantly discounted olderinventory; 4) the cost savings of consolidating the U.S. operations into onefacility (from a previous four facilities) are realized; and 5) reductions insignificant “one time” expenses such as severance are realized.

**3. Summary of SignificantAccounting Policies**

*Basis ofpresentation and consolidation*

The accompanyingconsolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States, and include theaccounts of the Company and all of its subsidiaries and reflect the eliminationof all significant intercompany account balances and transactions.

*Revenue recognition*

The Company recognizesrevenue when persuasive evidence of an arrangement exists, delivery hasoccurred, the price to the buyer is fixed or determinable, and collectibilityis reasonably assured. Those criteria are typically met when product isshipped. Revenue is not recognized at the time of shipment if these criteriaare not met. Although there are many factors that influence revenuerecognition, the principal reason the Company may not recognize revenue at thetime of shipment is if the substance of the transaction is a consignment.Consignment type arrangements have happened on a limited basis in the past.Management has, however, decided to no longer enter into consignment typearrangements. Under certain circumstances, the Company accepts product returnsor offers markdown incentives. Material management judgments must be made andused in connection with establishing the sales returns and allowancesestimates. The Company continuously monitors and tracks returns and allowancesand records revenues net of provisions for returns and allowances. The Company’sestimate of sales returns and allowances is based upon several factorsincluding historical experience, current market and economic conditions,customer demand and acceptance of the Company’s products and/or anynotification received by the Company of such a return. Historically, salesreturns and allowances have been within management’s estimates; however, actualreturns may differ significantly, either favorably or unfavorably, frommanagement’s estimates depending on actual market conditions at the time of thereturn.

F-8

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

*Foreign currency*

The assets and liabilitiesof the Company’s foreign operations are translated at end of period exchangerates for the Euro. Revenues and expenses are translated at the averageexchange rates prevailing during the period. The effects of unrealized exchangerate fluctuations on translating foreign currency assets and liabilities intoU.S. dollars are accumulated in stockholders’ equity as a component ofaccumulated other comprehensive income. The effects of foreign currencytransactions denominated in a currency other than its foreign entities’functional currency are included in general and administrative expenses.Foreign currency exchange gains included in general and administrative expenseswere approximately $200,000 in each of the years ended February 28, 2007and 2005, respectively. There were no net foreign currency exchange gains orlosses included in general and administrative expenses for the year ended February 28,2006.

*Allowance fordoubtful accounts*

Management analyzesspecific customer accounts receivable, customer credit-worthiness, historicalbad debt expenses, current economic trends and changes in customer paymentterms when evaluating the adequacy of the allowance for doubtful accounts. Ifthe financial condition of any of the Company’s customers were to deteriorateto the point of impairing the customer’s ability to make payments on itsaccount, additional allowances may be required. While credit losses havehistorically been within management’s expectations and the provisionsestablished significant deterioration in the liquidity or financial position ofany of the Company’s major customers or any group of customers could have amaterial adverse impact on the collectibility of accounts receivable and futureoperating results.

*Inventories*

Inventories are stated atthe lower of cost, as determined using the first-in, first-out (“FIFO”) method,or market. Costs include materials, labor and manufacturing overhead. TheCompany evaluates the carrying value of its inventories taking into accountsuch factors as historical and anticipated future sales compared withquantities on hand and the price the Company expects to obtain for its productsin their respective markets. The Company also evaluates the composition of itsinventories to identify any slow-moving or obsolete product. These evaluationsrequire material management judgments, including estimates of future sales,continuing market acceptance of the Company’s products, and current market andeconomic conditions. Inventory reserves are established, based on suchjudgments, for any inventories that are identified as having a net realizablevalue less than its cost. Historically, the net realizable value of the Company’sinventories has been within management’s estimates. However, if the Company isnot able to meet its sales expectations; or if market conditions deterioratesignificantly from management’s estimates, reductions in the net realizablevalue of the Company’s inventories could have a material adverse impact onfuture operating results.

*Property andequipment*

Property and equipment arestated at cost and are depreciated using the straight-line method over theestimated useful lives of the assets. Buildings and related improvements,including leasehold improvements, are depreciated over seven to twenty-fiveyears or through the end of the related lease term, whichever is shorter. Allother property and equipment, except property held under capital leases, isdepreciated over three to seven years. Properties held under capital leases arerecorded at the present 

F-9

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

value ofthe noncancellable lease payments over the term of the lease and are amortizedover the shorter of the lease term or the estimated useful lives of the assets.

*Goodwill andacquisition-related intangible assets*

The Company accounts for goodwill and acquisitionrelated intangible assets in accordance with SFAS No. 141, “BusinessCombinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.”SFAS No. 141 requires that the purchase method of accounting be used forall business combinations initiated after June 30, 2001, and establishesspecific criteria for the recognition of goodwill separate from otherintangible assets. SFAS No. 142 requires that goodwill and identifiableintangible assets determined to have an indefinite life no longer be amortized,but instead be tested for impairment at least annually.

The difference between the purchase price and the fairvalue of net tangible assets at the date of acquisition is included in the accompanyingconsolidated balance sheet as goodwill and acquisition-related intangibleassets. Amortization periods for the intangible assets subject to amortizationrange from seven to fifteen years depending on the nature of the assetsacquired. The carrying value of goodwill and acquisition-related intangibleassets, including the related amortization period, are evaluated in the fourthquarter of each fiscal year.

The Company’s reporting units for purposes of applyingthe provisions of SFAS 142 are Meade Europe, Simmons Outdoor and Coronado. SFAS142 requires the Company to compare the fair value of the reporting unit to itscarrying amount on an annual basis to determine if there is potentialimpairment. If the fair value of the reporting unit is less than its carryingvalue, an impairment loss is recorded to the extent that the fair value of thegoodwill within the reporting unit is less than its carrying value. If thecarrying amount of the goodwill exceeds its fair value, an impairment loss isrecognized. Fair value is determined based on discounted cash flows. As of February 28,2007, the Company does not believe any impairment of goodwill has occurred.

Acquisition-related intangible assets with finitelives are reviewed whenever events or changes in circumstances indicate thatthe carrying amount of such assets may not be recoverable. The Company reviewsthe recoverability by comparing the estimated future cash flows on anundiscounted basis to the net book value of the assets. In the event that projectedundiscounted cash flows are less than the net book value of the assets, thecarrying value of the assets are written down to their fair value, less coststo sell. Fair value is generally based on discounted cash flows. Assets thatare to be disposed of are measured at the lower of cost or fair value, lesscosts to sell.

F-10

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

At February 28,2007 and 2006, respectively, goodwill and acquisition-related intangible assetsincluded the following:

| ** **                                                | ** ** | ** **           | ** ** | **February 28,**           | ** ** |
|-----------------------------------------------------------|------------|----------------------|------------|---------------------------------|------------|
| ** **                                                | ** ** | **Amortization**     | ** ** | **2007**                        | ** ** | **2006** | ** ** |
| ** **                                                | ** ** | **Periods  (Years)** | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| Goodwill                                                  |       |                 | none       |                            |       |   | $ | 3,141,000 |   |   | $ | — |   |   | $ | 2,115,000 |   |   | $ | — |   |
| Acquisition-related  intangible assets:                   |       |                 |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Brand names                                               |       |                 | none       |                            |       |   | $ | 2,041,000 |   |   | — |   |   | $ | 2,041,000 |   |   | — |   |
| Customer relationships                                    |       |                 | 10         |                            |       |   | 1,390,000 |   |   | (556,000 | ) |   | 1,390,000 |   |   | (417,000 | ) |
| Trademarks                                                |       |                 | 7-15       |                            |       |   | 1,938,000 |   |   | (1,511,000 | ) |   | 1,938,000 |   |   | (1,451,000 | ) |
| Completed technologies                                    |       |                 | 12         |                            |       |   | 1,620,000 |   |   | (240,000 | ) |   | 1,620,000 |   |   | (103,000 | ) |
| Other                                                     |       |                 | 1          |                            |       |   | 56,000 |   |   | (56,000 | ) |   | 56,000 |   |   | (56,000 | ) |
| Total  acquisition-related intangible assets              |       |                 |       |                            |       |   | 7,045,000 |   |   | (2,363,000 | ) |   | 7,045,000 |   |   | (2,027,000 | ) |
| Total goodwill and  acquisition-related intangible assets |       |                 |       |                            |       |   | $ | 10,186,000 |   |   | $ | (2,363,000 | ) |   | $ | 9,160,000 |   |   | $ | (2,027,000 | ) |

 

On December 1,2004, the Company acquired substantially all of the assets and assumedsubstantially all of the liabilities of Coronado Technology Group, LLC, forapproximately $2.5 million in cash plus contingent consideration. A finalpayment of approximately $1 million was paid in May 2006, based upon thefinancial performance of the acquired operations for the twelve months ended December 31,2005. The additional consideration was added to the cost of the acquired assetsas additional goodwill. Purchase price in excess of the estimated fair value ofthe tangible assets acquired in the Company’s December 2004 acquisition ofCoronado Technology Group, LLC was initially recorded as goodwill. During thequarter ended August 31, 2005, the Company completed its evaluation of thefair value of the acquisition-related intangible assets associated with itspurchase of Coronado. The excess of the purchase price over the estimated fairvalue of the net tangible assets acquired was allocated as follows:

| **Acquisition-related  intangible asset** | ** ** | ** ** | ** ** | **Amortization  period  (in years)** | ** ** | **Gross carrying  amount** | ** ** |
|------------------------------------------------|------------|------------|------------|-------------------------------------------|------------|---------------------------------|------------|
| Completed  technologies                        |       |       | 12         |                                      |       |                            | $          | 1,620,000 |   |   |
| Trademarks                                     |       |       | 9          |                                      |       |                            | 540,000    |   |   |
| Other                                          |       |       | 1          |                                      |       |                            | 56,000     |   |   |
| Goodwill                                       |       |       | none       |                                      |       |                            | 1,593,000  |   |   |
| Total                                          |       |       |       |                                      |       |                            | $          | 3,809,000 |   |   |

 

F-11

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Thechanges in the carrying amount of goodwill and acquisition-related intangibleassets for the years ended February 28, 2007 and 2006, respectively, areas follows:

| ** **                                                         | ** ** | **Non-amortizing  intangible assets** | ** ** | **Amortizing  intangible assets** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------|------------|----------------------------------------|------------|
| Balance, net,  February 28, 2005                              |       |                                       | $          | 6,372,000                              |       |   |   | $ | 1,334,000 |   |   |
| Completion of  fair value evaluation of Coronado intangible assets |       |                                       | (2,216,000 | )                                      |       |   | 2,216,000 |   |   |
| Amortization                                                       |       |                                       | —     |                                   |       |   | (573,000 | ) |   |
| Balance, net,  February 28, 2006                              |       |                                       | 4,156,000  |                                   |       |   | 2,977,000 |   |   |
| Payment of  contingent consideration for Coronado                  |       |                                       | 1,026,000  |                                   |       |   | — |   |   |
| Amortization                                                       |       |                                       | —     |                                   |       |   | (336,000 | ) |   |
| Balance, net,  February 28, 2007                              |       |                                       | $          | 5,182,000                              |       |   |   | $ | 2,641,000 |   |   |

 

Amortizationof trademarks, customer relationships and completed technologies over the next fivefiscal years is estimated as follows:

| **Fiscal Year** | ** ** | ** ** | ** ** | **Amount** | ** ** |
|----------------------|------------|------------|------------|------------|------------|
| 2008                 |       | $          | 336,000    |       |
| 2009                 |       | 336,000    |       |
| 2010                 |       | 336,000    |       |
| 2011                 |       | 336,000    |       |
| 2012                 |       | 336,000    |       |
| Thereafter           |       | 961,000    |       |
| Total                |       | $          | 2,641,000  |       |

 

*Income taxes*

The Company uses the liability method of accountingfor income taxes in accordance with SFAS No. 109, *Accounting for Income Taxes*. Under thismethod deferred tax assets and liabilities are determined based on differencesbetween financial reporting and tax bases of assets and liabilities and are measuredusing the enacted tax rates that will be in effect when the differences areexpected to reverse. The Company’s tax reporting period ends the last day ofFebruary.

The Company regularlyreviews its deferred tax assets for recoverability and has established avaluation 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 therecoverability of the deferred tax assets on an ongoing basis. In making thisassessment the Company is required to consider all available positive andnegative evidence to determine whether, based on such evidence, it is morelikely than not that some portion, or all, of the net deferred assets will berealized in future periods.

*Shipping and handlingcosts*

The Company recordsshipping and handling costs in selling expenses. For the years ended February 28,2007, 2006, and 2005, the Company incurred shipping and handling costs of$5,593,000, $6,055,000, and $4,861,000, respectively.

F-12

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

*Advertising*

The Company expenses thecosts of advertising, including production costs, as incurred. For the yearsended February 28, 2007, 2006, and 2005, the Company incurred advertising,including cooperative advertising, and marketing expenses of approximately$4,178,000, $4,598,000 and $4,090,000, respectively. Cooperative advertisingarrangements exist through which customers receive a certain allowance of thetotal purchases or an otherwise agreed upon amount from the Company if certainqualitative advertising criteria are met and if specified amounts are spent onthe advertisements. To receive the allowance, a customer must deliver to theCompany evidence of all advertising performed that includes the Company’sproducts. Because the Company receives an identifiable advertising benefit fromthe customer, the Company recognizes the cost of cooperative advertising as anadvertising expense in selling expenses.

*Research anddevelopment*

Expenditures for researchand development costs are charged to expense as incurred.

*Earnings (loss) pershare*

Basic earnings (loss) per share amounts exclude thedilutive effect of potential shares of common stock. Basic earnings (loss) pershare is based upon the weighted-average number of shares of common stockoutstanding, which excludes unallocated ESOP shares. Diluted earnings (loss)per share is based upon the weighted-average number of shares of common stockand dilutive potential shares of common stock outstanding for each periodpresented. Potential shares of common stock include outstanding stock optionswhich are included under the treasury stock method. Excluded from dilutedweighted average shares of common stock for fiscal 2007 and 2006 were potentialshares of common stock of 157,000 and 59,000, respectively, as the Company incurreda loss and the effect would be anti-dilutive. For fiscal years ended 2007, 2006and 2005, options to purchase 2,426,000, 3,388,000, and 2,271,000 shares ofcommon stock, respectively, were also excluded from diluted weighted averageshares of common stock, as the option exercise prices were greater than theaverage market price of the Company’s common stock and, therefore, the effectwould be anti-dilutive.

For each of the yearsended February 28, 2007, 2006 and 2005 the Company incurred a net loss. Otherthan stock options, the Company has no dilutive securities. Therefore, due tothe net losses reported, there is no difference between the number of sharesused in the calculation of basic and diluted earnings per share.

*Comprehensiveincome (loss)*

Comprehensive income(loss) is defined as a change in the equity of a business enterprise during aperiod from transactions and other events and circumstances from non-ownersources and, at February 28, 2007 and 2006, includes only foreign currencytranslation adjustments.

*Concentration ofcredit risk*

Financial instrumentswhich potentially subject the Company to concentration of credit risk areprincipally accounts receivable. The Company maintains an allowance fordoubtful accounts at a level deemed appropriate by management based onhistorical and other factors that affect collectibility. Based upon the Company’sassessment of the recoverability of the receivables from its customers and inthe opinion of management, the Company has established adequate reservesrelated to accounts receivable.

F-13

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

*Fair value offinancial instruments*

The carrying amounts ofaccounts receivable, accounts payable, accrued liabilities, and short-termloans approximate fair value due to the short maturity of these instruments.The carrying value of long-term debt approximates its fair value.

*DerivativeInstruments and Hedging Activities*

The Company may enter into interest rate swapagreements or foreign exchange contracts to offset certain operational andbalance sheet exposures and to manage its exposure to interest and exchangerate movements. These contracts are entered into to support product sales,purchases and financing transactions made in the normal course of business, andaccordingly, are not speculative in nature. The Company uses interest rateswaps to convert floating-rate debt to fixed-rate debt. Interest rate swapagreements are executed as an integral part of specific debt transactions andinvolve payment of a fixed rate and receipt of a floating rate and specifiedintervals. The Company may enter into foreign exchange contracts to manage riskassociated with fluctuations on certain firm sales and purchase commitmentsdenominated in foreign currencies.

All derivatives are recognized on the balance sheet attheir fair value. On the date that the Company enters into a derivativecontract, it designates the derivative as either (a) a hedge of aforecasted transaction or the variability of cash flows that are to be receivedor paid in connection with a recognized asset or liability (a “cash flow”hedge), or (b) a hedge of an exposure to changes in the fair value of anasset, liability, or an unrecognized firm commitment (a “fair value” hedge).Changes in the fair value of a derivative that is highly effective, and that isdesignated and qualifies as a cash flow hedge to the extent that the hedge iseffective, are recorded in Other Comprehensive Income until earnings areaffected by the variability of cash flows of the hedged transaction (e.g.,until periodic settlements of a variable asset or liability are recorded inearnings). Any hedge ineffectiveness (which represents the amount by which thechanges in the fair value of the derivative exceed the variability in the cashflows of the forecasted transaction) is recorded in current-period earnings.Changes in the fair value of a derivative that is highly effective, and that isdesignated and qualifies as a foreign-currency hedge, are recorded in eithercurrent-period earnings or accumulated other comprehensive income, depending onwhether the hedging relationship satisfies the criteria for a fair-value orcash-flow hedge.

The Company formally documents all relationshipsbetween hedging instruments and hedged items, as well as its risk-managementobjective and strategy for undertaking various hedge transactions. This processincludes linking all derivatives that are designated as cash flow hedges tospecific firm commitments or forecasted transactions. The Company also formallyassesses (both at the hedge’s inception and on an ongoing basis) whether thederivatives that are used in hedging transactions have been highly effective inoffsetting changes in the cash flows of hedged items and whether thosederivatives may be expected to remain highly effective in future periods. Allcomponents of each derivative’s gain or loss are included in the assessment ofhedge effectiveness.

When it is determined that a derivative is not, or hasceased to be, highly effective as a hedge, the Company discontinues hedgeaccounting prospectively. A derivative ceases to be highly effective when (a) theCompany determines that the derivative is no longer effective in offsettingchanges in the cash flows of a hedged item such as firm commitments orforecasted transactions, (b) it is no longer probable that the forecastedtransaction will occur, (c) the derivative expires or is sold, terminatedor exercised, or 

F-14

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

(d) managementdetermines that designating the derivative as a hedging instrument is no longerappropriate.

When the Company discontinues hedge accounting becauseit is no longer probable that the forecasted transaction will occur in theoriginally expected period, the gain or loss on the derivative remains inAccumulated Other Comprehensive Income and is reclassified into earnings whenthe forecasted transaction affects earnings. However, if it is probable that aforecasted transaction will not occur by the end of the originally specifiedtime period or within an additional two-month period of time thereafter, thegains and losses that were accumulated in Accumulated Other ComprehensiveIncome or loss will be recognized immediately in earnings. In a situation inwhich hedge accounting is discontinued and the derivative remains outstanding,the Company will carry the derivative at its fair value on the balance sheet,recognizing changes in the fair value in current-period earnings.

The Company had no openhedging instruments at February 28, 2007, 2006 or 2005, respectively.

*Use of estimates inthe preparation of consolidated financial statements*

The preparation of consolidated financial statements,in conformity with accounting principles generally accepted in the UnitedStates, requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the respective reporting periods.Actual results could differ from those estimates. Estimates are used inaccounting for, among other items, sales returns and reserves, allowances fordoubtful accounts, excess and obsolete inventory, income taxes, assetimpairment, anticipated transactions to be hedged, litigation reserves andcontingencies. The Company did not have any interest rate swap agreements orforeign exchange contracts in effect at February 28, 2007, 2006 or 2005,respectively.

F-15

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

*Product warranties*

TheCompany provides reserves for the estimated cost of product warranty-relatedclaims at the time of sale, and periodically adjusts the provision to reflectactual experience. The amount of warranty liability accrued reflects management’sbest estimate of the expected future cost of honoring Company obligations underits warranty plans. Additionally, from time to time, specific warranty accrualsmay be made if unforeseen technical problems arise. Meade, Bresser and Coronadobranded products, principally telescopes and binoculars, are generally coveredby a one-year limited warranty. Many of the Simmons Outdoor products,principally riflescopes and binoculars, have lifetime limited warranties.Changes in the warranty liability, which is included as a component of accruedliabilities on the accompanying Consolidated Balance Sheets, follows.

| ** **                                           | ** ** | **February 28,** | ** ** |
|------------------------------------------------------|------------|-----------------------|------------|
| ** **                                           | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Beginning balance                                    |       | $                     | 1,053,000  |   | $ | 1,173,000 |   |
| Warranty accrual                                     |       | 706,000               |       | 706,000 |   |
| Labor and  material usage                            |       | (607,000              | )          | (794,000 | ) |
| Effect of change  in foreign currency exchange rates |       | 32,000                |       | (32,000 | ) |
| Ending balance                                       |       | $                     | 1,184,000  |   | $ | 1,053,000 |   |

 

*Stock-basedcompensation*

Effective March 1, 2006, the Company adopted theprovisions of Statement of Financial Accounting Standards No. 123R, (“SFAS123R”) “Share-Based Payment,” which establishes accounting for equityinstruments exchanged for employee services. Under the provisions of SFAS 123R,share-based compensation cost is measured at the grant date, based on thecalculated fair value of the award, and is recognized as an expense over theemployee’s requisite service period (generally the vesting period of the equitygrant). Prior to March 1, 2006, the Company accounted for share-basedcompensation to employees in accordance with Accounting Principles BoardOpinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” andrelated interpretations. The Company also followed the disclosure requirementsof SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended bySFAS 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”.The Company elected to adopt the modified prospective transition method asprovided by SFAS No. 123R and, accordingly, financial statement amountsfor the prior periods presented in this Form 10-K have not beenrestated to reflect the fair value method of expensing share-basedcompensation. Share-based compensation expenses in accordance with SFAS 123R,included in general and administrative expenses in the Company’s consolidatedstatement of operations for the year ended February 28, 2007, wereapproximately $0.6 million. Due to deferred tax valuation allowances providedduring the year, no net benefit was recorded against this share-basedcompensation charged during the period.

The Company estimates the fair value of stock optionsusing the Black-Scholes valuation model. Key input assumptions used to estimatethe fair value of stock options include the exercise price of the award, theexpected option term, the expected volatility of the Company’s stock over theoption’s expected term, the risk-free interest rate over the option’s expectedterm, and the Company’s expected annual dividend yield. The Company believesthat the valuation technique and the approach utilized to develop theunderlying assumptions are appropriate in calculating the fair values of theCompany’s stock options 

F-16

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

granted during the yearended February 28, 2007. Estimates of fair value are not intended topredict actual future events or the value ultimately realized by persons whoreceive equity awards.

The fair value of the Company’s stock options wasestimated on the grant date using the Black-Scholes option-pricing model withthe following assumptions:

Forthe year ended February 28, 2007

| Expected life(1)            |   | 6.2 years |   |
|-----------------------------|--------|-----------|--------|
| Expected  volatility(2)     |   | 67.3      | %      |
| Risk-free  interest rate(3) |   | 4.8       | %      |
| Expected dividends          |   | None      |   |

----

(1)          The option term wasdetermined using the simplified method for estimating expected option life,which qualify as “plain-vanilla” options.

(2)          The stock volatility foreach grant is measured using the weighted average of historical daily pricechanges of the Company’s common stock over the most recent period equal to theexpected option life of the grant, adjusted for activity which is not expectedto occur in the future.

(3)          The risk-free interestrate for periods equal to the expected term of the share option is based on theU.S. Treasury yield curve in effect at the time of grant.

The Company did not recognize compensation expense foremployee share-based awards for the period ended February 28, 2006, whenthe exercise price of the stock awards was greater than or equal to the marketprice of the underlying stock on the date of grant. The Company recognizedcompensation expense under APB 25 for certain stock options with exerciseprices below fair market value on the date of grant, and for the fair value ofrestricted stock.

TheCompany had previously adopted the provisions of Statement of FinancialAccounting Standards No. 123, “Accounting for Stock-Based Compensation,” (“SFAS123”), as amended by SFAS No. 148, “Accounting for Stock-BasedCompensation—Transition and Disclosure” for disclosure only. The followingtable illustrates pro forma net loss per share for the fiscal years ended February 28,2006 and 2005, respectively, as if the Company had applied the fair valuerecognition provisions of SFAS 123 to share-based employee awards.

| ** **                                                  | ** ** | **February 28,** | ** **  |
|-------------------------------------------------------------|------------|-----------------------|-------------|
| ** **                                                  | ** ** | **2006**              | ** **  | **2005** | ** ** |
| Reported net loss                                           |       | $                     | (13,980,000 | ) | $ | (931,000 | ) |
| Compensation  cost, net of taxes under APB 25               |       | 21,000                |        | 80,000 |   |
| Compensation  cost, net of taxes under SFAS No. 123    |       | (531,000              | )           | (943,000 | ) |
| Pro forma net  loss                                         |       | $                     | (14,490,000 | ) | $ | (1,794,000 | ) |
| Reported (loss) earnings per share—basic and diluted   |       | $                     | (0.72       | ) | $ | (0.05 | ) |
| Pro forma (loss)  earnings per share—basic and diluted |       | $                     | (0.75       | ) | $ | (0.09 | ) |

 

F-17

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Thefair value of the Company’s stock options used to compute pro forma net lossand loss per share disclosures is the estimated present value at grant dateusing the Black-Scholes option-pricing model with the following assumptions:

| ** **                                                          | ** ** | **February 28,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                          | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Weighted average  expected life (years)                             |       | 6.0                   |       | 6.0 |   |
| Volatility                                                          |       | 29.0                  | %          | 33.1 | % |
| Risk-free  interest rate                                            |       | 3.98                  | %          | 3.65 | % |
| Expected  dividends                                                 |       | None                  |       | None |   |
| Weighted average fair value of options granted at fair value        |       | $                     | 2.28       |   | $ | 1.98 |   |
| Weighted  average fair value of options granted at below fair value |       | $                     | —     |   | $ | 2.12 |   |

 

As of February 28,2007 there was approximately $1.1 million of unrecognized compensation costrelated to unvested stock options. This cost is expected to be recognized overa weighted-average period of approximately 4 years.

*Recent accountingpronouncements*

In November 2004, the Financial AccountingStandards Board (the “FASB”) issued SFAS No. 151, Inventory Costs—an amendmentof ARB No. 43, Chapter 4. This Statement amends the guidance in ARB No. 43,Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amountsof idle facility expense, freight, handling costs, and wasted material(spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “. . .under some circumstances, items such as idle facility expense, excessivespoilage, double freight, and rehandling costs may be so abnormal as to requiretreatment as current period charges. . . .” This Statementrequires that those items be recognized as current-period charges regardless ofwhether they meet the criterion of “so abnormal.” In addition, this Statementrequires that allocation of fixed production overheads to the costs ofconversion be based on the normal capacity of the production facilities. SFAS No. 151is effective for fiscal years beginning after June 15, 2005. The Companyadopted SFAS No. 151 as of March 1, 2006. The adoption of SFAS No. 151did not have a material impact on the Company’s results of operations orfinancial position.

In June 2006, the FASB issued FASB InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation ofFASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with FASB Statement No. 109, “Accounting for Income Taxes”,and prescribes a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition. The Company is required to adopt the provisionsof FIN 48 beginning in its fiscal year 2008. The Company is currently in theprocess of assessing what impact FIN 48 may have on its consolidated financialposition, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements.” This Statement defines fair value, establishes aframework for measuring fair value in generally accepted accounting principles,and expands disclosures about fair value measurements. This Statement appliesunder other accounting pronouncements that require or permit fair valuemeasurements, the FASB having previously concluded in those accountingpronouncements that fair value is the relevant measurement attribute. 

F-18

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Accordingly, thisStatement does not require any new fair value measurements. This Statement iseffective for financial statements issued for fiscal years beginning after November 15,2007 and interim periods within those fiscal years. The Company does not expectthe adoption of SFAS No. 157 in fiscal 2009 to have a material impact onits results of operations or financial position.

In September 2006, the FASB issued SFAS No. 158,“Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans—an amendment of FASB Statements No. 87, 88, 106, and 132(R).” ThisStatement requires employers to recognize the overfunded or underfunded statusof a defined benefit postretirement plan (other than a multiemployer plan) asan asset or liability in its statement of financial position and to recognizechanges in that funded status in the year in which the changes occur throughcomprehensive income of a business entity or changes in unrestricted net assetsof a not-for-profit organization. This Statement also improves financialreporting by requiring an employer to measure the funded status of a plan as ofthe date of its year-end statement of financial position, with limitedexceptions. An employer with publicly traded equity securities is required toinitially recognize the funded status of a defined benefit postretirement planand to provide the required disclosures as of the end of the fiscal year endingafter December 15, 2006. The Company does not expect the adoption of SFAS No. 158in fiscal 2008 to have any impact on its results of operations or financial positionas the Company does not currently have any defined benefit postretirementplans.

In September 2006, the Securities and ExchangeCommission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108regarding the process of quantifying financial statement misstatements. SAB No. 108states that registrants should use both a balance sheet approach and an incomestatement approach when quantifying and evaluating materiality of amisstatement. The interpretations in SAB No. 108 contain guidance oncorrecting errors under the dual approach as well as provide transitionguidance for correcting errors. This interpretation does not change therequirements within SFAS No. 154 for the correction of an error infinancial statements. SAB No. 108 is effective for annual financialstatements covering the first fiscal year ending after November 15, 2006.The Company’s adoption of this interpretation did not have a material impact onits results of operations or financial position.

In February 2007, theFASB issued SFAS No. 159, “The Fair Value Option for FinancialAssets and Financial Liabilities”. This Statement permits entities tochoose to measure many financial instruments and certain other items at fairvalue. The objective is to improve financial reporting by providing entitieswith the opportunity to mitigate volatility in reported earnings caused bymeasuring related assets and liabilities differently without having to applycomplex hedge accounting provisions. This Statement is expected to expand theuse of fair value measurement, which is consistent with the Board’s long-termmeasurement objectives for accounting for financial instruments. Most of theprovisions of this Statement apply only to entities that elect the fair valueoption. However, the amendment to FASB Statement No. 115, Accounting forCertain Investments in Debt and Equity Securities, applies to all entities withavailable-for-sale and trading securities. Some requirements apply differentlyto entities that do not report net income. This Statement is effective forfinancial statements issued for fiscal years beginning after November 15,2007 and interim periods within those fiscal years. The Company does not expectthe adoption of SFAS No. 159 in fiscal 2009 to have a material impact onits results of operations or financial position.

**4.**                 Acquisitionof Coronado Technology Group, LLC

On December 1,2004, the Company acquired substantially all of the assets and assumedsubstantially all of the liabilities of Coronado Technology Group, LLC, forapproximately $2.5 million in cash plus 

F-19

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

contingent consideration. A final payment ofapproximately $1 million was paid in May 2006, based upon the financialperformance of the acquired operations for the twelve months ended December 31,2005. Coronado is a supplier of high-quality hydrogen-alpha filters anddedicated solar telescopes, as well as various related accessories, designed tomeet the needs of amateur as well as professional solar observers. Theacquisition of Coronado added a respected name in the solar observation marketsto Meade’s suite of brands, vertically adding to the Company’s productofferings, particularly the telescope and accessory lines. The acquisition ofCoronado was accounted for as a purchase in accordance with Statement ofFinancial Accounting Standards No. 141, Business Combinations. Thepurchase price allocation is based upon evaluations and other studies of thefair value of the assets acquired. The preliminary allocation of the excess ofthe purchase price over the estimated fair value of the net tangible assetsacquired was included in goodwill. During the fiscal quarter ended August 31,2005, the Company completed its evaluation of the fair value of theacquisition-related intangible assets associated with its purchase of Coronado.The excess of the purchase price (net of $25,000 cash acquired) over theestimated fair value of the net tangible assets acquired has been allocated asfollows:

| Accounts  receivable                           |   | $          | 72,000    |   |
|------------------------------------------------|--------|------------|-----------|--------|
| Inventories                                    |   | 312,000    |      |
| Property, plant,  equipment                    |   | 367,000    |      |
| Other assets                                   |   | 70,000     |      |
| Intangible  assets:                            |   |       |      |
| Completed technologies                         |   | 1,620,000  |      |
| Trademarks                                     |   | 540,000    |      |
| Other                                          |   | 56,000     |      |
| Goodwill                                       |   | 1,593,000  |      |
| Current  liabilities                           |   | (1,071,000 | )         |
| Long-term  liabilities, net of current portion |   | (59,000    | )         |
| Total purchase  price                          |   | $          | 3,500,000 |   |

 

On an unaudited pro-formabasis, the effects of the acquisition were not significant to the Company’sresults of operations.

**5.**                 Bankand other debt

Losses during fiscal 2006 led to the execution of theSixth Amendment to Amended and Restated Credit Agreement (the “Sixth Amendment”).Executed in June 2006, the Sixth Amendment set a minimum availabilityrequirement of $1 million, set a minimum EBITDA requirement measured on arolling four quarter basis beginning with the quarter ending February 28,2007, eliminated the fixed charge coverage and minimum tangible net worthrequirements, and added higher interest rate levels to the pricing grid. Thefee for the amendment was $80,000. Upon execution of the Sixth Amendment theCompany was in compliance with all of its bank covenants. On July 31,2006, September 29, 2006,October 31, 2006 and November 30, 2006the Company executed the Seventh, Eighth, Ninth and Tenth amendments to theCredit Agreement, respectively. Each amendment granted the Company additionaltime to meet the Credit Agreement requirements regarding the reportingdeadlines for the Company’s fiscal 2006 audited year-end financial statementsand 2007 fiscal year quarterly financial statements. The Company was notassessed a fee for the Seventh, Eighth, Ninth or Tenth amendments. Uponexecution of the Tenth Amendment the Company was in compliance with all of itsbank covenants.

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Continuing losses for the year ended February 28,2007 led the Company to conclude that it would not be in compliance with theminimum EBITDA requirement as set forth in the U.S. credit agreement for theperiod then ended. Accordingly, on May 31, 2007, in anticipation of suchnon-compliance, the Company executed the Eleventh Amendment to Amended andRestated Credit Agreement (the “Eleventh Amendment”). The Eleventh Amendment makesthe following key changes to the U.S. credit agreement: (1) extends theexpiration date to September 30, 2009; (2) reduces the facility to$30,000,000; (3) adjusts the pricing grid based on the Company’scalculated fixed charge coverage ratio; (4) removed the $4 million reservepreviously established in the Fifth Amendment; (5) sets minimum EBITDA,tangible net worth and capital expenditure requirements measured on a rollingfour quarter basis beginning with the quarter ending May 31, 2007 andminimum fixed charge coverage ratio covenants measured on a rolling fourquarter basis beginning with the quarter ending on May 31, 2008; (6)requires payment of an intercompany loan to the Company’s European subsidiaryin the amount of approximately $2,000,000 by not later than July 31, 2007; and (7) establishedprepayment penalties. The fee for the amendment was $125,000. Upon execution ofthe Eleventh Amendment the Company was in compliance with all of its bankcovenants.

Availability under the U.S. revolving loan (which issubject to a borrowing base with standard advance rates against eligibleaccounts receivable and inventories) at February 28, 2007 wasapproximately $3 million. The credit facility expires in September 2009,is collateralized by substantially all of the domestic assets of the Companyand its domestic subsidiaries and contains certain financial covenantsincluding, but not limited to, minimum EBITDA levels, minimum tangible networth targets, minimum fixed charge coverage ratios and certain limits oncapital expenditures. Amounts outstanding under the U.S. revolving loan bearinterest at the bank’s base rate (or LIBOR rate) plus applicable margins(10.25% at February 28, 2007).

On July 29, 2005, the Company’s Europeansubsidiary purchased a building for cash of approximately 1,487,000 Euro(approximately $1,805,000 USD at that date). The approximately 50,000 sq. ftbuilding, located in Rhede, Germany, is being used as office and warehousespace. The building is being depreciated straight-line over twenty-five years.In addition to an already existing long term loan with its bank (“European termloan no. 1”) the European subsidiary obtained a 1,375,000 Euro (approximately$1,814,000 USD at February 28, 2007) long-term loan commitment (“Europeanterm loan no. 2”) toward the purchase of the building. European term loan no. 2bears interest fixed at 4.55% with monthly principal payments due ofapproximately 11,500 Euro (approximately $15,200 USD at February 28, 2007)for ten years. On September 9, 2005, the European subsidiary drew down the1,375,000 Euro term loan (approximately $1,705,000 USD at that date).

The European subsidiary renegotiates the terms of itsshort-term revolving lines on an annual basis. Currently the European line is2,000,000 Euro (approximately $2,638,000 USD at February 28, 2007)increasing to a maximum of 9,000,000 Euro (approximately $11,872,000 USD at February 28,2007) during fiscal 2008. The line bears interest at EURIBOR plus 2%. The lineincreases to 3,500,000 Euro (approximately $4,617,000 USD at February 28,2007) from August 1, 2007 through August 31, 2007, then increases to9,000,000 Euro from September 1, 2007 through February 29, 2008. FromMarch 1, 2008 through August 31, 2008 the line returns to 2,000,000 Euro.The aforementioned lines of credit are provided on the condition that anintercompany loan of $2,000,000 be repaid to the Company’s European subsidiaryby July 31, 2007. The European line of credit and term loans arecollateralized by all of the principal assets of the subsidiary; are furthercollateralized by a guarantee from the U.S. parent company in the amount of2,600,000 Euro (approximately $3,430,000 USD at February 28, 2007); andrequire a 

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

minimum capitalization of3,500,000 Euro (approximately $4,617,000 USD at February 28, 2007) at thesubsidiary.

Amountsoutstanding under the Company’s various bank and other debt instruments are asfollows:

| ** **                                                          | ** ** | **February 28,  2007** | ** ** | **February 28,  2006** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| U.S. bank  revolving line of credit                                 |       | $                           | 860,000    |                        | $          | 4,229,000 |   |
| European bank  revolving line of credit                             |       | —                      |       | —                      |       |
| Total bank lines  of credit                                         |       | $                           | 860,000    |                        | $          | 4,229,000 |   |
| U.S. term loan                                                      |       | $                           | —     |                        | $          | 245,000 |   |
| European term  loan no.1                                            |       | —                      |       | 867,000                     |       |
| European term  loan no.2                                            |       | 1,360,000                   |       | 1,549,000                   |       |
| Notes payable                                                       |       | —                      |       | 13,000                      |       |
| Capital lease  obligations                                          |       | 26,000                      |       | 42,000                      |       |
| Total debt and  capital lease obligations                           |       | 1,386,000                   |       | 2,716,000                   |       |
| Less current  portion:                                              |       |                        |       |                        |       |
| U.S. term loan                                                      |       | —                      |       | (245,000                    | )          |
| European term loan no.1                                             |       | —                      |       | (867,000                    | )          |
| European term loan no.2                                             |       | (182,000                    | )          | (164,000                    | )          |
| Notes payable                                                       |       | —                      |       | (13,000                     | )          |
| Capital lease obligations                                           |       | (18,000                     | )          | (17,000                     | )          |
| Total current  portion long-term debt and capital lease obligations |       | (200,000                    | )          | (1,306,000                  | )          |
| Total long-term debt and  capital lease obligations                 |       | $                           | 1,186,000  |                        | $          | 1,410,000 |   |

 

In connection with the purchase of certain assets andthe assumption of certain liabilities of Coronado in December 2004, theCompany assumed an unsecured note, payable in monthly installments of $6,400,including interest at 10% per annum through May 2006 and a note,collateralized by equipment, payable in monthly installments of $26,000,including interest at 6% per annum through April 2005.

Aggregatematurities of long-term debt excluding capital leases at February 28, 2007are as follows:

| **Fiscal Year:** | ** ** | ** ** | ** ** | **Amount** | ** ** |
|-----------------------|------------|------------|------------|------------|------------|
| 2008                  |       | $          | 182,000    |       |
| 2009                  |       | 182,000    |       |
| 2010                  |       | 182,000    |       |
| 2011                  |       | 182,000    |       |
| 2012                  |       | 182,000    |       |
| Thereafter            |       | 450,000    |       |
| Total                 |       | $          | 1,360,000  |       |

 

The Company continues todepend on operating cash flow and availability under its bank lines of creditto provide short-term liquidity. In the event the Company’s plans require morecapital than is presently anticipated, additional sources of liquidity such asdebt or equity financings, may be required to meet its capital needs. There canbe no assurance that such additional sources of capital will be available 

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

onreasonable terms, if at all. However, management believes that operating cashflow and bank borrowing capacity in connection with the Company’s businessshould provide sufficient liquidity for the Company’s obligations for at leastthe next twelve months.

**6.**                 Commitmentsand Contingencies

In December 1996 the Company executed a leasecommencing October 1, 1997 for its corporate office and manufacturingfacilities in California. The lease term was ten years, extendable for anadditional ten years (two terms of five years each) at the Company’s option. InDecember 2006, the Company renewed this lease for an additional five yearterm. This lease renews as of October 1, 2007, expires on September 30,2012 and is renewable at the Company’s option for one additional five-yearterm. Lease commitments for this lease are subject to annual increases rangingbetween 3.2% to 4.7% per annum. In November 2003, a lease for office spacein Florida was terminated. The Simmons Outdoor subsidiary operated in a leasedfacility in Georgia. The Simmons Outdoor facility lease term is eight yearsexpiring in December 2007, with an option to renew for four additionalfour-year terms. Monthly rentals are adjusted at prescribed dates generallybased on changes in the consumer price index. As of February 28, 2007, theCompany had consolidated the Simmons Outdoor operation into its Irvinefacility, closed operations in Georgia and sublet the Thomasville facilitythrough December 2007. The Company will not exercise its option to renewthe Thomasville lease upon its expiration in December 2007. From November 2002to July 2005, the Company leased warehouse space in Mississippi on amonth-to-month basis. The Mississippi lease was terminated in July 2005.

In August 1999, the Company entered into a leasefor an assembly facility in Tijuana, Mexico. The Tijuana lease expires in 2010with two, five-year options remaining.. The Company also leased 8,300 squarefeet of office and manufacturing space in Tuscon, Arizona for its CoronadoInstruments subsidiary. The Company did not renew the Coronado lease andoperations were moved to the Company’s Irvine, California facility uponexpiration of the Coronado lease in August 2006. In connection with thepurchase of certain assets and the assumption of certain liabilities ofCoronado in December 2004, the Company assumed a capital lease forequipment used in the manufacture of Coronado product. The equipment had aninitial cost of $56,000, interest is 7.1% per annum with monthly payments ofprincipal and interest of $1,100. In July 2005, the Company entered into acapital lease for warehouse equipment. The lease term is four years. Theequipment had an initial cost of $21,000, interest is 5.7% per annum with monthlypayments of principal and interest of approximately $500.

Aggregatefuture minimum commitments under noncancellable leases (net of sub-leasereceipts) and other agreements at February 28, 2007 that have remainingterms in excess of one year are as follows:

| **Fiscal Year**               | ** ** | ** ** | ** ** | **Capital** | ** ** | **Operating** | ** ** |
|------------------------------------|------------|------------|------------|-------------|------------|---------------|------------|
| 2008                               |       | $          | 19,000     |        | $          | 1,483,000     |       |
| 2009                               |       | 6,000      |       | 1,257,000   |       |
| 2010                               |       | 2,000      |       | 1,265,000   |       |
| 2011                               |       | —     |       | 1,323,000   |       |
| 2012                               |       | —     |       | 1,382,000   |       |
| Thereafter                         |       | —     |       | 826,000     |       |
| Net minimum lease  payments        |       | 27,000     |       | $           | 7,536,000  |          |
| Less amount  representing interest |       | 1,000      |       |        |       |
| Capital lease  obligations         |       | $          | 26,000     |        |       |          |

 

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

For the fiscal years ended February 28, 2007,2006, and 2005, the Company incurred rent expense of $1,711,000, $2,135,000 and$2,337,000, respectively.

In 2001 and 2002, the Company filed suits againstTasco Sales, Inc. (“Tasco”) and Celestron International, Inc.(“Celestron”), charging the two companies with patent infringement and unfaircompetition. On July 8, 2004, the Company announced that it had reached anagreement, effective May 10, 2004, under which all outstanding litigationbetween the parties had been resolved.

The settlement included a licensing agreement underwhich Meade granted Celestron a non-exclusive license to utilize the patents inexchange for a royalty payment on sales of the related products. Included innet sales for the years ended February 28, 2006 and 2005 was approximately$17,000 and $135,000, respectively, for royalties received. No royalties werereceived for the year ended February 28, 2007.

The following purported shareholder derivative actionhas been filed challenging conduct by certain of the Company’s current andformer board members and officers in connection with various stock optiongrants:

*In reMeade Instruments Corp. Derivative Litigation,*No. 06-CC-205,Superior Court of the State of California for the County of Orange, filedOctober 6, 2006. On November 22, 2006, the court consolidated underthe above caption two state derivative actions: (i) *Barclay v. Diebel*, et al., No. 06-CC-205,Superior Court of the State of California for the County of Orange, filedOctober 6, 2006 and (ii) *Bryant v.Diebel*, et al., No. 06-CC-206, Superior Court ofthe State of California for the County of Orange, filed October 6, 2006.The plaintiffs filed a consolidated complaint on December 22, 2006, andthe defendants filed demurrers to the complaint on February 5, 2007.Under the current scheduling order, the plaintiffs are expected to file theiropposition to the demurrers by June 22, 2007. The consolidated complaintasserts causes of action for breach of fiduciary duty, accounting, abuse ofcontrol, gross mismanagement, constructive trust, corporate waste, rescission,unjust enrichment, and violation of California Corporations Code in connectionwith the Company’s option granting practices. On May 23, 2007, the partiesin both this action and the class action discussed below participated in amediation. As a result of this mediation, the parties in both actions reached apreliminary settlement understanding, which includes corporate governancereforms and an amount to cover plaintiffs’ attorneys fees. The Companyanticipates that the monetary portion of the proposed settlement will becovered by the Company’s director and officer liability insurance. The partiesare in the process of finalizing their settlement agreements. These settlementsare conditioned upon court approval.

The following putative federal securities class actionhas also been filed challenging conduct by the Company and certain of itscurrent and former board members and officers in connection with various stockoption grants:

*Grecian v. Meade Instruments Corp.,et al*., No. SA CV 06-908 AG (JTLx), United statesDistrict Court for the Central District of California, filed September 27,2006. On January 8, 2007, the court granted the named plaintiffs’ motionto be appointed lead plaintiffs. On February 22, 2007, the plaintiffsfiled their second amended complaint, which asserts claims for violations ofSection 10(b), 14(a) and 20(a) of the Securities Exchange Act inconnection with the Company’s option granting practices. Under the currentscheduling order, the plaintiffs can file a third amended complaint byJune 1, 2007. The defendants do not believe that the third amendedcomplaint will differ materially from its predecessor. The defendants’ motionto dismiss the third amended complaint will be due on 

F-24

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

July 16, 2007. OnMay 23, 2007, the parties in both this action and the derivative actiondiscussed above participated in a mediation. As a result of this mediation, theparties in both actions reached a preliminary settlement understanding, whichincludes corporate governance reforms and an award to the class, from which plaintiffs’attorneys fees and administrative costs would be paid. The Company anticipatesthat the monetary portion of the proposed settlement will be covered by theCompany’s director and officer liability insurance. The parties are in theprocess of finalizing their settlement agreements. These settlements areconditioned upon court approval.

On September 28, 2006 a complaint was filedagainst the Company and certain of the Company’s dealers in the United StatesDistrict Court for the Southern District of New York. The essence of thecomplaint is that Meade and other defendants allegedly falsely advertise Meade’sAdvanced Ritchey-Chretien products as being Ritchey-Chretien products. On October 31,2006, the plaintiffs filed an amended complaint, adding claims for violation ofthe Lanham Act. On January 3, 2007, the United States District Court forthe Southern District of New York granted a motion filed by Meade and orderedthe case transferred to the United States District Court for the CentralDistrict of California. The complaint seeks injunctive relief, compensatory andtreble damages, and attorneys’ fees and costs. Meade has not yet been requiredto file an answer to the complaint. This case is in its early stages. Due tothe preliminary status of this case and the uncertainties of litigation, theCompany is unable to evaluate the likelihood of either a favorable orunfavorable outcome in this case and therefore, is unable to estimate theeffect of this litigation on the financial position, results of operations orcash flows of the Company.

The Company is involvedfrom time to time in other litigation incidental to its business. Managementbelieves that the outcome of such litigation will not have a material adverseeffect on the financial position, results of operations or cash flows of theCompany.

**7.**                 EmployeeStock Ownership Plan

Adoption of the ESOP was effective March 1, 1996and covers all employees of the Company who meet certain service andeligibility requirements. A participant becomes 100% vested in his ESOP accountif, while employed at the Company, the participant (i) reaches his 60thbirthday, (ii) becomes disabled (as defined), (iii) dies, or (iv) achievesthree years of credited service (as defined). Distributions of a participant’svested account are directed by the ESOP’s Administrative Committee. The Companyprovides a put option to any participant who receives a distribution of Companystock, unless the stock is readily tradable on an established market. TheCompany’s stock currently trades on the Nasdaq national market.

In April 1996, the ESOP purchased 3,000,000shares of common stock held by the existing stockholders for $11,000,000. TheESOP financed the purchase of the common stock (the “financed shares”) with theproceeds of an $11,000,000 term loan (the “acquisition loan”) from the Company.The financed shares are held by the Meade Instruments Corp. Employee StockOwnership Trust (the “ESOP trust”). The ESOP pledged the financed shares to theCompany as collateral for the acquisition loan. The financed shares wereinitially credited to a suspense account on the books of the ESOP and will beallocated to the accounts of individual ESOP participants, as of each plan yearend, for payments made on the acquisition loan. The acquisition loan has atwenty-year term and bears interest at 6% per annum. Principal and interest isdue annually, subject to the Company making contributions to the ESOP to fundthe principal and interest payments. The release of financed shares fromcollateral is based on a formula defined in the plan. The Company accounts forits ESOP in accordance with Statement of Position 93-6 “Employers’Accounting for Employee Stock Ownership Plans”. Accordingly, the shares pledgedas 

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

collateral are reported asunearned ESOP shares in the balance sheet. As shares are committed to bereleased from collateral, the Company records compensation expense, and theshares become outstanding for net income per share purposes. Any dividends onallocated shares are recorded as a reduction of retained earnings; anydividends on unallocated ESOP shares are recorded as a reduction of debt andaccrued interest.

For the years ended February 28, 2007, 2006 and2005, the Company recognized ESOP contribution expense of $302,000, $343,000and $419,000, respectively.

As of February 28, 2007, approximately 2,501,000shares in the ESOP trust have been allocated to individual participants.Allocations to individual participant accounts are generally made in the ratiothat the compensation of each participant bears to the total compensation ofall such participants. There are approximately 499,000 shares in suspense at February 28,2007, including approximately 125,000 shares committed to be released as of February 28,2007.

The fair value of thecommon stock upon purchase from the existing stockholders in April 1996was determined to be $3.67 per share. Under the terms of the ESOP, the fairvalue of the common stock at any plan year end is to be determined by anindependent appraiser so long as the stock is not readily tradable on anestablished market. The fair value of the shares held by the ESOP at February 28,2007 was $2.34 per share, the closing market price as determined by the NasdaqNational Market. At February 28, 2007 there was no repurchase obligation.

**8.**                 IncomeTaxes

Pretaxincome (loss) from continuing operations for each of the three years February 28,2007, 2006 and 2005 consists of the following:

| ** ** | ** ** | **Year Ended February 28,** | ** **  |
|------------|------------|--------------------------------------------|-------------|
| ** ** | ** ** | **2007**                                   | ** **  | **2006** | ** ** | **2005** | ** ** |
| Domestic   |       | $                                          | (21,885,000 | ) | $ | (8,659,000 | ) | $ | (4,376,000 | ) |
| Foreign    |       | 3,591,000                                  |        | 3,783,000 |   | 2,914,000 |   |
|       |       | $                                          | (18,294,000 | ) | $ | (4,876,000 | ) | $ | (1,462,000 | ) |

 

F-26

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**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Significantcomponents of the provision (benefit) for income taxes are as follows:

| ** **                             | ** ** | **Year Ended February 28,** | ** ** |
|----------------------------------------|------------|--------------------------------------------|------------|
| ** **                             | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| Current:                               |       |                                       |       |   |   |   |   |
| Federal                                |       | $                                          | 26,000     |   | $ | (1,523,000 | ) | $ | (524,000 | ) |
| State                                  |       | (210,000                                   | )          | (645,000 | ) | (261,000 | ) |
| Foreign                                |       | 1,176,000                                  |       | 1,392,000 |   | 502,000 |   |
|                                   |       | 992,000                                    |       | (776,000 | ) | (283,000 | ) |
| Deferred:                              |       |                                       |       |   |   |   |   |
| Federal                                |       | (8,383,000                                 | )          | (2,475,000 | ) | (358,000 | ) |
| State                                  |       | (92,000                                    | )          | (159,000 | ) | (512,000 | ) |
| Foreign                                |       | (47,000                                    | )          | 10,000 |   | 622,000 |   |
| Deferred tax asset valuation allowance |       | 8,418,000                                  |       | 12,504,000 |   | — |   |
|                                   |       | (104,000                                   | )          | 9,880,000 |   | (248,000 | ) |
|                                   |       | $                                          | 888,000    |   | $ | 9,104,000 |   | $ | (531,000 | ) |

 

Theprovision for income taxes differed from the amount computed by applying theU.S. federal statutory rate to income before income taxes due to the effects ofthe following:

| ** **                                             | ** ** | **Year Ended February 28,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                             | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| Federal income  tax rate                               |       | (34.0                                      | )%         | (34.0 | )% | (34.0 | )% |
| State income  taxes, net of federal income tax benefit |       | (4.7                                       | )          | (0.3 | ) | (9.7 | ) |
| Federal and state  refunds received from refund claims |       | —                                     |       | (14.0 | ) | (31.5 | ) |
| Foreign income                                         |       | 0.7                                        |       | (1.0 | ) | 35.5 |   |
| Research and  development credits                      |       | (0.5                                       | )          | (1.8 | ) | (2.1 | ) |
| Stock-based  compensation                              |       | —                                     |       | — |   | 0.8 |   |
| Valuation  allowance                                   |       | 44.4                                       |       | 241.9 |   | — |   |
| Other                                                  |       | (1.1                                       | )          | (4.1 | ) | 4.7 |   |
|                                                   |       | 4.8                                        | %          | 186.7 | % | (36.3 | )% |

 

The effective tax rates for the years ended February 28,2007 and 2006 were significantly affected by recording valuation allowancesaggregating $8,418,000 and $12,504,000, respectively, to recognize theuncertainty of realizing the benefits of the Company’s deferred tax assets. Thevaluation allowances were recorded because there is insufficient objectiveevidence at this time to recognize those assets for financial reportingpurposes. Ultimate realization of the benefit of the deferred tax assets isdependent upon the Company generating sufficient taxable income in futureperiods including periods prior to the expiration of certain underlying taxcredits.

F-27

----

**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Thedeferred tax assets and liabilities were comprised of the following:

| ** **                         | ** ** | **February 28,  2007** | ** ** | **February 28,  2006** | ** ** |
|------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Sales returns                      |       | $                           | 331,000    |                        | $          | 669,000 |   |
| Inventory and  accounts receivable |       | 2,901,000                   |       | 3,407,000                   |       |
| Accrued  liabilities               |       | 1,169,000                   |       | 872,000                     |       |
| Intangibles                        |       | (954,000                    | )          | (1,290,000                  | )          |
| Credits                            |       | 4,996,000                   |       | 3,771,000                   |       |
| Fixed assets                       |       | 473,000                     |       | 754,000                     |       |
| Stock-based  compensation          |       | 797,000                     |       | 1,068,000                   |       |
| Net operating  losses              |       | 9,773,000                   |       | 1,713,000                   |       |
| Total deferred  tax assets         |       | 19,486,000                  |       | 10,964,000                  |       |
| Less valuation allowance           |       | (20,922,000                 | )          | (12,504,000                 | )          |
|                               |       | $                           | (1,436,000 | )                           | $          | (1,540,000 | ) |

 

As of February 28,2007, the Company has approximately $22,414,000 and $27,759,000 of netoperating loss carry forwards available to offset future taxable income forfederal and state income tax purposes, respectively. These net operating losscarry forwards will begin to expire during the fiscal years ending February 28,2023 and February 28, 2012, respectively. Prior year stock optioncompensation expense included in the net operating losses is negligible. TheCompany has foreign tax credits and research and experimentation andmanufacturing incentive credits of approximately $3,701,000 and $1,600,000which begin to expire during the fiscal years ending February 28, 2013 andFebruary 28, 2024, respectively. The future realization of these creditsis dependent upon the Company generating sufficient income both outside theUnited States and within the United States.

**9.**                 BusinessSegments, Geographic Data and Major Customers

TheCompany is a multinational consumer optics company that designs, manufactures,imports and distributes telescopes, telescope accessories, binoculars,riflescopes and other optical products. The Company is organized and operatesas one segment in two principal geographic locations—North America and Europe.The following tables present information about product sales and geographicdata for the years ended February 28, 2007, 2006, and 2005.

| ** **                           | ** ** | **Year Ended February 28,** | ** **  |
|--------------------------------------|------------|--------------------------------------------|-------------|
| ** **                           | ** ** | **2007**                                   | ** **  | **2006** | ** ** | **2005** | ** ** |
| Product sales:                       |       |                                       |        |   |   |   |   |
| Telescope and  telescope accessories |       | $                                          | 60,389,000  |   | $ | 74,997,000 |   | $ | 58,823,000 |   |
| Binoculars                           |       | 21,505,000                                 |        | 24,665,000 |   | 25,192,000 |   |
| Riflescopes                          |       | 10,680,000                                 |        | 12,120,000 |   | 21,643,000 |   |
| Other                                |       | 8,961,000                                  |        | 8,053,000 |   | 6,141,000 |   |
|                                 |       | $                                          | 101,535,000 |   | $ | 119,835,000 |   | $ | 111,799,000 |   |

 

F-28

----

**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

| ** **                           | ** ** | **Year Ended February 28,** | ** **  |
|--------------------------------------|------------|--------------------------------------------|-------------|
| ** **                           | ** ** | **2007**                                   | ** **  | **2006** | ** ** | **2005** | ** ** |
| Geographic  data—product sales: |       |                                       |        |   |   |   |   |
| North America                        |       | $                                          | 56,734,000  |   | $ | 74,562,000 |   | $ | 79,732,000 |   |
| Germany                              |       | 12,571,000                                 |        | 13,790,000 |   | 12,296,000 |   |
| Other  foreign/export                |       | 32,230,000                                 |        | 31,483,000 |   | 19,771,000 |   |
|                                 |       | $                                          | 101,535,000 |   | $ | 119,835,000 |   | $ | 111,799,000 |   |

 

| ** **                               | ** ** | **February 28,** | ** ** |
|------------------------------------------|------------|-----------------------|------------|
| ** **                               | ** ** | **2007**              | ** ** | **2006** | ** ** | **2005** | ** ** |
| Geographic  data—long-lived assets: |       |                  |       |   |   |   |   |
| North America                            |       | $                     | 8,056,000  |   | $ | 8,409,000 |   | $ | 9,046,000 |   |
| Germany                                  |       | 4,848,000             |       | 4,666,000 |   | 3,238,000 |   |
|                                     |       | $                     | 12,904,000 |   | $ | 13,075,000 |   | $ | 12,284,000 |   |

 

The Company generatedapproximately 20% and 15% of its revenue from one customer during the yearsended February 28, 2007 and 2006, respectively. This customer owed theCompany $2,989,000 and $672,000 at February 28, 2007 and 2006,respectively.

**10.**          StockIncentive Plan

In February 1997, the Company’s Board ofDirectors adopted the 1997 Stock Incentive Plan (the “Plan”). The Plan providesfor the grant of incentive and non-qualified stock options, restricted stock,stock appreciation rights (“SARs”), and performance share awards to certain keyemployees (including officers, whether or not directors) of the Company or itssubsidiaries. The Company has received director and stockholder approval togrant options and other awards with respect to 5,500,000 shares of common stockunder the Plan. Awards under the Plan generally vest after six months andbecome exercisable over a two to four-year period, or as determined by theCompensation Committee of the Board of Directors. Stock options generallyremain exercisable for a period of ten years from the date of grant. The Boardof Directors has also granted non-qualified stock options to purchase commonstock to each of the Company’s non-employee directors. The non-employeedirectors are granted 5,000 options each when elected and 5,000 each upon theirre-election to the Board of Directors at the Company’s Annual Meeting eachyear. The directors’ options generally become exercisable in equal annualamounts over three years.

F-29

----

**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Optionactivity under the Plan during fiscal years 2007, 2006 and 2005 was as follows:

| ** **                                     | ** ** | **Option  Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|------------------------------------------------|------------|--------------------|------------|--------------------------------------------|------------|
| Options  outstanding at February 29, 2004 |       | 3,436,000          |       |                                       | 4.54       |   |   |
| Granted                                        |       | 588,000            |       |                                       | 3.07       |   |   |
| Exercised                                      |       | (13,000            | )          |                                       | 2.48       |   |   |
| Forfeited                                      |       | (41,000            | )          |                                       | 7.96       |   |   |
| Options  outstanding at February 28, 2005 |       | 3,970,000          |       |                                       | 4.26       |   |   |
| Granted                                        |       | 32,000             |       |                                       | 2.66       |   |   |
| Exercised                                      |       | (2,000             | )          |                                       | 2.31       |   |   |
| Forfeited                                      |       | (156,000           | )          |                                       | 6.32       |   |   |
| Options  outstanding at February 28, 2006 |       | 3,844,000          |       |                                       | 4.18       |   |   |
| Granted                                        |       | 665,000            |       |                                       | 2.76       |   |   |
| Forfeited                                      |       | (1,768,000         | )          |                                       | 4.11       |   |   |
| Options outstanding at  February 28, 2007 |       | 2,741,000          |       |                                       | 3.88       |   |   |

 

| **At February 28, 2007** | ** ** |
|-----------------------------------------|------------|
| **Options Outstanding**            | ** ** | **Options Exercisable** | ** ** |
| **Exercise Prices**                | ** ** | ** ** | ** ** | **Number of  Options** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Number of  Options** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| $2.31 - $4.10                           |       | 1,905,000 |   |   | 6.9 years |   |   |   | $ | 2.84 |   |   | 1,281,000 |   |   | $ | 2.87 |   |   |
| $4.44 - $5.59                           |       | 687,000 |   |   | 2.6 years |   |   |   | $ | 5.01 |   |   | 687,000 |   |   | $ | 5.01 |   |   |
| $6.25 - $10.31                          |       | 41,000 |   |   | 2.9 years |   |   |   | $ | 7.48 |   |   | 41,000 |   |   | $ | 7.48 |   |   |
| $11.06 - $12.13                         |       | 91,000 |   |   | 3.0 years |   |   |   | $ | 11.23 |   |   | 91,000 |   |   | $ | 11.23 |   |   |
| $17.13 - $27.75                         |       | 17,000 |   |   | 3.4 years |   |   |   | $ | 27.13 |   |   | 17,000 |   |   | $ | 27.13 |   |   |
|                                    |       | 2,741,000 |   |   |   |   |   |   |   |   |   | 2,117,000 |   |   |   |   |   |

 

The exercise prices of certain options granted toemployees was equal to the market price at the grant date. The exercise priceof certain other options granted to employees was less than the market price atthe grant date. Options granted to employees generally become exercisable 33%or 25% after one year and ratably over the following 24 to 36 months,respectively, or as otherwise determined by the Board of Directors. The optionprices under the Plan range from $2.31 to $27.75 per share and are exercisableover periods ending no later than 2016.

On January 31, 2007 the Company’s stockholders approved a stand-alone nonqualified stockoption agreement between the Company and its Chief Executive Officer (“CEO”).Under this agreement, the CEO received 200,000 options at an exercise price of$2.89 per share, vesting 25% per year beginning on the first anniversary of theoption date. This option grant is outside the Plan.

On May 24, 2005,pursuant to the Company’s 1997 Stock Incentive Plan, the Company granted anaward of 247,500 shares of restricted stock to various employees. The fairvalue of the shares was $681,000, as measured by the closing price of theCompany’s stock on the Nasdaq National Market on the grant date. The fair valueof the award is included in additional paid in capital and deferred compensationin the equity section of the accompanying Consolidated Balance Sheets. Onethird of the shares vest on each annual anniversary of the grant date. Therestricted stock awards provide for acceleration of vesting upon 

F-30

----

**MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

theachievement of certain consolidated net sales levels specified in the awardagreements. Compensation cost is recognized on a straight line basis over thethree year vesting period. Recognition of compensation cost will accelerate ifthe vesting schedule accelerates.

**11.**          Compositionof Certain Balance Sheet Accounts

Thecomposition of inventories, net of reserves, is as follows:

| ** **      | ** ** | **February 28,  2007** | ** ** | **February 28,  2006** | ** ** |
|-----------------|------------|-----------------------------|------------|-----------------------------|------------|
| Raw materials   |       | $                           | 5,575,000  |                        | $          | 6,895,000 |   |
| Work in process |       | 5,560,000                   |       | 4,871,000                   |       |
| Finished goods  |       | 14,154,000                  |       | 22,593,000                  |       |
|            |       | $                           | 25,289,000 |                        | $          | 34,359,000 |   |

 

Thecomposition of property and equipment is as follows:

| ** **                                      | ** ** | **February 28,  2007** | ** ** | **February 28,  2006** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Land                                            |       | $                           | 205,000    |                        | $          | 191,000 |   |
| Buildings                                       |       | 4,357,000                   |       | 3,937,000                   |       |
| Molds and dies                                  |       | 6,869,000                   |       | 6,796,000                   |       |
| Machinery and  equipment                        |       | 4,466,000                   |       | 4,250,000                   |       |
| Furniture and  fixtures                         |       | 3,401,000                   |       | 3,225,000                   |       |
| Autos and trucks                                |       | 210,000                     |       | 208,000                     |       |
| Leasehold  improvements                         |       | 1,417,000                   |       | 1,416,000                   |       |
|                                            |       | 20,925,000                  |       | 20,023,000                  |       |
| Less accumulated  depreciation and amortization |       | (16,074,000                 | )          | (14,652,000                 | )          |
|                                            |       | $                           | 4,851,000  |                        | $          | 5,371,000 |   |

 

The gross value of assets under capital leasesincluded above is $77,000 at February 28, 2007 and 2006, respectively. Forthe fiscal years ended February 28, 2007, 2006 and 2005, the Companyrecorded depreciation expense of $1,281,000, $1,415,000 and $1,653,000,respectively.

Thecomposition of accrued liabilities is as follows:

| ** **                                                   | ** ** | **February 28,  2007** | ** ** | **February 28,  2006** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Salaries, wages,  bonuses and other associated payroll costs |       | $                           | 2,001,000  |                        | $          | 1,848,000 |   |
| Warranty costs                                               |       | 1,184,000                   |       | 1,053,000                   |       |
| Freight expenses                                             |       | 742,000                     |       | 491,000                     |       |
| Advertising and  marketing expenses                          |       | 449,000                     |       | 264,000                     |       |
| Professional fees                                            |       | —                      |       | 212,000                     |       |
| Customer deposits                                            |       | 376,000                     |       | —                      |       |
| Other                                                        |       | 2,058,000                   |       | 1,905,000                   |       |
|                                                         |       | $                           | 6,810,000  |                        | $          | 5,773,000 |   |

 

F-31

----

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: June 1, 2007

|         | MEADE INSTRUMENTS CORP. |
|--------------|-------------------------|
| *** *** | By:                     | */s/****STEVEN L. MUELLNER*** |
|         |                    | Steven L. Muellner |
| * *     | * *                | *President and Chief Executive Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.
|                                  | **Signature** | ** **                                                                | ** ** | ** **         | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|----------------------------------|---------------|---------------------------------------------------------------------------|------------|--------------------|-----------|------------|------------|------------|----------|------------|
| /s/ STEVEN L.  MUELLNER          |          | Director,  President, Chief                                               |       | June 1, 2007  |
| Steven  L. Muellner              |          | Executive Officer  (Principal Executive Officer)                          |       |               |
| /s/ PAUL E.  ROSS                |          | Senior Vice  President—Finance                                       |       | June 1, 2007  |
| Paul  E. Ross                    |          | and Chief Financial  Officer (Principal Financial and Accounting Officer) |       |               |
| /s/ HARRY L.  CASARI             |          | Director and  Chairman of the                                             |       | June 1, 2007  |
| Harry  L. Casari                 |          | Board                                                                     |       |               |
| /s/ TIMOTHY C.  MCQUAY           |          | Director                                                                  |       | June 1, 2007  |
| Timothy  C. McQuay               |          |                                                                      |       |               |
| /s/ FREDERICK  H. SCHNEIDER, JR. |          | Director                                                                  |       | June 1, 2007  |
| Frederick  H. Schneider, Jr.     |          |                                                                      |       |               |
| /s/ STEVEN G.  MURDOCK           |          | Director                                                                  |       | June 1, 2007  |
| Steven  G. Murdock               |          |                                                                      |       |               |
| /s/ PAUL D.  SONKIN              |          | Director                                                                  |       | June 1, 2007  |
| Paul  D. Sonkin                  |          |                                                                      |       |               |
| /s/  JAMES M. CHADWICK           |          | Director                                                                  |       | June 1,  2007 |
| James M. Chadwick                |          |                                                                      |       |               |

 

----

**II—VALUATIONAND QUALIFYING ACCOUNTS**

| **Allowance for  Doubtful Accounts** | ** ** | ** ** | ** ** | **Balance At  Beginning of  Period** | ** ** | **Charged to Costs  and Expenses** | ** ** | **Charged to Other  Accounts(3)** | ** ** | **Deductions(1)** | ** ** | **Balance At End  of Period** | ** ** |
|------------------------------------------------|------------|------------|------------|------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------|------------|-------------------|------------|----------------------------------------------|------------|
| Year ended  February 28, 2005             |       |       | $          | 704,000                                        |       |                                              |       | $                                           | 203,000    |              |       |                                         | $          | 5,000 |   |   |   | $ | 225,000 |   |   |   | $ | 687,000 |   |   |
| Year ended  February 28, 2006             |       |       | $          | 687,000                                        |       |                                              |       | $                                           | 310,000    |              |       |                                         | $          | (13,000 | ) |   |   | $ | 501,000 |   |   |   | $ | 483,000 |   |   |
| Year ended  February 28, 2007             |       |       | $          | 483,000                                        |       |                                              |       | $                                           | 636,000    |              |       |                                         | $          | 2,000 |   |   |   | $ | 73,000 |   |   |   | $ | 1,048,000 |   |   |

 

| **Reserves for  Excess and Obsolete Inventories** | ** ** | **Balance At  Beginning of  Period** | ** ** | **Charged to Costs  and Expenses** | ** ** | **Charged to Other  Accounts(3)** | ** ** | **Deductions(2)** | ** ** | **Balance At End  of Period** | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------|------------|-------------------|------------|----------------------------------------------|------------|
| Year ended  February 28, 2005                                    |       | $                                              | 8,115,000  |                                              |       | $                                           | 2,788,000  |              |       |                                         | $          | 99,000 |   |   |   | $ | 2,331,000 |   |   |   | $ | 8,671,000 |   |   |
| Year ended  February 28, 2006                                    |       | $                                              | 8,671,000  |                                              |       | $                                           | 1,711,000  |              |       |                                         | $          | 277,000 |   |   |   | $ | 3,479,000 |   |   |   | $ | 7,180,000 |   |   |
| Year ended  February 28, 2007                                    |       | $                                              | 7,180,000  |                                              |       | $                                           | 2,619,000  |              |       |                                         | $          | 172,000 |   |   |   | $ | 3,819,000 |   |   |   | $ | 6,152,000 |   |   |

----

(1)          Principally recoveriesand write-off of delinquent accounts

(2)          Principally sale ordestruction of previously reserved inventory

(3)          Reflects the effect ofexchange rate changes during the period

----

**EXHIBITINDEX**
| Exhibit | ** ** | **Description** | ** ** | **Incorporation   Reference**                                                                                                                                                                                                                                                                                                                                                                                                             | ** ** |
|---------|------------|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|    | 2          | .1†        |       | Interest  Purchase Agreement, dated as of July 15-16, 1999, by and among  Bresser Optik GmbH & Co. KG, a German limited partnership, Bresser  Optik Geschaftsfuhrung und Verwaltungs GmbH, a German limited liability  company, and Rudolf Bresser, an individual, on the one hand, and the Company  and Meade Instruments Europe Corp., a California corporation, on the other  (excluding Exhibits and Schedules thereto) |       |   | (h) |   |   |
|    | 2          | .2†        |       | Stock Purchase  Agreement, dated as of September 14, 2002, by and among Alliant  Techsystems, Inc., a Delaware corporation, ATK Commercial Ammunition  Company Inc., a Delaware corporation, Meade Instruments Corp., a Delaware corporation,  and MTSC Holdings Corp., a California corporation and wholly-owned subsidiary  of Meade Instruments Corp. (excluding Exhibits and Schedules thereto)                             |       |   | (p) |   |   |
|    | 2          | .3†        |       | First Amendment  to Stock Purchase Agreement, dated as of October 4, 2002, by and among  Alliant Techsystems, Inc., a Delaware corporation, ATK Commercial  Ammunition Company Inc., a Delaware corporation, Meade Instruments Corp., a  Delaware corporation, and MTSC Holdings Corp., a California corporation and  wholly-owned subsidiary of Meade Instruments Corp.                                                        |       |   | (p) |   |   |
|    | 2          | .4†        |       | Second Amendment  to Stock Purchase Agreement, dated as of October 24, 2002, by and among  Alliant Techsystems, Inc., a Delaware corporation, ATK Commercial  Ammunition Company Inc., a Delaware corporation, Meade Instruments Corp., a  Delaware corporation, and MTSC Holdings Corp., a California corporation and  wholly-owned subsidiary of Meade Instruments Corp.                                                      |       |   | (p) |   |   |
|    | 3          | .1†        |       | Certificate of  Incorporation of the Company, as amended                                                                                                                                                                                                                                                                                                                                                                                  |       |   | (c) |   |   |
|    | 3          | .4†        |       | Certificate of  Amendment of Certificate of Incorporation of Meade Instruments Corp.                                                                                                                                                                                                                                                                                                                                                      |       |   | (k) |   |   |
|    | 3          | .7†        |       | Amended and  Restated Bylaws of the Company, as amended                                                                                                                                                                                                                                                                                                                                                                                   |       |   | (u) |   |   |
|    | 3          | .8†        |       | Amendment to  Article III, Section 3.02(a), of the Amended and Restated Bylaws of  the Company                                                                                                                                                                                                                                                                                                                                  |       |   | (hh) |   |   |
|    | 3          | .9†        |       | Amendment in  Article III, Section 3.02(a), of the Amended and Restated Bylaws of the  Company                                                                                                                                                                                                                                                                                                                                            |       |   | (rr) |   |   |
|    | 3          | .10†       |       | Certificate of  Amendment of Certificate of Incorporation of Meade Instruments Corp.                                                                                                                                                                                                                                                                                                                                                      |       |   | (ll) |   |   |
|    | 4          | .1†        |       | Specimen Stock  Certificate                                                                                                                                                                                                                                                                                                                                                                                                               |       |   | (d) |   |   |
|    | 4          | .2†        |       | Subscription  Agreement, dated as of October 22, 2002, by and among Meade and the  Purchasers Named on the Signature Page thereto                                                                                                                                                                                                                                                                                               |       |   | (q) |   |   |
|    | 4          | .3†        |       | Registration  Rights Agreement, dated as of October 22, 2002, by and among Meade and  Purchasers Named therein                                                                                                                                                                                                                                                                                                                       |       |   | (q) |   |   |
|    | 4          | .4†        |       | Registration  Rights Agreement, dated as of April 18, 2003, by and between Meade  Instruments Corp. and John C. Diebel                                                                                                                                                                                                                                                                                                               |       |   | (s) |   |   |

----

 
|        | 10 | .7†   |   | Industrial Lease  (Single Tenant; Net; Stand-Alone), dated December 20, 1996, between the  Company and The Irvine Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | (a) |   |   |
|--------|----|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----|--------|--------|
|   | 10 | .14†+ |   | Employee  Stock Ownership Plan (“ESOP”) Trust Agreement, as Amended and Restated as of  April 9, 1997, between the Company and Wells Fargo Bank, N.A.                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | (e) |   |   |
|   | 10 | .24†  |   | Celtic Master  Lease, dated as of February 23, 1995, between the Company and Celtic  Leasing Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | (b) |   |   |
|   | 10 | .35†  |   | Form Indemnification  Agreement between the Company and each member of the Board of Directors and  certain executive officers of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   | (e) |   |   |
|   | 10 | .43†  |   | Lease Agreement,  dated as of August 16, 1999, as amended, by and among Refugio Geffroy De  Flourie, Meade Instruments Mexico, S. De R. L. De C.V. and Meade Instruments  Holding Corp.                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | (j) |   |   |
|   | 10 | .47†  |   | Amended and  Restated Credit Agreement, dated as of October 25, 2002, by and among  Bank of America, N.A., as the Lender, and Meade Instruments Corp. and Simmons  Outdoor Corporation, as the Borrowers (excluding Exhibits and Schedules  thereto)                                                                                                                                                                                                                                                                                                                                     |   |   | (p) |   |   |
|   | 10 | .48†  |   | Subscription  Agreement, dated as of October 22, 2002, by and among Meade Instruments  Corp. and each of the Purchasers Named on the Signature Page thereof.                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | (p) |   |   |
|   | 10 | .51†+ |   | Transition  Agreement, by and between Meade Instruments Corp. and John Diebel, dated  April 18, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | (s) |   |   |
|   | 10 | .54†  |   | First Amendment  to Amended and Restated Credit Agreement dated October 27, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | (t) |   |   |
|   | 10 | .55†  |   | Lease Agreement,  dated as of March 26, 1992, between Simmons Outdoor Corporation and Realty  Four, and three Addendum Agreements thereto, dated April 1, 1992,  June 6, 1995 and November 2, 1999, respectively                                                                                                                                                                                                                                                                                                                                                          |   |   | (u) |   |   |
|   | 10 | .56†  |   | Settlement  Agreement, effective May 10, 2004, between Meade Instruments Corp. on  the one hand, and Celestron Acquisition, LLC and James Feltman, on the other  (excluding Exhibits thereto)                                                                                                                                                                                                                                                                                                                                                                                            |   |   | (v) |   |   |
|   | 10 | .57†  |   | Second Amendment  to Amended and Restated Credit Agreement, dated July 9, 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   | (w) |   |   |
|   | 10 | .58†  |   | Asset Purchase  Agreement, dated as of October 20, 2004, by and between Coronado  Technology Group, L.L.C., an Arizona limited liability company, together with  Geraldine Hogan, David Lunt, Jordan Frazier, Andrew G. Lunt, and Nicholas J.  Ilka on the one hand, and Meade Instruments Corp., a Delaware corporation and  Coronado, Inc., a California corporation, on the other                                                                                                                                                                                                |   |   | (x) |   |   |
|   | 10 | .59†  |   | First Amendment  to Asset Purchase Agreement, dated as of December 1, 2004, by and  between Coronado Technology Group, L.L.C., .an Arizona limited liability  company, together with Geraldine Hogan, David Lunt, Jordan Frazier, Andrew G.  Lunt, and Nicholas J. Ilka on the one hand, and Meade Instruments Corp., a  Delaware corporation and Coronado, Inc., a California corporation and  wholly-owned subsidiary of Meade that subsequently changed its name to Coronado  Instruments, Inc., a California corporation, on the other (excluding  Schedules and Exhibits) |   |   | (y) |   |   |

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|        | 10 | .60†  |   | Third  Amendment to Amended and Restated Credit Agreement, dated December 15,  2004, and entered into by and among Bank of America, N.A. and Meade  Instruments Corp., a Delaware corporation, Simmons Outdoor Corp., a Delaware  corporation, and Coronado Instruments, Inc., a California corporation |   |   | (z)  |   |   |
|--------|----|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------|--------|--------|
|   | 10 | .61†+ |   | Meade Instruments  Corp. Employee Stock Ownership Plan, As Amended and Restated Effective as of  January 1, 1999, as amended                                                                                                                                                                                 |   |   | (pp) |   |   |
|   | 10 | .62†+ |   | Meade Instruments  Corp. Employee Stock Ownership Plan Loan and Pledge Agreement, between the  ESOP and the Company, as amended                                                                                                                                                                                   |   |   | (pp) |   |   |
|   | 10 | .63†+ |   | Meade Instruments  Corp. 1997 Stock Incentive Plan, as amended.                                                                                                                                                                                                                                                   |   |   | (pp) |   |   |
|   | 10 | .64†+ |   | Form Employment  Agreement between the Company and executive officers of the Company                                                                                                                                                                                                                         |   |   | (pp) |   |   |
|   | 10 | .65†+ |   | Form Non-Qualified  Stock Option Agreement between the Company and recipients of non-qualified  options granted pursuant to the Meade Instruments 1997 Stock Incentive Plan,  as amended                                                                                                                     |   |   | (pp) |   |   |
|   | 10 | .66†+ |   | Form Non-Qualified  Stock Option Agreement between the Company and non-employee directors of the  Company receiving options granted pursuant to Section 8 of the Meade Instruments  1997 Stock Incentive Plan, as amended                                                                               |   |   | (pp) |   |   |
|   | 10 | .67†+ |   | Form Restricted  Stock Agreement by and between the Company and recipients of restricted  shares of the Company’s Common Stock granted pursuant to the Company’s 1997  Stock Incentive Plan, as amended                                                                                            |   |   | (pp) |   |   |
|   | 10 | .68†  |   | Fourth Amendment  to Amended and Restated Credit Agreement, dated May 27, 2005, and  entered into by and among Bank of America, N.A. and Meade Instruments Corp.,  a Delaware corporation, Simmons Outdoor Corp., a Delaware corporation, and  Coronado Instruments, Inc., a California corporation     |   |   | (aa) |   |   |
|   | 10 | .69†  |   | Fifth Amendment  to Amended and Restated Credit Agreement, dated October 12, 2005, and  entered into by and among Bank of America, N.A. and Meade Instruments Corp.,  a Delaware corporation, Simmons Outdoor Corp., a Delaware corporation, and  Coronado Instruments, Inc., a California corporation  |   |   | (cc) |   |   |
|   | 10 | .70†  |   | Seasonal Loan  Agreement, dated July 15 and 26, 2005, between Meade Instruments Europe  GmbH & Co. KG and VR Bank Westmuensterland KG                                                                                                                                                               |   |   | (dd) |   |   |
|   | 10 | .71†  |   | Long Term Loan  Agreement, dated August 5, 2005, between Meade Instruments Europe  GmbH & Co. KG, the Owner, and VR Bank Westmuensterland KG, the  Creditor                                                                                                                                         |   |   | (dd) |   |   |
|   | 10 | .72†+ |   | Offer of  Employment for the position of Chief Executive Officer and President, dated  April 28, 2006, for Mr. Steven L. Muellner by Meade Instruments  Corporation                                                                                                                                     |   |   | (ff) |   |   |
|   | 10 | .73†+ |   | Non-Qualified  Stock Option Agreement between Meade Instruments Corp. and Steven L.  Muellner, granting 500,000 stock options, pursuant to the Meade Instruments  1997 Stock Incentive Plan, as amended                                                                                                           |   |   | (gg) |   |   |

----

 
|        | 10 | .74†+ |   | Non-Qualified  Stock Option Agreement between Meade Instruments Corp. and Steven L.  Muellner, granting 200,000 stock options, subject to stockholder approval at  the Company’s 2006 Annual meeting of Stockholders                                                                                                                                                                                                                                                                                                                                                                                    |   |   | (gg) |   |   |
|--------|----|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------|--------|--------|
|   | 10 | .75†+ |   | Executive  Severance Agreement, dated May 8, 2006, as entered into by and between  Steven G. Murdock and Meade Instruments Corp., a Delaware corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | (hh) |   |   |
|   | 10 | .76†+ |   | Registration  Rights Agreement, dated May 16, 2006, and entered into by and between  Meade Instruments Corp., a Delaware corporation and Steven Murdock                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | (hh) |   |   |
|   | 10 | .77†+ |   | Settlement  Agreement, dated June 13, 2006, and entered into by and among, on the  one hand, Hummingbird Value Fund, L.P., Hummingbird Management, LCC,  Hummingbird Microcap Value Fund, L.P., Hummingbird Capital, LCC, Hummingbird  Concentrated Fund, L.P., Summit Street Value Fund, L.P., Summit Street  Management, LLC, Summit Street Capital, LLC, Monarch Activist Partners L.P.,  Chadwick Capital Management, LLC, Sohail Malad, Arthur T. Williams, III,  Jennifer A. Wallace, Paul D. Sonkin, and James Chadwick (the Investor Group)  and on the other hand, Meade Instruments Corp |   |   | (ii) |   |   |
|   | 10 | .78†  |   | Sixth Amendment  to Amended and Restated Credit Agreement, dated June 13, 2006, and  entered into by and among Bank of America, N.A. and Meade Instruments Corp.,  a Delaware corporation, Simmons Outdoor Corp., a Delaware corporation, and  Coronado Instruments, Inc., a California corporation                                                                                                                                                                                                                                                                                                |   |   | (ii) |   |   |
|   | 10 | .79†  |   | Seventh Amendment  to Amended and Restated Credit Agreement, dated July 31, 2006, and  entered into by and among Bank of America, N.A. and Meade Instruments Corp.,  a Delaware corporation, Simmons Outdoor Corp., a Delaware corporation, and  Coronado Instruments, Inc., a California corporation                                                                                                                                                                                                                                                                                              |   |   | (jj) |   |   |
|   | 10 | .80†+ |   | Employment  Agreement, dated August 16, 2006, by and between Meade Instruments Corp.  and Donald W. Finkle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | (kk) |   |   |
|   | 10 | .81†  |   | Eighth Amendment  to Amended and Restated Credit Agreement, dated September 29, 2006, and  entered into by and among Bank of America, N.A. and Meade Instruments Corp.,  a Delaware corporation, Simmons Outdoor Corp., a Delaware corporation, and  Coronado Instruments, Inc., a California corporation                                                                                                                                                                                                                                                                                          |   |   | (ll) |   |   |
|   | 10 | .82†+ |   | Performance Share  Award Agreement, dated October 18, 2006, by and between Meade  Instruments Corp. and Steven L. Muellner                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | (mm) |   |   |
|   | 10 | .83†  |   | Ninth Amendment  to Amended and Restated Credit Agreement, dated October 31, 2006, and  entered into by and among Bank of America, N.A. and Meade Instruments Corp.,  a Delaware corporation, Simmons Outdoor Corp., a Delaware corporation, and  Coronado Instruments, Inc., a California corporation                                                                                                                                                                                                                                                                                             |   |   | (nn) |   |   |
|   | 10 | .84†* |   | Buyer’s Agency  Agreement, dated as of November 2, 2006, by and between Meade  Instruments Corp., a Delaware corporation, and ThreeSixty Sourcing Ltd., a  Hong Kong corporation                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | (oo) |   |   |

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|        | 10 | .85† |   | Tenth Amendment  to Amended and Restated Credit Agreement, by and among Bank of America, N.A.,  as lender, and Meade Instruments Corp., a Delaware corporation, Simmons  Outdoor Corp., a Delaware corporation, and Coronado Instruments, Inc., a  California corporation    |   |   | (qq)   |   |   |
|--------|----|-----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
|   | 10 | .86† |   | First Amendment to  The Irvine Company Lease, dated December 20, 2006, by and between Meade  Instruments Corp., a Delaware corporation, and the Irvine Company, a Delaware  limited liability company                                                                        |   |   | (ss)   |   |   |
|   | 10 | .87† |   | Offer of  Employment for the position of Chief Financial Officer, dated January 20,  2007, for Paul Ross by Meade Instruments Corp., a Delaware corporation                                                                                                                  |   |   | (uu)   |   |   |
|   | 10 | .88† |   | Executive Severance  Agreement, dated as of February 28, 2007, by and between Meade Instruments  Corp., a Delaware corporation, and Brent W. Christensen                                                                                                                     |   |   | (vv)   |   |   |
|   | 10 | .89† |   | Executive  Severance Agreement, dated as of February 28, 2007, by and between Meade  Instruments Corp., a Delaware corporation, and Mark D. Peterson                                                                                                                         |   |   | (vv)   |   |   |
|   | 10 | .90† |   | Executive  Severance Agreement, dated as of February 28, 2007, by and between Meade  Instruments Corp., a Delaware corporation, and Robert L. Davis                                                                                                                          |   |   | (vv)   |   |   |
|   | 10 | .91       |   | Eleventh  Amendment to Amended and Restated Credit Agreement, by and among Bank of  America, N.A., as lender, and Meade Instruments Corp., a Delaware  corporation, Simmons Outdoor Corp., a Delaware corporation, and Coronado  Instruments, Inc., a California corporation |   |   |   |   |   |
|   | 16 | .1†  |   | Dismissal of  PricewaterhouseCoopers as certifying accountant                                                                                                                                                                                                                |   |   | (ee)   |   |   |
|   | 21 | .1        |   | Subsidiaries  of the Registrant                                                                                                                                                                                                                                              |   |   |   |   |   |
|   | 23 | .1        |   | Consent of  Independent Registered Public Accounting Firm—PricewaterhouseCoopers LLP                                                                                                                                                                                    |   |   |   |   |   |
|   | 23 | .2        |   | Consent of  Independent Registered Public Accounting Firm—Moss Adams LLP                                                                                                                                                                                                |   |   |   |   |   |
|   | 31 | .1        |   | Sarbanes-Oxley  Act Section 302 Certification by Steven L. Muellner                                                                                                                                                                                                     |   |   |   |   |   |
|   | 31 | .2        |   | Sarbanes-Oxley  Act Section 302 Certification by Paul E. Ross                                                                                                                                                                                                           |   |   |   |   |   |
|   | 32 | .1        |   | Sarbanes-Oxley  Act Section 906 Certification by Steven L. Muellner                                                                                                                                                                                                     |   |   |   |   |   |
|   | 32 | .2        |   | Sarbanes-Oxley Act  Section 906 Certification by Paul E. Ross                                                                                                                                                                                                           |   |   |   |   |   |

----

†                    Previouslyfiled with the Securities Exchange Commission as set forth in the followingtable:

+                Managementcontract or compensatory plan or arrangement.

*                    Certainportions of this exhibit have been omitted pursuant to a confidential treatmentrequest filed separately with the Securities and Exchange Commission

(a)           Incorporated byreference to the Company’s Registration Statement on Form S-1(Registration No. 333-21123), as filed with the Securities andExchange Commission on February 4, 1997.

----

(b)          Incorporated byreference to the Company’s Amendment No. 1 to Registration Statement on Form S-1(Registration No. 333-21123), as filed with the Securities andExchange Commission on February 27, 1997.

(c)           Incorporated byreference to the Company’s Amendment No. 2 to Registration Statement on Form S-1(Registration No. 333-21123), as filed with the Securities andExchange Commission on March 13, 1997.

(d)          Incorporated byreference to the Company’s Amendment No. 3 to Registration Statement on Form S-1(Registration No. 333-21123), as filed with the Securities andExchange Commission on March 25, 1997.

(e)           Incorporated byreference to the Company’s Annual Report on Form 10-K for the FiscalYear Ended February 28, 1998, as filed with the Securities and ExchangeCommission on May 29, 1998.

(f)             Incorporated byreference to the Company’s Registration Statement on Form S-8relating to the Company’s Employee Stock Ownership Plan, as filed with theSecurities and Exchange Commission on April 16, 1999.

(g)           Incorporated by referenceto the Company’s 1999 Proxy Statement on Schedule 14A, as filed with theSecurities and Exchange Commission on June 8, 1999.

(h)          Incorporated byreference to the Company’s Current Report on Form 8-K, as filed withthe Securities and Exchange Commission on September 15, 1999.

(i)             Incorporated byreference to the Company’s Quarterly Report on Form 10-Q for theQuarterly Period Ended November 30, 1999, as filed with the Securities andExchange Commission on January 14, 2000.

(j)              Incorporated byreference to the Company’s Annual Report on Form 10-K for the FiscalYear Ended February 29, 2000, as filed with the Securities and ExchangeCommission on May 29, 2000.

(k)          Incorporated byreference to the Company’s Quarterly Report on Form 10-Q for theQuarterly Period Ended May 31, 2000, as filed with the Securities andExchange Commission on July 17, 2000.

(l)             Incorporated byreference to the Company’s Annual Report on Form 10-K for the FiscalYear Ended February 29, 2001, as filed with the Securities and Exchange Commissionon May 29, 2001.

(m)      Incorporated by reference tothe Company’s Quarterly Report on Form 10-Q for the Quarterly PeriodEnded August 31, 2001, as filed with the Securities and ExchangeCommission on October 15, 2001.

(n)          Incorporated byreference to the Company’s Registration Statement on Form S-8(Registration No. 333-86818), relating to the Company’s StockIncentive Plan, as amended, as filed with the Securities and ExchangeCommission on April 24, 2002.

(o)          Incorporated byreference to the Company’s Annual Report on Form 10-K for the FiscalYear Ended February 28, 2002, as filed with the Securities and ExchangeCommission on May 29, 2002.

(p)          Incorporated byreference to the Company’s Current Report on Form 8-K, as filed withthe Securities and Exchange Commission on November 7, 2002.

(q)          Incorporated byreference to the Company’s Registration Statement on Form S-3(Registration No. 333-101404), as filed with the Securities andExchange Commission on November 22, 2002.

(r)            Incorporated byreference to the Company’s Quarterly Report on Form 10-Q for theQuarterly Period Ended November 30, 2002, as filed with the Securities andExchange Commission on January 14, 2003.

(s)            Incorporated byreference to the Company’s Current Report on Form 8-K, as filed withthe Securities and Exchange Commission on April 22, 2003.

----

(t)             Incorporated byreference to the Company’s Quarterly Report on Form 10-Q for theQuarterly Period Ended November 30, 2003, as filed with the Securities andExchange Commission on January 14, 2004.

(u)          Incorporated byreference to the Company’s Annual Report on Form 10-K for the FiscalYear Ended February 29, 2004, as filed with the Securities and ExchangeCommission on June 1, 2004.

(v)           Incorporated byreference to the Company’s Current Report on Form 8-K, as filed withthe Securities and Exchange Commission on July 12, 2004.

(w)        Incorporated by referenceto the Company’s Quarterly Report on Form 10-Q for the QuarterlyPeriod Ended May 31, 2004, as filed with the Securities and Exchange Commissionon July 15, 2004.

(x)           Incorporated byreference to the Company’s Current Report on Form 8-K, as filed withthe Securities and Exchange Commission on October 21, 2004.

(y)           Incorporated byreference to the Company’s Current Report on Form 8-K, as filed withthe Securities and Exchange Commission on December 6, 2004.

(z)           Incorporated byreference to the Company’s Current Report on Form 8-K, as filed withthe Securities and Exchange Commission on December 16, 2004.

(aa)     Incorporated by reference tothe Company’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on May 31, 2005.

(bb)   Incorporated by reference tothe Company’s Annual Report on Form 10-K for the Fiscal Year Ended February 28,2003, as filed with the Securities and Exchange Commission on May 29,2003.

(cc)     Incorporated by reference tothe Company’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on October 17, 2005.

(dd)   Incorporated by reference tothe Company’s Current Report on Form 10-Q, as filed with theSecurities and Exchange Commission on November 30, 2005.

(ee)     Incorporated by reference tothe Company’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on March 2, 2006.

(ff)         Incorporated by referenceto the Company’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on May 4, 2006.

(gg)     Incorporated by reference tothe Company’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on May 11, 2006.

(hh)   Incorporated by reference tothe Company’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on May 18, 2006.

(ii)         Incorporated by referenceto the Company’s Current Report on Form 8-K, as filed with the Securitiesand Exchange Commission on June 15, 2006.

(jj)           Incorporated byreference to the Company’s Current Report on Form 8-K, as filed withthe Securities and Exchange Commission on August 1, 2006.

(kk)   Incorporated by reference tothe Company’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on August 18, 2006.

(ll)         Incorporated by referenceto the Company’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on October 2, 2006.

(mm)Incorporated by reference to the Company’s CurrentReport on Form 8-K, as filed with the Securities and ExchangeCommission on October 19, 2006.

(nn)   Incorporated by reference tothe Company’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on October 31, 2006.

----

(oo)   Incorporated by reference tothe Company’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on November 17, 2006.

(pp)   Incorporated by reference tothe Company’s Annual Report on Form 10-K for the Fiscal Year Ended February 28,2005, as filed with the Securities and Exchange Commission on May 31,2005.

(qq)   Incorporated by reference tothe Company’s Current Report on Form 8-K, as filed with the Securities andExchange Commission on December 1, 2006.

(rr)       Incorporated by referenceto the Company’s Current Report on Form 8-K, as filed with the Securities andExchange Commission on December 15, 2006.

(ss)       Incorporated by referenceto the Company’s Current Report on Form 8-K, as filed with the Securities andExchange Commission on December 27, 2006.

(tt)         Incorporated by referenceto the Company’s Current Report on Form 8-K, as filed with the Securities andExchange Commission on February 6, 2007.

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