UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2005

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

MEADE INSTRUMENTS CORP.

Delaware (State or other jurisdiction of incorporation or organization)		95-2988062 (I.R.S. Employer Identification No.)
6001 Oak Canyon, Irvine, CA (Address of principal executive offices)		92618 (Zip Code)

     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 þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

     Number of shares of common stock outstanding as of December 31, 2005 is 20,003,855 $0.01 par value per share.

 

 

MEADE INSTRUMENTS CORP.
 
TABLE OF CONTENTS

				Page No.
PART I — FINANCIAL INFORMATION
Item 1.		Financial Statements
Consolidated Balance Sheets (Unaudited) — November 30, 2005 and February 28, 2005				1
Consolidated Statements of Operations (Unaudited) — Three and Nine Months Ended November 30, 2005 and 2004				2
Consolidated Statements of Cash Flows (Unaudited) — Nine Months Ended November 30, 2005 and 2004				3
Notes to Consolidated Financial Statements (Unaudited)				4
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		16
Item 4.		Controls and Procedures		16
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings		17
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		17
Item 3.		Defaults Upon Senior Securities		17
Item 4.		Submission of Matters to a Vote of Security Holders		17
Item 5.		Other Information		17
Item 6.		Exhibits		17
Signatures				18
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

ITEM 1.		FINANCIAL STATEMENTS.

MEADE INSTRUMENTS CORP.

CONSOLIDATED BALANCE SHEETS
(Unaudited)

		November 30,				February 28,
		2005				2005
ASSETS
Current assets:
Cash		$	934,000			$	3,929,000
Accounts receivable, less allowance for doubtful accounts of $742,000 at November 30, 2005 and $687,000 at February 28, 2005			47,353,000				17,549,000
Inventories			41,590,000				47,149,000
Deferred income taxes			6,056,000				6,738,000
Prepaid expenses and other current assets			613,000				771,000
Total current assets			96,546,000				76,136,000
Goodwill			2,115,000				4,331,000
Acquisition-related intangible assets, net			5,039,000				3,375,000
Property and equipment, net			5,595,000				4,343,000
Deferred income taxes			329,000				329,000
Other assets, net			332,000				235,000
		$	109,956,000			$	88,749,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank lines of credit		$	19,364,000			$	9,827,000
Accounts payable			15,807,000				3,954,000
Accrued liabilities			6,573,000				4,775,000
Income taxes payable			1,906,000				3,225,000
Current portion of long-term debt and capital lease obligations			704,000				776,000
Total current liabilities			44,354,000				22,557,000
Long-term debt and capital lease obligations			2,175,000				1,241,000
Commitments and contingencies
Stockholders’ equity:
Common stock; $0.01 par value; 50,000,000 shares authorized; 20,004,000 and 20,002,000 shares issued and outstanding at November 30, 2005 and February 28, 2005, respectively			200,000				200,000
Additional paid-in capital			41,033,000				40,442,000
Retained earnings			24,213,000				25,016,000
Deferred stock compensation			(560,000	)			—
Accumulated other comprehensive income			274,000				1,374,000
			65,160,000				67,032,000
Unearned ESOP shares			(1,733,000	)			(2,081,000	)
Total stockholders’ equity			63,427,000				64,951,000
		$	109,956,000			$	88,749,000

See accompanying notes to consolidated financial statements.

MEADE INSTRUMENTS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Three Months Ended								Nine Months Ended
		November 30,								November 30,
		2005				2004				2005				2004
Net sales		$	53,092,000			$	49,687,000			$	96,494,000			$	92,060,000
Cost of sales			38,437,000				35,775,000				70,866,000				67,626,000
Gross profit			14,655,000				13,912,000				25,628,000				24,434,000
Selling expenses			6,528,000				5,911,000				14,327,000				13,163,000
General and administrative expenses			3,028,000				2,223,000				8,985,000				7,410,000
ESOP expense			91,000				130,000				262,000				318,000
Research and development expenses			395,000				672,000				1,066,000				1,639,000
Operating income			4,613,000				4,976,000				988,000				1,904,000
Interest expense			419,000				283,000				854,000				633,000
Income before income taxes			4,194,000				4,693,000				134,000				1,271,000
Provision for income taxes			2,730,000				1,894,000				937,000				512,000
Net income (loss)		$	1,464,000			$	2,799,000			$	(803,000	)		$	759,000
Net income (loss) per share — basic and diluted		$	0.08			$	0.14			$	(0.04	)		$	0.04
Weighted average number of shares outstanding — basic			19,410,000				19,312,000				19,326,000				19,269,000
Weighted average number of shares outstanding — diluted			19,446,000				19,477,000				19,326,000				19,445,000

See accompanying notes to consolidated financial statements

MEADE INSTRUMENTS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Nine Months Ended
		November 30,
		2005				2004
Cash flows from operating activities:
Net income (loss)		$	(803,000	)		$	759,000
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization expense			1,853,000				1,346,000
Valuation allowance on deferred taxes			936,000
ESOP contribution			262,000				318,000
Changes in assets and liabilities:
Increase in accounts receivable			(30,254,000	)			(20,292,000	)
Decrease (increase) in inventories			4,666,000				(9,585,000	)
Decrease in prepaid expenses and other assets			16,000				940,000
Increase in accounts payable			12,027,000				5,603,000
Increase (decrease) in accrued liabilities			1,475,000				(571,000	)
Decrease in income taxes payable			(898,000	)			(190,000	)
Net cash used in operating activities			(10,720,000	)			(21,672,000	)
Cash flows from investing activities:
Capital expenditures			(2,634,000	)			(562,000	)
Net cash used in investing activities			(2,634,000	)			(562,000	)
Cash flows from financing activities:
Net borrowings under bank lines of credit			9,618,000				16,032,000
Borrowings on a long-term bank note			1,643,000
Payments on long-term bank notes			(612,000	)			(431,000	)
Proceeds from the sale of stock options			—				32,000
Payments under capital lease obligations			(10,000	)			—
Net cash provided by financing activities			10,639,000				15,633,000
Effect of exchange rate changes on cash			(280,000	)			(311,000	)
Net decrease in cash			(2,995,000	)			(6,912,000	)
Cash at beginning of period			3,929,000				7,806,000
Cash at end of period		$	934,000			$	894,000
Noncash investing and financing activities:
Issuance of restricted stock		$	681,000				—
Purchase of equipment under capital lease			21,000				—
Taxes paid			953,000				—

See accompanying notes to consolidated financial statements.

MEADE INSTRUMENTS CORP.

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 statement 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, 2005.

     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 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 products during the holiday season. The results of operations for the quarters ended November 30, 2005 and 2004, respectively, are not necessarily indicative of the operating results for the entire fiscal year.

B. Stock Based Compensation

     The Company accounts for employee stock-based compensation in accordance with the intrinsic value method described in Accounting Principles Board Opinion No. 25 and related interpretations. 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 expense for the Company’s stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans, consistent with the method prescribed by SFAS No. 123, the Company’s net loss per share would have been adjusted to the pro forma amounts indicated below.

		Three months ended								Nine months ended
		November 30,								November 30,
		2005				2004				2005				2004
Reported net income (loss)		$	1,464,000			$	2,799,000			$	(803,000	)		$	759,000
Add back restricted stock compensation expense recognized, net of tax			33,000				—				120,000				—
Compensation expense determined under fair value method, net of tax			(126,000	)			(268,000	)			(391,000	)			(781,000	)
Pro forma net income (loss)		$	1,371,000			$	2,531,000			$	(1,074,000	)		$	(22,000	)
Reported net income (loss) per share — basic and diluted		$	0.08			$	0.14			$	(0.04	)		$	0.04
Pro forma net income (loss) per share — basic and diluted		$	0.07			$	0.13			$	(0.06	)		$	(0.00	)

     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:

		Three months ended								Nine months ended
		November 30,								November 30,
		2005				2004				2005				2004
Weighted average expected life (years)			6.0				6.0				6.0				6.0
Volatility			33.1	%			69.3	%			33.1	%			69.3	%
Risk-free interest rate			3.98	%			3.38	%			3.98	%			3.38	%
Expected dividends		None				None				None				None
Weighted average fair value of options granted		$	2.28			$	2.01			$	2.28			$	2.01

C. Composition of Certain Balance Sheet Accounts

     The composition of inventories is as follows:

		November 30,				February 28,
		2005				2005
Raw materials		$	6,817,000			$	7,449,000
Work-in-process			7,737,000				6,023,000
Finished goods			27,036,000				33,677,000
		$	41,590,000			$	47,149,000

     The composition of acquisition-related intangible assets is as follows:

		November 30,				February 28,
		2005				2005
Brand names — non-amortizing		$	2,041,000			$	2,041,000
Trademarks			1,938,000				1,398,000
Customer relationships			1,390,000				1,390,000
Completed technologies			1,620,000				—
Other			56,000				—
Accumulated amortization			(2,006,000	)			(1,454,000	)
Total amortizing acquisition-related intangible assets			2,998,000				1,334,000
Total acquisition-related intangible assets		$	5,039,000			$	3,375,000

     Purchase price in excess of the estimated fair value of the tangible assets acquired in the Company’s December 2004 acquisition of Coronado Technology Group, LLC was initially recorded as goodwill. During the quarter ended August 31, 2005, the Company completed its evaluation of the fair value of the acquisition-related intangible assets associated with its purchase of Coronado. The excess of the purchase price over the estimated fair value of the net tangible assets acquired has been allocated as follows:

Acquisition-related		Amortization period
intangible asset		(in years)				Gross carrying amount
Completed technologies			12			$	1,620,000
Trademarks			9				540,000
Other			1				56,000
Goodwill		none					567,000
Total						$	2,783,000

     This change in estimate resulted in amortization expense of approximately $277,000 for the period ended November 30, 2005. Amortization of acquisition-related intangible assets over the next five fiscal years is estimated as follows:

Fiscal Year		Amount
2006		$	565,000
2007			336,000
2008			336,000
2009			336,000
2010			336,000
Thereafter			1,089,000

     The Company accounts for goodwill and acquisition-related intangible assets in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) which requires that goodwill and identifiable assets determined to have an indefinite life no longer be amortized, but instead be tested for impairment at least annually.

D. Commitments and Contingencies

     The Company is involved from time to time in litigation incidental to its business. Management believes that the outcome of such litigation will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

E. Earnings (Loss) Per Share

     Basic earnings (loss) per share amounts exclude the dilutive effect of potential shares of common stock. Basic earnings (loss) per share is based upon the weighted-average number of shares of common stock outstanding, which excludes unallocated ESOP shares. 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 and restricted stock, which may be included in the weighted average number of shares of common stock under the treasury stock method.

     The total number of options and restricted shares outstanding were as follows:

		November 30,				November 30,
		2005				2004
Stock options outstanding			3,885,000				3,976,000
Restricted shares outstanding			247,500				—

     A reconciliation of the basic weighted average number of shares outstanding and the diluted weighted average number of shares outstanding follows:

		Three months ended								Nine months ended
		November 30,								November 30,
		2005				2004				2005				2004
Basic weighted average number of shares			19,410,000				19,312,000				19,326,000				19,269,000
Dilutive potential shares of common stock.			36,000				165,000				—				176,000
Diluted weighted average number of shares outstanding			19,446,000				19,477,000				19,326,000				19,445,000
Number of options excluded from the calculation of weighted average shares because the exercise prices were greater than the average market price of the Company’s common stock			3,310,000				2,260,000				3,439,000				2,359,000

     Weighted average shares for the nine month period ended November 30, 2005 exclude the aggregate dilutive effect of approximately 49,000 shares subject to stock options and restricted stock, because the Company incurred a loss and the effect would have been anti-dilutive. Options with exercise prices greater than the average market price during the periods presented are excluded from the calculation of weighted average shares outstanding because the effect would be anti-dilutive.

F. Comprehensive Income (Loss)

     Comprehensive income (loss) 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 and, at November 30, 2005, includes foreign currency translation adjustments and adjustments to the fair value of highly effective hedges. For the three and nine months ended November 30, 2005 and 2004, respectively, the Company had other comprehensive income (loss) as follows:

		Three months ended								Nine months ended
		November 30,								November 30,
		2005				2004				2005				2004
Net income (loss)		$	1,464,000			$	2,799,000			$	(803,000	)		$	759,000
Currency translation adjustments			(310,000	)			540,000				(824,000	)			392,000
Change in fair value of interest rate swap, net of tax			—				2,000				—				17,000
Change in fair value of foreign currency forward contracts, net of tax			1,082,000				165,000				(276,000	)			(674,000	)
Total other comprehensive income (loss)		$	2,236,000			$	3,506,000			$	(1,903,000	)		$	494,000

G. Product Warranties

     The Company provides reserves for the estimated cost of product warranty-related claims at the time of sale, and periodically adjusts the provision to reflect actual experience related to its standard product warranty programs and its

extended warranty programs. The amount of warranty liability accrued reflects management’s best estimate of the expected future cost of honoring Company obligations under its warranty plans. Additionally, from time to time, specific warranty accruals may be made if unforeseen technical problems arise. Meade and Bresser branded products, principally telescopes and binoculars, are generally covered by a two-year limited warranty. Many of the Simmons products, principally riflescopes and binoculars, have lifetime limited warranties. Most of the Coronado products have limited five-year warranties. Changes in the warranty liability, which is included as a component of accrued liabilities on the accompanying Consolidated Balance Sheets, were as follows.

		Three months ended								Nine months ended
		November 30,								November 30,
		2005				2004				2005				2004
Beginning balance		$	1,102,000			$	1,159,000			$	1,173,000			$	1,427,000
Warranty accrual			180,000				70,000				365,000				326,000
Labor and material usage			(261,000	)			(151,000	)			(517,000	)			(675,000	)
Ending balance		$	1,021,000			$	1,078,000			$	1,021,000			$	1,078,000

H. Derivative Instruments and Hedging Activities

     The Company, at times, utilizes derivative financial instruments to manage its currency exchange rate and interest rate risks. The Company does not enter into these arrangements for trading or speculation purposes. The Company’s German subsidiary purchases inventory from Far Eastern suppliers in U.S. dollars. A forward exchange contract is typically entered into when the U.S. dollar amount of the inventory purchase is firm. Given our foreign exchange position, an adverse change in foreign exchange rates upon which these foreign exchange contracts are based would result in exchange gains and losses.

     The notional amount and fair value of forward currency contracts are as follows:

		November 30, 2005								February 28, 2005
		Notional								Notional
		amount				Fair Value				amount				Fair Value
Forward currency contracts		$	2,600,000			$	(460,000	)			—				—

     At November 30, 2005, the fair value of forward currency contracts is recorded in accrued liabilities on the accompanying Consolidated Balance Sheets. Changes in the fair value of the cash flow forward currency contracts have been recorded as a component of accumulated other comprehensive income (loss), net of tax, as these items have been designated and qualify as cash flow hedges of firm commitments to purchase inventory. The settlement dates on the forward currency contracts vary based on the underlying instruments through February 2006.

I. Bank Borrowings

     At November 30, 2005, the Company was in compliance with all restrictive covenants and required ratios under its U.S. credit agreement.

     Continuing losses for the six months ended August 31, 2005, led the Company to conclude that it was not in compliance with the consolidated fixed charge coverage ratio covenant as set forth in the U.S. credit agreement for the period ended August 31, 2005. Accordingly, on October 12, 2005, the Company executed the Fifth Amendment to Amended and Restated Credit Agreement (the “Fifth Amendment”). The Fifth Amendment made the following key changes to the U.S. credit agreement: (1) reset the consolidated and U.S. fixed charge coverage ratio covenants and (2) added higher interest rate levels to the pricing grid. The fee for the amendment was $75,000. The Company was required to report its covenant calculations to the bank for the period ended August 31, 2005 based upon the terms of the Fifth Amendment. Upon execution of the Fifth Amendment the Company was in compliance with all of its bank covenants.

     On July 29, 2005, the Company’s European subsidiary purchased a building for cash of approximately 1,487,000 Euro (approximately $1,805,000 USD at that date). The approximately 50,000 sq. ft building, located in Rhede, Germany, initially will be used as warehouse space, necessary for warehousing products in anticipation of the heavy seasonal selling period during this year’s third and fourth fiscal quarters. The building is being depreciated straight-line over twenty-five years. In addition to an already existing long term loan with its bank (“European term loan no. 1”) the European subsidiary obtained a 1,375,000 Euro (approximately $1,611,000 USD at November 30, 2005) long-term loan (“European term loan no. 2”) toward the purchase of the building. European term loan no. 2 bears interest fixed at 4.55% with monthly principal

payments due of approximately 11,500 Euro (approximately $13,500 USD at November 30, 2005) for ten years. On September 9, 2005, the European subsidiary drew down the 1,375,000 Euro term loan (approximately $1,705,000 USD at that date).

     Concurrently with negotiations to obtain the European term loan no. 2, the subsidiary renegotiated its bank line of credit. The new European line of credit is 7,500,000 Euro (approximately $8,789,000 USD at November 30, 2005) and bears interest at EURIBOR plus 2%; 5,500,000 Euro of the line expired on January 1, 2006 with the remaining 2,000,000 Euro expiring on July 31, 2006. The European line of credit and term loans are collateralized by all of the principal assets of the subsidiary; are further collateralized by a guarantee from the U.S. parent company in the amount of 2,600,000 Euro (approximately $3,047,000 USD at November 30, 2005); and require certain minimum capitalization amounts at the subsidiary.

     Amounts outstanding under the Company’s various bank and other debt instruments are as follows:

		November 30,				February 28,
		2005				2005
U.S. bank revolving line of credit		$	15,233,000			$	9,816,000
European bank revolving line of credit			4,131,000				11,000
Total bank lines of credit		$	19,364,000			$	9,827,000
U.S. term loan		$	350,000			$	665,000
European term loan no.1			886,000				1,129,000
European term loan no.2			1,571,000				—
Notes payable and capital lease obligations			72,000				223,000
Total debt and capital lease obligations			2,879,000				2,017,000
Less current portion			(704,000	)			(776,000	)
Total long-term debt and capital lease obligations		$	2,175,000			$	1,241,000

J. Restricted stock

     On May 24, 2005, pursuant to the Company’s 1997 Stock Incentive Plan, the Company granted an award of 247,500 shares of restricted stock to various employees. The fair value of the shares was $681,000, as measured by the closing price of the Company’s stock on the Nasdaq National Market on the grant date. The initial fair value of the award is included in additional paid-in capital and deferred stock compensation in the stockholders’ equity section of the accompanying Consolidated Balance Sheets. One third of the shares vest on each annual anniversary of the grant date. The restricted stock awards provide for acceleration of vesting upon the achievement of certain consolidated net sales levels specified in the award agreements. Compensation cost will be recognized on a straight line basis over the three year vesting period. Recognition of compensation cost will accelerate if the vesting schedule accelerates.

K. Income Taxes

     The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is “more likely than not” that some or all of the deferred tax assets will not be realized. During the third quarter of fiscal 2006, the Company determined that it was necessary to establish a valuation allowance related to deferred tax assets for its foreign tax credits, as it is more likely than not that the Company will not be able to utilize them prior to their expiration. The third quarter tax provision reflects the impact of a valuation allowance of approximately $0.9 million related to foreign tax credit carryforwards and approximately $1.0 million related to its projected current year foreign tax credit. Management believes that it is more likely than not that the Company will be able to utilize its other deferred tax assets. Fluctuations in the tax rate reflect changes in management’s estimates of the timing and extent of taxable income generated in the U.S. and overseas as well as the timing and extent of the estimated utilization of certain tax credits generated in the U.S. and overseas.

L. New Accounting Pronouncements

     In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. The provisions of SFAS No. 154 are effective for fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 in fiscal 2007 to have a material impact on its results of operations or financial position.

     In December 2004, the FASB issued FSP No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. The American Jobs Creation Act of 2004 (the “Jobs Creation Act”) was enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Creation Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. The Company is currently paying US tax on its foreign earnings as predominantly all of the Company’s foreign earnings are generated through operations that are in the form of a branch for US tax purposes. Accordingly, this new law will not have an impact on the Company’s effective tax rate.

     In November 2004, the FASB issued SFAS No. 151, Inventory Costs — an amendment of ARB No. 43, Chapter 4. This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 151 to have a material impact on its results of operations or financial position.

     In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for fiscal periods beginning after June 15, 2005. The Company does not anticipate that the application of this statement will have a material impact on the Company’s financial position or results of operations.

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”. SFAS No. 123R supersedes APB Opinion No. 25, which requires recognition of an expense when goods or services are provided. SFAS No. 123R requires the determination of the fair value of the share-based compensation at the grant date and the recognition of the related expense over the period in which the share-based compensation vests. SFAS No. 123R permits a prospective or two modified versions of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by the original SFAS No. 123. We are required to adopt the provisions of SFAS No. 123R effective March 1, 2006, at which time we will begin recognizing the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. The Company has not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS No. 123.

M. Reclassifications

     Certain reclassifications have been made to conform prior periods to the current presentation.

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 each of 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.

Overview

     Consolidated net sales during the third quarter of fiscal year 2006 were up nearly 7% compared to the prior year’s third quarter. Sales at the Company’s European subsidiary continued to meet management’s expectations, increasing approximately 27% over the prior year quarter. That increase was mainly due to higher sales of Bresser branded products, principally Bresser binoculars, and sales of Meade and Coronado branded telescopes and accessories through the subsidiary. The Company’s Coronado subsidiary also contributed to sales in the third quarter. There were no Coronado sales in the prior year’s quarter as Coronado was acquired in December 2004. Meade’s telescope sales increased over the prior year with improved demand for most of the Company’s telescope products at a wide range of price points. Most notable were increases in sales of the Company’s most expensive products and increases in sales of the Company’s mid-priced ETX lines. Management believes that as the effect of the 2003 Mars opposition continued to diminish, the market responded positively to many of the Company’s newer high-end telescope products. Management also believes that the market for less-expensive telescopes has been steady to improving with the relatively steady economy. Offsetting the sales increases in telescopes was a significant decrease in sales of binoculars with integrated digital cameras during the quarter. Management expects annual sales of less-expensive telescopes to be improved over the prior year overall and expects pricing pressure and weak demand to continue in the market for digital-camera binoculars. Also offsetting the sales increases was an over 50% reduction in sales at the Company’s Simmons subsidiary as compared to the prior year quarter. Supply problems from the Asian factory that manufactures the vast majority of the Company’s newly designed Simmons riflescopes led to the decrease in sales at Simmons. The Asian supply problems have significantly diminished both sales-to-date and management’s outlook for Simmons for the remainder of the fiscal year. The Company has secured a second Asian supplier of its proprietary Simmons riflescopes and expects Simmons sales to return to historical levels as the supply difficulties are resolved.

Three Months Ended November 30, 2005 Compared to Three Months Ended November 30, 2004

     Net sales for the third quarter of fiscal 2006 were $53.1 million compared to $49.7 million for the third quarter of fiscal 2005, an increase of 6.9%. Sales of the Company’s less-expensive, smaller-aperture telescopes increased over the prior year period by approximately $5 million on stronger demand at several of the Company’s mass merchandisers and specialty retailers. Sales of the company’s higher-end telescopes and telescope accessory products increased in the aggregate by approximately $2 million over the prior year period. Sales of microscopes, magnifying glasses and other miscellaneous products increased by approximately $2 million compared to the prior year. Also adding to sales in the current period was over $1 million of Coronado brand product sales (there were no Coronado sales in the prior year period). Sales increases were offset principally by a decrease in sales of riflescopes of approximately $4 million and a decrease in sales of binoculars of approximately $3 million.

     Gross profit increased from $13.9 million (28.0% of net sales) for the third quarter of fiscal 2005 to $14.7 million (27.6% of net sales) for the third quarter of fiscal 2006, an increase of 5.3%. The dollar increase in gross profit followed the increase in net sales for the quarter. Gross margin (gross profit as a percent of net sales) for the current quarter was negatively affected by lower margins at Simmons due to the riflescope supply problems that left the subsidiary with very low availability of current, in-line products. Sales at Simmons therefore shifted to lower margin, and older products.

     Selling expenses increased from $5.9 million (11.9% of net sales) for the third quarter of fiscal 2005 to $6.5 million (12.3% of net sales) for the third quarter of fiscal 2006, an increase of 10.4%. The dollar increase was primarily due to higher variable costs including freight and commissions, on higher net sales. Also included in the current quarter are selling expenses related to Coronado that were not in the prior year quarter. The increase as a percent of sales was principally due to marketing and advertising costs related to the introduction of the new Simmons riflescopes that the Company was not able to cancel subsequent to the identification of the significantly lower than expected quantities of Simmons riflescopes from the Asian supplier.

     General and administrative expenses increased from $2.2 million (4.5% of net sales) for the third quarter of fiscal 2005 to $3.0 million (5.7% of net sales) for the third quarter of fiscal 2006, an increase of 36.2%. Approximately one third of the increase was due to the inclusion of general and administrative expenses from the Company’s Coronado subsidiary (there were no Coronado expenses in the prior year’s quarter). Another approximately one third of the increase was due to higher consulting and currency exchange expenses at the Company’s European subsidiary. The balance of the increase was due to salary and wage expenses.

     ESOP contribution expense remained flat at approximately $0.1 million (0.3% and 0.2% of net sales for the prior year and current year quarter, respectively) for each quarter presented. The non-cash ESOP contribution expense may fluctuate as the number of shares allocated and the market value of the Company’s common stock changes.

     Research and development expenses decreased from $0.7 million (1.4% of net sales) for the third quarter of fiscal 2005 to $0.4 million (0.7% of net sales) for the third quarter of fiscal 2006, a decrease of 41.2%. The decrease was principally due to a decrease in external research and development consulting costs. Research and development expenses continue to be focused on new product development and product improvement in the Company’s core consumer product categories.

     Interest expense increased from $0.3 million (0.6% of net sales) for the third quarter of fiscal 2005 to $0.4 million (0.8% of net sales) for the third quarter of fiscal 2006, an increase of 48.1%. Higher average rates are the principal reason the expense increased from the prior year.

     The provision for income taxes increased from 40.4% of income before income taxes for the third quarter of fiscal 2005 to 65.1% of the income before income taxes for the third quarter of fiscal 2006. During the third quarter of fiscal 2006, the Company determined that it was necessary to establish a valuation allowance related to deferred tax assets for its foreign tax credits, as it is more likely than not that the Company will not be able to utilize them prior to their expiration. The third quarter tax provision reflects the impact of a valuation allowance of approximately $0.9 million related to foreign tax credit carryforwards and approximately $1.0 million related to its projected current year foreign tax credit. Management believes that it is more likely than not that the Company will be able to utilize its other deferred tax assets. Fluctuations in the tax rate reflect changes in management’s estimates of the timing and extent of taxable income generated in the U.S. and overseas as well as the timing and extent of the estimated utilization of certain tax credits generated in the U.S. and overseas.

     Nine Months Ended November 30, 2005 Compared to Nine Months Ended November 30, 2004

     Net sales for the nine months ended November 30, 2005 were $96.5 million compared to $92.1 million for the comparable prior year period, an increase of 4.8%. Sales of the Company’s less-expensive, smaller-aperture telescopes increased over the prior year period by approximately $4 million on stronger demand at several the Company’s mass merchandisers and specialty retailers. Sales of the Company’s higher-end telescopes and telescope accessory products increased in the aggregate by approximately $5 million over the prior year period. Sales of microscopes, magnifying glasses, laser rangefinders, OEM camera products and other miscellaneous products increased by approximately $2 million compared to the prior year. Also adding to sales in the current period was approximately $3 million of Coronado brand product sales (there were no Coronado sales in the prior year period). Sales increases were offset principally by a decrease in sales of riflescopes of approximately $8 million and a decrease in binocular sales of approximately $2 million.

     Gross profit increased from $24.4 million (26.5% of net sales) for the nine months ended November 30, 2004 to $25.6 million (26.6% of net sales) for the comparable current year period, an increase of 4.9%. The dollar increase followed the increase in net sales and gross margin (gross profit as a percent of net sales) for the period. Gross margin was relatively flat compared to the prior year as improvements coming from sales trending to several higher margin products were offset by lower margins at Simmons principally due to discounts on prior year products and air freight expenses on the new Simmons products.

     Selling expenses increased from $13.2 million (14.3% of net sales) for the nine months ended November 30, 2004 to $14.3 million (14.8% of net sales) for the comparable current year period, an increase of 8.8%. The dollar increase was primarily due to higher variable costs including freight and commissions, on higher net sales. Also included in the current period are selling costs related to Coronado that were not in the prior year period. The increase as a percent of sales was principally due to marketing and advertising costs related to the introduction of the new Simmons riflescopes that the Company was not able to cancel subsequent to the identification of the significantly lower than expected quantities of Simmons riflescopes from the Asian supplier were realized.

     General and administrative expenses increased from $7.4 million (8.0% of net sales) for the nine months ended November 30, 2004 to $9.0 million (9.3% of net sales) for the comparable current year period, an increase of 21.3%. Approximately one half of the increase over the prior year period was due to general and administrative expenses at the Company’s Coronado subsidiary (there were no Coronado expenses in the prior year period). The balance of the increase is increased outside professional and consulting fees.

     ESOP contribution expense remained flat at approximately $0.3 million (0.3% of net sales for the prior and current year period) for each period presented. The non-cash ESOP contribution expense may fluctuate as the number of shares allocated and the market value of the Company’s common stock changes.

     Research and development expenses decreased from $1.6 million (1.8% of net sales) for the nine months ended November 30, 2004 to $1.1 million (1.1% of net sales) for the comparable current year period, a decrease of 35.0%. The decrease was principally due to a decrease in external research and development consulting costs. Research and development expenses continue to be focused on new product development and product improvement in the Company’s core consumer product categories.

     Interest expenses increased from $0.6 million (0.7% of net sales) for the nine months ended November 30, 2004 to $0.9 million (0.9% of net sales) for the comparable current year period, an increase of 34.9%. The increase was principally due to increases in average rates over the prior year period.

     The provision for income taxes increased from 40.3% of income before income taxes for the nine months ended November 30, 2004 to 699.3% of income before income taxes for the nine months ended November 30, 2006. During the third quarter of fiscal 2006, the Company determined that it was necessary to establish a valuation allowance related to deferred tax assets for its foreign tax credits, as it is more likely than not that the Company will not be able to utilize them prior to their expiration. The third quarter tax provision reflects the impact of a valuation allowance of approximately $0.9 million related to foreign tax credit carryforwards and approximately $1.0 million related to its projected current year foreign tax credit. Management believes that it is more likely than not that the Company will be able to utilize its other deferred tax assets. Fluctuations in the tax rate reflect changes in management’s estimates of the timing and extent of taxable income generated in the U.S. and overseas as well as the timing and extent of the estimated utilization of certain tax credits generated in the U.S. and overseas.

Seasonality

     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 fluctuating 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.

Liquidity and Capital Resources

     For the nine months ended November 30, 2005 the Company funded its operations principally with short-term bank borrowings. Cash flows from operating activities were augmented by an increase in accounts payable and a decrease in inventories while cash flows were diminished by a significant increase in accounts receivable. Accounts receivable increased on higher sales during the current year quarter as compared to the prior year period. Accounts receivable also increased on changes in sales mix from the prior year period that affected the blend of payment terms in accounts receivable. Management efforts to reduce inventories resulted in a decrease of nearly $5 million in inventories for the current year period. Management expects that trend to continue as it continues its focus on inventory reduction. The increase in accounts payable reflects cash management efforts. Working capital totaled approximately $52.2 million at November 30, 2005, compared to $53.6 million at February 28, 2005. 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.

     The Company continues to depend on operating cash flow and availability under its bank lines of credit to provide short-term liquidity. Availability under its bank lines of credit at November 30, 2005 was approximately $13 million. As of and for the period ended November 30, 2005, the Company was in compliance with all of its bank covenants. Continuing losses for the six months ended August 31, 2005, led the Company to conclude that it was not in compliance with the consolidated fixed charge coverage ratio covenant as set forth in the U.S. credit agreement for the period ended August 31, 2005. Accordingly, on October 12, 2005, the Company executed the Fifth Amendment to Amended and Restated Credit Agreement (the “Fifth Amendment”). The Fifth Amendment made the following key changes to the U.S. credit agreement: (1) reset the consolidated and U.S. fixed charge coverage ratio covenants and (2) added higher interest rate levels to the pricing grid. The fee for the amendment was $75,000. The Company was required to report its covenant calculations to the bank for the period ended August 31, 2005 based upon the terms of the Fifth Amendment. Upon execution of the Fifth Amendment the Company was in compliance with all of its bank covenants.

     In the event the Company’s plans require more capital than is presently anticipated, additional sources of liquidity such as debt or equity financings, may be required to meet its capital needs. There can be no assurance that such additional sources of capital will be available on reasonable terms, if at all. However, management believes that operating cash flow and bank borrowing capacity in connection with the Company’s business should provide sufficient liquidity for the Company’s obligations for at least the next twelve months.

     On July 29, 2005, the Company’s European subsidiary purchased a building for cash of approximately 1,487,000 Euro (approximately $1,805,000 USD at that date). The approximately 50,000 sq. ft building, located in Rhede, Germany, initially will be used as warehouse space, necessary for warehousing products in anticipation of the heavy seasonal selling period during this year’s third and fourth fiscal quarters. The building is being depreciated straight-line over twenty-five years. In addition to an already existing long term loan with its bank (“European term loan no. 1”) the European subsidiary obtained a 1,375,000 Euro (approximately $1,611,000 USD at November 30, 2005) long-term loan (“European term loan no. 2”) toward the purchase of the building. European term loan no. 2 bears interest fixed at 4.55% with monthly principal payments due of approximately 11,500 Euro (approximately $13,500 USD at November 30, 2005) for ten years. On September 9, 2005, the European subsidiary drew down the 1,375,000 Euro term loan (approximately $1,705,000 USD at that date).

     Concurrently with negotiations to obtain the European term loan no. 2, the subsidiary renegotiated its bank line of credit. The new European line of credit is 7,500,000 Euro (approximately $8,789,000 USD at November 30, 2005) and bears interest at EURIBOR plus 2%; 5,500,000 Euro of the line expired on January 1, 2006 with the remaining 2,000,000 Euro expiring on July 31, 2006. The European line of credit and term loans are collateralized by all of the principal assets of the subsidiary; are further collateralized by a guarantee from the U.S. parent company in the amount of 2,600,000 Euro (approximately $3,047,000 USD at November 30, 2005); and require certain minimum capitalization amounts at the subsidiary.

     Capital expenditures, including financed purchases of equipment and the new building, aggregated $2.6 million and $0.6 million for the nine month periods ended November 30, 2005 and 2004, respectively. The Company had no material capital expenditure commitments at November 30, 2005.

New Accounting Pronouncements

     In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. The provisions of SFAS No. 154 are effective for fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 in fiscal 2007 to have a material impact on its results of operations or financial position.

     In December 2004, the FASB issued FSP No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. The American Jobs Creation Act of 2004 (the “Jobs Creation Act”) was enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Creation Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. The Company is currently paying US tax on its foreign earnings as

predominantly all of the Company’s foreign earnings are generated through operations that are in the form of a branch for US tax purposes. Accordingly, this new law will not have an impact on the Company’s effective tax rate.

     In November 2004, the FASB issued SFAS No. 151, Inventory Costs — an amendment of ARB No. 43, Chapter 4. This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 151 to have a material impact on its results of operations or financial position.

     In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for fiscal periods beginning after June 15, 2005. The Company does not anticipate that the application of this statement will have a material impact on the Company’s financial position or results of operations.

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”. SFAS No. 123R supersedes APB Opinion No. 25, which requires recognition of an expense when goods or services are provided. SFAS No. 123R requires the determination of the fair value of the share-based compensation at the grant date and the recognition of the related expense over the period in which the share-based compensation vests. SFAS No. 123R permits a prospective or two modified versions of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by the original SFAS No. 123. We are required to adopt the provisions of SFAS No. 123R effective March 1, 2006, at which time we will begin recognizing the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. The Company has not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS No. 123.

Forward-Looking Information

     The preceding “Management’s Discussion and Analysis of Financial Condition 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, riflescopes, microscopes, night vision and other optical products; the Company’s ability to continue to develop and bring to market new and innovative products that will be accepted by consumers and end the downward trend in telescope sales; the Company’s ability to develop and grow the Simmons business; the Company’s ability to resolve the production difficulties in Asia and return Simmons sales to historical levels; the Company’s ability to integrate and grow the Coronado business: the Company’s ability to further 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 further develop the business of its European subsidiary; the Company’s ability to recognize any benefits from its engineering and quality control office in China; the Company experiencing fluctuations in its sales, gross margins and profitability from quarter to quarter consistent with prior periods; the Company’s expectation that contingent liabilities will not have a material effect on the Company’s financial position or results of operations; the extent to which the Company will be able to leverage its design and manufacturing expertise in certain industrial applications such as 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 trademarks to protect our proprietary technologies and trade names;
	•		competitors’ infringement upon Meade’s existing and future intellectual property; and
	•		competitors’ intellectual property rights 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 binocular, riflescope and solar observing markets and achieve meaningful sales;
	•		any significant interruption of our manufacturing abilities in our domestic or Mexican facilities or in any of our suppliers located in the Far East;
	•		greater than anticipated competition;
	•		any loss of, or the failure to replace, any significant portion of the sales made to any significant customer of the Company; and
	•		increasing ESOP charges in the event the market price of the Company’s stock increases.

ITEM 3.		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 countries and is primarily exposed to currency exchange-rate risk with respect to its transactions and net assets denominated in the Euro. Business activities in various currencies expose the Company to the risk that the eventual net United States dollar cash inflows resulting from transactions with foreign customers and suppliers denominated in foreign currencies may be adversely affected by changes in currency exchange rates. In prior years, foreign currency fluctuations have not had a material impact 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, financial condition or cash flows.

     The Company has adopted a hedging program to manage its foreign currency exchange rate and, at times, 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. From time to time, the Company enters into forward exchange contracts to establish with certainty the U.S. dollar amount of future firm commitments denominated in a foreign currency. The notional amounts of the forward exchange contracts vary, typically with the seasonal inventory requirements of the Company’s German subsidiary. The Company’s German subsidiary purchases inventory from Far Eastern suppliers in U.S. dollars. A forward exchange contract is typically entered into when the U.S. dollar amount of the inventory purchase is firm. Given our foreign exchange position, an adverse change in foreign exchange rates upon which these foreign exchange contracts are based would result in exchange gains and losses. In all material aspects, these exchange gains and losses would be fully offset by exchange gains and losses on the underlying net monetary exposures for which the contracts are designated as hedges. We do not expect material exchange rate gains and losses from unhedged foreign currency exposures. As of November 30, 2005, the Company had the following forward exchange contracts outstanding.

		November 30, 2005								February 28, 2005
		Notional								Notional
		amount				Fair Value				amount				Fair Value
Forward currency contracts		$	2,600,000			$	(460,000	)			—				—

     The Company’s financial instruments consist of cash, accounts receivable, accounts payable, short-term obligations, and long-term obligations. The Company’s principal exposure to interest rate fluctuations relates primarily to the Company’s revolving and term loans. The debt under the revolving and term loans generally bear interest at a floating rate tied to either the LIBOR/EURIBOR rate or the bank prime rate of interest. The European term loans #1 and #2 bear interest at a fixed rate of 6.0% and 4.55%, respectively.

ITEM 4. CONTROLS AND PROCEDURES

     As of the end of the period covered by this report, the Company’s chief executive officer and chief financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). These disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in the reports it files under the Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness.

     The Company’s chief executive officer and chief financial officer concluded, based on their evaluation, that as of November 30, 2005, the Company’s disclosure controls and procedures were effective for the Company.

     No change in the Company’s internal control over financial reporting occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.		LEGAL PROCEEDINGS

     The Company is involved from time to time in litigation incidental to its business. Management believes that the outcome of such litigation will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

	1.		Exhibit 10.68 Fifth Amendment to Amended and Restated Credit Agreement and Limited Waiver of Defaults dated October 12, 2005, and entered into by and among Bank of America, N.A. and Meade Instruments Corp., a Delaware corporation, Simmons Outdoor Corp., a Delaware corporation, and Coronado Instruments, Inc., a California corporation (Incorporated by reference to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on October 17, 2005)
	2.		Exhibit 31.1 Sarbanes-Oxley Act Section 302 Certification by Steven G. Murdock†
	3.		Exhibit 31.2 Sarbanes-Oxley Act Section 302 Certification by Brent W. Christensen†
	4.		Exhibit 32.1 Sarbanes-Oxley Act Section 906 Certification by Steven G. Murdock†
	5.		Exhibit 32.2 Sarbanes-Oxley Act Section 906 Certification by Brent W. Christensen†
	†		Exhibit filed with this Report

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: January 17, 2006
		MEADE INSTRUMENTS CORP.
		By:		/s/ STEVEN G. MURDOCK
				Steven G. Murdock
				President, Chief Executive Officer
				and Secretary
		By:		/s/ BRENT W. CHRISTENSEN
				Brent W. Christensen
				Senior Vice President, Finance and
				Chief Financial Officer