1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q ------------------------ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED NOVEMBER 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-22183 ------------------------ MEADE INSTRUMENTS CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-2988062 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 6001 OAK CANYON, IRVINE, CA 92618 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 451-1450 ------------------------ 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 [ ] Number of shares of common stock outstanding as of November 30, 1999 is 8,037,170 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 MEADE INSTRUMENTS CORP. TABLE OF CONTENTS PAGE ------ PART I -- FINANCIAL INFORMATION Consolidated Balance Sheets (Unaudited) -- November 30, 1999 and February 28, 1999..................................... 3 Consolidated Statements of Income (Unaudited) -- Three Months and Nine Months Ended November 30, 1999 and 1998... 4 Consolidated Statements of Cash Flows (Unaudited) -- Nine Months Ended November 30, 1999 and 1998................... 5 Notes to Consolidated Financial Statements (Unaudited)...... 6 - 8 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 9 - 12 PART II -- OTHER INFORMATION Other Information........................................... 13 Signatures.................................................. 14 Exhibit Index............................................... 15 2 3 ITEM 1. FINANCIAL STATEMENTS MEADE INSTRUMENTS CORP. CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS NOVEMBER 30, FEBRUARY 28, 1999 1999 ------------ ------------ Current assets: Cash...................................................... $ 2,684,000 $ 1,283,000 Accounts receivable, less allowance for doubtful accounts of $3,466,000 at November 30, 1999 and $2,243,000 at February 28, 1999...................................... 30,873,000 10,864,000 Inventories............................................... 30,701,000 14,191,000 Deferred income taxes..................................... 5,730,000 3,928,000 Prepaid expenses and other current assets................. 431,000 256,000 ----------- ----------- Total current assets.............................. 70,419,000 30,522,000 Other assets................................................ 4,462,000 274,000 Property and equipment, net of accumulated depreciation of $2,930,000 at November 30, 1999 and $2,071,000 at February 28, 1999.................................................. 6,427,000 3,828,000 ----------- ----------- $81,308,000 $34,624,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank line of credit....................................... $14,469,000 $ -- Accounts payable.......................................... 6,480,000 1,503,000 Accrued liabilities....................................... 8,828,000 5,386,000 Income taxes payable...................................... 5,632,000 1,991,000 Current portion long-term debt and capital lease obligations............................................ 733,000 254,000 ----------- ----------- Total current liabilities......................... 36,142,000 9,134,000 ----------- ----------- Long-term debt.............................................. 4,750,000 -- Long-term capital lease obligations, net of current portion................................................... 503,000 223,000 ----------- ----------- Commitments and contingencies Stockholders' equity: Common stock, $0.01 par value, 20,000,000 shares authorized; 8,037,170 and 7,875,500 shares issued and outstanding at November 30, 1999 and February 28, 1999, respectively........................................... 80,000 79,000 Additional paid-in capital................................ 24,888,000 21,803,000 Retained earnings......................................... 21,559,000 10,502,000 Cumulative currency translation adjustment................ (135,000) -- ----------- ----------- 46,392,000 32,384,000 Unearned ESOP shares...................................... (6,479,000) (7,117,000) ----------- ----------- Total stockholders' equity........................ 39,913,000 25,267,000 ----------- ----------- $81,308,000 $34,624,000 =========== =========== See accompanying notes to consolidated financial statements. 3 4 MEADE INSTRUMENTS CORP. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED NOVEMBER 30, NOVEMBER 30, -------------------------- --------------------------- 1999 1998 1999 1998 ----------- ----------- ------------ ----------- Net sales............................ $63,725,000 $31,247,000 $104,960,000 $61,480,000 Cost of sales........................ 38,961,000 17,956,000 62,942,000 35,598,000 ----------- ----------- ------------ ----------- Gross profit....................... 24,764,000 13,291,000 42,018,000 25,882,000 Selling expenses..................... 6,158,000 3,276,000 11,386,000 9,044,000 General and administrative expenses........................... 3,980,000 2,697,000 9,552,000 6,680,000 Research and development expenses.... 370,000 253,000 910,000 726,000 ----------- ----------- ------------ ----------- Operating income................... 14,256,000 7,065,000 20,170,000 9,432,000 Interest expense..................... 559,000 230,000 680,000 414,000 ----------- ----------- ------------ ----------- Income before income taxes......... 13,697,000 6,835,000 19,490,000 9,018,000 Provision for income taxes........... 6,001,000 2,939,000 8,434,000 3,878,000 ----------- ----------- ------------ ----------- Net income........................... $ 7,696,000 $ 3,896,000 $ 11,056,000 $ 5,140,000 =========== =========== ============ =========== Basic earnings per share............. $ 1.08 $ 0.57 $ 1.58 $ 0.75 =========== =========== ============ =========== Diluted earnings per share........... $ 1.01 $ 0.56 $ 1.49 $ 0.74 =========== =========== ============ =========== Weighted average number of shares outstanding -- basic............... 7,125,000 6,878,000 7,008,000 6,824,000 =========== =========== ============ =========== Weighted average number of shares outstanding -- diluted............. 7,643,000 7,000,000 7,408,000 6,982,000 =========== =========== ============ =========== See accompanying notes to consolidated financial statements. 4 5 MEADE INSTRUMENTS CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED NOVEMBER 30, ---------------------------- 1999 1998 ------------ ------------ Cash flows from operating activities: Net income................................................ $ 11,056,000 $ 5,140,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 902,000 628,000 ESOP contribution...................................... 1,383,000 900,000 Allowance for doubtful accounts........................ 1,123,000 -- Increase in accounts receivable...................... (19,284,000) (13,361,000) Increase in inventories.............................. (7,105,000) (3,535,000) Increase in deferred income taxes.................... (1,802,000) (867,000) Decrease (increase) in prepaid expenses and other assets............................................ (67,000) 24,000 Increase in accounts payable......................... 3,046,000 870,000 Increase in accrued liabilities...................... 2,316,000 3,492,000 Increase in income taxes payable..................... 4,091,000 1,334,000 ------------ ------------ Net cash used in operating activities............. (4,341,000) (5,375,000) ------------ ------------ Cash flows from investing activities: Capital expenditures...................................... (1,105,000) (2,520,000) Acquisition of Bresser Optik, net of cash acquired........ (4,968,000) -- Sale of equipment......................................... -- 1,323,000 ------------ ------------ Net cash used in investing activities............. (6,073,000) (1,197,000) ------------ ------------ Cash flows from financing activities: Net borrowings under bank line of credit.................. 6,674,000 6,872,000 Proceeds from long-term loan.............................. 5,000,000 -- Exercise of stock options................................. 410,000 46,000 Payments under capital lease obligations.................. (262,000) (160,000) ------------ ------------ Net cash provided by financing activities......... 11,822,000 6,758,000 ------------ ------------ Effect of exchange rate changes on cash..................... (7,000) -- ------------ ------------ Net increase in cash........................................ 1,401,000 186,000 Cash at beginning of period................................. 1,283,000 1,649,000 ------------ ------------ Cash at end of period....................................... $ 2,684,000 $ 1,835,000 ============ ============ See accompanying notes to consolidated financial statements. 5 6 MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. THE CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN PREPARED BY THE COMPANY AND ARE UNAUDITED. In management's opinion, the information and amounts furnished in this report reflect all adjustments (consisting of normal recurring adjustments) considered necessary for the fair presentation of the financial position and results of operations for the interim periods presented. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1999. 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 and the timing and extent of research and development expenses, marketing expenses and product development expenses. In addition, a substantial portion of the Company's net sales and operating income typically occur in the third quarter of the Company's fiscal year primarily due to disproportionately higher customer demand for less-expensive telescopes during the Christmas holiday season. The results of operations for the quarter and nine months ended November 30, 1999 and 1998, respectively, are not necessarily indicative of the operating results for the entire fiscal year. B. THE COMPOSITION OF INVENTORIES IS AS FOLLOWS: NOVEMBER 30, FEBRUARY 28, 1999 1999 ------------ ------------ Raw materials..................................... $ 4,500,000 $ 3,417,000 Work-in-process................................... 3,985,000 1,514,000 Finished goods.................................... 22,216,000 9,260,000 ----------- ----------- $30,701,000 $14,191,000 =========== =========== C. COMMITMENTS AND CONTINGENCIES On April 2, 1998 a complaint was filed against the Company 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 has not infringed the patent and a motion requesting summary judgment that the patent is invalid. On June 30, 1999, the court granted the motion for summary judgment of non-infringement. On July 2, 1999, the court entered a judgment determining that the Company has not infringed the patent. On July 27, 1999 the opposing party filed a Notice of Appeal with respect to the summary judgment motion. The Company intends to vigorously defend the judgment before the appellate court. The ultimate liability of the Company under this action is not presently determinable. After discussion with counsel, and in light of the summary judgment, it is the opinion of management that such liability is not expected to have a material effect on the Company's financial position or results of operations. D. CREDIT REFINANCING On August 31, 1999 the Company entered into a new loan agreement (the "Loan Agreement") with a bank, replacing its existing credit facilities. The Loan Agreement provides the Company with an aggregate $40 million credit facility consisting of a five year $35 million revolving credit facility (the "Revolving Loan") and a five year $5 million term loan (the "Term Loan). The Term Loan is subject to quarterly amortization payments of $250,000 beginning September 30, 2000. The Term Loan is also subject to mandatory prepayments upon the happening of certain events. Amounts outstanding under the Revolving Loan and Term Loan bear interest, at the Company's option, at a base rate or eurodollar rate plus an applicable margin. The Company's obligations under the Loan Agreement are guarantied by each of the Company's domestic 6 7 MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) subsidiaries and are secured by substantially all of the assets of the Company and its domestic subsidiaries. The Loan Agreement contains certain financial covenants and customary affirmative and negative covenants and events of default. In connection with the acquisition of Bresser Optik (see Note E.), the Company borrowed $5 million under the Term Loan on August 31, 1999. E. ACQUISITION OF BRESSER 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 million in cash and 100,915 shares of the Company's common stock valued at approximately $2.3 million. Bresser is a German distributor of binoculars, telescopes, microscopes and other consumer optical products. To fund the cash portion of the purchase price the Company borrowed $5 million under the Term Loan on August 31, 1999. The acquisition of Bresser was accounted for using the purchase method of accounting. The purchase price allocation was based upon appraisals, evaluations and other studies of fair value of the assets acquired. The excess of the purchase price over the fair value of net assets acquired is included in other assets at November 30, 1999 and is being amortized on a straight-line basis over 15 years based upon the nature of the business and products acquired. The following table presents unaudited consolidated pro forma financial information for the nine months ended November 30, 1999, as though the acquisition occurred on March 1, 1998. NINE MONTHS ENDED NOVEMBER 30, --------------------------- 1999 1998 ------------ ----------- (UNAUDITED) Net sales........................................ $111,175,000 $85,045,000 Operating income................................. $ 20,303,000 $11,523,000 Net income....................................... $ 10,885,000 $ 5,612,000 Earnings per share Basic.......................................... $ 1.53 $ 0.81 Diluted........................................ $ 1.45 $ 0.79 The unaudited pro forma financial information is presented for information purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisitions taken place on March 1, 1998. In addition, the pro forma results are not intended to be a projection of the future results and do not reflect any synergies that might be achieved from the combined operations. A summary of the purchase price allocation of the acquisition is as follows: Current assets (excluding cash of $32,000)............. $ 11,934,000 Property, plant and equipment.......................... 1,782,000 Goodwill............................................... 4,374,000 Current liabilities.................................... (10,744,000) ------------ Total purchase price......................... $ 7,346,000 ============ F. COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income establishes standards for reporting and displaying of comprehensive income and its components in the Company's consolidated financial statements. Comprehensive income is defined in SFAS 130 as the change in equity (net assets) of a business enterprise during a period from transactions and other events and 7 8 MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) circumstances from nonowner sources. Total comprehensive income was $7,561,000 and $10,921,000 for the three and nine months ended November 30, 1999, respectively and $3,896,000 and $5,140,000 for the three and nine months ended November 30, 1998, respectively. The difference from net income as reported is the change in the cumulative currency translation adjustment. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The nature of the Company's business is seasonal. Historically, sales in the third quarter have been higher than sales achieved in the other three fiscal quarters of the year. Thus, expenses and, to a greater extent, operating income vary by quarter. Caution, therefore, is advised when appraising results for a period shorter than a full year, or when comparing any period other than to the same period of the previous year. Three Months Ended November 30, 1999 Compared to Three Months Ended November 30, 1998 Net sales for the third quarter of fiscal 2000 were $63.7 million compared to $31.2 million for the third quarter of fiscal 1999, an increase of 104.0%. This increase was principally due to increases in sales of less-expensive telescope lines including those manufactured domestically and those manufactured in Taiwan and continuing strong sales of telescope accessories. Approximately $11.0 million of the increase in third-quarter sales was attributable to the Bresser acquisition. Gross profit increased from $13.3 million (42.5% of net sales) for the third quarter of fiscal 1999 to $24.8 million (38.9% of net sales) for the third quarter of fiscal 2000, an increase of 86.3%. While gross margins for the Company's core business experienced little change from recent quarters, overall gross margin declined due to the acquisition of Bresser. As a distributor only of optical products, Bresser is subject to gross margins that are typically lower than the margins the Company, as a manufacturer and distributor, has experienced in the past. Selling expenses increased from $3.3 million (10.5% of net sales) for the third quarter of fiscal 1999 to $6.2 million (9.7% of net sales) for the third quarter of fiscal 2000, an increase of 88.0%. This increase principally reflects higher freight costs, higher commissions and higher advertising, all of which increased to support the growth in net sales. Also contributing to the increase over the prior year period was approximately $400,000 of selling expenses at Bresser. General and administrative expenses increased from $2.7 million (8.6% of net sales) for the third quarter of fiscal 1999 to approximately $4.0 million (6.2% of net sales) for the third quarter of fiscal 2000, an increase of 47.5%. This increase was generally due to increases in personnel and benefit related costs and cost associated with the acquisition of Bresser. Also contributing to the increase over the prior year period was approximately $300,000 of general and administrative expenses at Bresser. Research and development expenses increased from $253,000 (0.8% of net sales) for the third quarter of fiscal 1999 to $370,000 (0.6% of net sales) for the third quarter of fiscal 2000, an increase of 46.2%. This increase was principally due to higher engineering personnel related costs and outside consulting costs. Interest expense increased from $230,000 for the third quarter of fiscal 1999 to $559,000 for the third quarter of fiscal 2000, an increase of 143.0%. This increase was principally due to interest expense on the $5.0 million Term Loan and interest expense at Bresser for the period. Nine Months Ended November 30, 1999 Compared to Nine Months Ended November 30, 1998 Net sales for the nine months ended November 30, 1999 were $105.0 million compared to $61.5 million for the comparable prior year period, an increase of 70.7%. This increase was principally due to increases in sales of less-expensive telescope lines including those manufactured domestically and those manufactured in Taiwan and continuing strong sales of telescope accessories. Approximately $11.0 million of the increase in net sales was attributable to the Bresser acquisition. Gross profit increased from $25.9 million (42.1% of net sales) for the nine months ended November 30, 1998 to $42.0 million (40.0% of net sales) for the comparable current year period, an increase of 62.3%. While gross margins for the Company's core business experienced little change from recent quarters, overall gross margin declined due to the acquisition of Bresser. As a distributor only of optical products, Bresser is subject to gross margins that are typically lower than the margins the Company, as a manufacturer and distributor, has experienced in the past. 9 10 Selling expenses increased from $9.0 million (14.7% of net sales) for the nine months ended November 30, 1998 to $11.4 million (10.8% of net sales) for the comparable current year period, an increase of 25.9%. The year over year change includes a reduction of approximately $1.2 million in advertising and other marketing expenses during the nine months ended November 30, 1999 against the comparable prior year period. This reduction was more than offset by increases in allowances for doubtful accounts, increased freight costs and higher commissions. Also contributing to the increase over the prior year period was approximately $400,000 of selling expenses at Bresser. General and administrative expenses increased from $6.7 million (10.9% of net sales) for the nine months ended November 30, 1998 to $9.6 million (9.1% of net sales) for the comparable current year period, an increase of 43.0%. This increase was generally due to increases in personnel and benefit related costs. Also contributing to the increase over the prior year period was approximately $300,000 of general and administrative expenses at Bresser. Research and development expenses increased from $726,000 (1.2% of net sales) for the nine months ended November 30, 1998 to $910,000 (0.9% of net sales) for the comparable current year period, an increase of 25.3%. This increase was principally due to increased engineering personnel related costs. Interest expense increased from $414,000 for the nine months ended November 30, 1998 to $680,000 for the comparable current year period, an increase of 64.2%. This increase was principally due to interest expense on the $5.0 million Term Loan and interest expense at Bresser for the period. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended November 30, 1999, the Company funded its operations with internally generated cash flow and borrowings on its bank line of credit. Internally generated cash flow from net income and increases in accounts payable, accrued liabilities and income taxes payable were more than offset by increases in inventories and accounts receivable. The increase in accounts receivable (up $20.0 million from February 28, 1999 to November 30, 1999) resulted from strong sales for the third quarter of fiscal year 2000. Inventories increased (up $16.5 million from February 28, 1999 to November 30, 1999) to support higher fiscal 2000 sales. Also contributing to the increase in inventories was $5.5 million attributable to Bresser. Net working capital (current assets less current liabilities) totaled approximately $34.3 million at November 30, 1999, up significantly from $21.4 million at February 28, 1999. 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. On August 31, 1999 the Company entered into a new loan agreement (the "Loan Agreement") with a bank, replacing its existing credit facilities. The Loan Agreement provides the Company with an aggregate $40 million credit facility consisting of a five year $35 million revolving credit facility (the "Revolving Loan") and a five year $5 million term loan (the "Term Loan). The Term Loan is subject to quarterly amortization payments of $250,000 beginning September 30, 2000. The Term Loan is also subject to mandatory prepayments upon the happening of certain events. Amounts outstanding under the Revolving Loan and Term Loan bear interest, at the Company's option, at a base rate or eurodollar rate plus an applicable margin. The Company's obligations under the Loan Agreement are guarantied by each of the Company's domestic subsidiaries and are secured by substantially all of the assets of the Company and its domestic subsidiaries. The Loan Agreement contains certain financial covenants and customary affirmative and negative covenants and events of default. In connection with the acquisition of Bresser (See Note E. (Acquisition of Bresser) to the Company's Consolidated Financial Statements), the Company borrowed $5 million under the Term Loan on August 31, 1999. Capital expenditures, including financed purchases of equipment, aggregated $1.7 million and $2.5 million for the nine months ended November 30, 1999 an 1998, respectively. The Company had no material capital expenditure commitments at November 30, 1999. 10 11 The Company believes that internally generated cash flow and borrowing ability will be sufficient to meet its operating, working capital and capital expenditure requirements through the next twelve months. In the event the Company's plans require more capital than is presently anticipated, the Company's remaining cash balances may be consumed and additional sources of liquidity, such as debt or equity financings, may be required to meet its capital needs. There can be no assurance that additional capital beyond the amounts the Company currently requires will be available on reasonable terms, if at all. FORWARD-LOOKING INFORMATION The preceding "Management's Discussion and Analysis of Financial Conditions and Results of Operations" section 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 result of its increased 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 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 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; 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: any significant decline in general economic conditions or uncertainties affecting consumer spending; any general decline in demand for the Company's products; any inability to continue to design and manufacture products that will achieve and maintain commercial success; any failure of the Company to penetrate the binocular market and achieve meaningful sales; any unexpected termination or interruption of the Company's manufacturing arrangements, both internally and at the Taiwanese Factory; greater than anticipated competition; any loss of, or the failure to replace, any significant portion of the sales made to any significant customer of the Company; the inherent risks associated with international sales, including variations in local economies, fluctuating exchange rates (including conversion to Euros), increased difficulty of inventory management, greater difficulty in accounts receivable collections, costs and risks associated with localizing products for foreign countries, changes in tariffs and other trade barriers, adverse foreign tax consequences, cultural differences affecting product demand and customer service and burdens of complying with a variety of foreign laws; and the inherent risks associated with products manufactured or assembled outside of the United States, including, among other things, imposition of quotas or trade sanctions, fluctuating exchange rates, shipment delays or political instability and any material effect on the Company's business and operations by the advent of the Year 2000. YEAR 2000 COMPLIANCE To date, the Company has not experienced any material Year 2000 problems with its enterprise information system software, or its internal software applications, products, machinery, equipment or operating systems. The third parties with whom the Company has material relationships have not, to date, reported to the Company any material Year 2000 problems. The Company will continue to monitor the Year 2000 compliance of its enterprise information and other computer systems. Latent Year 2000 related issues may arise as the computer systems are more fully utilized. Accordingly, there can be no assurance that the Company will not in the future experience any Year 2000 problems. 11 12 The Company's total incremental costs of addressing Year 2000 issues are estimated to be approximately $150,000, of which approximately $60,000 has been incurred through the third quarter of fiscal year 2000. These costs are being funded through cash flow from operations. Monitoring costs past January 1, 2000 are not expected to be material. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 12 13 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Part II, Item 1 of the Company's Form 10-Q for the quarter ended August 31, 1999 is hereby incorporated by reference. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 6(a) Exhibits filed with this Form 10-Q Exhibit No. 3.1 Amended and Restated Bylaws of Meade Instruments Corp., a Delaware Corporation. Exhibit No. 27 Financial Data Schedule for the six months ended August 31, 1999. 6(b) Reports on Form 8-K The Company filed the following Reports with the SEC on the following dates: 1. Form 8-K, filed on September 15, 1999, covering the acquisition of Bresser and excluding the related financial information. 2. Form 8-K/A, filed on November 15, 1999, covering the acquisition of Bresser and including (i) the audited financial statements of Bresser at December 31, 1998 and for the three years then ended, (ii) the unaudited financial statements of Bresser at June 30, 1999 and for the six months ended June 30, 1999 and 1998, and (iii) the unaudited pro forma consolidated condensed financial statements of the Company for the twelve months ended February 28, 1999 and for the six months ended August 31, 1999 reflecting the acquisition of Bresser. 3. Form 8-K/A, filed on December 1, 1999, covering the acquisition of Bresser and including (i) the audited financial statements of Bresser at December 31, 1998 and for the three years then ended, (ii) the unaudited financial statements of Bresser at June 30, 1999 and for the six months ended June 30, 1999 and 1998, and (iii) the unaudited pro forma consolidated condensed financial statements of the Company for the twelve months ended February 28, 1999 and for the six months ended August 31, 1999 reflecting the acquisition of Bresser. 13 14 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. MEADE INSTRUMENTS CORP. By: /s/ JOHN C. DIEBEL ------------------------------------ John C. Diebel Chairman of the Board and Chief Executive Officer Dated: January 14, 2000 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. DIEBEL Chairman of the Board and January 14, 2000 - ----------------------------------------------------- Chief Executive John C. Diebel Officer(Principal Executive Officer) /s/ STEVEN G. MURDOCK Director, President, Chief January 14, 2000 - ----------------------------------------------------- Operating Officer and Steven G. Murdock Secretary /s/ BRENT W. CHRISTENSEN Vice President, Finance and January 14, 2000 - ----------------------------------------------------- Chief Financial Officer Brent W. Christensen (Principal Financial and Accounting Officer) /s/ JOSEPH A. GORDON, JR. Director and Senior Vice January 14, 2000 - ----------------------------------------------------- President of North American Joseph A. Gordon, Jr. Sales Director - ----------------------------------------------------- Timothy C. McQuay Director - ----------------------------------------------------- Harry L. Casari 14 15 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ------- ----------- 3.1 Amended and Restated Bylaws of Meade Instruments Corp., a Delaware Corporation. 27 Financial Data Schedule for the nine months ended November 30, 1999 15