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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K

(Mark One)

|  |  |                                                                                      
|- |  | -------------------------------------------------------------------------------------
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended February 28, 2002

OR

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

Commission File No. 0-22183

MEADE INSTRUMENTS CORP.

(Exact Name of Registrant as Specified in Its Charter)




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|                                                                        |  |                                            
|----------------------------------------------------------------------- |  | -------------------------------------------
|Delaware
(State of Other Jurisdiction of Incorporation or Organization) |  | 95-2988062
(I.R.S. Employer Identification)

|                                                                             |  |                 
|---------------------------------------------------------------------------- |  | ----------------
|6001 Oak Canyon, Irvine, California
(Address of principal executive offices) |  | 92618
(Zip Code)

Registrants telephone number, including area code: (949) 451-1450



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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value Per Share
(Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrants knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  x

As of May 15, 2002, there were 16,481,000 outstanding shares of the
Registrants common stock, par value $0.01 per share (common stock), which is
the only class of common stock of the Registrant. As of May 15, 2002 the
aggregate market value of the shares of common stock held by non-affiliates of
the Registrant, computed based on the closing sale price of $5.47 per share as
reported by Nasdaq, was approximately $ 57.6 million.

Documents Incorporated by Reference

The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the 2002 Annual Meeting of Stockholders of the
Registrant which will be filed with the Securities and Exchange Commission not
later than 120 days after February 28, 2002.



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TABLE OF CONTENTS



|                                  |                                                                                               |                                                 |  |  |  |  |  | 
|--------------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I                           
|                                  | Item 1. Business                                                                             
|                                  | Item 2. Properties                                                                           
|                                  | Item 3. Legal Proceedings                                                                    
|                                  | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                          
|                                  | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters            
|                                  | Item 6. Selected Financial Data                                                              
|                                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                  | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                  | Item 8. Financial Statements and Supplementary Data                                          
|                                  | Item 9. Changes in and Disagreements With Accountants On Accounting and Financial Disclosure 
|PART III                         
|                                  | Item 10. Directors and Executive Officers of the Registrant                                  
|                                  | Item 11. Executive Compensation                                                              
|                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                  | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                          
|                                  | Item 14. Exhibits, Financial Statement Schedules, and Reports On Form 8-K                    
|REPORT OF INDEPENDENT ACCOUNTANTS
|                                  |                                                                                               | CONSOLIDATED BALANCE SHEETS                    
|                                  |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS          
|                                  |                                                                                               | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|                                  |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS          
|                                  |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     
|SIGNATURES                       
|EXHIBIT INDEX                    
|EXHIBIT 10.46                    
|EXHIBIT 23.1                     



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TABLE OF CONTENTS

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|Item 1.  |  | Business                                                                              |  | 1   
|         |  | Executive Officers of the Registrant                                                  |  | 7   
|Item 2.  |  | Properties                                                                            |  | 8   
|Item 3.  |  | Legal Proceedings                                                                     |  | 8   
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 9   
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|Item 5.  |  | Market for the Registrants Common Equity and Related Stockholder Matters             |  | 9   
|Item 6.  |  | Selected Financial Data                                                               |  | 10  
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11  
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 17  
|Item 8.  |  | Financial Statements and Supplementary Data                                           |  | 18  
|Item 9.  |  | Change in and Disagreements with Accountants on Accounting and Financial Disclosure   |  | 18  
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|Item 10. |  | Directors and Executive Officers of the Registrant                                    |  | 18  
|Item 11. |  | Executive Compensation                                                                |  | 18  
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 18  
|Item 13. |  | Certain Relationships and Related Transactions                                        |  | 18  
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|Item 14. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 19  

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|                                                                                                          | CONSOLIDATED FINANCIAL STATEMENTS AND  NOTES |  |     |  | 
|Report of Independent Accountants                                                                         |                                              |  | F-1 | 
|Consolidated Balance Sheets at February 28, 2002 and February 28, 2001                                    |                                              |  | F-2 | 
|Consolidated Statements of Operations for each of the three years in the period ended February 28, 2002   |                                              |  | F-3 | 
|Consolidated Statements of Stockholders Equity for the three years in the period ended February 28, 2002 |                                              |  | F-4 | 
|Consolidated Statements of Cash Flows for the three years in the period ended February 28, 2002           |                                              |  | F-5 | 
|Notes to Consolidated Financial Statements                                                                |                                              |  | F-6 | 

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PART I




Item 1.Business

General

Meade Instruments Corp. is a multinational consumer and industrial optics
company that designs, manufactures, imports and distributes telescopes,
telescope accessories, binoculars and other optical products. Meades
dedication to product innovation has led to the successful introduction of a
wide range of products, resulting in what the Company believes to be the
broadest and most complete line of telescopes and telescope accessories
available. The Company offers more than 50 different telescope models with
several different optical configurations, as well as more than 250 accessory
products. The Companys telescopes range in aperture from under 2 to 16 inches
and in retail price from less than $100 to more than $15,000. The Company also
offers a complete line of binoculars from small aperture theater glasses to
full-size waterproof models at retail price points from approximately $10 to
more than $300.

Since its founding in 1972, Meade has strived to develop a reputation for
providing the amateur astronomer with technically sophisticated products at
competitive prices. Combining its manufacturing expertise with its dedication
to innovation, quality and value, Meade has developed and produced some of the
industrys most technologically advanced consumer telescopes at affordable
prices. Although professional and institutional applications of Meades
telescopes are not Meades primary market, the Companys Schmidt-Cassegrain
telescopes are used by many universities, scientific laboratories and aerospace
companies throughout the world. The Company has capitalized on its brand name
recognition among serious amateur astronomers and its ability to bring advanced
technology to lower price points to market successfully its less-expensive
telescopes to beginning and intermediate amateur astronomers. Meade has become
a major supplier of telescopes to such retailers as Discovery Channel Stores
(formerly The Nature Company), Aldi (Germany), Wal-Mart, Costco and Sams Club.

Meade was sold by its founder and current Chief Executive Officer to an
investor group in 1986 and was then reacquired by the Companys senior management in
1991. After the reacquisition, management emphasized a business plan that
concentrated on new product development, securing a reliable supplier of
less-expensive telescopes, effective targeted marketing and customer service.
To those ends the Company committed $2.2 million,
$2.1 million and $1.4 million to research and
development during fiscal 2002, 2001 and 2000, respectively, and has, over the last five fiscal years,
committed $7.4 million in the aggregate to research and development. These
research and development expenditures were centered on the development of
technologically advanced less-expensive telescopes as well as product
improvement and industrial applications of the Companys existing technologies.

Meade manufactures nearly the complete line of its advanced astronomical
telescopes in Irvine, California, including the production of all of the
advanced optical systems, which are critical components of telescopes. Many of
the Companys less-expensive telescopes are manufactured under proprietary
designs by manufacturers principally located in mainland China and Taiwan. The
Company also sources component parts for small to midrange telescopes and
related accessories from several suppliers in mainland China, Taiwan and Japan
that are assembled into finished product in the Companys wholly-owned Mexican
assembly plant (See Item 2. Properties).

The Company complements its efforts in new product development with an
aggressive marketing plan. The Companys marketing plan includes print
advertising in astronomy related magazines and, at times, in general consumer
magazines. The marketing plan also includes extensive co-operative advertising
campaigns with many of the Companys key retail partners, as well as
point-of-sale marketing displays. In addition, Meade publishes a comprehensive,
full-color, high-quality product catalog that provides significant product
exposure to the serious amateur astronomer.

On September 1, 1999 the Company acquired 100% of the stock and 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 stock valued at approximately $2.0
million. Bresser is a German distributor of binoculars, telescopes, microscopes
and other consumer optical products. Bresser has provided the Company greater
distribution opportunities for the Companys products. Moreover, Bressers
significant presence in the binocular and low-priced telescope market in Europe
has strengthened the Companys

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penetration into these markets. In January 2000, the Company also
purchased what was formerly its German distributor for approximately $1.1
million cash.

In the United States and Canada, the Company distributes its products
through a network of more than 500 specialty retailers and mass merchandisers,
which offer Meades products in more than 3,000 retail store locations. The
Company also sells certain of its telescope models to selected national mail
order dealers. In addition to products sold through Meade Europe (formerly
Bresser) channels, Meade sells its products internationally through a network
of over 30 foreign distributors, many of which service retail locations in
their respective countries. Revenues from customers outside North America
accounted for approximately 27% of the Companys net sales for the fiscal
year ended February 28, 2002 (See Note 7 of Notes to Consolidated Financial
Statements). The Company intends to continue to pursue an integrated strategy
of product line expansion, aggressive marketing, and expansion of the Companys
domestic and international distribution networks.

The Company continues
to pursue industrial applications for its technologies and its
product development and
manufacturing capabilities. To that end, Meade has announced several
relationships with companies involved in free-space optics communication
technologies and digital imaging applications in the scientific
research and medical
diagnostic equipment markets. Meade acts as an original equipment manufacturer
of optical and mechanical components used in free-space optics communications
technologies, supplying components to companies such as TeraBeam Corporation
(based in Seattle, WA) and AirFiber, Inc. (based in San Diego, CA). Meade acts
as an original equipment manufacturer of digital CCD imagers used in a life
sciences research system manufactured and sold by the Eastman Kodak Companys
Scientific Imaging Systems group (based in Rochester, NY and New Haven, CN).
Meade is also supplying a critical digital imager and other components used in a soft tissue imaging
system manufactured and sold by Advanced Imaging Technologies, Inc. (based
outside Seattle, WA). The free-space optical products and digital imaging
systems supplied by Meade use existing Meade telescope, optical and imaging
technologies, adapted to the specifications required by these industrial
applications. The ultimate quantities and timing of products sold into these
industrial marketplaces will depend upon the market roll-out of these new
products and technologies. Revenues from the sale of these various
industrial-based products amounted to less than 1% of net sales for the year
ended February 28, 2002.

Industry Overview

Market-size data for the telescope and binocular industries are difficult
to obtain because many of the companies in the industry are either private or
subsidiaries or divisions of larger public companies. The Company believes that
the overall size of the telescope market is driven, in part, by the
introduction of new products.

The Company produces products at numerous price points in the consumer
optics market, from advanced astronomical telescopes for serious amateur
astronomers to less-expensive telescopes for beginning to intermediate amateur
astronomers. Advanced astronomical telescopes are characterized by frequent
technological developments, including the relatively recent introduction of
electronic and computer-aided features. Serious amateur astronomers demand that
the optical, electronic and mechanical performance of the telescopes and
accessories they purchase be of very high quality. These advanced telescopes
continue to drive the technological advances in the industry.

Telescopes are generally offered in three different optical
configurations: (a) refracting telescopes, which use a lens at the upper end of
the optical tube to collect light; (b) reflecting telescopes, which use a
concave mirror as the primary optical element; and (c) catadioptric
(mirror-lens) telescopes, which employ a combination of mirrors and lenses to
form the image. Each type has its own advantages: refractors are easy to
maintain, yield sharp images and are relatively inexpensive in smaller
apertures; reflectors generally are the lowest-cost means of purchasing larger
apertures and are well suited to the intermediate amateur astronomer; and
mirror-lens telescopes are more portable in larger apertures and are popular
among serious amateur astronomers.

Competitive Strengths

Meade believes that it derives significant benefits from its position as a
leading designer and distributor of telescopes and other optical related
products. These benefits include its ability to offer its customers one of the
most innovative, broadest product lines available, embodying both high quality
and value. The Company attributes its success to the following competitive
strengths:

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New Products/Research and Development.Meade places a primary emphasis on
product innovation and quality through its research and development efforts.
The Company currently employs seventeen engineers on-site, developing new
core-business products, new products for the industrial optical and imaging
markets, as well as technological advances and improvements to existing
products. The Company is able to obtain additional benefits by out-sourcing
certain research and development services to supplement its internal expertise.
Meade believes that the members of its senior level management are among the
most experienced in the telescope industry. The Companys three most
experienced officers have been employed in this industry for an average of over
24 years. The Company, its management and its employees are dedicated to the
goal of producing technically superior yet price-competitive products and have
been responsible for some of the industrys most technically advanced, easy to
use, consumer telescopes.

Broadest Line of Products.The Companys strategy has been to use the
tremendous advancements in microprocessor technology, building on its existing
know-how in advanced telescope design and operation, to bring computer
technology and features to telescopes at lower and lower price points. As a
result, the Company believes it currently has the most complete and technically
advanced line of telescopes available, including more than 50 different
telescope models with several different optical configurations as well as more
than 250 accessory products. The Companys telescopes range in aperture from 2
to 16 inches and in retail price from less than $100 to more than $15,000.

Optical Systems Expertise.Meade has made substantial investments to
develop an expertise in optical engineering, providing it with the ability to
produce high quality optics on-site in Irvine, California. Meade employs highly
skilled opticians 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 available
in the consumer telescope market.

Quality Control.Meades manufacturing and engineering personnel
coordinate the manufacturing process in order to ensure that product quality is
maintained at a high level within an efficient cost structure. The Company has
in place quality controls covering all aspects of the manufacturing process of
its products, from each products precision optical system to its final
assembly and testing. Certain of the Companys less expensive and mid-range
telescope models and accessories are assembled at the Companys assembly plant
located in Tijuana, Mexico. The Company manufactures the majority of its
high-end advanced telescopes in its manufacturing facility in Irvine,
California, while many of the Companys less-expensive telescopes are produced
for the Company by manufacturers principally located in mainland China and
Taiwan. Meade regularly sends product and design engineers to the Far East to
monitor the manufacturing processes at the various plants that produce its
telescopes, telescope components, binocular products and accessories. Meade
also regularly commits at least one of its United States based quality control
engineers to the Far East.

Broad Distribution Network.The Companys sales force in the U.S. and in
Germany works closely with specialty retailers, distributors and mass
merchandisers on product quality, technical knowledge and customer service.
Meade has its own on-site graphic arts departments to work with specialty
retailers, distributors and mass merchandisers to produce print advertising,
hang-tags for displays within retail outlets and other point-of-sale support.
This capability provides the Companys customers with a comprehensive marketing
program to assist in their sales efforts. As a result of these efforts, Meade
has become a major supplier of telescopes to such retailers as Discovery
Channel Store (formerly The Nature Company), Aldi (Germany), Wal-Mart, Costco,
and Sams Club. Meade also has an expanding international presence with the
addition of Meade Europe. Revenues from customers outside North America were
$25.4 million for the fiscal year ended February 28, 2002.

Superior Customer Service.Meade believes that its high levels of customer
service and technical support are important factors that differentiate it from
its competitors. In an effort to provide each of the Companys customers with
post-sale service and to relieve them of the burden of such service, Meade has
established multiple dedicated toll-free telephone numbers so that its
customers and end users can call the Companys support personnel with any
questions relating to its products. In addition to giving its customers
personal attention, the Company believes that providing this toll-free
assistance also reduces product returns by better educating first-time users
about telescope operation. In addition, in an effort to simplify assembly of
the Companys products, Meade pre-assembles a substantial portion of its
telescopes prior to packaging. Meade also makes available to telescope owners
astronomical software and other product enhancements.

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Products

Meade has developed and expanded its product line to include a full line
of telescopes and accessories for the beginning, intermediate and serious
amateur astronomer. The Company also offers a complete line of binoculars from
small aperture theater glasses to full-size waterproof roof-prism glasses.
Moreover, in addition to adding new products, the Company continually refines
and improves its existing products. Certain of Meades products are described
in greater detail below:

Advanced Astronomical Telescopes.Among the Companys most sophisticated
products are its LX series Schmidt-Cassegrain and Maksutov-Cassegrain
telescopes, which incorporate an optical system that provides high-quality
resolution, contrast and light transmission. The LX series offers the serious
amateur astronomer a broad range of products from the economical motorized
LX10, to the attractively priced Autostar-controlled LX90, to the
state-of-the-art LX200GPS line. The LX200GPS telescopes, available in 7, 8, 10,
12 and 16-inch apertures, are the most popular of the Companys telescopes
among serious amateur astronomers. The LX200GPS telescopes feature a Global
Positioning System (GPS) receiver for automatic telescope alignment and a
built-in computer library of more than 145,000 celestial objects. These objects
are cataloged in the Companys proprietary hand-held computerized Autostar II
control system. By entering any of the celestial objects presented on the
Autostar II display, the telescope automatically locates and tracks the
selected object. The advanced astronomical telescopes collectively represented
approximately 2% of telescope units shipped and approximately 16% of the
Companys net sales for the fiscal year ended February 28, 2002.

Entry-Level Telescopes.Designed specifically for the beginning to
intermediate amateur astronomer or terrestrial observer, the Companys
less-expensive 60mm to 114mm refracting and reflecting telescopes and the ETX
series telescopes include many of the features of the more advanced telescopes
at economical prices. With the introduction of the Digital Electronic Series
telescopes (the DS telescopes), with apertures ranging from 60mm to 114mm,
and the ETX series, with apertures ranging from 60mm to 125mm, some of the most
sophisticated features of the Companys advanced telescopes were made available
at some of the Companys lowest retail price points. Equipped with the
hand-held Autostar Computer Controller, the ETX series and the DS telescopes
can find and track any one of several thousand celestial objects at the push of
a button. The Autostar, with its go to capability, brought to the general
consumer for prices starting at a few hundred dollars, features that had
previously been available only on the most sophisticated high-end telescopes
selling for thousands of dollars. The Company offers several variations of its
small refracting and reflecting telescopes (both its traditional models and the
DS telescopes) for distribution on a semi-exclusive basis to specific specialty
retailers. These telescope models comprise the lower-price end of the Companys
product line. Sales of entry-level telescopes comprised approximately 98% of
the Companys telescope units shipped and approximately 59% of the Companys
net sales for the fiscal year ended February 28, 2002.

Binoculars.The Company expanded its market presence in binoculars with
the acquisition of Bresser. The Bresser name is widely recognized in Germany
and other countries in Europe as a quality supplier of a wide range of
binoculars. Binocular sales accounted for over one half of the sales attributed
to Germany during fiscal 2002. The Company also sells a complete line of
consumer binoculars through its existing domestic distribution network. The
binoculars sold by the Company are purchased from manufacturers outside the
United States. Binoculars represented approximately 11% of the Companys net
sales for the fiscal year ended February 28, 2002.

Accessories.The Company also offers accessories for each of its telescope
series that range from additional eyepieces and camera adapters to CCD
autoguider/imagers and celestial observation software. Approximately 250
accessory products are currently available from the Company. Sales of
accessories represented approximately 12% of the Companys net sales for the
fiscal year ended February 28, 2002. Other miscellaneous products such as
industrial optical and digital imaging products, microscopes and other consumer
optical products accounted for approximately 2% of the Companys net sales for
fiscal 2002.

Other Products.Meade manufactures digital CCD imaging products as
original equipment used in scientific life sciences research systems and
soft-tissue diagnostic systems. It also acts as an original equipment
manufacturer of components used in free-space optical wireless communication
networks. The ultimate quantities and timing of products sold into these
industrial marketplaces will depend upon the market roll-out of these new
products and technologies.

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Sales and Marketing

The Companys telescopes, binoculars and accessories are sold through a
domestic network of mail order dealers, specialty retailers and mass
merchandisers. Internationally, the Companys products are sold through its
wholly-owned subsidiary in Germany to specialty retailers and mass
merchandisers and through a network of foreign distributors and dealers in
other countries around the world. The Companys high-end products are generally
sold through mail order dealers or single and multiple-location specialty
retailers. Meades less-expensive products are sold in similar venues but are
sold principally through mass merchandisers. The Company maintains direct
contact with its larger dealers and foreign distributors through the Companys
sales professionals. A network of independent representatives is used to
maintain contact with its smaller specialty retailers. Included among the
Companys customers are the following retail outlets, mass merchandisers and
foreign distributors: Discovery Channel Stores (formerly The Nature Company),
Wal-Mart, Aldi (Germany), MIC International Corp. (Japan), Sams Club and
Costco. For additional information about geographic areas, see Note 7
of Notes
to Consolidated Financial Statements.

The Companys sales force works closely with its dealers, specialty
retailers, distributors and mass merchandisers on product quality, technical
knowledge and customer service. The Company employs approximately twenty-two
persons in sales and customer service positions, all of whom have significant
industry experience. These individuals advise the Companys specialty retailers
about the quality features of the Companys products and provide answers to
questions from specialty retailers as well as directly from amateur
astronomers. The Company stresses service to both its customers and end users
by providing marketing assistance in the form of hang-tags, catalog layouts and
other print media as well as dedicated toll free customer service telephone
numbers. In addition to giving its customers personal attention, the Company
believes toll free telephone numbers also help reduce the number of product
returns from end users who are generally unfamiliar with the assembly and
operation of telescopes. In an effort to further simplify assembly and use of
the Companys products, Meade pre-assembles a substantial portion of its
telescopes prior to packaging. (See Business  Competitive Strengths -
Superior Customer Service.) The Companys dedication to providing a high level
of customer service is one factor that management believes sets Meade apart
from its competition.

The Companys products are regularly advertised in most major domestic and
international telescope and astronomy-related magazines and periodicals with
comprehensive, full color, technically informative advertisements which present
a consistent message of innovation and quality about the Company and its
products. The Company also focuses advertising dollars on point-of-sale
promotions and displays in partnership with its retail customers to
cooperatively market the Companys products to the end consumer. In the recent
past the Company has also engaged in marketing programs aimed at expanding the
existing telescope market through more traditional consumer oriented print
media.

Throughout fiscal 2002, the Company sold its products to mail order
dealers and to more than 500 specialty retailers and mass merchandisers that
offer Meades products in more than 3,000 retail store outlets. During fiscal
2002, Wal-Mart (including Sams Club) and Discovery Channel Store (DCS,
formerly The Nature Company), accounted for approximately 13% and 11% of the
Companys net sales, respectively. During fiscal 2001, DCS accounted for
approximately 13% of the Companys net sales. During fiscal 2000 no customer
accounted for 10% or more of the Companys net sales. The Companys ten largest
customers, in the aggregate, accounted for approximately 51% of the Companys
net sales in fiscal 2002. The loss of, or the failure to replace, any
significant portion of the sales made to any significant customer could
adversely affect results of operations of the Company to the extent the Company
did not replace any such lost sales with increased sales to existing or new
customers.

Operations

Materials and Supplies.The Company purchases high grade optical glass in
order to avoid imperfections that can degrade optical performance. Lenses and
mirrors for the Companys domestically manufactured telescopes are individually
polished and hand-figured by master opticians to achieve a high level of
resolution. The Company purchases metal telescope components from numerous
foundries, metal stamping and metal working companies. Certain of the Companys
products contain computerized drive systems and other electronic circuitry. The
components of these computerized drive and electronic systems are purchased
from various suppliers and are generally assembled by third party vendors.

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Polishing and Hand Figuring.After a Schmidt-Cassegrain,
Maksutov-Cassegrain, ED-refractor or Schmidt-Newtonian glass surface is fine
ground, the mirror or lens is polished for up to 16 hours to obtain full
transmission or reflectivity. It is at this point that the Companys opticians
perform the final lens or mirror shaping (a process called figuring).

Optical Testing.As each of the Companys ED-refractors,
Maksutov-Cassegrain optical sets, Schmidt-Cassegrain optical sets, or parabolic
Newtonian primary mirrors progress through the grinding, polishing and
hand-figuring stages of development, they are repeatedly tested and re-tested
for irregularities, smoothness of figure and correction.

Optical Alignment and Centration.Finished, individually-matched
Maksutov-Cassegrain and Schmidt-Cassegrain optical sets and matched
ED-refractor doublet objective lenses are sent to the optical alignment and
centration department, where each optical set is placed into a special optical
tube that permits rotation of the optical elements about their optical axes.
With optimal orientation fixed, each optics set is placed into machined
housings of an optical tube or collimation lens cell. The optical system is
once again tested and only after passing this final test is an optical tube
system ready to be used.

For the past decade the Company has worked closely with a factory in
Taiwan (the Taiwanese Factory), developing proprietary telescope designs and
ensuring that the manufacturing processes produce telescopes that meet the
Companys quality standards. In order to diversify its supply, Meade has
expanded the number of Far-Eastern manufacturers supplying quality telescopes
and telescope accessories to the Company. Those suppliers are principally
located in mainland China. Many of the Companys telescopes, telescope
components and telescope accessories purchased during fiscal 2002 were supplied
by these Chinese manufacturers. The Company owns many of the key designs, molds
and dies used by the Far-Eastern suppliers. Meade regularly sends product and
design engineers to the Far-East to monitor the manufacturing processes at the
various plants that produce its telescopes, telescope components, binocular
products and accessories. Meade also regularly commits at least one of its
United States based quality control engineers to the Far East.

During fiscal year 2000 the Company began an assembly operation in a
26,000 sq. ft. building located in Tijuana, Mexico (the Mexico Facility). In
December 1999, the Mexico Facility was expanded to approximately 50,000 sq.
ft. At February 28, 2002, this facility employed approximately ninety people
engaged in the assembly of several products including less-expensive and
mid-range telescopes, electronic sub-assemblies, and accessory products.

Competition

The telescope and binocular industries are highly competitive and
sensitive to consumer needs and preferences. In the telescope market, Meade
competes in the United States and Canada with Celestron International, Inc.
(Celestron), and Tasco Worldwide, Inc. (Tasco) (both of which are owned by
Tasco Holdings, Inc.), Bushnell and, to a lesser extent, with other
significantly smaller companies which service niche markets. In Europe and
Japan, the Company competes primarily with Celestron, Tasco, Vixen Optical
Industries, Ltd., and with other smaller regional telescope importers and
manufacturers. In addition, some of the Companys current and potential
competitors in the telescope market may possess greater financial or technical
resources and competitive cost advantages due to a number of factors,
including, without limitation, lower taxes and substantially lower costs of
labor associated with manufacturing.

In the binocular market, which is generally more competitive than the
telescope market, with a greater number of competitors at each price point, the
Company competes primarily with Bushnell, Tasco, Nikon Inc., Canon Inc.,
Minolta Camera, Co., Ltd., Pentax Corporation and various smaller manufacturers
and resellers. Many of these competitors in the binocular market have
significantly greater brand name recognition and financial and technical
resources than those of the Company, and many have long-standing positions,
customer relationships and established brand names in their respective markets.

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Employees

As of February 28, 2002, Meade had approximately 450 full-time employees.
The Company believes that it offers competitive compensation and other benefits
and that its employee relations are good. None of the Companys United
States-based employees is represented by a union. The Companys employees at
the Mexico Facility are represented by a union. The success of the Companys
future operations depends in large part on the Companys ability to attract and
retain highly skilled technical, marketing and management personnel. There can
be no assurance that the Company will be successful in attracting and retaining
such key personnel.

In order to enable its employees to share in the Companys growth and
prosperity, Meade established the Meade Instruments Corp. Employee Stock
Ownership Plan (the ESOP), effective March 1, 1996. The ESOP provides
participating United States-based employees an opportunity to receive
beneficial ownership of Meades common stock.

Executive Officers of the Registrant

Set forth below are the names, ages, titles and present and past positions
of the persons serving as executive officers of the Company as of May 15, 2002:

|                     |  |     |    |          |  |                                                                           
|-------------------- |  | --- | -- | -------- |  | --------------------------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|John C. Diebel       |  |     | 58 |          |  | Chairman of the Board and Chief Executive Officer                         
|Steven G. Murdock    |  |     | 50 |          |  | President, Chief Operating Officer, Secretary, Director                   
|Joseph A. Gordon, Jr |  |     | 52 |          |  | Senior Vice President  North American Sales, Director                    
|Brent W. Christensen |  |     | 43 |          |  | Senior Vice President  Finance and Chief Financial Officer               
|Mark D. Peterson     |  |     | 40 |          |  | Senior Vice President and General Counsel                                 
|Robert L. Davis      |  |     | 35 |          |  | Senior Vice
President  Business Development and Assistant General Counsel

John C. Diebelfounded Meade Instruments Corp. in 1972. He has been the
Chairman of the Board and Chief Executive Officer of the Company for the
majority of the time since December 1975. Prior to founding the Company, Mr.
Diebel worked as an engineer for TRW Inc. and Hughes Aircraft Co. Mr. Diebel
graduated from the California Institute of Technology with BS and MS degrees in
electrical engineering and received a Ph.D. degree in electrical engineering
from the University of Southern California.

Steven G. Murdock, a director of the Company since April 1996, has been
the Companys President and Chief Operating Officer since October 1990 and the
Companys Secretary since April 1996. From May 1980 to October 1990, Mr.
Murdock was the Companys Vice President of Optics. From November 1968 to May
1980, Mr. Murdock worked as the optical manager for Coulter Optical, Inc., an
optics manufacturer. Mr. Murdock received a BS degree in business
administration from California State University at Northridge.

Joseph A. Gordon, Jr., a director of the Company since April 1996, has
been the Companys Senior Vice President  North American Sales since June
1995. From December 1984 to June 1995, he worked as the Companys Vice
President  North American Sales. From January 1981 to December 1984, Mr.
Gordon was the Vice President of Sales at Celestron. Mr. Gordon received a BS
degree in marketing from the University of Cincinnati.

Brent W. Christensenhas been the Companys Senior Vice President -
Finance and Chief Financial Officer since March 1, 2002. Mr. Christensen was
the Companys Vice President  Finance from June 1995 and Chief Financial
Officer from April 1996. From August 1993 to June 1995, he worked as the
Companys controller. Mr. Christensen is a Certified Public Accountant, and
from January 1985 to August 1993, he worked as an audit manager with Ernst &
Young LLP. Mr. Christensen received a BA degree in business administration from
California State University at Fullerton.

Mark D. Petersonhas been the Companys Senior Vice President and General
Counsel since March 1, 2002. Mr. Peterson was the Companys Vice President and
General Counsel from October 1997. From October 1991 to October 1997, Mr.
Peterson was an attorney with OMelveny & Myers LLP, specializing in corporate
and securities

7



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##### Table of Contents



law. Mr. Peterson received a BS degree in accounting from Brigham Young
University and a JD degree from the University of California  Berkeley, Boalt
Hall School of Law.

Robert L. Davishas been the Companys Senior Vice President  Business
Development and Assistant
General Counsel since March 1, 2002. Mr. Davis was the Companys Vice
President and Assistant General Counsel from December 1999 and Vice
President  Business Development from
March 2001. From September 1996
to December 1999, Mr. Davis was an attorney with OMelveny & Myers LLP,
specializing in corporate and securities law. From August 1994 to September
1996 he worked as an attorney with Morrison & Foerster LLP, specializing in
corporate finance and labor and employment law. Mr. Davis received a BA degree
in English and a JD degree from Brigham Young University.




Item 2.Properties

The Company leases a 161,000 square foot manufacturing, distribution and
corporate facility and a 42,000 square foot warehouse both of which are located
in Irvine, California. The leases expire in 2007 and 2003, respectively. The
Company also leases a 50,000 square foot assembly plant in Tijuana, Mexico. The
Tijuana lease expires in 2004 with three, five-year options. The Company owns a
30,000 square foot office and distribution facility located in Borken, Germany.
The Company also leases a 13,500 square foot office, repair and distribution
facility in Graefelfing, Germany which expires in August 2002. The Companys
management believes that all facilities occupied by the Company are adequate
for present requirements, and that the Companys current equipment is in good
condition and suitable for the operations involved.




Item 3.Legal Proceedings

On October 17, 2001, the Company filed suit against Tasco Sales, Inc.
(Tasco) and Celestron International, Inc. (Celestron; collectively
Defendants), charging the two companies with patent infringement and unfair
competition. The complaint, filed in the United States District Court, Central
District of California, Southern Division (Case No. SA C 01-976 (GLT) (MLGx)),
alleges that Tasco and Celestron willfully infringed Meades Patent No.
6,304,376, entitled Fully Automated Telescope System With Distributed
Intelligence. In addition to seeking compensation for damages incurred,
including enhanced damages, the suit seeks to enjoin Tasco and Celestron from
continuing to manufacture or sell products that infringe Meades patent. On or
around November 7, 2001, Defendants filed an answer, subsequently amended, to
the complaint in which it denied the Companys allegations and set forth
various affirmative defenses. On or around November 19, 2001, Defendants filed
a counterclaim, also subsequently amended, against the Company for declaratory
judgment of non-infringement of the Companys patent, for declaratory judgment
that the Companys patent is unenforceable and invalid, and for claims that the
Company is infringing a Celestron design patent, U.S. Patent No. D438,221, and
Celestrons trade dress. The counterclaim further alleges that the Company has
willfully infringed Celestrons design patent and seeks an unspecified amount
of damages, enhanced damages, and an injunction and other unspecified relief
against the Company. These matters are in the early stages of
discovery. Due to the uncertainties of litigation, the Company is
unable to provide an evaluation of the likelihood of either a favorable or
unfavorable outcome in these cases.

8



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##### Table of Contents



The Company is also involved from time to time in litigation incidental to
its business. Management believes that the outcome of current litigation will
not have a material adverse effect on the Company.




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

No matters were submitted to a vote of the Companys stockholders during
the fourth quarter of the fiscal year covered by this report.




PART II




Item 5.Market for the Registrants Common Equity and Related Stockholder Matters

The Companys initial public offering was completed on April 14, 1997 (the
Offering), and from that date to the present, the Companys common stock has
been listed on the Nasdaq National Market under the symbol MEAD. The high and
low sales prices on a per share basis for the Companys common stock during
each quarterly period for the fiscal years ended February 28, 2002 and 2001,
respectively, were:

|                              |  |      |       |     |  |                               |      |      |  |                |  |   |       |  |  |   |       | 
|----------------------------- |  | ---- | ----- | --- |  | ----------------------------- | ---- | ---- |  | -------------- |  | - | ----- |  |  | - | ----- | 
|Year Ended February 28, 2002: |  | High |       | Low |  | Year Ended February 28, 2001: |      | High |  | Low           
|                              |  |      |       |     |  |                               |      |      |  |               
|Fourth quarter                |  |      | $4.00 |     |  | $                             | 2.22 |      |  | Fourth quarter |  | $ | 9.19  |  |  | $ | 3.56  | 
|Third quarter                 |  |      | $5.70 |     |  | $                             | 3.08 |      |  | Third quarter  |  | $ | 24.63 |  |  | $ | 8.00  | 
|Second quarter                |  |      | $7.36 |     |  | $                             | 4.15 |      |  | Second quarter |  | $ | 33.00 |  |  | $ | 13.06 | 
|First quarter                 |  |      | $7.50 |     |  | $                             | 3.00 |      |  | First quarter  |  | $ | 39.50 |  |  | $ | 10.88 | 

The reported closing sales price of the Companys common stock on the
Nasdaq National Market on May 15, 2002 was $5.47. As of May 15, 2002, there
were 64 holders of record of the Companys common stock.

Other than dividends paid to the Companys ESOP in August 1996, the
Company has not paid any cash dividends on its common stock and does not
anticipate declaring or paying any cash dividends on its common stock in the
foreseeable future. Although the Company 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.

9



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##### Table of Contents






Item 6.Selected Financial Data

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following data have been derived from the Companys audited
consolidated financial statements, including the consolidated balance sheets at
February 28, 2002 and 2001 and the consolidated statements of operations for
the three years ended February 28 (29), 2002 and the notes thereto appearing
elsewhere herein.

|                                                                                            |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |        | 
|------------------------------------------------------------------------------------------- | -------------------------------- | - | --------------------------------------------------- | ------ | ---- | - | ------- | ------ | ---- | - | ------- | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                                            |                                  |   | Year Ended February 28 (29),                       
|                                                                                            |                                  |   |                                                    
|                                                                                            |                                  |   | 2002                                                |        | 2001 |   | 2000    |        | 1999 |   | 1998   
|                                                                                            |                                  |   |                                                     |        |      |   |         |        |      |   |        
|                                                                                            |                                  |   | (In thousands of dollars, except per share amounts)
|Income Statement Data:                                                                      |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|Net sales                                                                                   |                                  | $ | 94,718                                              |        |      | $ | 123,000 |        |      | $ | 126,808 |        |  | $ | 76,321 |        |  | $ | 59,905 |       
|Cost of sales                                                                               |                                  |   | 70,108                                              |        |      |   | 82,809  |        |      |   | 75,780  |        |  |   | 44,255 |        |  |   | 38,245 |       
|                                                                                            |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|                                                                                            | Gross profit                     |   |                                                     | 24,610 |      |   |         | 40,191 |      |   |         | 51,028 |  |   |        | 32,066 |  |   |        | 21,660 | 
|Selling expenses                                                                            |                                  |   | 12,920                                              |        |      |   | 21,782  |        |      |   | 15,471  |        |  |   | 12,268 |        |  |   | 6,771  |       
|General and administrative expenses                                                         |                                  |   | 9,098                                               |        |      |   | 8,439   |        |      |   | 10,355  |        |  |   | 7,325  |        |  |   | 5,464  |       
|ESOP contribution expense                                                                   |                                  |   | 1,367                                               |        |      |   | 2,997   |        |      |   | 1,861   |        |  |   | 1,200  |        |  |   | 1,100  |       
|Research and development expenses                                                           |                                  |   | 2,167                                               |        |      |   | 2,062   |        |      |   | 1,361   |        |  |   | 978    |        |  |   | 854    |       
|                                                                                            |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|                                                                                            | Operating income (loss)          |   |                                                     | (942   | )    |   |         | 4,911  |      |   |         | 21,980 |  |   |        | 10,295 |  |   |        | 7,471  | 
|Interest expense                                                                            |                                  |   | 1,345                                               |        |      |   | 2,036   |        |      |   | 977     |        |  |   | 473    |        |  |   | 1,034  |       
|                                                                                            |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|                                                                                            | Income (loss)before income taxes |   |                                                     | (2,287 | )    |   |         | 2,875  |      |   |         | 21,003 |  |   |        | 9,822  |  |   |        | 6,437  | 
|Income tax provision (benefit)                                                              |                                  |   | (845                                                | )      |      |   | 1,589   |        |      |   | 9,048   |        |  |   | 4,223  |        |  |   | 2,702  |       
|                                                                                            |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|Net income (loss) before accretion                                                          |                                  |   | (1,442                                              | )      |      |   | 1,286   |        |      |   | 11,955  |        |  |   | 5,599  |        |  |   | 3,735  |       
|Accretion on redeemable preferred stock(1)                                                  |                                  |   |                                                    |        |      |   |        |        |      |   |        |        |  |   |       |        |  |   | (374   | )     
|                                                                                            |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|Net income (loss) available to common
stockholders                                          |                                  | $ | (1,442                                              | )      |      | $ | 1,286   |        |      | $ | 11,955  |        |  | $ | 5,599  |        |  | $ | 3,361  |       
|                                                                                            |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|Per share information:                                                                      |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|Net
income (loss) before adjustment to net income (loss)
available per common share  basic |                                  | $ | (0.10                                               | )      |      | $ | 0.09    |        |      | $ | 0.85    |        |  | $ | 0.41   |        |  | $ | 0.29   |       
|Accretion on redeemable preferred stock(1)                                                  |                                  |   |                                                    |        |      |   |        |        |      |   |        |        |  |   |       |        |  |   | (0.03  | )     
|                                                                                            |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|Net income (loss) per share available to
common stockholders  basic                        |                                  | $ | (0.10                                               | )      |      | $ | 0.09    |        |      | $ | 0.85    |        |  | $ | 0.41   |        |  | $ | 0.26   |       
|                                                                                            |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|Net income (loss) per share available
to common stockholders  diluted                      |                                  | $ | (0.10                                               | )      |      | $ | 0.08    |        |      | $ | 0.80    |        |  | $ | 0.40   |        |  | $ | 0.26   |       
|                                                                                            |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|Weighted average common shares
outstanding  basic                                          |                                  |   | 15,100                                              |        |      |   | 14,700  |        |      |   | 14,112  |        |  |   | 13,718 |        |  |   | 12,820 |       
|                                                                                            |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|Weighted average common shares
outstanding  diluted                                        |                                  |   | 15,100                                              |        |      |   | 15,600  |        |      |   | 14,944  |        |  |   | 14,070 |        |  |   | 12,970 |       
|                                                                                            |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|Balance Sheet Data:                                                                         |                                  |   |                                                     |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|Working capital                                                                             |                                  | $ | 41,802                                              |        |      | $ | 38,867  |        |      | $ | 36,553  |        |  | $ | 21,388 |        |  | $ | 15,417 |       
|Total assets                                                                                |                                  |   | 64,823                                              |        |      |   | 76,466  |        |      |   | 64,091  |        |  |   | 34,624 |        |  |   | 24,592 |       
|Total current liabilities                                                                   |                                  |   | 12,224                                              |        |      |   | 25,944  |        |      |   | 16,485  |        |  |   | 9,134  |        |  |   | 5,829  |       
|Long-term debt, net of current portion                                                      |                                  |   | 2,463                                               |        |      |   |        |        |      |   | 4,500   |        |  |   |       |        |  |   |       |       
|Stockholders equity                                                                        |                                  |   | 50,108                                              |        |      |   | 50,351  |        |      |   | 42,665  |        |  |   | 25,267 |        |  |   | 18,422 |       



---

|(1) |  | Represents accretion reflecting original issue discount and accrued
dividends on the redeemable preferred stock. In January 1997 the Company
entered into a binding agreement to redeem its redeemable preferred stock
earlier than the original mandatory redemption date. The accretion was
accelerated in the fiscal year ended February 28, 1997 to reflect the new
redemption date (April 14, 1997) and the Company recorded an additional
$3.4 million in accelerated accretion on the redeemable preferred stock
pursuant to the redemption agreement (resulting in an aggregate $4.3
million accretion for fiscal 1997). The Company recorded a final accretion
adjustment of approximately $374,000 during the first quarter of fiscal
1998 related to the redemption of the redeemable preferred stock.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the Companys financial condition
and results of operations is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere in this Report.

Critical Accounting Policies

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

Revenue Recognition

Revenues are generally recorded when title transfers and the risks of
ownership are passed to customers. Under certain circumstances, the Company
accepts product returns. Material management judgments must be made and used
in connection with establishing the sales returns estimates. The Company
continuously monitors and tracks returns and records revenues net of provisions
for returns. The Companys estimate of sales returns is based upon several
factors including historical experience, current market and economic
conditions, customer demand and acceptance of the Companys products and/or any
notification received by the Company of such a return. Historically, sales returns have
been within managements estimates; however, actual returns may
differ significantly, either favorably or unfavorably, from managements
estimates depending on actual market conditions at the time of the return.

Allowance for Doubtful Accounts

Management analyzes specific customer accounts receivable, customer
credit-worthiness, historical bad debt expenses, current economic trends and
changes in customer payment terms when evaluating the adequacy of the allowance
for doubtful accounts. If the financial condition of any of the Companys
customers were to deteriorate to the point of impairing the customers ability
to make payments on its account, additional allowances would be required.
While credit losses have been generally within managements expectations and
the provisions established, significant deterioration in the liquidity or
financial position of any of the Companys major customers or any group of
customers could have a material adverse impact on the collectibility of
accounts receivable and future operating results.

Inventories

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

11



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##### Table of Contents



Results of Operations

The following table sets forth, for the periods indicated, certain items
from the Companys statements of operations as a percentage of net sales for
the periods indicated.

|                                     |                                     |                          |       |                              |      |      |       |      |      |  |       |      |      | 
|------------------------------------ | ----------------------------------- | ------------------------ | ----- | ---------------------------- | ---- | ---- | ----- | ---- | ---- |  | ----- | ---- | ---- | 
|                                     |                                     |                          |       | Year Ended February 28 (29),
|                                     |                                     |                          |       |                             
|                                     |                                     |                          |       | 2002                         |      | 2001 |       | 2000
|                                     |                                     |                          |       |                              |      |      |       |     
|Net sales                            |                                     |                          | 100.0 | %                            |      |      | 100.0 | %    |      |  | 100.0 | %   
|Cost of sales                        |                                     |                          | 74.0  |                              |      |      | 67.3  |      |      |  | 59.8  |     
|                                     |                                     |                          |       |                              |      |      |       |      |      |  |       |     
|Gross profit                         |                                     |                          | 26.0  |                              |      |      | 32.7  |      |      |  | 40.2  |     
|Operating expenses:                  |                                     |                          |       |                              |      |      |       |      |      |  |       |     
|                                     | Selling expenses                    |                          |       | 13.7                         |      |      |       | 17.7 |      |  |       | 12.2 |     
|                                     | General and administrative expenses |                          |       | 9.6                          |      |      |       | 6.9  |      |  |       | 8.2  |     
|                                     | ESOP contribution expense           |                          |       | 1.4                          |      |      |       | 2.4  |      |  |       | 1.4  |     
|                                     | Research and development expenses   |                          |       | 2.3                          |      |      |       | 1.7  |      |  |       | 1.1  |     
|                                     |                                     |                          |       |                              |      |      |       |      |      |  |       |     
|                                     |                                     | Total operating expenses |       |                              | 27.0 |      |       |      | 28.7 |  |       |      | 22.9 | 
|                                     |                                     |                          |       |                              |      |      |       |      |      |  |       |     
|Income (loss) from operations        |                                     |                          | (1.0  | )                            |      |      | 4.0   |      |      |  | 17.3  |     
|Interest expense                     |                                     |                          | 1.4   |                              |      |      | 1.7   |      |      |  | 0.8   |     
|                                     |                                     |                          |       |                              |      |      |       |      |      |  |       |     
|Income (loss) before income taxes    |                                     |                          | (2.4  | )                            |      |      | 2.3   |      |      |  | 16.5  |     
|Provision (benefit) for income taxes |                                     |                          | (0.9  | )                            |      |      | 1.3   |      |      |  | 7.1   |     
|                                     |                                     |                          |       |                              |      |      |       |      |      |  |       |     
|Net income (loss)                    |                                     |                          | (1.5  | )                            |      |      | 1.0   |      |      |  | 9.4   |     
|                                     |                                     |                          |       |                              |      |      |       |      |      |  |       |     

Fiscal 2002 Compared to Fiscal 2001

Net sales decreased from $123.0 million in fiscal 2001 to $94.7 million in
fiscal 2002, a decrease of 23.0%. Management believes that the decline in net
sales for fiscal 2002 compared to fiscal 2001 was predominantly due to the
affects of the global economic recession, managements planned inventory
reduction program and competitive pricing pressures. For reasons just stated,
coupled with product introduction delays, sales of the Companys advanced
astronomical telescopes and related accessories were down nearly $13.0 million
compared to the prior year. Entry level telescope sales decreased nearly $19.0
million as compared to the prior year. Partially offsetting these decreases,
binocular sales increased by more than $2.0 million over the prior year on the
strength of binocular sales in Europe.

Gross profit decreased from $40.2 million (32.7% of net sales) in fiscal
2001 to $24.6 million (26.0% of net sales) in fiscal 2002, a decrease of 38.8%.
Competitive pricing pressures in the U.S. and Europe, and lower sales of
advanced telescopes and accessories, both of which typically have higher profit
margins than many of the Companys other product lines, contributed to the
lower profit margins.

Selling expenses decreased from $21.8 million (17.7% of net sales) in
fiscal 2001 to $12.9 million (13.7% of net sales) in fiscal 2002, a decrease of
40.7%. This decrease was primarily due to a $7.9 million decrease in
advertising and marketing expenses compared to the prior year. The Company
reduced national consumer advertising spending and concentrated its efforts on
point-of-sale promotions supported by targeted advertising with its major
customers. The balance of the reduction from the prior year was concentrated
in variable sales costs which were lower in keeping with the lower sales volume
during the current year.

General and administrative expenses increased from $8.4 million (6.9% of
net sales) in fiscal 2001 to $9.1 million (9.6% of net sales) in fiscal 2002,
an increase of 7.8%. This increase was principally due to increases in
consulting and professional fees.

ESOP contribution expense decreased from $3.0 million (2.4% of net sales)
in fiscal 2001 to $1.4 million (1.4% of net sales) in fiscal 2002, a decrease
of 54.4%. The decrease in this non-cash charge was due to decreases in the
average market price of the Companys stock allocated to the Employee Stock
Ownership Plan during fiscal 2002. The non-cash ESOP contribution expense may
fluctuate as the market value of the Companys common stock changes.

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Research and development expenses increased from $2.1 million (1.7% of net
sales) in fiscal 2001 to $2.2 million (2.3% of net sales) in fiscal 2002, an
increase of 5.1%. The Company continues to pursue the development of telescope
and other consumer related products as well as industrial products in the areas
of free space optics and digital imaging. During fiscal 2002, this pursuit led
to continued engineering expenditure increases over the prior year due to
increased headcount and outside consulting costs. Included as an offset to
research and development expenses incurred during fiscal 2002 is a
reimbursement of costs of approximately $500,000 received from a customer of
the Company on a non-contingent basis.

Interest expense decreased from $2.0 million for the fiscal year 2001
(1.7% of net sales) to $1.3 million for fiscal 2002 (1.4% of net sales), a
decrease of 33.9%. This decrease was principally due to lower average
borrowings on the Companys bank borrowings compared to the prior year.

The benefit for income taxes decreased to 36.9% of the loss before income
taxes for fiscal year 2002 compared to a provision of 55.3% of pre-tax income
in the prior year. The decrease in the tax rate was principally due to the
impact of non-deductible permanent differences between the Companys tax books
and its financial statements. The ESOP charge was a significant permanent
difference in the prior year. Due to lower average stock prices for the
Companys Common Stock, the effect of the ESOP charge on the current year
benefit was much less significant.

Fiscal 2001 Compared to Fiscal 2000

Net sales decreased from $126.8 million in fiscal 2000 to $123.0 million
in fiscal 2001, a decrease of 3.0%. During fiscal 2001, lower unit sales of
less-expensive telescopes manufactured in Asia, lower telescope accessory
sales, the negative effect of seasonal promotional markdowns and product
promotions, and decreased sales from the Companys European subsidiary more
than offset increases in sales of both the Companys advanced telescopes
manufactured domestically and less-expensive and mid-range products assembled
in the Companys Mexican facility.

Gross profit decreased from $51.0 million (40.2% of net sales) in fiscal
2000 to $40.2 million (32.7% of net sales) in fiscal 2001, a decrease of 21.2%.
The decrease in gross profit was principally due to the decrease in net sales
from the prior year and a decrease in the gross margin percentage. The decrease
in the gross margin percentage was principally due to the effect of charges to
gross profit of approximately $3 million and approximately $6.1 million, taken
in the third and fourth quarter, respectively. These charges related to the
aforementioned seasonal product markdowns and promotions as well as to
provisions for excess inventories resulting from the lower sales volume. Gross
profit was also negatively affected by lower average gross margins on products
sold at the Companys European subsidiary.

Selling expenses increased from $15.5 million (12.2% of net sales) in
fiscal 2000 to $21.8 million (17.7% of net sales) in fiscal 2001, an increase
of 40.8%. This increase principally reflects higher advertising and marketing
expenses that increased by more than $4 million over the prior year. Those
expenses were part of an aggressive print media and point-of-sale advertising
campaign aimed at the general consumer throughout the year but concentrated
during the Christmas holiday buying period. Also contributing to the increase
over the prior year was higher bad debt expenses brought on by certain customer
bankruptcies and other general selling expense increases.

General and administrative expenses decreased from $10.4 million (8.2% of
net sales) in fiscal 2000 to $8.4 million (6.9% of net sales) in fiscal 2001, a
decrease of 18.5%. This decrease was principally due to decreases in
compensation expenses during the year. Also contributing to the decrease were
lower professional and consulting fees and other sundry expense reductions.

ESOP contribution expense increased from $1.9 million (1.4% of net sales)
in fiscal 2000 to $3.0 million (2.4% of net sales) in fiscal 2001, an increase
of 61.0%. The increase in this non-cash charge was due to increases in the
average market price of the Companys stock allocated to the Employee Stock
Ownership Plan during fiscal 2001. The non-cash ESOP contribution expense may
fluctuate as the market value of the Companys common stock changes.

Research and development expenses increased from $1.4 million (1.1% of net
sales) in fiscal 2000 to $2.1 million (1.7% of net sales) in fiscal 2001, an
increase of 51.5%. This increase was due to increased engineering

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personnel costs, outside consulting costs and parts and supplies costs
related to telescope and other consumer related products, the development of
industrial optical products for TeraBeam Corporation and the development of
certain CCD imaging products for commercial and industrial applications.

Interest expense increased from $977,000 for the fiscal year 2000 to $2.0
million for fiscal 2001, an increase of 108.4%. This increase was due to
interest expense on the $5.0 million Term Loan, higher average borrowings on
the Companys bank lines of credit and higher average market interest rates
compared to the prior period.

The provision for income taxes increased to 55.3% of income before income
taxes for fiscal year 2001 compared to 43.1% in the prior year. The increase in
the tax rate was principally due to the impact of non-deductible permanent
differences between the Companys tax books and its financial statements. The
most significant of these differences was the ESOP charge.

Seasonality and Quarterly Results of Operations

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

The following tables (in thousands of dollars) present unaudited financial
results for each of the eight quarters in the period ended February 28, 2002.
The Company believes that all necessary adjustments have been included to
present fairly the quarterly information when read in conjunction with the
consolidated financial statements and notes included elsewhere in this Report.
The operating results for any quarter are not necessarily indicative of the
results for any subsequent quarter.

|                        |  |             |        |             |  |         |        |         |  |         |        |         |  |         |        |         |  |   |        |  |  |   |        |  |  |   |        |  |  |   |        |  
|----------------------- |  | ----------- | ------ | ----------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ | -
|                        |  | Fiscal 2002 |        | Fiscal 2001
|                        |  |             |        |            
|                        |  | First       |        | Second      |  | Third   |        | Fourth  |  | First   |        | Second  |  | Third   |        | Fourth 
|                        |  | Quarter     |        | Quarter     |  | Quarter |        | Quarter |  | Quarter |        | Quarter |  | Quarter |        | Quarter
|                        |  |             |        |             |  |         |        |         |  |         |        |         |  |         |        |        
|Net sales               |  | $           | 16,144 |             |  | $       | 27,162 |         |  | $       | 35,401 |         |  | $       | 16,011 |         |  | $ | 22,790 |  |  | $ | 35,630 |  |  | $ | 42,424 |  |  | $ | 22,156 |  
|Gross profit            |  |             | 4,652  |             |  |         | 7,902  |         |  |         | 8,692  |         |  |         | 3,364  |         |  |   | 9,285  |  |  |   | 14,333 |  |  |   | 14,086 |  |  |   | 2,487  |  
|Operating income (loss) |  |             | (940   | )           |  |         | 1,730  |         |  |         | 973    |         |  |         | (2,705 | )       |  |   | 2,709  |  |  |   | 5,063  |  |  |   | 4,301  |  |  |   | (7,162 | )
|Net income (loss)       |  |             | (798   | )           |  |         | 760    |         |  |         | 365    |         |  |         | (1,769 | )       |  |   | 1,369  |  |  |   | 2,632  |  |  |   | 1,986  |  |  |   | (4,701 | )

Quarterly results can be affected by a number of factors including the
timing of orders, production delays or inefficiencies, and raw materials
availability. See Business  Operations  Materials and Supplies.

Liquidity and Capital Resources

The Company funded its operations during the fiscal year with internally
generated cash flow and short-term bank borrowings during the year. Positive
cash flow from operations was principally attributed to a significant decrease
in inventories. Non-cash
charges to operations totaled $5.5 million, significantly
offseting the net loss of $1.4 million. Increases in accounts receivable
were principally offset by increases in accounts payable and decreases in
prepaid expenses and other current assets, leaving the reduction in inventories as
the most significant contribution to cash flows during the year. After less
than expected sell-through at the end of fiscal 2001, the Company began fiscal
2002 with unseasonably high levels of inventory and resulting bank borrowings.
The decrease in inventories during fiscal 2002 was the result of managements plan to purposely
reduce inventories through discounts, promotions and more timely management of
inventory purchases. Prepaid expenses and other current assets decreased by
approximately $1.0 million principally as the result of a tax refund payment
received during the year.

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Net working capital totaled approximately $41.8 million at February 28,
2002, up from $38.9 million at February 28, 2001. Working capital requirements
fluctuate during the year due to the seasonal nature of the business. These
requirements are typically financed through a combination of internally
generated cash flow from operating activities and short-term bank borrowings.

In September 2001, the Company refinanced its bank borrowings by entering
into a new credit agreement (the U.S. Credit Agreement) with a bank. The
U.S. Credit Agreement provided the Company with a $32,100,000 credit facility
consisting of a $30,000,000 revolving credit line and a $2,100,000 term loan.
In April 2002, the U.S. Credit Agreement was amended providing the Company with
a $27,100,000 credit facility consisting of a $25,000,000 revolving credit line
(the U.S. Revolving Loan) and a $2,100,000 term loan (the U.S. Term Loan).
Availability under the U.S. Revolving Loan is subject to a borrowing base with
standard advance rates against eligible accounts receivable and inventories.
Amounts outstanding on the U.S. Revolving Loan and U.S. Term Loan at February
28, 2002 were $2.0 million and $1.9 million, respectively. Availability under
the U.S. Revolving Loan at February 28, 2002 was approximately $7,800,000. The
U.S. Term Loan is secured by domestic machinery and equipment. The credit
facility has a three-year term, is collateralized by substantially all of
the domestic assets of the Company and its domestic subsidiaries and
contains certain financial covenants. Outstanding
amounts on the U.S. Revolving Loan and U.S. Term Loan bear interest at the
banks base rate or LIBOR rate plus applicable margins.

In August 2001, the Companys German subsidiary entered into an agreement
with a bank to provide up to approximately $3.8 million in revolving loans
(subject to a borrowing base of eligible accounts receivable and inventories)
expiring in July 2002 and a five-year term loan of approximately $1.3 million
secured by land and buildings owned by the German subsidiary (collectively, the
European Loans). Outstanding amounts on the revolving loan and the term loan
in Europe at February 28, 2002 were $1.2 million and $1.1 million,
respectively. The European Loans bear interest at the banks base rate plus or
minus applicable margins.

Capital expenditures, including financed purchases of equipment,
aggregated $731,000, $2.4 million and $2.7 million for the fiscal years ended
February 28(29), 2002, 2001 and 2000, respectively.

Contributions to the Companys Employee Stock Ownership Plan (ESOP) are
accounted for as a contribution expense on the Companys income statement and
are accrued quarterly based upon the expected annual contribution amount. As
quarterly contributions are accrued, the corresponding number of shares are
added to the Weighted Average Common Shares Outstanding and Unearned ESOP
Shares on the Companys Balance Sheet are reduced. 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 to net income to arrive at
cash flows provided by operating activities. As the Company makes these
non-cash contributions to the ESOP to fund the repayment of the ESOP Loan, the
Company will realize cash tax savings equal to the product of the tax basis of
the contributions, multiplied by the applicable statutory tax rates in effect
at the time.

The Company continues
to be impacted by softness in the consumer market as well as
competitive pricing pressures, which has resulted in lower sales
across most of the Company's major product lines. During the year,
the Company generated $13,428,000 in cash flow from operations and
was able to reduce amounts outstanding under its line of credit and
long-term debt by $12,743,000. In order for the Company to return to
profitability, it will need to either increase sales or reduce costs,
while continuing to generate cash flow from operations. The Company
continues to depend upon operating cash flow and availability of its
bank line of credit to provide short-term liquidity. Management
believes that operating cash flow and bank borrowing capacity should provide sufficient liquidity for the Company's
obligations for the next twelve months. Should the Company be unable
to return to profitability and sustain its cash flows, it may be
required to seek additional sources of capital; however there can be
no assurance that such additional sources of capital will be
available on reasonable terms, if at all.

Under the terms of its credit agreement, the Company was required to enter
into an interest-rate swap to convert the variable interest rate on its U.S.
Term Loan to a fixed interest rate. The resulting cost of funds (7.9% per
annum) is currently higher than that which would have been available if the
variable rate had been applied during the period. Under the interest-rate swap
contract, the Company has agreed with the bank to exchange, at specified
intervals, the difference between variable-rate and fixed-rate interest
amounts, calculated by reference to agreed-upon notional amounts. The change in
the fair value of the interest rate swap for the period ended February 28, 2002
was a loss of $26,000 which is included in other comprehensive income for the
year ended February 28, 2002.

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The following table summarizes the Companys contractual obligations as of
February 28, 2002, and the effect such obligations are expected to have on its
liquidity and cash flows in future periods:

|                                   |  |       |            |        |  |                         |           |           |  |         |           |  |  |   |           |       |  |   |         | 
|---------------------------------- |  | ----- | ---------- | ------ |  | ----------------------- | --------- | --------- |  | ------- | --------- |  |  | - | --------- | ----- |  | - | ------- | 
|                                   |  |       |            |        |  | Payments due by period:
|                                   |  |       |            |        |  |                        
|                                   |  |       |            |        |  | Up to                   |           |           |  |         |           |  |  |   |           | After
|Contractual Obligations:           |  | Total |            | 1 year |  | 1-3 years               |           | 3-5 years |  | 5 years
|                                   |  |       |            |        |  |                         |           |           |  |        
|Long-term debt                     |  | $     | 2,994,000  |        |  | $                       | 531,000   |           |  | $       | 1,727,000 |  |  | $ | 736,000   |       |  |   |        | 
|Non-cancelable operating leases    |  |       | 7,176,000  |        |  |                         | 2,014,000 |           |  |         | 2,244,000 |  |  |   | 2,140,000 |       |  | $ | 778,000 | 
|Capital lease obligations          |  |       | 215,000    |        |  |                         | 187,000   |           |  |         | 28,000    |  |  |   |          |       |  |   |        | 
|                                   |  |       |            |        |  |                         |           |           |  |         |           |  |  |   |           |       |  |   |         | 
|Total contractual cash obligations |  | $     | 10,385,000 |        |  | $                       | 2,732,000 |           |  | $       | 3,999,000 |  |  | $ | 2,876,000 |       |  | $ | 778,000 | 
|                                   |  |       |            |        |  |                         |           |           |  |         |           |  |  |   |           |       |  |   |         | 

Inflation

The Company does not believe that inflation has had a material effect on
the results of operations during the past three years. There can be no
assurance that the Companys business will not be affected by inflation in the
future.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, Business Combinations
(SFAS No. 141) and SFAS No. 142, Goodwill and Other Intangible Assets. The
FASB also issued SFAS No. 143, Accounting for Obligations Associated with the
retirement of Long-Lived Assets, and SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, in August and October 2001,
respectively.

SFAS No. 141 requires that all business combinations initiated after June
30, 2001 be accounted for under the purchase method. SFAS No. 141 superceded
APB Opinion No. 16, Business Combinations, and SFAS
No. 38, Accounting for
Preacquisition Contingencies of Purchased Enterprisesand is effective for all
business combinations initiated after June 30, 2001.

SFAS No. 142,
effective for fiscal years beginning after December 15, 2001, addresses the financial accounting and reporting for acquired
goodwill and other intangible assets. Under SFAS No. 142 the Company will no
longer be required to amortize goodwill and other intangible assets with
indefinite lives but will be required to subject these assets to periodic
testing for impairment. The Company is currently evaluating the provisions of
SFAS No. 142 but expects that the provisions will not have a material effect on
its financial position or results of operations upon adoption.

SFAS No. 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002, with early adoption
permitted. The Company is currently evaluating the provisions of SFAS No. 143
but expects that the provisions will not have a material effect on its
financial position or results of operations upon adoption.

SFAS No. 144 establishes a single accounting model for the impairment or
disposal of long-lived assets and new standards for reporting discontinued
operations. SFAS No. 144 is effective in fiscal years beginning after December
15, 2001 and, in general, is to be applied prospectively. The Company is
currently evaluating the provisions of SFAS No. 144 but expects that the
provisions will not have a material effect on it financial position or results
of operations upon adoption.

Forward-Looking Information

The preceding Business and Managements Discussion and Analysis of
Financial Condition and Results of Operations sections contains various
forward looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, which represent the Companys reasonable
judgment concerning the future and are subject to risks and uncertainties that
could cause the Companys actual operating results and financial position to
differ materially, including the following: the Companys ability to expand the
markets for telescopes, binoculars and other optical products as a

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result of its advertising and marketing efforts; the Companys ability to
continue to develop and bring to market new and innovative products; the
Companys ability to continue to integrate and develop its wholly-owned
manufacturing facility in Mexico in combination with its existing manufacturing
capabilities; the Company expanding its distribution network; the Companys
ability to continue to integrate and further develop the business of Bresser in
combination with the Companys existing business; the Company experiencing
fluctuations in its sales, gross margins and profitability from quarter to
quarter consistent with prior periods; the extent to which the Company will be
able to leverage its design and manufacturing expertise in the areas of
free-space optics and digital imaging; and the Companys expectation that it
will have sufficient funds to meet any working capital requirements during the
foreseeable future with internally generated cash flow and borrowing ability.

In addition to other information in this report, the Company cautions that
certain factors, including, without limitation, the following, should be
considered carefully in evaluating the Company and its business and that such
factors may cause the Companys actual operating results to differ materially
from those set forth in the forward looking statements described above or to
otherwise be adversely affected:

Our business is vulnerable to changing economic conditions, including:



| |  |  | a decline in general economic conditions;                                                                                        
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | uncertainties affecting consumer spending; and                                                                                   
|
| |  |  | changes in interest rates causing a reduction of investment
income or in the value of market interest rate sensitive instruments.

Our intellectual property rights are subject to risks, including:



| |  |  | the potential that we may be unable to obtain and maintain
patents and copyrights to protect our computerized telescope and
other product technology;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | competitors infringement upon Meades existing copyrights and patents; and                                                                          
|
| |  |  | approval of competitors patent applications that may restrict our ability to compete effectively.                                                   

Our business is subject to other risks, including:



| |  |  | a general decline in demand for the Companys products;                                                                                                                                                              
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | an inability to continue to design and manufacture products
that will achieve and maintain commercial success;                                                                                                       
|
| |  |  | the potential that we may fail to penetrate the domestic
binocular market and achieve meaningful sales;                                                                                                              
|
| |  |  | any significant interruption of our manufacturing abilities in
our domestic or Mexican facilities or in any of our suppliers located
in the Far East;                                                                
|
| |  |  | greater than anticipated competition;                                                                                                                                                                                
|
| |  |  | discovery of facts not presently known to Meade or
determinations by judges, juries or other finders of fact which do
not accord with Meades evaluation of the possible liability or
outcome of existing litigation;
|
| |  |  | any loss of, or the failure to replace, any significant portion
of the sales made to any significant customer of the Company; and                                                                                    
|
| |  |  | increasing ESOP charges in the event the market price of the
Companys stock increases.                                                                                                                              




Item 7A.Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to certain levels of market risks, including
changes in foreign currency exchange rates and interest rates. Market risk is
the potential loss arising from adverse changes in market rates and prices,
such as foreign currency exchange and interest rates.

The Company conducts business in a number of foreign currencies,
principally in Europe. These currencies have been relatively stable against the
U.S. dollar for the past several years. As a result, foreign currency
fluctuations have not had a material impact historically on Meades revenues or
results of operations. There can be no assurance that European or other
currencies will remain stable relative to the U.S. dollar or that future
fluctuations in the value of foreign currencies will not have a material
adverse effect on the Companys business, operating results, revenues and
financial condition.

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The Company has adopted a hedging program to manage its foreign currency
exchange rate and interest rate risks. Upon continuing evaluation and when
deemed appropriate by management, the Company may enter into hedging
instruments to manage its foreign currency exchange and interest rate risks.

Under the terms of its credit agreement, the Company was required to enter
into an interest-rate swap to convert the variable interest rate on its U.S.
Term Loan to a fixed interest rate. The resulting cost of funds (7.9% per
annum) is currently higher than that which would have been available if the
variable rate had been applied during the period. Under the interest-rate swap
contract, the Company has agreed with the bank to exchange, at specified
intervals, the difference between variable-rate and fixed-rate interest
amounts, calculated by reference to agreed-upon notional amounts. The change in
the fair value of the interest rate swap for the period ended February 28, 2002
was a loss of $26,000 which is included in other comprehensive income for the
year ended February 28, 2002.

The Companys financial instruments consist of cash, accounts receivable,
accounts payable, and long-term obligations. The Companys exposure to market
risk for changes in interest rates relates primarily to short-term investments
and short-term obligations. As a result, the Company does not expect
fluctuations in interest rates to have a material impact on the fair value of
these instruments.




Item 8.Financial Statements and Supplementary Data

Information with respect to this item is set forth in Item 14.




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

None.




PART III




Item 10.Directors and Executive Officers of the Registrant

Information with respect to this item is incorporated by reference from
the Companys definitive Proxy Statement to be filed with the Commission within
120 days after the close of the Companys fiscal year. Information regarding
executive officers of the Company is set forth under the caption Executive
Officers of the Registrant in Item 1 hereof.




Item 11.Executive Compensation

Information with respect to this item is incorporated by reference from
the Companys definitive Proxy Statement to be filed with the Commission within
120 days after the close of the Companys fiscal year.




Item 12.Security Ownership of Certain Beneficial Owners and Management

Information with respect to this item is incorporated by reference from
the Companys definitive Proxy Statement to be filed with the Commission within
120 days after the close of the Companys fiscal year.




Item 13.Certain Relationships and Related Transactions

Information with respect to this item is incorporated by reference from
the Companys definitive Proxy Statement to be filed with the Commission within
120 days after the close of the Companys fiscal year.

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PART IV




Item 14.Exhibits,
Financial Statement Schedules, and Reports On Form 8-K



| | (a) |  | The following documents are filed as part of this report:
| | --- |  | ---------------------------------------------------------

|   |  |                                                                                                                                                                                                                                                                                                                                                     |  |       
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------
|   |  |                                                                                                                                                                                                                                                                                                                                                     |  | Page  
|   |  |                                                                                                                                                                                                                                                                                                                                                     |  | Number
|   |  |                                                                                                                                                                                                                                                                                                                                                     |  |       
|1. |  | Financial Statements:                                                                                                                                                                                                                                                                                                                               |  |       
|   |  | Report of Independent Accountants                                                                                                                                                                                                                                                                                                                   |  | F-1   
|   |  | Consolidated Balance Sheets at February 28, 2002 and February 28, 2001.                                                                                                                                                                                                                                                                             |  | F-2   
|   |  | Consolidated Statements of Operations for each of the three years
in the period ended February 28, 2002.                                                                                                                                                                                                                                            |  | F-3   
|   |  | Consolidated Statements of Stockholders Equity for each of the three years
in the period ended February 28, 2002.                                                                                                                                                                                                                                  |  | F-4   
|   |  | Consolidated Statements of Cash Flows for each of the three years
in the period ended February 28, 2002.                                                                                                                                                                                                                                            |  | F-5   
|   |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                                                                                                                          |  | F-6   
|2. |  | Financial Statement Schedules:                                                                                                                                                                                                                                                                                                                      |  |       
|   |  | For each of the three years in the period ended February 28,
2002  II  Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted. |  |       
|3. |  | Exhibits included or incorporated herein: See Exhibit Index.                                                                                                                                                                                                                                                                                        |  |       



| | (b) |  | Reports on Form 8-K:
| | --- |  | --------------------

None.

19



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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Meade Instruments Corp.

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 19, present fairly, in all material
respects, the financial position of Meade Instruments Corp. and its
subsidiaries at February 28, 2002 and February 28, 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended February 28, 2002, in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under 14(a)(2) on
page 19, presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the
responsibility of the Companys management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

Orange County, California
April 18, 2002

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MEADE INSTRUMENTS CORP.

CONSOLIDATED BALANCE SHEETS

ASSETS

|                                                            |                                                                                                                                                                  |                            |                                      |            |              |   |              |            |            |  | 
|----------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------ | ---------- | ------------ | - | ------------ | ---------- | ---------- |  | 
|                                                            |                                                                                                                                                                  |                            |                                      |            | February 28, |   | February 28,
|                                                            |                                                                                                                                                                  |                            |                                      |            | 2002         |   | 2001        
|                                                            |                                                                                                                                                                  |                            |                                      |            |              |   |             
|Current assets:                                             |                                                                                                                                                                  |                            |                                      |            |              |   |              |           
|                                                            | Cash                                                                                                                                                             |                            | $                                    | 1,249,000  |              |   | $            | 1,186,000  |           
|                                                            | Accounts receivable, less allowance for doubtful accounts of
$2,232,000 in 2002 and $2,175,000 in 2001                                                           |                            |                                      | 12,184,000 |              |   |              | 10,254,000 |           
|                                                            | Inventories                                                                                                                                                      |                            |                                      | 29,803,000 |              |   |              | 41,651,000 |           
|                                                            | Deferred income taxes                                                                                                                                            |                            |                                      | 7,011,000  |              |   |              | 6,915,000  |           
|                                                            | Prepaid income taxes                                                                                                                                             |                            |                                      | 3,118,000  |              |   |              | 4,230,000  |           
|                                                            | Prepaid expenses and other current assets                                                                                                                        |                            |                                      | 661,000    |              |   |              | 575,000    |           
|                                                            |                                                                                                                                                                  |                            |                                      |            |              |   |              |           
|                                                            |                                                                                                                                                                  | Total current assets       |                                      |            | 54,026,000   |   |              |            | 64,811,000 | 
|Other assets, net                                           |                                                                                                                                                                  |                            | 4,189,000                            |            |              |   | 3,950,000    |           
|Property and equipment, net                                 |                                                                                                                                                                  |                            | 6,608,000                            |            |              |   | 7,705,000    |           
|                                                            |                                                                                                                                                                  |                            |                                      |            |              |   |              |           
|                                                            |                                                                                                                                                                  | $                          | 64,823,000                           |            |              | $ | 76,466,000   |           
|                                                            |                                                                                                                                                                  |                            |                                      |            |              |   |              |           
|                                                            |                                                                                                                                                                  |                            | LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                                        |                                                                                                                                                                  |                            |                                      |            |              |   |              |           
|                                                            | Bank line of credit                                                                                                                                              |                            | $                                    | 3,234,000  |              |   | $            | 14,585,000 |           
|                                                            | Accounts payable                                                                                                                                                 |                            |                                      | 4,671,000  |              |   |              | 2,522,000  |           
|                                                            | Accrued liabilities                                                                                                                                              |                            |                                      | 3,601,000  |              |   |              | 4,051,000  |           
|                                                            | Current portion of long-term debt and capital lease obligations                                                                                                  |                            |                                      | 718,000    |              |   |              | 4,786,000  |           
|                                                            |                                                                                                                                                                  |                            |                                      |            |              |   |              |           
|                                                            |                                                                                                                                                                  | Total current liabilities  |                                      |            | 12,224,000   |   |              |            | 25,944,000 | 
|                                                            |                                                                                                                                                                  |                            |                                      |            |              |   |              |           
|Long-term bank debt                                         |                                                                                                                                                                  |                            | 2,463,000                            |            |              |   |             |           
|Long-term capital lease obligations, net of current portion |                                                                                                                                                                  |                            | 28,000                               |            |              |   | 171,000      |           
|                                                            |                                                                                                                                                                  |                            |                                      |            |              |   |              |           
|Commitments and contingencies                               |                                                                                                                                                                  |                            |                                      |            |              |   |              |           
|Stockholders equity:                                       |                                                                                                                                                                  |                            |                                      |            |              |   |              |           
|                                                            | Common stock; $0.01 par value; 50,000,000 shares authorized; 16,481,000
and 16,472,000 shares issued and outstanding at February 28, 2002 and
2001, respectively |                            |                                      | 165,000    |              |   |              | 165,000    |           
|                                                            | Additional paid-in capital                                                                                                                                       |                            |                                      | 32,574,000 |              |   |              | 32,367,000 |           
|                                                            | Retained earnings                                                                                                                                                |                            |                                      | 22,301,000 |              |   |              | 23,743,000 |           
|                                                            | Accumulated other comprehensive income                                                                                                                           |                            |                                      | (559,000   | )            |   |              | (359,000   | )         
|                                                            |                                                                                                                                                                  |                            |                                      |            |              |   |              |           
|                                                            |                                                                                                                                                                  |                            | 54,481,000                           |            |              |   | 55,916,000   |           
|                                                            | Unearned ESOP shares                                                                                                                                             |                            |                                      | (4,373,000 | )            |   |              | (5,565,000 | )         
|                                                            |                                                                                                                                                                  |                            |                                      |            |              |   |              |           
|                                                            |                                                                                                                                                                  | Total stockholders equity |                                      |            | 50,108,000   |   |              |            | 50,351,000 | 
|                                                            |                                                                                                                                                                  |                            |                                      |            |              |   |              |           
|                                                            |                                                                                                                                                                  | $                          | 64,823,000                           |            |              | $ | 76,466,000   |           
|                                                            |                                                                                                                                                                  |                            |                                      |            |              |   |              |           

See accompanying notes to consolidated financial statements.

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MEADE INSTRUMENTS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                     |                                   |   |                              |            |      |   |             |            |  |   |             |            | 
|---------------------------------------------------- | --------------------------------- | - | ---------------------------- | ---------- | ---- | - | ----------- | ---------- |  | - | ----------- | ---------- | 
|                                                     |                                   |   | Year Ended February 28 (29),
|                                                     |                                   |   |                             
|                                                     |                                   |   | 2002                         |            | 2001 |   | 2000       
|                                                     |                                   |   |                              |            |      |   |            
|Net sales                                            |                                   | $ | 94,718,000                   |            |      | $ | 123,000,000 |            |  | $ | 126,808,000 |           
|Cost of sales                                        |                                   |   | 70,108,000                   |            |      |   | 82,809,000  |            |  |   | 75,780,000  |           
|                                                     |                                   |   |                              |            |      |   |             |            |  |   |             |           
|                                                     | Gross profit                      |   |                              | 24,610,000 |      |   |             | 40,191,000 |  |   |             | 51,028,000 | 
|Selling expenses                                     |                                   |   | 12,920,000                   |            |      |   | 21,782,000  |            |  |   | 15,471,000  |           
|General and administrative expenses                  |                                   |   | 9,098,000                    |            |      |   | 8,439,000   |            |  |   | 10,355,000  |           
|ESOP contribution expense                            |                                   |   | 1,367,000                    |            |      |   | 2,997,000   |            |  |   | 1,861,000   |           
|Research and development expenses                    |                                   |   | 2,167,000                    |            |      |   | 2,062,000   |            |  |   | 1,361,000   |           
|                                                     |                                   |   |                              |            |      |   |             |            |  |   |             |           
|                                                     | Operating income (loss)           |   |                              | (942,000   | )    |   |             | 4,911,000  |  |   |             | 21,980,000 | 
|Interest expense                                     |                                   |   | 1,345,000                    |            |      |   | 2,036,000   |            |  |   | 977,000     |           
|                                                     |                                   |   |                              |            |      |   |             |            |  |   |             |           
|                                                     | Income (loss) before income taxes |   |                              | (2,287,000 | )    |   |             | 2,875,000  |  |   |             | 21,003,000 | 
|Provision (benefit) for income taxes                 |                                   |   | (845,000                     | )          |      |   | 1,589,000   |            |  |   | 9,048,000   |           
|                                                     |                                   |   |                              |            |      |   |             |            |  |   |             |           
|Net income (loss)                                    |                                   | $ | (1,442,000                   | )          |      | $ | 1,286,000   |            |  | $ | 11,955,000  |           
|                                                     |                                   |   |                              |            |      |   |             |            |  |   |             |           
|Net income (loss) per share  basic                  |                                   | $ | (0.10                        | )          |      | $ | 0.09        |            |  | $ | 0.85        |           
|                                                     |                                   |   |                              |            |      |   |             |            |  |   |             |           
|Net income (loss) per share  diluted                |                                   | $ | (0.10                        | )          |      | $ | 0.08        |            |  | $ | 0.80        |           
|                                                     |                                   |   |                              |            |      |   |             |            |  |   |             |           
|Weighted average common shares outstanding  basic   |                                   |   | 15,100,000                   |            |      |   | 14,700,000  |            |  |   | 14,112,000  |           
|                                                     |                                   |   |                              |            |      |   |             |            |  |   |             |           
|Weighted average common shares outstanding  diluted |                                   |   | 15,100,000                   |            |      |   | 15,600,000  |            |  |   | 14,944,000  |           
|                                                     |                                   |   |                              |            |      |   |             |            |  |   |             |           

See accompanying notes to consolidated financial statements.

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MEADE INSTRUMENTS CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

|                                       |                                             |  |              |   |            |   |               |   |               |   |            |   |             |   |             |          |   |   |            |            |   |   |            |   |  |   |            |            |  
|-------------------------------------- | ------------------------------------------- |  | ------------ | - | ---------- | - | ------------- | - | ------------- | - | ---------- | - | ----------- | - | ----------- | -------- | - | - | ---------- | ---------- | - | - | ---------- | - |  | - | ---------- | ---------- | -
|                                       |                                             |  |              |   |            |   |               |   |               |   |            |   |             |   | Accumulated |          |   |   |            |            |   |   |            |   |  |   |           
|                                       |                                             |  | Common Stock |   | Additional |   | Other         |   |               |   |            |   |             |   |             |          |   |   |           
|                                       |                                             |  |              |   | Paid-in    |   | Comprehensive |   | Retained      |   | Unearned   |   |             |   |            
|                                       |                                             |  | Shares       |   | Amount     |   | Capital       |   | Income (Loss) |   | Earnings   |   | ESOP Shares |   | Total      
|                                       |                                             |  |              |   |            |   |               |   |               |   |            |   |             |   |            
|Balance at February 28, 1999           |                                             |  | 15,764,000   |   |            | $ | 158,000       |   |               | $ | 21,724,000 |   |             |   |            |          |   | $ | 10,502,000 |            |   | $ | (7,117,000 | ) |  | $ | 25,267,000 |           
|Exercise of stock options              |                                             |  | 248,000      |   |            |   | 2,000         |   |               |   | 932,000    |   |             |   |            |          |   |   |           |            |   |   |           |   |  |   | 934,000    |           
|Tax benefit of stock options exercised |                                             |  |             |   |            |   |              |   |               |   | 937,000    |   |             |   |            |          |   |   |           |            |   |   |           |   |  |   | 937,000    |           
|Release of ESOP shares                 |                                             |  |             |   |            |   |              |   |               |   | 1,114,000  |   |             |   |            |          |   |   |           |            |   |   | 747,000    |   |  |   | 1,861,000  |           
|Shares issued in Bresser acquisition   |                                             |  | 202,000      |   |            |   | 2,000         |   |               |   | 2,042,000  |   |             |   |            |          |   |   |           |            |   |   |           |   |  |   | 2,044,000  |           
|Comprehensive income:                  |                                             |  |              |   |            |   |               |   |               |   |            |   |             |   |             |          |   |   |            |            |   |   |            |   |  |   |            |           
|                                       | Currency translation adjustment             |  |              |  |            |   |               |  |               |   |            |  |             |   | $           | (333,000 | ) |   |            |           |   |   |            |  |  |   |            | (333,000   | )
|                                       | Net income available to common stockholders |  |              |  |            |   |               |  |               |   |            |  |             |   |             |         |   |   |            | 11,955,000 |   |   |            |  |  |   |            | 11,955,000 |  
|                                       |                                             |  |              |   |            |   |               |   |               |   |            |   |             |   |             |          |   |   |            |            |   |   |            |   |  |   |            |           
|Total comprehensive income             |                                             |  |             |   |            |   |              |   |               |   |           |   |             |   |            |          |   |   |           |            |   |   |           |   |  |   | 11,622,000 |           
|                                       |                                             |  |              |   |            |   |               |   |               |   |            |   |             |   |             |          |   |   |            |            |   |   |            |   |  |   |            |           
|Balance at February 29, 2000           |                                             |  | 16,214,000   |   |            |   | 162,000       |   |               |   | 26,749,000 |   |             |   | (333,000    | )        |   |   | 22,457,000 |            |   |   | (6,370,000 | ) |  |   | 42,665,000 |           
|Exercise of stock options              |                                             |  | 258,000      |   |            |   | 3,000         |   |               |   | 1,040,000  |   |             |   |            |          |   |   |           |            |   |   |           |   |  |   | 1,043,000  |           
|Tax benefit of stock options exercised |                                             |  |             |   |            |   |              |   |               |   | 2,386,000  |   |             |   |            |          |   |   |           |            |   |   |           |   |  |   | 2,386,000  |           
|Release of ESOP shares                 |                                             |  |             |   |            |   |              |   |               |   | 2,192,000  |   |             |   |            |          |   |   |           |            |   |   | 805,000    |   |  |   | 2,997,000  |           
|Comprehensive income:                  |                                             |  |              |   |            |   |               |   |               |   |            |   |             |   |             |          |   |   |            |            |   |   |            |   |  |   |            |           
|                                       | Currency translation adjustment             |  |              |  |            |   |               |  |               |   |            |  |             |   |             | (26,000  | ) |   |            |           |   |   |            |  |  |   |            | (26,000    | )
|                                       | Net income available to common stockholders |  |              |  |            |   |               |  |               |   |            |  |             |   |             |         |   |   |            | 1,286,000  |   |   |            |  |  |   |            | 1,286,000  |  
|                                       |                                             |  |              |   |            |   |               |   |               |   |            |   |             |   |             |          |   |   |            |            |   |   |            |   |  |   |            |           
|Total comprehensive income             |                                             |  |             |   |            |   |              |   |               |   |           |   |             |   |            |          |   |   |           |            |   |   |           |   |  |   | 1,260,000  |           
|                                       |                                             |  |              |   |            |   |               |   |               |   |            |   |             |   |             |          |   |   |            |            |   |   |            |   |  |   |            |           
|Balance at February 28, 2001           |                                             |  | 16,472,000   |   |            |   | 165,000       |   |               |   | 32,367,000 |   |             |   | (359,000    | )        |   |   | 23,743,000 |            |   |   | (5,565,000 | ) |  |   | 50,351,000 |           
|Release of ESOP shares                 |                                             |  |             |   |            |   |              |   |               |   | 175,000    |   |             |   |            |          |   |   |           |            |   |   | 1,192,000  |   |  |   | 1,367,000  |           
|Shares issued as compensation          |                                             |  | 9,000        |   |            |   |              |   |               |   | 32,000     |   |             |   |            |          |   |   |           |            |   |   |           |   |  |   | 32,000     |           
|Comprehensive income (loss):           |                                             |  |              |   |            |   |               |   |               |   |            |   |             |   |             |          |   |   |            |            |   |   |            |   |  |   |            |           
|                                       | Currency translation adjustment             |  |              |  |            |   |               |  |               |   |            |  |             |   |             | (174,000 | ) |   |            |           |   |   |            |  |  |   |            | (174,000   | )
|                                       | Interest rate swap valuation                |  |              |  |            |   |               |  |               |   |            |  |             |   |             | (26,000  | ) |   |            |           |   |   |            |  |  |   |            | (26,000    | )
|                                       | Net income available to common stockholders |  |              |  |            |   |               |  |               |   |            |  |             |   |             |         |   |   |            | (1,442,000 | ) |   |            |  |  |   |            | (1,442,000 | )
|                                       |                                             |  |              |   |            |   |               |   |               |   |            |   |             |   |             |          |   |   |            |            |   |   |            |   |  |   |            |           
|Total comprehensive income (loss)      |                                             |  |             |   |            |   |              |   |               |   |           |   |             |   |            |          |   |   |           |            |   |   |           |   |  |   | (1,642,000 | )         
|                                       |                                             |  |              |   |            |   |               |   |               |   |            |   |             |   |             |          |   |   |            |            |   |   |            |   |  |   |            |           
|Balance at February 28, 2002           |                                             |  | 16,481,000   |   |            | $ | 165,000       |   |               | $ | 32,574,000 |   |             | $ | (559,000    | )        |   | $ | 22,301,000 |            |   | $ | (4,373,000 | ) |  | $ | 50,108,000 |           
|                                       |                                             |  |              |   |            |   |               |   |               |   |            |   |             |   |             |          |   |   |            |            |   |   |            |   |  |   |            |           

See accompanying notes to consolidated financial statements.

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MEADE INSTRUMENTS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                   |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |           |             |            |            |  
|-------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ---------------------------------------------------- | ------------------------- | --------------------------------------------------- | ----------- | ---------------------------- | ----------- | --------- | ---------- | --------- | ----------- | --------- | ----------- | ---------- | ---------- | -
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             | Year Ended February 28 (29),
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             |                             
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             | 2002                         |             | 2001      |            | 2000     
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |          
|Cash flows from operating activities:                                                              |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|Net income (loss)                                                                                  |                                                                    | $                                                    | (1,442,000                | )                                                   |             | $                            | 1,286,000   |           |            | $         | 11,955,000  |          
|Adjustments
to reconcile net income (loss) to net cash
provided by (used in) operating activities: |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|                                                                                                   | Depreciation and amortization                                      |                                                      |                           | 2,092,000                                           |             |                              |             | 1,946,000 |            |           |             | 1,296,000 |            
|                                                                                                   | ESOP contribution                                                  |                                                      |                           | 1,367,000                                           |             |                              |             | 2,997,000 |            |           |             | 1,861,000 |            
|                                                                                                   | Allowance for doubtful accounts                                    |                                                      |                           | 2,090,000                                           |             |                              |             | 1,815,000 |            |           |             | 1,567,000 |            
|                                                                                                   | Changes in assets and liabilities, net of effects of
acquisitions: |                                                      |                           |                                                     |             |                              |             |           |            |           |             |           |            
|                                                                                                   |                                                                    | Accounts receivable                                  |                           |                                                     | (4,061,000  | )                            |             |           | (3,646,000 | )         |             |           | 2,854,000   |           
|                                                                                                   |                                                                    | Inventories                                          |                           |                                                     | 11,342,000  |                              |             |           | (7,551,000 | )         |             |           | (10,318,000 | )         
|                                                                                                   |                                                                    | Deferred income taxes                                |                           |                                                     | (107,000    | )                            |             |           | 781,000    |           |             |           | (3,357,000  | )         
|                                                                                                   |                                                                    | Prepaid expenses and other current assets            |                           |                                                     | 1,105,000   |                              |             |           | (5,151,000 | )         |             |           | 44,000      |           
|                                                                                                   |                                                                    | Other assets                                         |                           |                                                     | (581,000    | )                            |             |           | 64,000     |           |             |           | 92,000      |           
|                                                                                                   |                                                                    | Accounts payable                                     |                           |                                                     | 2,166,000   |                              |             |           | (1,338,000 | )         |             |           | 454,000     |           
|                                                                                                   |                                                                    | Accrued liabilities                                  |                           |                                                     | (543,000    | )                            |             |           | (2,310,000 | )         |             |           | 737,000     |           
|                                                                                                   |                                                                    | Income taxes payable                                 |                           |                                                     |            |                              |             |           | 386,000    |           |             |           | 1,324,000   |           
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|                                                                                                   |                                                                    |                                                      |                           | Net cash provided by (used in) operating activities |             |                              | 13,428,000  |           |            |           | (10,721,000 | )         |             |            | 8,509,000  |  
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|Cash flows from investing activities:                                                              |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|                                                                                                   |                                                                    | Capital expenditures                                 |                           |                                                     | (731,000    | )                            |             |           | (2,428,000 | )         |             |           | (1,911,000  | )         
|                                                                                                   |                                                                    | Acquisition of Bresser Optik net of cash acquired    |                           |                                                     |            |                              |             |           |           |           |             |           | (4,968,000  | )         
|                                                                                                   |                                                                    | Acquisition of certain assets of Astrocom            |                           |                                                     |            |                              |             |           |           |           |             |           | (1,147,000  | )         
|                                                                                                   |                                                                    | Proceeds from the sale and lease back of equipment   |                           |                                                     |            |                              |             |           |           |           |             |           |            |           
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|                                                                                                   |                                                                    |                                                      |                           | Net cash used in investing activities               |             |                              | (731,000    | )         |            |           | (2,428,000  | )         |             |            | (8,026,000 | )
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|Cash flows from financing activities:                                                              |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|                                                                                                   |                                                                    | Payments on long-term debt                           |                           |                                                     | (2,575,000  | )                            |             |           | (500,000   | )         |             |           | (183,000    | )         
|                                                                                                   |                                                                    | Proceeds from long-term loan                         |                           |                                                     | 1,075,000   |                              |             |           |           |           |             |           | 5,000,000   |           
|                                                                                                   |                                                                    | Net (payments) borrowings under bank lines of credit |                           |                                                     | (11,243,000 | )                            |             |           | 11,922,000 |           |             |           | (4,926,000  | )         
|                                                                                                   |                                                                    | Exercise of stock options                            |                           |                                                     |            |                              |             |           | 1,043,000  |           |             |           | 934,000     |           
|                                                                                                   |                                                                    | Payments under capital lease obligations             |                           |                                                     | (242,000    | )                            |             |           | (268,000   | )         |             |           | (367,000    | )         
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|                                                                                                   |                                                                    |                                                      |                           | Net cash provided by (used in) financing activities |             |                              | (12,985,000 | )         |            |           | 12,197,000  |           |             |            | 458,000    |  
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|Effect of exchange rate changes on cash                                                            |                                                                    |                                                      | 351,000                   |                                                     |             |                              | (42,000     | )         |            |           | (44,000     | )        
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|Net increase (decrease) in cash                                                                    |                                                                    |                                                      | 63,000                    |                                                     |             |                              | (994,000    | )         |            |           | 897,000     |          
|Cash at beginning of year                                                                          |                                                                    |                                                      | 1,186,000                 |                                                     |             |                              | 2,180,000   |           |            |           | 1,283,000   |          
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|Cash at end of year                                                                                |                                                                    | $                                                    | 1,249,000                 |                                                     |             | $                            | 1,186,000   |           |            | $         | 2,180,000   |          
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|Supplemental disclosures of cash flow information:                                                 |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|Cash paid during the period for:                                                                   |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|                                                                                                   |                                                                    |                                                      | Interest                  |                                                     | $           | 1,364,000                    |             |           | $          | 2,036,000 |             |           | $           | 789,000    |           
|                                                                                                   |                                                                    |                                                      | Income taxes              |                                                     | $           | 350,000                      |             |           | $          | 5,050,000 |             |           | $           | 11,038,000 |           
|Non-cash financing activities:                                                                     |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          
|                                                                                                   |                                                                    |                                                      | Capital lease obligations |                                                     | $           |                             |             |           | $          | 24,000    |             |           | $           | 614,000    |           
|                                                                                                   |                                                                    |                                                      |                           |                                                     |             |                              |             |           |            |           |             |          

See accompanying notes to consolidated financial statements.

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##### Table of Contents






MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | The Company and Operations
|-- |  | --------------------------

The Company

Meade Instruments Corp. (the Company), a Delaware corporation, is a
multinational consumer and industrial optics company that designs,
manufactures, imports and distributes telescopes, telescope accessories,
binoculars and other optical and digital imaging products. The Company has
operations in the United States, Germany and Mexico.



|2. |  | Summary of Significant Accounting Policies
|-- |  | ------------------------------------------

Principles of consolidation

The accompanying consolidated financial statements include the accounts of
the Company and all of its 100%-owned subsidiaries and reflect the elimination
of all significant intercompany account balances and transactions.

Revenue recognition

Revenues are generally recorded when title transfers and the risks of
ownership are passed to customers. Under certain circumstances, the Company
accepts product returns. Material management judgments must be made and used
in connection with establishing the sales returns estimates. The Company
continuously monitors and tracks returns and records revenues net of provisions
for returns. The Companys estimate of sales returns is based upon several
factors including historical experience, current market and economic
conditions, customer demand and acceptance of the Companys products and/or any
notification received by the Company of such a return. Historically, sales returns have been within managements estimates; however, actual returns may
differ significantly, either favorably or unfavorably, from managements
estimates depending on actual market conditions at the time of the return.

Foreign currency translation

The assets and liabilities of the Companys foreign operations are
translated at end of period exchange rates. Revenues and expenses are
translated at the average exchange rates prevailing during the period. The
effects of unrealized exchange rate fluctuations on translating foreign
currency assets and liabilities into U.S. dollars are accumulated in
stockholders equity as a component of other comprehensive income.

Allowance for doubtful accounts

Management analyzes specific customer accounts receivable, customer
credit-worthiness, historical bad debt expenses, current economic trends and
changes in customer payment terms when evaluating the adequacy of the allowance
for doubtful accounts. If the financial condition of any of the Companys
customers were to deteriorate to the point of impairing the customers ability
to make payments on its account, additional allowances may be required. While
credit losses have historically been within managements expectations and the
provisions established, significant deterioration in the liquidity or financial
position of any of the Companys major customers or any group of customers
could have a material adverse impact on the collectibility of accounts
receivable and future operating results.

Inventories

Inventories are stated at the lower of cost, as determined using the
first-in, first-out (FIFO) method, or market. Costs include materials, labor
and manufacturing overhead. The Company evaluates the carrying value of its
inventories taking into account such factors as historical and anticipated
future sales compared with quantities on hand and the price the Company expects
to obtain for its products in their respective markets. The Company
also

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MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

evaluates the composition of its inventories to identify any slow-moving
or obsolete product. These evaluations require material management judgments,
including estimates of future sales, continuing market acceptance of the
Companys products, and current market and economic conditions. Inventory
reserves are established, based on such judgments, for any inventories that are
identified as having a net realizable value less than its cost.
Historically, the net
realizable value of the Companys inventories has been within
managements estimates. However, if the Company is not able to meet its sales
expectations; or if market conditions deteriorate significantly from
managements estimates, reductions in the net realizable value of the Companys
inventories could have a material adverse impact on future operating results.

Property and equipment

Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets. Buildings
and related improvements are depreciated over seven to twenty-five years. All
other property and equipment, except property held under capital leases, is
depreciated over three to seven years. Properties held under capital leases are
recorded at the present value of the noncancellable lease payments over the
term of the lease and are amortized over the shorter of the lease term or the
estimated useful lives of the assets.

Goodwill and intangibles

The difference between the purchase price and the fair value of net assets
acquired (goodwill) at the date of acquisition is included in the accompanying
consolidated balance sheets in other assets. Goodwill and intangible assets are
amortized over the estimated period to be benefited which ranges from seven to
fifteen years. Goodwill and intangible assets are reviewed whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. The Company reviews the recoverability by comparing the
estimated future cash flows on an undiscounted basis to the net book value of
the assets. In the event that projected undiscounted cash flows are less than
the net book value of the assets, the carrying value of the assets are written
down to their fair value, less costs to sell. Fair value is generally based on
a discounted cash flow analysis. Assets that are to be disposed of are measured
at the lower of cost or fair value, less costs to sell. In June 2001, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets
(SFAS No. 142) effective for fiscal years beginning after December 15, 2001.
Under SFAS No. 142 the Company will no longer be required to amortize goodwill
and other intangible assets with indefinite lives but will be required to
subject these assets to periodic testing for impairment. The Company is
currently evaluating the provisions of SFAS No. 142 but expects that the
provisions will not have a material effect on it financial position or results
of operations upon adoption.

Income taxes

The Company uses the liability method of accounting for income taxes.
Under this method deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates that will be in effect when the
differences are expected to reverse. The Company files its tax return for the
year ending August 31, rather than for the financial reporting period ending
the last day of February.

Advertising

The Company expenses the production costs of advertising as incurred. For
the years ended February 28 (29), 2002, 2001 and 2000, the Company incurred
advertising and marketing expenses of approximately $2,857,000, $10,800,000 and
$6,400,000, respectively.

Research and development

Expenditures for research and development costs are charged to expense as incurred.

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MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Earnings (loss) per share

Basic earnings (loss) per share amounts exclude the dilutive effect of
potential shares of common stock. Basic earnings per share is based upon the
weighted-average number of shares of common stock outstanding. Diluted earnings
(loss) per share is based upon the weighted-average number of shares of common
stock and dilutive potential shares of common stock outstanding for each period
presented. Potential shares of common stock include outstanding stock options
which are included under the treasury stock method. Potential shares of common
stock of 65,000 have been excluded from diluted weighted average shares of
common stock for fiscal 2002, as the effect would be anti-dilutive.

The following is a reconciliation of the denominators of the basic and
diluted earnings (loss) per share computations for the fiscal years ended
February 28 (29), 2002, 2001 and 2000.

|                               |               |   |                              |   |      |   |            |         |  |   |            |         | 
|------------------------------ | ------------- | - | ---------------------------- | - | ---- | - | ---------- | ------- |  | - | ---------- | ------- | 
|                               |               |   | Year Ended February 28 (29),
|                               |               |   |                             
|                               |               |   | 2002                         |   | 2001 |   | 2000      
|                               |               |   |                              |   |      |   |           
|Net income (loss)              |               | $ | (1,442,000                   | ) |      | $ | 1,286,000  |         |  | $ | 11,955,000 |        
|                               |               |   |                              |   |      |   |            |         |  |   |            |        
|Shares
outstanding  basic     |               |   | 15,100,000                   |   |      |   | 14,700,000 |         |  |   | 14,112,000 |        
|Effect of dilutive securities: |               |   |                              |   |      |   |            |         |  |   |            |        
|                               | Stock options |   |                              |  |      |   |            | 900,000 |  |   |            | 832,000 | 
|                               |               |   |                              |   |      |   |            |         |  |   |            |        
|Shares
outstanding  diluted   |               |   | 15,100,000                   |   |      |   | 15,600,000 |         |  |   | 14,944,000 |        
|                               |               |   |                              |   |      |   |            |         |  |   |            |        
|Net income  basic             |               | $ | (0.10                        | ) |      | $ | 0.09       |         |  | $ | 0.85       |        
|                               |               |   |                              |   |      |   |            |         |  |   |            |        
|Net income  diluted           |               | $ | (0.10                        | ) |      | $ | 0.08       |         |  | $ | 0.80       |        
|                               |               |   |                              |   |      |   |            |         |  |   |            |        

On May 5, 2000, the Company declared a two-for-one stock split of the
Companys common stock, which was effected in the form of a stock dividend. The
dividend was paid on June 19, 2000 to stockholders of record on May 22, 2000.
All share and per share amounts in the accompanying consolidated financial
statements and notes thereto have been adjusted to reflect the stock split.

Comprehensive income

Comprehensive income is defined as a change in the equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. In the accompanying financial statements for the fiscal
years ended February 28/29, 2001 and 2000, the only component of comprehensive
income other than net income is currency translation adjustments. For the
fiscal year ended February 28, 2002, the Company had other comprehensive income
(loss) of $(200,000) consisting of a $(174,000) currency translation adjustment
and a $(26,000) adjustment to the fair value of an interest rate swap the Company
was required to enter into under the terms of its credit agreement.

Concentration of credit risk

Financial instruments which potentially subject the Company to
concentration of credit risk are principally accounts receivable. The Company
maintains an allowance for doubtful accounts at a level deemed appropriate by
management based on historical and other factors that affect collectibility.
One of the Companys significant customers and several smaller customers filed
bankruptcy during fiscal 2001. Several customers filed for bankruptcy during
fiscal 2002 as well. Based upon the Companys assessment of the recoverability
of the receivables from these customers and in the opinion of management, the
Company has established adequate provisions related to these receivables.

Fair value of financial instruments

The carrying amounts of cash, accounts receivable, prepaid expenses and
other current assets, accounts payable, accrued liabilities, and short-term
loans approximate fair value due to the short maturity of these
instruments. The carrying value long-term debt approximates its fair
value.

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MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Derivative Instruments and Hedging Activities

The Company may enter into interest rate swap agreements or foreign
exchange contracts to offset certain operational and balance sheet exposures
and to manage its exposure to interest and exchange rate movements. These
contracts are entered into to support product sales, purchases and financing
transactions made in the normal course of business, and accordingly, are not
speculative in nature. The Company uses interest rate swaps to convert floating-rate debt to
fixed-rate debt. Interest rate swap agreements are executed as an integral
part of specific debt transactions and involve payment of a fixed rate and
receipt of a floating rate and specified intervals. The Company may enter into foreign exchange contracts to manage risk
associated with fluctuations on certain firm sales and purchase commitments
denominated in foreign currencies.

All derivatives are recognized on the balance sheet at their fair value.
On the date that the Company enters into a derivative contract, it designates
the derivative as either (a) a hedge of a forecasted transaction or the
variability of cash flows that are to be received or 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 an asset, liability, or an
unrecognized firm commitment (a fair value hedge). Changes in the fair value
of a derivative that is highly effective, and that is designated and qualifies
as a cash flow hedge to the extent that the hedge is effective, are recorded in
Other Comprehensive Income until earnings are affected by the variability of
cash flows of the hedged transaction (e.g., until periodic settlements of a
variable asset or liability are recorded in earnings). Any hedge
ineffectiveness (which represents the amount by which the changes in the fair
value of the derivative exceed the variability in the cash flows of the
forecasted transaction) is recorded in current-period earnings. Changes in the
fair value of a derivative that is highly effective, and that is designated and
qualifies as a foreign-currency hedge, are recorded in either current-period
earnings or Other Comprehensive Income, depending on whether the hedging
relationship satisfies the criteria for a fair-value or cash-flow hedge.

The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives that are designated as cash flow hedges or specific
firm commitments or forecasted transactions. The Company also formally assesses
(both at the hedges inception and on an ongoing basis) whether the derivatives
that are used in hedging transactions have been highly effective in offsetting
changes in the cash flows of hedged items and whether those derivatives may be
expected to remain highly effective in future periods. All components of each
derivatives gain or loss are included in the assessment of hedge
effectiveness.

When it is determined that a derivative is not, or has ceased to be,
highly effective as a hedge, the Company discontinues hedge accounting
prospectively. A derivative ceases to be highly effective when (a) the Company
determines that the derivative is no longer effective in offsetting changes in
the cash flows of a hedged item such as firm commitments or forecasted
transactions, (b) it is no longer probable that the forecasted transaction will
occur, (c) the derivative expires or is sold, terminated or exercised, or (d)
management determines that designating the derivative as a hedging instrument
is no longer appropriate.

When the Company discontinues hedge accounting because it is no longer
probable that the forecasted transaction will occur in the originally expected
period, the gain or loss on the derivative remains in Accumulated Other
Comprehensive Income and is reclassified into earnings when the forecasted
transaction affects earnings. However, if it is probable that a forecasted
transaction will not occur by the end of the originally specified time period
or within an additional two-month period of time thereafter, the gains and
losses that were accumulated in Accumulated Other Comprehensive Income will be
recognized immediately in earnings. In a situation in which

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MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

Use of estimates in the preparation of financial statements

The preparation of consolidated financial statements, in conformity with
accounting principles generally accepted in the United States, requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the respective reporting periods. Actual results could
differ from those estimates.

Stock-based compensation

The Company has adopted the disclosure only provisions of SFAS No. 123 for
stock options issued to employees. Compensation cost for stock-based
compensation issued to employees has been measured using the intrinsic value
method provided by Accounting Principles Board No. 25.

Accounting pronouncements

In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, Business Combinations(SFAS No. 141). The FASB
also issued SFAS No. 143, Accounting for Obligations Associated with the
retirement of Long-Lived Assets, and SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, in August and October 2001,
respectively.

SFAS No. 141 requires that all business combinations initiated after June
30, 2001 be accounted for under the purchase method. SFAS No. 141 superceded
APB Opinion No. 16, Business Combinations, and SFAS
No. 38, Accounting for
Preacquisition Contingencies of Purchased Enterprisesand is effective for all
business combinations initiated after June 30, 2001.

SFAS No. 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002, with early adoption
permitted. The Company is currently evaluating the provisions of SFAS No. 143
but expects that the provisions will not have a material effect on its
financial position or results of operations upon adoption.

SFAS No. 142, effective for fiscal years beginning after December 15,
2001, addresses the financial accounting and reporting for acquired goodwill
and other intangible assets. Under SFAS No. 142 the Company will no longer be
required to amortize goodwill and other intangible assets with indefinite lives
but will be required to subject these assets to periodic testing for
impairment. The Company is currently evaluating the provisions of SFAS No. 142
but expects that the provisions will not have a material effect on its
financial position or results of operations upon adoption.

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MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SFAS No. 144 establishes a single accounting model for the impairment or
disposal of long-lived assets and new standards for reporting discontinued
operations. SFAS No. 144 is effective in fiscal years beginning after December
15, 2001 and, in general, is to be applied prospectively. The Company is
currently evaluating the provisions of SFAS No. 144 but expects that the
provisions will not have a material effect on its financial position or results
of operations upon adoption.

Reclassifications

Certain reclassifications have been made to conform prior year information
to the fiscal 2002 presentation.



|3. |  | Bank Debt
|-- |  | ---------

In September 2001, the Company refinanced its bank borrowings by entering
into a new credit agreement (the U.S. Credit Agreement) with a bank. The
U.S. Credit Agreement provided the Company with a $32,100,000 credit facility
consisting of a $30,000,000 revolving credit line and a $2,100,000 term loan.
In April 2002, the U.S. Credit Agreement was amended providing the Company with
a $27,100,000 credit facility consisting of a $25,000,000 revolving credit line
(the U.S. Revolving Loan) and a $2,100,000 term loan (the U.S. Term Loan).
Availability under the U.S. Revolving Loan is subject to a borrowing base with
standard advance rates against eligible accounts receivable and inventories.
Amounts outstanding on the U.S. Revolving Loan and U.S. Term Loan at February
28, 2002 were $2.0 million and $1.9 million, respectively. Availability under
the U.S. Revolving Loan at February 28, 2002 was approximately $7,800,000. The
U.S. Term Loan is secured by domestic machinery and equipment. The credit
facility has a three-year term, is collateralized by substantially all of
the domestic assets of the Company and its domestic subsidiaries and
contains certain financial covenants. Outstanding
amounts on the U.S. Revolving Loan and U.S. Term Loan bear interest at the
banks base rate or LIBOR rate plus applicable margins (5.1% and 7.9%,
respectively at February 28, 2002).

Under the terms of
the U.S. Credit Agreement, the Company was required to enter
into an interest-rate swap to convert the variable interest rate on its U.S.
Term Loan to a fixed interest rate. The resulting cost of funds (7.9% per
annum) is currently higher than that which would have been available if the
variable rate had been applied during the period. Under the interest-rate swap
contract, the Company has agreed with the bank to exchange, at specified
intervals, the difference between variable-rate and fixed-rate interest
amounts, calculated by reference to agreed-upon notional amounts. The change in
the fair value of the interest rate swap for the period ended February 28, 2002
was a loss of $26,000 which is included in other comprehensive income for the
year ended February 28, 2002.

In August 2001, the Companys German subsidiary entered into an agreement
with a bank to provide up to approximately $3.8 million in revolving loans
(subject to a borrowing base of eligible accounts receivable and inventories)
expiring in July 2002 and a five-year term loan of approximately $1.3 million
secured by land and buildings owned by the German subsidiary (collectively, the
European Loans). Outstanding amounts on the revolving loan and the term loan
in Europe at February 28, 2002 were $1.2 million and $1.1 million,
respectively. The European Loans bear interest at the banks base rate plus or
minus applicable margins (5.5% and 6.0%, respectively at February 28, 2002).

Aggregate maturities of long-term debt at
February 28, 2002 are as follows:

|             |  |        |           | 
|------------ |  | ------ | --------- | 
|Fiscal Year: |  | Amount
|             |  |       
|2003         |  | $      | 531,000   | 
|2004         |  |        | 531,000   | 
|2005         |  |        | 1,196,000 | 
|2006         |  |        | 736,000   | 
|             |  |       
|Total        |  | $      | 2,994,000 | 
|             |  |       



|4. |  | Commitments and Contingencies
|-- |  | -----------------------------

In December 1996 the Company executed a lease commencing October 1, 1997
for its corporate office and manufacturing facilities. The lease term is ten
years, extendable for an additional ten years (two terms of five years each) at
the Companys option. Lease commitments for this lease are subject to 9%
increases at the beginning of the months 31, 61 and 91. In February 2000, the
Company entered into a lease for warehouse space located near the Companys
corporate headquarters. The warehouse lease expires in 2003.

In August 1999, the Company entered into a lease for an assembly facility
in Tijuana, Mexico. The lease term is five years with three, five-year renewal
options. In January 2000, the Company entered into a lease for an office,
repair and distribution facility in Graefelfing, Germany.

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MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Aggregate future minimum commitments under noncancellable leases and other
agreements at February 28, 2001 that have remaining terms in excess of one year
are as follows:

|                                  |  |         |         |           |  |   |           | 
|--------------------------------- |  | ------- | ------- | --------- |  | - | --------- | 
|Fiscal Year                       |  | Capital |         | Operating
|                                  |  |         |         |          
|2003                              |  | $       | 198,000 |           |  | $ | 2,014,000 | 
|2004                              |  |         | 29,000  |           |  |   | 1,174,000 | 
|2005                              |  |         |        |           |  |   | 1,070,000 | 
|2006                              |  |         |        |           |  |   | 1,070,000 | 
|2007                              |  |         |        |           |  |   | 1,070,000 | 
|Thereafter                        |  |         |        |           |  |   | 778,000   | 
|                                  |  |         |         |           |  |   |           | 
|Net minimum lease payments        |  |         | 227,000 |           |  | $ | 7,176,000 | 
|                                  |  |         |         |           |  |   |           | 
|Less amount representing interest |  |         | 12,000  |           |  |   |           | 
|                                  |  |         |         |           |  |   |           | 
|Capital lease obligations         |  | $       | 215,000 |           |  |   |           | 
|                                  |  |         |         |           |  |   |           | 

For the fiscal years ended February 28 (29), 2002, 2001 and 2000, the
Company incurred rent expense of $2,312,000, $2,294,000 and $1,521,000,
respectively.

In October 2001, the Company filed suit against Tasco Sales, Inc.
(Tasco) and Celestron International, Inc. (Celestron), charging the two
companies with patent infringement and unfair competition. The complaint
alleges that a number of Tascos and Celestrons consumer telescopes willfully
infringe one of the Companys U.S. patents. In addition to seeking
compensation for damages incurred, the suit seeks to enjoin Tasco and Celestron
from continuing to manufacture or sell products that infringe the Companys
patent. Tasco and Celestron filed an answer and a counterclaim which deny the
Companys allegations. The counterclaim also alleges, among other things, that
the Company is infringing a Celestron design patent. Due to the uncertainties
of litigation, the Company is unable to provide an evaluation of the likelihood
of either a favorable or unfavorable outcome in these matters.

On June 3, 1998, a complaint was filed against the Company by Reddwarf
Starware, LLC (Reddwarf) alleging infringement of a U.S. patent by the
Company. On April 29, 1999, the Company filed a motion requesting summary
judgment that the Company had not infringed the patent and a motion requesting
summary judgment that the patent was invalid. On June 30, 1999, the court
granted the motion for summary judgment of non-infringement. On July 2, 1999,
the court held that the Company had not infringed the patent. On or about July
10, 2001, Reddwarf filed a petition for a writ of certiorari, seeking review by
the United States Supreme Court. On October 23, 2001, the Supreme Court denied
the petition for a writ of certiorari thus concluding the matter in the
Companys favor.

The Company is involved from time to time in litigation incidental to its
business. Management believes that the outcome of current litigation will not
have a material adverse effect on the Company.

The Company continues
to be impacted by softness in the consumer market as well as a
competitive pricing pressures, which has resulted in lower sales
across most of the Companys major product lines. During the year,
the Company generated $13,428,000 in cash flow from operations and
was able to reduce amounts outstanding under its line of credit and
long-term debt by $12,743,000. In order for the Company to return to
profitability, it will need to either increase sales or reduce costs,
while continuing to generate cash flow from operations. The Company
continues to depend upon operating cash flow and availability of its bank line of credit to provide short-term liquidity. Management
believes that operating cash flow and bank borrowing capacity should provide sufficient liquidity for the Companys
obligations for the next twelve months. Should the Company be unable
to return to profitability and sustain its cash flows, it may be
required to seek additional sources of capital; however there can be
no assurance that such additional sources of capital will be
available on reasonable terms, if at all.



|5. |  | Employee Stock Ownership Plan
|-- |  | -----------------------------

Adoption of the ESOP was effective March 1, 1996 and covers all employees
of the Company who meet certain service and eligibility requirements. A
participant becomes 100% vested in his ESOP account if, while employed at the
Company, the participant (i) reaches his 60th birthday, (ii) becomes disabled
(as defined), (iii) dies, or (iv) achieves three years of credited service (as
defined). Distributions of a participants vested account are directed by the
ESOPs Administrative Committee. The Company provides a put option to any
participant who receives a distribution of Company stock, unless the stock is
readily tradable on an established market.

In April 1996, the ESOP purchased 3,000,000 shares of common stock held by
the existing stockholders for $11,000,000. The ESOP financed the purchase of
the common stock (the financed shares) with the proceeds of an $11,000,000
term loan (the acquisition loan) from the Company. The financed shares are
held by the Meade Instruments Corp. Employee Stock Ownership Trust (the ESOP
trust). The ESOP pledged the financed shares to the Company as security for
the acquisition loan. The financed shares were initially credited to a suspense
account on the books of the ESOP and will be allocated to the accounts of
individual ESOP participants, as of each plan year end, for payments made on
the acquisition loan. The acquisition loan has a twenty-year term and bears
interest at 6%

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##### Table of Contents



MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

per annum. Principal and interest is due annually, subject to the Company
making contributions to the ESOP to fund the principal and interest payments.
The release of financed shares from collateral is based on a formula defined in
the plan. The Company accounts for its ESOP in accordance with Statement of
Position 93-6. Accordingly, the shares pledged as collateral are reported as
unearned ESOP shares in the balance sheet. As shares are committed to be
released from collateral, the Company records compensation expense, and the
shares become outstanding for net income per share purposes. Any dividends on
allocated shares are recorded as a reduction of retained earnings; any
dividends on unallocated ESOP shares are recorded as a reduction of debt and
accrued interest.

For the years ended February 28 (29), 2002, 2001 and 2000, the Company
recognized ESOP contribution expense of $1,367,000, $2,997,000 and $1,861,000,
respectively.

As of February 28, 2002, approximately 1,426,000 shares in the ESOP trust
have been allocated to individual participants. Allocations to individual
participant accounts are made in the ratio that the compensation of each
participant bears to the total compensation of all such participants. There are
approximately 1,574,000 shares in suspense at February 28, 2002, including
approximately 325,000 shares committed to be released as of February 28, 2002.

The fair value of the common stock upon purchase from the existing
stockholders in April 1996 was determined to be $3.67 per share. Under the
terms of the ESOP, the fair value of the common stock at any plan year end is
to be determined by an independent appraiser so long as the stock is not
readily tradable on an established market. The fair value of the shares held by
the ESOP at February 28, 2002 was $2.55 per share, the market price as
determined by the Nasdaq National Market. At February 28, 2002 there was no
repurchase obligation.



|6. |  | Income Taxes
|-- |  | ------------

Pretax income (loss) from continuing operations for each of the three
years ended February 28 (29), 2002, 2001 and 2000 consists of the following:

|         |  |                              |            |      |  |      |           |  |  |   |            | 
|-------- |  | ---------------------------- | ---------- | ---- |  | ---- | --------- |  |  | - | ---------- | 
|         |  | Year Ended February 28 (29),
|         |  |                             
|         |  | 2002                         |            | 2001 |  | 2000
|         |  |                              |            |      |  |     
|Domestic |  | $                            | (2,496,000 | )    |  | $    | 2,847,000 |  |  | $ | 19,474,000 | 
|Foreign  |  |                              | 209,000    |      |  |      | 28,000    |  |  |   | 1,529,000  | 
|         |  |                              |            |      |  |      |           |  |  |   |            | 
|         |  | $                            | (2,287,000 | )    |  | $    | 2,875,000 |  |  | $ | 21,003,000 | 
|         |  |                              |            |      |  |      |           |  |  |   |            | 

Significant components of the provision for income taxes are as follows:

|          |         |   |                              |          |      |   |           |         |  |   |            |            |  
|--------- | ------- | - | ---------------------------- | -------- | ---- | - | --------- | ------- |  | - | ---------- | ---------- | -
|          |         |   | Year Ended February 28 (29),
|          |         |   |                             
|          |         |   | 2002                         |          | 2001 |   | 2000     
|          |         |   |                              |          |      |   |          
|Current:  |         |   |                              |          |      |   |           |         |  |   |            |           
|          | Federal |   | $                            | (609,000 | )    |   | $         | 766,000 |  |   | $          | 9,753,000  |  
|          | State   |   |                              | (84,000  | )    |   |           | 266,000 |  |   |            | 1,976,000  |  
|          | Foreign |   |                              | (168,000 | )    |   |           |        |  |   |            | 676,000    |  
|          |         |   |                              |          |      |   |           |         |  |   |            |           
|          |         |   | (861,000                     | )        |      |   | 1,032,000 |         |  |   | 12,405,000 |           
|          |         |   |                              |          |      |   |           |         |  |   |            |           
|Deferred: |         |   |                              |          |      |   |           |         |  |   |            |           
|          | Federal |   |                              | 51,000   |      |   |           | 508,000 |  |   |            | (2,886,000 | )
|          | State   |   |                              | (51,000  | )    |   |           | 49,000  |  |   |            | (575,000   | )
|          | Foreign |   |                              | 16,000   |      |   |           |        |  |   |            | 104,000    |  
|          |         |   |                              |          |      |   |           |         |  |   |            |           
|          |         |   | 16,000                       |          |      |   | 557,000   |         |  |   | (3,357,000 | )         
|          |         |   |                              |          |      |   |           |         |  |   |            |           
|          |         | $ | (845,000                     | )        |      | $ | 1,589,000 |         |  | $ | 9,048,000  |           
|          |         |   |                              |          |      |   |           |         |  |   |            |           

F-13



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##### Table of Contents



MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The provision for income taxes differed from the amount computed by
applying the U.S. federal statutory rate to income before income taxes due to
the effects of the following:

|                                                      |  |                   |       |      |  |      |       |   |  |  |      |  
|----------------------------------------------------- |  | ----------------- | ----- | ---- |  | ---- | ----- | - |  |  | ---- | -
|                                                      |  | Year Ended       
|                                                      |  | February 28 (29),
|                                                      |  |                  
|                                                      |  | 2002              |       | 2001 |  | 2000
|                                                      |  |                   |       |      |  |     
|Federal income tax rate                               |  |                   | (34.0 | )%   |  |      | 34.0  | % |  |  | 35.0 | %
|State income taxes, net of federal income tax benefit |  |                   | (8.1  | )    |  |      | 12.3  |   |  |  | 5.7  |  
|Non-deductible ESOP charge                            |  |                   | 2.6   |      |  |      | 26.3  |   |  |  | 1.7  |  
|Favorable resolution of tax issues                    |  |                   | 3.0   |      |  |      | (15.7 | ) |  |  |     |  
|Other                                                 |  |                   | (0.4  | )    |  |      | (1.6  | ) |  |  | 0.7  |  
|                                                      |  |                   |       |      |  |      |       |   |  |  |      |  
|                                                      |  |                   | (36.9 | )%   |  |      | 55.3  | % |  |  | 43.1 | %
|                                                      |  |                   |       |      |  |      |       |   |  |  |      |  

The significant components of the net deferred tax asset were as follows:

|                                  |  |              |           |              |  |   |           | 
|--------------------------------- |  | ------------ | --------- | ------------ |  | - | --------- | 
|                                  |  | February 28, |           | February 28,
|                                  |  | 2002         |           | 2001        
|                                  |  |              |           |             
|Sales returns                     |  | $            | 1,733,000 |              |  | $ | 2,754,000 | 
|Inventory and accounts receivable |  |              | 4,023,000 |              |  |   | 2,618,000 | 
|Accrued liabilities               |  |              | 955,000   |              |  |   | 1,202,000 | 
|Other                             |  |              | 300,000   |              |  |   | 341,000   | 
|                                  |  |              |           |              |  |   |           | 
|                                  |  | $            | 7,011,000 |              |  | $ | 6,915,000 | 
|                                  |  |              |           |              |  |   |           | 



|7. |  | Business Segments, Geographic Data and Major Customers
|-- |  | ------------------------------------------------------

The Company is a multinational consumer optics company that designs,
manufactures, imports and distributes telescopes, telescope accessories,
binoculars and other optical products. The Company is organized and operates as
one segment in two principal geographic locations  North America and Europe.
The following tables present information about product sales and geographic
data for the fiscal years ended February 28 (29), 2002, 2001 and 2000.

|                                    |  |                              |            |      |  |      |             |  |  |   |             | 
|----------------------------------- |  | ---------------------------- | ---------- | ---- |  | ---- | ----------- |  |  | - | ----------- | 
|                                    |  | Year Ended February 28 (29),
|                                    |  |                             
|                                    |  | 2002                         |            | 2001 |  | 2000
|                                    |  |                              |            |      |  |     
|Product sales:                      |  |                              |            |      |  |      |             |  |  |   |             | 
|Telescope and telescope accessories |  | $                            | 81,864,000 |      |  | $    | 113,610,000 |  |  | $ | 117,393,000 | 
|Binoculars                          |  |                              | 9,960,000  |      |  |      | 7,732,000   |  |  |   | 8,135,000   | 
|Other                               |  |                              | 2,894,000  |      |  |      | 1,658,000   |  |  |   | 1,280,000   | 
|                                    |  |                              |            |      |  |      |             |  |  |   |             | 
|                                    |  | $                            | 94,718,000 |      |  | $    | 123,000,000 |  |  | $ | 126,808,000 | 
|                                    |  |                              |            |      |  |      |             |  |  |   |             | 

|                                 |  |                              |            |      |  |      |             |  |  |   |             | 
|-------------------------------- |  | ---------------------------- | ---------- | ---- |  | ---- | ----------- |  |  | - | ----------- | 
|                                 |  | Year Ended February 28 (29),
|                                 |  |                             
|                                 |  | 2002                         |            | 2001 |  | 2000
|                                 |  |                              |            |      |  |     
|Geographic data  product sales: |  |                              |            |      |  |      |             |  |  |   |             | 
|North America                    |  | $                            | 69,290,000 |      |  | $    | 97,300,000  |  |  | $ | 98,309,000  | 
|Germany                          |  |                              | 16,631,000 |      |  |      | 13,751,000  |  |  |   | 15,734,000  | 
|Other foreign                    |  |                              | 8,797,000  |      |  |      | 11,949,000  |  |  |   | 12,765,000  | 
|                                 |  |                              |            |      |  |      |             |  |  |   |             | 
|                                 |  | $                            | 94,718,000 |      |  | $    | 123,000,000 |  |  | $ | 126,808,000 | 
|                                 |  |                              |            |      |  |      |             |  |  |   |             | 

|                                     |  |                              |            |      |  |      |            |  |  |   |            | 
|------------------------------------ |  | ---------------------------- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                                     |  | Year Ended February 28 (29),
|                                     |  |                             
|                                     |  | 2002                         |            | 2001 |  | 2000
|                                     |  |                              |            |      |  |     
|Geographic data  long-lived assets: |  |                              |            |      |  |      |            |  |  |   |            | 
|North America                        |  | $                            | 6,218,000  |      |  | $    | 6,666,000  |  |  | $ | 5,461,000  | 
|Germany                              |  |                              | 4,579,000  |      |  |      | 4,989,000  |  |  |   | 5,093,000  | 
|                                     |  |                              |            |      |  |      |            |  |  |   |            | 
|                                     |  | $                            | 10,797,000 |      |  | $    | 11,655,000 |  |  | $ | 10,554,000 | 
|                                     |  |                              |            |      |  |      |            |  |  |   |            | 

The Company generated
13% of its revenue from one customer and 11% of
its revenue from another customer during the year ended February 28, 2002. The
Company generated 13% of its revenue from one customer

F-14



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##### Table of Contents



MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

during the year ended February 28, 2001. No single customer accounted for
10% or more of the Companys revenue for the year ended February 29, 2000.



|8. |  | Stock Incentive Plan
|-- |  | --------------------

In February 1997, the Companys Board of Directors adopted the 1997 Stock
Incentive Plan (the Plan). The Plan provides for the grant of incentive and
non-qualified stock options, restricted stock, stock appreciation rights
(SARs), and performance share awards to certain key employees (including
officers, whether or not directors) of the Company or its subsidiaries. The
Company has received director and stockholder approval to grant options and
other awards with respect to 4,000,000 shares of common stock under the Plan.
Awards under the Plan generally vest after six months and become exercisable
over a four-year period, or as determined by the Compensation Committee of the
Board of Directors. Stock options generally remain exercisable for a period of
ten years from the date of grant. The Board of Directors has also granted
non-qualified stock options to purchase common stock to each of the Companys
non-employee directors. The non-employee directors are granted 5,000 options
each when elected and 5,000 each upon their re-election to the Board of
Directors at the Companys Annual Meeting each year. The directors options
vest in equal annual amounts over three years. Option activity during fiscal
years 2001 and 2000 was as follows:

|                                         |  |        |           |                |  |          |      | 
|---------------------------------------- |  | ------ | --------- | -------------- |  | -------- | ---- | 
|                                         |  |        |           |                |  | Weighted
|                                         |  | Option |           | Average       
|                                         |  | Shares |           | Exercise Price
|                                         |  |        |           |               
|Options outstanding at February 28, 1999 |  |        | 1,798,000 |                |  |          | 4.18 | 
|Granted                                  |  |        | 940,000   |                |  |          | 5.57 | 
|Exercised                                |  |        | (248,000  | )              |  |          | 3.77 | 
|Forfeited                                |  |        | (64,000   | )              |  |          | 5.09 | 
|                                         |  |        |           |                |  |          |      | 
|Options outstanding at February 29, 2000 |  |        | 2,426,000 |                |  |          | 4.92 | 
|Granted                                  |  |        | 1,266,000 |                |  |          | 8.78 | 
|Exercised                                |  |        | (258,000  | )              |  |          | 4.20 | 
|Forfeited                                |  |        | (11,000   | )              |  |          | 6.94 | 
|                                         |  |        |           |                |  |          |      | 
|Options outstanding at February 28, 2001 |  |        | 3,423,000 |                |  |          | 6.41 | 
|Granted                                  |  |        | 43,000    |                |  |          | 5.33 | 
|Exercised                                |  |        |          |                |  |          |     | 
|Forfeited                                |  |        | (9,000    | )              |  |          | 6.51 | 
|                                         |  |        |           |                |  |          |      | 
|Options outstanding at February 28, 2002 |  |        | 3,457,000 |                |  |          | 6.39 | 
|                                         |  |        |           |                |  |          |      | 

|                    |                |                     |           |                  |  |                |                  |        |          |                |  |  |         |           |           |  |       |      |  |  | 
|------------------- | -------------- | ------------------- | --------- | ---------------- |  | -------------- | ---------------- | ------ | -------- | -------------- |  |  | ------- | --------- | --------- |  | ----- | ---- |  |  | 
|Options Outstanding |                | Options Exercisable
|                    |                |                    
|                    |                |                     |           |                  |  |                | Weighted Average |        | Weighted |                |  |  |         |           | Weighted 
|                    |                |                     |           |                  |  |                | Remaining        |        | Average  |                |  |  |         |           | Average  
|Exercise Prices     |                | Shares              |           | Contractual Life |  | Exercise Price |                  | Shares |          | Exercise Price
|                    |                |                     |           |                  |  |                |                  |        |          |               
|                    | $3.22
 $3.81  |                     |           | 365,000          |  |                | 5.2 years        |        | $        | 3.55           |  |  |         | 362,000   |           |  | $     | 3.55 | 
|                    | $4.44
 $5.59  |                     |           | 2,291,000        |  |                | 7.2 years        |        | $        | 4.92           |  |  |         | 1,738,000 |           |  |       | 4.87 | 
|                    | $6.25
 $10.31 |                     |           | 59,000           |  |                | 8.0 years        |        | $        | 8.12           |  |  |         | 28,000    |           |  |       | 8.59 | 
|$11.06
 $12.13     |                |                     | 668,000   |                  |  | 8.0 years      |                  | $      | 11.20    |                |  |  | 339,000 |           |           |  | 11.21 |     
|$17.13
 $27.75     |                |                     | 74,000    |                  |  | 8.3 years      |                  | $      | 21.29    |                |  |  | 32,000  |           |           |  | 21.24 |     
|                    |                |                     |           |                  |  |                |                  |        |          |                |  |  |         |           |           |  |       |      |  | 
|                    |                |                     | 3,457,000 |                  |  |                |                  |        |          |                |  |  |         |           | 2,499,000 |  |       |      |  | 
|                    |                |                     |           |                  |  |                |                  |        |          |                |  |  |         |           |           |  |       |      |  | 

The exercise price of options granted to employees was equal to the market
price at the grant date. Options granted to employees generally become
exercisable 25% after one year and ratably over the following 36 months or as
otherwise determined by the Board of Directors. At February 28, 2002,
3,453,000 outstanding options for common stock were
vested. The option prices range from $3.22 to $27.75 per share and are
exercisable over periods ending no later than 2012.

The Company has adopted the disclosure only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the fixed stock
option plans. Had compensation cost for the Companys stock-based compensation
plans been determined based on the fair value at the grant dates for awards
under those plans,

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##### Table of Contents



MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

consistent with the method prescribed by SFAS No. 123, the Companys net
income available to common stockholders and earnings per share would have been
reduced to the pro forma amounts indicated below.

|                                                   |  |                              |            |      |  |      |          |   |  |   |            | 
|-------------------------------------------------- |  | ---------------------------- | ---------- | ---- |  | ---- | -------- | - |  | - | ---------- | 
|                                                   |  | Year Ended February 28 (29),
|                                                   |  |                             
|                                                   |  | 2002                         |            | 2001 |  | 2000
|                                                   |  |                              |            |      |  |     
|Pro forma:                                         |  |                              |            |      |  |      |          |   |  |   |            | 
|Net income (loss) available to common stockholders |  | $                            | (3,521,000 | )    |  | $    | (690,000 | ) |  | $ | 11,362,000 | 
|Earnings (loss) per share-basic                    |  |                              | (0.23      | )    |  |      | (0.05    | ) |  |   | 0.81       | 
|Earnings (loss) per share-diluted                  |  |                              | (0.23      | )    |  |      | (0.05    | ) |  |   | 0.73       | 

The pro forma disclosures are not representative of the effects on net
income available to common stockholders and earnings per share in future years.

The fair value of the Companys stock options used to compute pro forma
net income and earnings per share disclosures is the estimated present value at
grant date using the Black-Scholes option-pricing model with the following
assumptions:

|                                               |  |                             |      |      |  |      |      |   |  |   |      |  
|---------------------------------------------- |  | --------------------------- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                               |  | Year Ended February 28 (29)
|                                               |  |                            
|                                               |  | 2002                        |      | 2001 |  | 2000
|                                               |  |                             |      |      |  |     
|Weighted average expected life (years)         |  |                             | 4.0  |      |  |      | 4.0  |   |  |   | 4.0  |  
|Volatility                                     |  |                             | 93.8 | %    |  |      | 83.5 | % |  |   | 38.6 | %
|Risk-free interest rate                        |  |                             | 4.18 | %    |  |      | 5.01 | % |  |   | 6.64 | %
|Expected dividends                             |  | None                        |      | None |  | None
|Weighted average fair value of options granted |  | $                           | 3.62 |      |  | $    | 5.64 |   |  | $ | 2.28 |  



|9. |  | Composition of Certain Balance Sheet Accounts
|-- |  | ---------------------------------------------

The composition of inventories is as follows:

|                |  |              |            |              |  |   |            | 
|--------------- |  | ------------ | ---------- | ------------ |  | - | ---------- | 
|                |  | February 28, |            | February 28,
|                |  | 2002         |            | 2001        
|                |  |              |            |             
|Raw materials   |  | $            | 8,529,000  |              |  | $ | 9,915,000  | 
|Work in process |  |              | 4,997,000  |              |  |   | 7,919,000  | 
|Finished goods  |  |              | 16,277,000 |              |  |   | 23,817,000 | 
|                |  |              |            |              |  |   |            | 
|                |  | $            | 29,803,000 |              |  | $ | 41,651,000 | 
|                |  |              |            |              |  |   |            | 

The composition of other assets is as follows:

|                         |  |              |           |              |  |   |           |  
|------------------------ |  | ------------ | --------- | ------------ |  | - | --------- | -
|                         |  | February 28, |           | February 28,
|                         |  | 2002         |           | 2001        
|                         |  |              |           |             
|Goodwill                 |  | $            | 2,325,000 |              |  | $ | 2,325,000 |  
|Trademarks               |  |              | 1,398,000 |              |  |   | 1,398,000 |  
|Other long-term assets   |  |              | 1,060,000 |              |  |   | 742,000   |  
|                         |  |              |           |              |  |   |           |  
|                         |  |              | 4,783,000 |              |  |   | 4,465,000 |  
|Accumulated amortization |  |              | (594,000  | )            |  |   | (515,000  | )
|                         |  |              |           |              |  |   |           |  
|                         |  | $            | 4,189,000 |              |  | $ | 3,950,000 |  
|                         |  |              |           |              |  |   |           |  

F-16



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##### Table of Contents



MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The composition of property and equipment is as follows:

|                                               |  |              |            |              |  |   |            |  
|---------------------------------------------- |  | ------------ | ---------- | ------------ |  | - | ---------- | -
|                                               |  | February 28, |            | February 28,
|                                               |  | 2002         |            | 2001        
|                                               |  |              |            |             
|Land                                           |  | $            | 158,000    |              |  | $ | 164,000    |  
|Buildings                                      |  |              | 1,634,000  |              |  |   | 1,679,000  |  
|Molds and dies                                 |  |              | 5,540,000  |              |  |   | 5,041,000  |  
|Machinery and equipment                        |  |              | 3,325,000  |              |  |   | 3,224,000  |  
|Furniture and fixtures                         |  |              | 1,900,000  |              |  |   | 1,810,000  |  
|Autos and trucks                               |  |              | 176,000    |              |  |   | 176,000    |  
|Leasehold improvements                         |  |              | 1,131,000  |              |  |   | 1,077,000  |  
|                                               |  |              |            |              |  |   |            |  
|                                               |  |              | 13,864,000 |              |  |   | 13,171,000 |  
|Less accumulated depreciation and amortization |  |              | (7,256,000 | )            |  |   | (5,466,000 | )
|                                               |  |              |            |              |  |   |            |  
|                                               |  | $            | 6,608,000  |              |  | $ | 7,705,000  |  
|                                               |  |              |            |              |  |   |            |  

The gross value of assets under capital leases included above are $636,000
and $1,724,000 at February 28, 2002, and February 28, 2001, respectively. For
the fiscal years ended February 28 (29), 2002, 2001 and 2000, the Company
incurred depreciation expense of $1,790,000, $1,551,000 and $1,156,000,
respectively.

The composition of accrued liabilities is as follows:

|                                                                    |  |              |           |              |  |   |           | 
|------------------------------------------------------------------- |  | ------------ | --------- | ------------ |  | - | --------- | 
|                                                                    |  | February 28, |           | February 28,
|                                                                    |  | 2002         |           | 2001        
|                                                                    |  |              |           |             
|Salaries, wages, bonuses and other associated payroll costs         |  | $            | 1,254,000 |              |  | $ | 1,110,000 | 
|Advertising, cooperative advertising, shows
and convention expenses |  |              | 759,000   |              |  |   | 1,609,000 | 
|Professional fees                                                   |  |              | 758,000   |              |  |   | 225,000   | 
|Other                                                               |  |              | 862,000   |              |  |   | 1,107,000 | 
|                                                                    |  |              |           |              |  |   |           | 
|                                                                    |  | $            | 3,633,000 |              |  | $ | 4,051,000 | 
|                                                                    |  |              |           |              |  |   |           | 

F-17



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##### Table of Contents






SIGNATURES

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

|                    |                                                                 |                   
|------------------- | --------------------------------------------------------------- | ------------------
|Dated: May 29, 2002 | MEADE INSTRUMENTS CORP.                                        
|                   
|                    | By:                                                             | /s/ JOHN C. DIEBEL
|                    |                                                                
|                    | John C. DiebelChairman of the Board
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.

|                                                  |  |                                                                                                          |  |             
|------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- |  | ------------
|Signature                                         |  | Title                                                                                                    |  | Date        
|                                                  |  |                                                                                                          |  |             
|/s/    JOHN C. DIEBELJohn C. Diebel               |  | Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)                          |  | May 29, 2002
|                                                 
|/s/    STEVEN G. MURDOCKSteven G. Murdock         |  | Director, President, Chief Operating Officer and Secretary                                               |  | May 29, 2002
|                                                 
|/s/    BRENT W. CHRISTENSENBrent W. Christensen   |  | Senior Vice President  Finance and Chief Financial Officer
(Principal Financial and Accounting Officer) |  | May 29, 2002
|                                                 
|/s/    JOSEPH A. GORDON, JR.Joseph A. Gordon, Jr. |  | Director and Senior Vice President  North American Sales                                                |  | May 29, 2002
|                                                 
|/s/    TIMOTHY C. MCQUAYTimothy C. McQuay         |  | Director                                                                                                 |  | May 29, 2002
|                                                 
|                                                 
|/s/
HARRY L. CASARIHarry L. Casari                |  | Director                                                                                                 |  | May 29, 2002
|                                                 
|Michael P. Hoopis                                 |  | Director                                                                                                 |  |             
|                                                 
|Vernon L. Fotheringham                            |  | Director                                                                                                 |  |             

F-18



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##### Table of Contents



II  VALUATION AND QUALIFYING ACCOUNTS

|                                |  |              |           |                  |  |                  |           |               |  |           |        |                |  |   |           |  |  |   |           | 
|------------------------------- |  | ------------ | --------- | ---------------- |  | ---------------- | --------- | ------------- |  | --------- | ------ | -------------- |  | - | --------- |  |  | - | --------- | 
|                                |  | Balance At   |           |                  |  |                  |           |               |  |           |        |                |  |   |           |  |  |  
|                                |  | Beginning of |           | Charged to Costs |  | Charged to Other |           |               |  |           |        | Balance At End
|Allowance for Doubtful Accounts |  | Period       |           | and Expenses     |  | Accounts         |           | Deductions(1) |  | of Period
|                                |  |              |           |                  |  |                  |           |               |  |          
|Year ended February 29, 2000    |  | $            | 2,243,000 |                  |  | $                | 1,598,000 |               |  | $         | 82,000 |                |  | $ | 62,000    |  |  | $ | 3,861,000 | 
|Year ended February 28, 2001    |  | $            | 3,861,000 |                  |  | $                | 1,867,000 |               |  |           |        |                |  | $ | 3,553,000 |  |  | $ | 2,175,000 | 
|Year ended February 28, 2002    |  | $            | 2,175,000 |                  |  | $                | 2,090,000 |               |  |           |        |                |  | $ | 2,033,000 |  |  | $ | 2,232,000 | 

|                                 |  |              |           |                  |  |                  |           |            |  |           |  |                |  |  |         |  |  |   |           | 
|-------------------------------- |  | ------------ | --------- | ---------------- |  | ---------------- | --------- | ---------- |  | --------- |  | -------------- |  |  | ------- |  |  | - | --------- | 
|                                 |  | Balance At   |           |                  |  |                  |           |            |  |           |  |                |  |  |         |  |  |  
|                                 |  | Beginning of |           | Charged to Costs |  | Charged to Other |           |            |  |           |  | Balance At End
|Allowance for Excess Inventories |  | Period       |           | and Expenses     |  | Accounts         |           | Deductions |  | of Period
|                                 |  |              |           |                  |  |                  |           |            |  |          
|Year ended February 29, 2000     |  | $            | 1,725,000 |                  |  | $                | 859,000   |            |  |           |  |                |  |  |         |  |  | $ | 2,584,000 | 
|Year ended February 28, 2001     |  | $            | 2,584,000 |                  |  | $                | 6,522,000 |            |  |           |  |                |  |  |         |  |  | $ | 9,106,000 | 
|Year ended February 28, 2002     |  | $            | 9,106,000 |                  |  | $                | 281,000   |            |  |           |  |                |  |  | 288,000 |  |  | $ | 9,099,000 | 



---

|(1) |  | Write-off of delinquent accounts
|--- |  | --------------------------------





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##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                                  |  |              
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                  |  | Incorporation
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                      |  | 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, Rudolph Bresser, the Company and Meade Instruments Europe
Corp., a California corporation (excluding Exhibits and Schedules thereto) |  | (h)          
|3.1    |  | Certificate of Incorporation of the Company, as amended                                                                                                                                                                                                                                                                                                          |  | (c)          
|3.2    |  | Amended and Restated Bylaws of the Company                                                                                                                                                                                                                                                                                                                       |  | (i)          
|3.3    |  | Amendment to Amended and Restated Bylaws of the Company                                                                                                                                                                                                                                                                                                          |  | (j)          
|4.1    |  | Specimen stock certificate                                                                                                                                                                                                                                                                                                                                       |  | (d)          
|10.7   |  | Industrial Lease (Single Tenant; Net; Stand-Alone), dated December 20, 1996,
between The Irvine Company and the Company                                                                                                                                                                                                                                          |  | (a)          
|10.13  |  | Meade Instruments Corp. Employee Stock Ownership Plan (the ESOP), as
amended and restated effective as of January 1, 1999                                                                                                                                                                                                                                      |  | (f)          
|10.14  |  | Employee Stock Ownership Trust Agreement, as Amended and Restated as of
April 9, 1997, between the Company and Wells Fargo Bank, N.A                                                                                                                                                                                                                             |  | (e)          
|10.15  |  | Employee Stock Ownership Plan Loan and Pledge Agreement, dated April 23,
1996, between the ESOP and the Company, as amended                                                                                                                                                                                                                                      |  | (a)          
|10.20  |  | Form of Trademark Distribution Agreement for EEC Countries                                                                                                                                                                                                                                                                                                       |  | (a)          
|10.21  |  | Form of Trademark Distribution Agreement for Non-EEC Countries                                                                                                                                                                                                                                                                                                   |  | (a)          
|10.24  |  | Celtic Master Lease, dated as of February 23, 1995, by and between the
Company and Celtic Leasing Corp.                                                                                                                                                                                                                                                          |  | (b)          
|10.29  |  | Meade Instruments Corp. 1997 Stock Incentive Plan, as amended                                                                                                                                                                                                                                                                                                    |  | (m)          
|10.30  |  | Form of Agreement of Merger, by and between the Company and the
predecessor of the Company                                                                                                                                                                                                                                                                       |  | (b)          
|10.33  |  | Agreement, dated as of May 5, 1998, by and between the Company and Weidy
Optical Co., Ltd.                                                                                                                                                                                                                                                                       |  | (e)          
|10.35  |  | Form Indemnification Agreement, by and between the Company and each
member of the Board of Directors and certain executive officers                                                                                                                                                                                                                              |  | (e)          
|10.42  |  | Form Employment Agreement, by and between the Company and current
executive officers of the Company                                                                                                                                                                                                                                                              |  | (j)          
|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)          
|10.44  |  | Amendment No. 1 to Amended and Restated Employee Stock Ownership Plan                                                                                                                                                                                                                                                                                            |  | (k)          
|10.45  |  | Credit Agreement, dated as of September 24, 2001, between Bank of America,
N.A. as the Lender and Meade Instruments Corp. as the Borrower (excluding
Exhibits and Schedules thereto)                                                                                                                                                                             |  | (l)          
|10.46   |  | Amendment No. 1 to Credit Agreement, dated as of April 15, 2002, between
Bank of America, N.A. as the Lender and Meade Instruments Corp. as the
Borrower (excluding Exhibits and Schedules thereto)                                                                                                                                                              |  |              
|23.1    |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                                                                                                            |  |              



---

| |  | Previously filed with the Securities and Exchange Commission as set
forth in the following table:
|- |  | -------------------------------------------------------------------------------------------------





---



##### Table of Contents



|(a) |  | Incorporated by reference to the Companys Registration Statement on Form
S-1 (Registration No. 333-21123), as filed with the Securities and
Exchange Commission on February 4, 1997.                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | Incorporated by reference to the Companys Amendment No. 1 to
Registration Statement on Form S-1 (Registration No. 333-21123), as filed
with the Securities and Exchange Commission on February 27, 1997.                                      
|   
|   
|   
|   
|(c) |  | Incorporated by reference to the Companys Amendment No. 2 to
Registration Statement on Form S-1 (Registration No. 333-21123), as filed
with the Securities and Exchange Commission on March 13, 1997.                                         
|   
|   
|   
|   
|(d) |  | Incorporated by reference to the Companys Amendment No. 3 to
Registration Statement on Form S-1 (Registration No. 333-21123), as filed
with the Securities and Exchange Commission on March 25, 1997.                                         
|   
|   
|   
|   
|(e) |  | Incorporated by reference to the Companys Annual Report on Form 10-K for
the Fiscal Year Ended February 28, 1998, as filed with the Securities and
Exchange Commission on May 29, 1998.                                                       
|   
|   
|   
|   
|(f) |  | Incorporated by reference to the Companys Registration Statement on Form
S-8 relating to the Companys Employee Stock Ownership Plan, as filed with
the Securities and Exchange Commission on April 16, 1999.                                 
|   
|   
|   
|   
|(g) |  | Incorporated by reference to the Companys 1999 Proxy Statement on
Schedule 14A, as filed with the Securities and Exchange Commission on June
8, 1999.                                                                                         
|   
|   
|   
|   
|(h) |  | Incorporated by reference to the Companys Current Report on Form 8-K, as
filed with the Securities and Exchange Commission on September 15, 1999.                                                                                             
|   
|   
|   
|   
|(i) |  | Incorporated by reference to the Companys Quarterly Report on Form 10-Q
for the Quarterly Period Ended November 30, 1999, as filed with the
Securities and Exchange Commission on January 14, 2000.                                           
|   
|   
|   
|   
|(j) |  | Incorporated by reference to the Companys Annual Report on Form 10-K for
the Fiscal Year Ended February 29, 2000, as filed with the Securities and
Exchange Commission on May 29, 2000.                                                       
|   
|   
|   
|   
|(k) |  | Incorporated by reference to the Companys Annual Report on Form 10-K for
the Fiscal Year Ended February 29, 2001, as filed with the Securities and
Exchange Commission on May 29, 2001.                                                       
|   
|   
|   
|   
|(l) |  | Incorporated by reference to the Companys Quarterly Report on Form 10-Q
for the Quarterly Period Ended August 31, 2001, as filed with the
Securities and Exchange Commission on October 15, 2001.                                             
|   
|   
|   
|   
|(m) |  | Incorporated by reference to the Companys Registration Statement on Form
S-8 (Registration No. 333-86818), relating to the Companys Stock
Incentive Plan, as amended, as filed with the Securities and Exchange
Commission on April 24, 2002.