<PAGE> 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 MAY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-27612
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.)
16542 MILLIKAN AVE.
IRVINE, CA 92606
- ---------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 756-2291
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 May 31, 1997 is 7,875,500
===============================================================================
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MEADE INSTRUMENTS CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Statements of Operations (Unaudited) - Three Months Ended
May 31, 1997 and 1996 .............................................. 3
Balance Sheets (Unaudited) - May 31, 1997 and 1996 ................... 4
Statements of Cash Flows (Unaudited) - Three Months Ended
May 31, 1997 and 1996 .............................................. 5
Notes to Financial Statements (Unaudited) ............................ 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................... 7-8
PART II - OTHER INFORMATION
Other Information .................................................... 9
SIGNATURES ................................................................ 10
EXHIBITS .................................................................. 11
</TABLE>
2
<PAGE> 3
MEADE INSTRUMENTS CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net sales ..................................... $12,735,000 $ 7,166,000
Cost of sales ................................. 8,526,000 5,012,000
----------- -----------
Gross profit .................................. 4,209,000 2,154,000
Selling expenses .............................. 1,414,000 834,000
General and administrative expenses ........... 1,119,000 803,000
Research and development expenses ............. 194,000 118,000
ESOP contribution ............................. 250,000 250,000
----------- -----------
Operating income .............................. 1,232,000 149,000
Interest expense .............................. 594,000 249,000
----------- -----------
Income (loss) before income taxes ............. 638,000 (100,000)
Provision (benefit) for income taxes .......... 262,000 (42,000)
----------- -----------
Net income (loss) ............................. 376,000 (58,000)
Deductions for accretion of redeemable
preferred stock ............................. 374,000 65,000
----------- -----------
Net income (loss) available to
common stockholders ......................... $ 2,000 $ (123,000)
=========== ===========
Net income (loss) per share ................... $ 0.00 $ (0.03)
=========== ===========
Weighted average number of shares
outstanding ................................. 5,424,200 4,015,800
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
MEADE INSTRUMENTS CORP.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, MAY 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash ................................................ $ 26,000 $ 53,000
Accounts receivable, less allowance for doubtful
accounts of $258,000 in 1997 and $185,000 in 1996.. 6,245,000 5,603,000
Inventories ......................................... 11,530,000 9,902,000
Deferred income taxes ............................... 885,000 330,000
Prepaid expenses and other current assets ........... 170,000 37,000
------------ ------------
Total current assets .......................... 18,856,000 15,925,000
Other assets .......................................... 549,000 1,387,000
Property and equipment, net of accumulated
depreciation of $1,126,000 in 1997 and $719,000
in 1996 ............................................. 1,485,000 1,182,000
------------ ------------
$ 20,890,000 $ 18,494,000
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank line of credit ................................. $ 1,498,000 $ 4,788,000
Current portion of long-term debt ................... 1,584,000
Current portion of capital lease obligations ........ 218,000 146,000
Accounts payable .................................... 2,166,000 2,899,000
Accrued liabilities ................................. 1,724,000 1,053,000
Income taxes payable ................................ 766,000 224,000
------------ ------------
Total current liabilities ................... 6,372,000 10,694,000
------------ ------------
Long-term debt, net of current portion ................ 7,916,000
------------ ------------
Long-term capital lease obligations, net of current
portion ............................................. 495,000 332,000
------------ ------------
Deferred rent ......................................... 60,000 79,000
------------ ------------
Commitments
Redeemable Series A preferred stock; 1,000 shares
authorized, issued and outstanding .................. 2,565,000
------------ ------------
Stockholders' equity (deficit):
Preferred stock; 999,000 shares authorized, none
issued and outstanding.............................
Common stock, $0.01 par value, 20,000,000 shares
authorized; issued and outstanding 7,875,500
shares at May 31, 1997 ............................ 79,000
Series A common stock; 15,000,000 shares
authorized; issued and outstanding 3,500,000
shares at May 31, 1996 ............................ 3,511,000
Series B common stock; 5,000,000 shares
authorized; 1,500,000 shares issued and
outstanding at May 31, 1996 .......................
Additional paid-in capital .......................... 21,345,000
Retained earnings ................................... 1,544,000 4,397,000
------------ ------------
22,968,000 7,908,000
Unearned ESOP shares ................................ (9,005,000) (11,000,000)
------------ ------------
Total stockholders' equity (deficit) ........ 13,963,000 (3,092,000)
------------ ------------
$ 20,890,000 $ 18,494,000
============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
MEADE INSTRUMENTS CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
----------------------------
1997 1996
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................... $ 376,000 $ (58,000)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization ......... 543,000 84,000
ESOP contribution ..................... 250,000 250,000
Changes in assets and liabilities:
Increase in accounts receivable ....... (1,415,000) (1,064,000)
Decrease (increase) in inventories .... 547,000 (3,440,000)
Decrease in prepaid expenses and
other current assets ................ 61,000 176,000
Decrease (increase) in other assets ... 57,000 (1,124,000)
(Decrease) increase in accounts
payable ............................. (29,000) 1,493,000
Increase (decrease) in accrued
liabilities ......................... 111,000 (63,000)
Decrease in income taxes payable ...... (296,000) (398,000)
------------ ------------
Total adjustments .................. (171,000) (4,086,000)
------------ ------------
Net cash provided by (used in)
operating activities ........... 205,000 (4,144,000)
------------ ------------
Cash flows from investing activities:
Capital expenditures .................... (137,000) (41,000)
------------ ------------
Net cash used in investing activities ... (137,000) (41,000)
------------ ------------
Cash flows from financing activities:
Payments on long-term debt ................ (8,183,000) (650,000)
Proceeds from long-term debt .............. 9,500,000
Net borrowings (payments) under bank line
of credit ............................... (2,860,000) 2,661,000
Payments on notes payable to related
parties ................................. (2,000,000)
Redemption of common stock ................ (250,000)
Issuance of preferred stock ............... 2,500,000
Net proceeds from the issuance of common
stock ................................... 17,913,000
Redemption of preferred stock ............. (6,864,000)
Purchase and exercise of warrant for
common stock ............................ 3,510,000
Unearned ESOP shares ...................... (11,000,000)
Payments under capital lease obligations .. (52,000) (36,000)
------------ ------------
Net cash provided by (used in)
financing activities ................ (46,000) 4,235,000
------------ ------------
Net increase (decrease) in cash ........... 22,000 50,000
Cash at beginning of period ............... 4,000 3,000
------------ ------------
Cash at end of period ..................... $ 26,000 $ 53,000
============ ============
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest .............................. $ 154,000 $ 219,000
Income taxes .......................... $ 525,000 $ 355,000
Non-cash financing activities:
Accretion on redeemable preferred stock 374,000 $ 65,000
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
MEADE INSTRUMENTS CORP.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
A. The 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, 1997.
The Company has experienced, and expects to continue to experience,
substantial fluctuations in its sales, gross margins and profitability from
quarter to quarter. Factors that influence these fluctuations include the volume
and timing of orders received, changes in the mix of products sold, market
acceptance of the Company's products, competitive pricing pressures, the
Company's ability to meet increasing demand and delivery schedules, the timing
and extent of research and development expenses and the timing and extent of
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 first quarter ended May 31, 1997 and 1996,
respectively, are not necessarily indicative of the operating results for the
entire fiscal year.
B. In April 1997 the Company completed an initial public offering (the
"Offering) of 3,875,500 shares of common stock (including the underwriter's
over-allotment option). The Offering included 2,875,500 newly issued shares of
common stock and 1,000,000 shares of common stock held by the Company's then
preferred stockholder. The Offering raised approximately $17.9 million (after
underwriting discounts and Offering expenses). Net proceeds from the Offering
were used to redeem approximately $6.9 million of outstanding Series A preferred
stock, including accrued dividends, and to repay approximately $11.0 million of
existing bank term and revolving debt. Prior to the closing of the Offering, the
Company reincorporated into a Delaware subsidiary, with the Delaware subsidiary
being the surviving corporation. All of the outstanding shares of the Series A
and Series B common stock and Series A preferred stock of the Company were
exchanged on a ratio of one for one with shares of Series A and Series B common
stock and Series A preferred stock of the Delaware subsidiary as part of the
reincorporation. All shares of Series A and Series B common stock were converted
into shares of common stock upon the completion of the Offering.
6
<PAGE> 7
MEADE INSTRUMENTS CORP.
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.
FIRST QUARTER ENDED MAY 31, 1997 COMPARED TO FIRST QUARTER ENDED MAY 31, 1996
Net sales for the first quarter of fiscal 1997 were $12.7 million
compared to $7.2 million for the first quarter of fiscal 1996, an increase of
76.4%. This increase was primarily due to (i) a combined increase of
approximately $3.6 million in net sales of less-expensive telescopes and ETX
Astro Telescopes, (ii) an increase of approximately $1.0 million in telescope
accessory sales and (iii) increased sales across several other product
categories. The Company believes that sales in general, and more specifically
less-expensive telescope sales and telescope accessory sales, during the first
quarter of fiscal 1998 were positively affected by the Hale-Bopp comet
phenomenon.
Gross profit increased from $2.2 million (30.5% of net sales) for the
first quarter of fiscal 1997 to $4.2 million (33.1% of net sales) for the first
quarter of fiscal 1998, an increase of 90.9%. The increase in gross profit as a
percent of net sales was principally due to the increased sales of
less-expensive telescopes, telescope accessories and ETX Astro Telescopes which
generally have a higher gross profit margin than the Company's other products.
Selling expenses increased from $834,000 (11.6% of net sales) for the
first quarter of fiscal 1997 to $1.4 million (11.0% of net sales) for the first
quarter of fiscal 1998, an increase of 67.9%. This increase over the first
quarter of fiscal 1997 principally reflects (i) higher advertising and other
selling expenses to support higher sales volumes for first quarter of fiscal
1998, (ii) higher freight and other shipping costs due to higher sales volumes
for the first quarter of fiscal 1998 and (iii) higher shipping and selling
personnel expenses for the first quarter of fiscal 1998.
General and administrative expenses increased from $803,000 (11.2 % of
net sales) for the first quarter of fiscal 1997 to $1.1 million (8.7% of net
sales) for the first quarter of fiscal 1998, an increase of 37.0%. This increase
over the first quarter of fiscal 1997 was generally due to increases in
personnel related costs, consulting expenses related to the anticipated move to
a new facility and general increases across a broad category of expenses to
support higher sales volumes during the first quarter of fiscal 1998.
Research and development expenses increased from $118,000 (1.6% of net
sales) for the first quarter of fiscal 1997 to $194,000 (1.5% of net sales) for
the first quarter of fiscal 1998, an increase of 64.4%. This increase was due to
increased internal engineering personnel related costs and increased outside
engineering consulting expenses.
Interest expense increased from $249,000 for the first quarter of
fiscal 1997 to $594,000 for the first quarter of fiscal 1998, an increase of
138.6%. The increase was principally due to approximately $400,000 of additional
interest expense recognized pursuant to accelerated amortization of previously
capitalized debt issuance costs related to bank term debt that was retired with
the proceeds of the Offering in April 1997.
7
<PAGE> 8
For the first quarter of fiscal 1998, income tax expense totaled
$262,000, an effective rate of 41.1%. For the first quarter of fiscal 1997, the
Company recognized a tax benefit of $42,000 on a pretax loss of $100,000, an
effective rate of 42.0%.
For the first quarter of fiscal 1998, net income was adjusted by
$374,000 for accretion of redeemable preferred stock to arrive at net income
available to common stockholders of $2,000. For the first quarter of fiscal
1997, net income was adjusted by $65,000 for accretion of redeemable preferred
stock to arrive at a net loss available to common stockholders of $123,000.
There will be no further accretion adjustments related to the redeemable
preferred stock as it was redeemed in full with the proceeds of the Offering in
April 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the first quarter of fiscal 1998, the Company funded its operations
with proceeds from the Offering as well as internally generated cash flow and
borrowings on its bank line of credit. Net working capital (current assets less
current liabilities) totaled approximately $12.5 million at May 31, 1997,
representing an increase of 140% from the May 31, 1996 level of approximately
$5.2 million. The increase was principally due to the repayment of bank debt
with the proceeds of the Offering.
Working capital requirements fluctuate during the year due to the
seasonal nature of the business. These requirements are typically financed
through a combination of internally generated cash flow from operating
activities and short-term bank borrowings.
In April 1996, the Company entered into a five-year Loan and Security
Agreement with Fleet Capital Corporation (the "Loan Agreement") which provides
for (i) a $10.0 million revolving line of credit facility, secured by the
Company's accounts receivable and inventories and (ii) a $9.5 million term note
(the "term note") secured by the assets of the Company. The term note was repaid
on April 14, 1997 with the proceeds of the Offering.
Capital expenditures aggregated $137,000 and $41,000 for the quarters
ended May 31, 1997 and 1996, respectively. The Company had no material capital
expenditure commitments as of May 31, 1997.
The Company believes that the proceeds of the Offering, together with
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.
8
<PAGE> 9
PART II - OTHER INFORMATION
Item 1. Legal proceedings
Not applicable.
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
On April 1, 1997, in connection with the Offering, the
stockholders of the Company took action by Unanimous Written
Consent to approve the merger of Meade Instruments Corp., a
California corporation, with and into the Company, with the
Company being the surviving corporation.
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. 27 Financial Data Schedule for the quarter
ended May 31, 1997.
6(b) Reports on Form 8-K
None.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: July 15, 1997
MEADE INSTRUMENTS CORP.
By: /s/ JOHN C. DIEBEL
------------------------------
John C. Diebel
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ JOHN C. DIEBEL Chairman of the Board and July 15, 1997
- ------------------------- Chief Executive Officer
John C. Diebel (Principal Executive Officer)
/s/ STEVEN G. MURDOCK Director, President and July 15, 1997
- ------------------------- Chief Operating Officer
Steven G. Murdock
/s/ BRENT W. CHRISTENSEN Vice President -- Finance and July 15, 1997
- ------------------------- Chief Financial Officer
Brent W. Christensen (Principal Financial and
Accounting Officer)
/s/ JOSEPH A. GORDON, JR. Director and Senior Vice July 15, 1997
- ------------------------- President of North American
Joseph A. Gordon, Jr. Sales
Director
- -------------------------
Timothy C. McQuay
Director
- -------------------------
Harry L. Casari
10
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> FEB-28-1998 FEB-28-1997
<PERIOD-START> MAR-01-1997 MAR-01-1996
<PERIOD-END> MAY-31-1997 MAY-31-1996
<EXCHANGE-RATE> 1 1
<CASH> 26 53
<SECURITIES> 0 0
<RECEIVABLES> 6,503 5,788
<ALLOWANCES> 258 185
<INVENTORY> 11,530 9,902
<CURRENT-ASSETS> 18,856 15,925
<PP&E> 2,611 1,901
<DEPRECIATION> 1,126 719
<TOTAL-ASSETS> 20,890 18,494
<CURRENT-LIABILITIES> 6,372 10,694
<BONDS> 0 0
0 2,565
0 0
<COMMON> 79 3,511
<OTHER-SE> 13,884 (6,603)
<TOTAL-LIABILITY-AND-EQUITY> 20,890 18,494
<SALES> 12,735 7,166
<TOTAL-REVENUES> 12,735 7,166
<CGS> 8,526 5,012
<TOTAL-COSTS> 8,526 5,012
<OTHER-EXPENSES> 2,977 2,005
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 594 249
<INCOME-PRETAX> 638 (100)
<INCOME-TAX> 262 (42)
<INCOME-CONTINUING> 376 (58)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> (374) (65)
<NET-INCOME> 2 (123)
<EPS-PRIMARY> 0 (0.03)
<EPS-DILUTED> 0 (0.03)
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