MEADE INSTRUMENTS CORP, 10-K405, 2000-05-30

MEADE INSTRUMENTS CORP
10-K405, 2000-05-30
OPTICAL INSTRUMENTS & LENSES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

FORM 10-K

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED FEBRUARY 29, 2000

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

COMMISSION FILE NO. 0-22183

MEADE INSTRUMENTS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

----------------

DELAWARE 95-2988062
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION)

6001 OAK CANYON, IRVINE, CALIFORNIA 92618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 451-1450
----------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE PER SHARE
(TITLE OF CLASS)

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

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

On May 4, 2000 the Company's Board of Directors approved a two-for-one
stock split for all stockholders of record at May 22, 2000 and payable in the
form of a dividend on June 19, 2000.

As of May 25, 2000, there were 8,196,101 outstanding shares of the
Registrant's common stock, par value $0.01 per share ("common stock"), which is
the only class of common stock of the Registrant. As of May 25, 2000 the
aggregate market value of the shares of common stock held by non-affiliates of
the Registrant, computed based on the closing sale price of $43.31 per share as
reported by Nasdaq, was approximately $211 million.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to
the definitive Proxy Statement for the 1999 Annual Meeting of Stockholders of
the Registrant which will be filed with the Securities and Exchange Commission
not later than 120 days after February 29, 2000.

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TABLE OF CONTENTS

<TABLE>
PART I

<S> <C>
Item 1. Business............................................................... Page 1
Executive Officers of the Registrant.................................. Page 7
Item 2. Properties............................................................. Page 8
Item 3. Legal Proceedings...................................................... Page 8
Item 4. Submission of Matters to a Vote of Security Holders.................... Page 8

PART II

Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters....................................... Page 9
Item 6. Selected Financial Data................................................ Page 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... Page 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............ Page 15
Item 8. Financial Statements and Supplementary Data............................ Page 15
Item 9. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure................................... Page 15

PART III

Item 10. Directors and Executive Officers of the Registrant.................... Page 16
Item 11. Executive Compensation................................................ Page 16
Item 12. Security Ownership of Certain Beneficial Owners and Management........ Page 16
Item 13. Certain Relationships and Related Transactions........................ Page 16

PART IV

Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K....... Page 17

CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

Report of Independent Accountants.............................................. F-1
Consolidated Balance Sheets at February 29, 2000 and February 28, 1999......... F-2
Consolidated Statements of Income for each of the three years
in the period ended February 29, 2000................................. F-3
Consolidated Statements of Stockholders' Equity for the three years
in the period ended February 29, 2000................................ F-4
Consolidated Statements of Cash Flows for the three years
in the period ended February 29, 2000................................. F-5
Notes to Consolidated Financial Statements..................................... F-6
</TABLE>

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PART I

ITEM 1. BUSINESS

GENERAL

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

Since its founding in 1972, Meade has strived to develop a reputation
for providing the amateur astronomer with technically sophisticated products at
competitive prices. Meade manufactures nearly the complete line of its advanced
astronomical telescopes in Irvine, California, including the production of all
of the advanced optical systems, which are critical components of telescopes.
Combining its manufacturing expertise with its dedication to innovation, quality
and value, Meade has developed and produced some of the industry's most
technologically advanced consumer telescopes at affordable prices. Although
professional and institutional applications of Meade's telescopes are not
Meade's primary market, the Company's Schmidt-Cassegrain telescopes are used by
many universities, scientific laboratories and aerospace companies, including
the University of California, Los Alamos National Laboratory, Lawrence Livermore
Laboratory, National Radio Astronomy Observatory and NASA/Aames Research. The
Company has capitalized on its brand name recognition among serious amateur
astronomers and its ability to bring advanced technology to lower price points
to market successfully its less-expensive telescopes to beginning and
intermediate amateur astronomers. Meade has become a major supplier of
telescopes to such retailers as Discovery Channel Stores (formerly The Nature
Company), Wal-Mart, Natural Wonders, Costco, Sam's Club and Store of Knowledge.

Meade was sold by its founder and current Chief Executive Officer to an
investor in 1986 and was then reacquired by the Company's senior management in
1991. After the reacquisition, management emphasized a business plan that
concentrated on new product development, securing a reliable supplier of
less-expensive telescopes, effective targeted marketing and customer service. To
those ends the Company committed nearly $1.4 million to research and development
during fiscal 2000 and has, over the last five fiscal years, committed nearly
$4.4 million in the aggregate to research and development. These research and
development expenditures were centered on the development of technologically
advanced less-expensive telescopes. A majority of the Company's less-expensive
telescopes are manufactured under proprietary designs by a Taiwanese company
(the "Taiwanese Factory") with which the Company has an exclusive supply
arrangement. The Company's business plan complements its efforts in new product
development with an aggressive marketing plan. The Company's marketing plan
includes print advertising in astronomy related magazines, in general consumer
magazines and as a key component of extensive co-operative advertising campaigns
with many of the Company's key retail partners. Meade publishes a comprehensive,
full-color, high-quality product catalog that provides significant product
exposure to the serious amateur astronomer. Meade also publishes an abridged
version of its product catalog aimed at the casual observer or general consumer
with an interest in astronomy.

On September 1, 1999 the Company acquired 100% of the stock and equity
interests in Bresser Optik GmbH & Co. KG, and Bresser Optik Geschaftsfuhrung und
Verwaltungs GmbH (collectively "Bresser"), for $5.0 million in cash and 100,915
shares of the Company's common stock valued at approximately $2.0 million.
Bresser is a German distributor of binoculars, telescopes, microscopes and other
consumer optical products. To fund the cash portion of the purchase price the
Company borrowed $5.0 million under the Term Loan on August 31, 1999 (See
Item 7. "Liquidity and Capital Resources"). The Company views Bresser as not
only a going concern with products and services that are similar to Meade's
traditional business, but as a beachhead from which the Company will bring
Meade's latest computer-guided, affordably-priced telescopes to Europe. Further
to that end, in January 2000, the Company purchased what was formerly its German
distributor for approximately $1.1 million cash.

In the United States and Canada, the Company distributes its products
through a network of more than 500 specialty retailers and mass merchandisers,
which offer Meade's products in more than 3,000 retail store locations. The
Company also sells certain of its telescope models to selected national mail
order dealers. In addition to products sold through the Bresser channels, Meade
sells its products internationally through a network of over 30 foreign
distributors, many of which service retail locations in their respective
countries. Revenues from customers outside North America accounted for
approximately 22.5% of the Company's net sales for the fiscal year ended
February 29, 2000 (See Note 8 of Notes to Consolidated Financial Statements).
The Company intends to continue to

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pursue an integrated strategy of product line expansion, aggressive marketing,
and expansion of the Company's domestic and international distribution networks.

Following the close of fiscal 2000, the Company announced that it will
be an original equipment manufacturer for TeraBeam Corporation ("TeraBeam"), an
emerging service provider for gigabit IP connectivity in metropolitan areas.
Meade will supply the Seattle-based company with key components for TeraBeam's
wireless optical network. The components use existing Meade telescope technology
and are currently in limited production by Meade. The ultimate quantities and
timing of the products ordered by TeraBeam will depend upon TeraBeam's market
roll-out.

INDUSTRY OVERVIEW

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

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

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

COMPETITIVE STRENGTHS

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

New Products/Research and Development. Meade places a primary emphasis
on product innovation and quality through its research and development efforts.
The Company currently employs fourteen engineers on-site, developing new
products, technological advances and improvements to existing products, in an
effort to remain the industry leader. The Company is able to obtain additional
benefits by out-sourcing certain research and development services to supplement
its internal expertise. Meade believes that the members of its senior level
management are among the most experienced in the telescope industry. The
Company's three most experienced officers have been employed in this industry
for an average of over 20 years. The Company, its management and its employees
are dedicated to the goal of producing technically superior yet
price-competitive products and have been responsible for some of the industry's
most technically advanced, easy to use, consumer telescopes.

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

Optical Systems Expertise. Meade has made substantial investments to
develop an expertise in optical engineering, providing it with the ability to
produce high quality optics on-site in Irvine, CA. Meade employs highly skilled
opticians who use sophisticated

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manufacturing techniques and equipment, including specialized optical polishing
machines and vacuum-coating machines, to produce what the Company believes to be
the highest quality optics available in the consumer telescope market.

Quality Control. Meade's manufacturing and engineering personnel
coordinate the manufacturing process in order to ensure that product quality is
maintained at a high level within an efficient cost structure. The Company has
in place quality controls covering all aspects of the manufacturing process of
its products, from each product's precision optical system to its final assembly
and testing. Certain of the Company's lower and mid-priced telescope models are
assembled at the Company's assembly plant located in Tijuana, Mexico (See Item
2. Properties). The Company manufactures the majority of its high-end advanced
telescopes in its manufacturing facility in Irvine, California, while many of
the Company's less-expensive telescopes are manufactured for the Company in
Taiwan through an exclusive arrangement with the Taiwanese Factory. This
exclusive arrangement provides the Company with the ability to exert control
over the telescope manufacturing process to ensure the quality and performance
of its less-expensive products. To support this arrangement, Meade employs a
Taiwanese quality control engineer on a full-time basis and regularly commits at
least one of its United States based quality control engineers to the Taiwanese
Factory.

Broad Distribution Network. The Company's sales force in the U.S. and in
Germany works closely with specialty retailers, distributors and mass
merchandisers on product quality, technical knowledge and customer service.
Meade has its own on-site graphic arts departments to work with specialty
retailers, distributors and mass merchandisers to produce print advertising,
hang-tags for displays within retail outlets and other point-of-sale support.
This capability provides the Company's customers with a comprehensive marketing
program to assist in their sales efforts. As a result of these efforts, Meade
has become a major supplier of telescopes to such retailers as Discovery Channel
Stores (The Nature Company), Aldi (in Germany), Wal-Mart, Natural Wonders,
Costco, Sam's Club and Store of Knowledge. Meade also has an expanding
international presence with the acquisition of Bresser. Revenues from customers
outside North America have grown from $4.2 million for the fiscal year ended
February 28, 1995 to $28.5 million for the fiscal year ended February 29, 2000.

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

PRODUCTS

Meade has developed and expanded its product line to include a full line
of telescopes and accessories for the beginning, intermediate and serious
amateur astronomer. Moreover, in addition to adding new products, the Company
continually refines and improves its existing products. Certain of Meade's
products are described in greater detail below:

Advanced Astronomical Telescopes. Among the Company's most sophisticated
products are its LX series Schmidt-Cassegrain and Maksutov-Cassegrain
telescopes, which incorporate an optical system that provides high-quality
resolution, contrast and light transmission. The LX series offers the serious
amateur astronomer a broad range of products from the economical 8" LX10 to the
state-of-the-art 16" LX200. The model LX200 telescopes, also available in 7, 8,
10 and 12-inch apertures, are the most popular of the Company's telescopes among
serious amateur astronomers. The LX200 telescopes feature a built-in computer
library of 64,350 celestial objects. These objects are cataloged in the
Company's proprietary hand-held electronic keypad command center, which operates
the computerized control system for the LX200 telescopes. By entering any of the
celestial objects into the keypad, the telescope automatically locates and
tracks the selected object. Also well received by serious amateur astronomers is
the Company's line of Starfinder telescopes. These larger-aperture reflecting
telescopes are economically priced and offer views of a wide range of celestial
objects. In fiscal 1998, the Company introduced its LXD500 series followed by
the LXD300 series in fiscal 1999, a mid-priced line of telescopes on equatorial
mounts. These telescopes offer the serious amateur, with a preference for an
equatorial mount, a telescope ready for a wide range of advanced photographic
and visual applications. The advanced astronomical telescopes collectively
represented approximately 2% of telescope units shipped and approximately 12% of
the Company's net sales for the fiscal year ended February 29, 2000.

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Entry-Level Telescopes. Designed specifically for the beginning to
intermediate amateur astronomer or terrestrial observer, the Company's
less-expensive 60mm to 114mm refracting and reflecting telescopes and the ETX
series mirror-lens telescopes include many of the features of the more advanced
telescopes at economical prices. With the introduction of the Digital Electronic
Series of 60mm to 114 mm telescopes (the "DS telescopes") and the ETX-90EC and
ETX-125EC, some of the most sophisticated features of the Company's advanced
telescopes were made available at some of the Company's lowest retail price
points. Equipped with the optional hand-held Autostar Computer Controller, the
ETX-90EC, ETX-125EC and the DS telescopes can find and track any one of several
thousand celestial objects at the push of a button. The Autostar, with its "go
to" capability, brought to the general consumer for a few hundred dollars,
features that had previously been available only on the most sophisticated
high-end telescopes selling for thousands of dollars. The Company offers several
variations of its small refracting and reflecting telescopes (both its
traditional models and the DS telescopes) for distribution on a semi-exclusive
basis to specific specialty retailers. These telescope models comprise the
lower-price end of the Company's product line. Sales of entry-level telescopes
comprised approximately 98% of the Company's telescope units shipped and
approximately 60% of the Company's net sales for the fiscal year ended February
29, 2000.

Binoculars. The Company expanded its market presence in binoculars with
the acquisition of Bresser. The Bresser name is widely recognized in Germany and
other countries in Europe as a quality supplier of a wide range of binoculars.
Binocular sales accounted for over one half of the sales attributed to Germany
during fiscal year 2000. The Company also sells a complete line of consumer
binoculars through its existing domestic distribution network. The binoculars
sold by the Company are purchased from manufacturers outside the United States.
Binoculars represented approximately 7% of the Company's net sales for the
fiscal year ended February 29, 2000.

Accessories. The Company also offers accessories for each of its
telescope series that range from additional eyepieces and camera adapters to CCD
autoguider/imagers and celestial observation software. Approximately 250
accessory products are currently available from the Company. Sales of
accessories represented approximately 20% of the Company's net sales for the
fiscal year ended February 29, 2000. Other miscellaneous products such as
microscopes and magnifying glasses accounted for approximately 1% of the
Company's net sales for fiscal year 2000.

SALES AND MARKETING

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

The Company's sales force works closely with its dealers, specialty
retailers, distributors and mass merchandisers on product quality, technical
knowledge and customer service. The Company employs approximately thirteen
persons in sales positions, all of whom have significant industry experience.
These individuals advise the Company's specialty retailers about the quality
features of the Company's products and provide answers to questions from
specialty retailers as well as directly from amateur astronomers. The Company
stresses service to both its customers and end users by providing marketing
assistance in the form of hang-tags, catalog layouts and other print media as
well as dedicated toll free customer service telephone numbers. In addition to
giving its customers personal attention, the Company believes toll free
telephone numbers also help reduce the number of product returns from end users
who are generally unfamiliar with the assembly and operation of telescopes. In
an effort to further simplify assembly and use of the Company's products, Meade
preassembles a substantial portion of its telescopes prior to packaging. (See
"Business -- Competitive Strengths -- Superior Customer Service.") The Company's
products are regularly advertised in most major domestic and international
telescope and astronomy-related magazines and periodicals with comprehensive,
full color, technically informative advertisements which present a consistent
message of innovation and quality about the Company and its products. In
addition, the Company is engaged in an aggressive marketing program aimed at
expanding the existing telescope market through more traditional consumer
oriented print media. The Company's dedication to providing a high level of
customer service is one factor that management believes sets Meade apart from
its competition.

Throughout fiscal 2000, the Company sold its products to mail order dealers
and to more than 500 specialty retailers and mass merchandisers that offer
Meade's products in more than 3,000 retail store outlets. During fiscal year
2000 no customer accounted for

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10% or more of the Company's net sales. During fiscal 1999, Discovery Channel
Stores ("DCS", formerly The Nature Company), the Company's largest customer,
accounted for approximately 14% of the Company's net sales. Service Merchandise
Co. and DCS accounted for approximately 14% and 12%, respectively, of the
Company's net sales for fiscal 1998. The Company's ten largest customers, in the
aggregate, accounted for approximately 48% of the Company's net sales in fiscal
year 2000. The loss of, or the failure to replace, any significant portion of
the sales made to any significant customer could adversely affect results of
operations of the Company to the extent the Company did not replace any such
lost sales with increased sales to existing or new customers.

OPERATIONS

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

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

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

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

Many of the Company's less-expensive telescopes are manufactured
exclusively for the Company in Taiwan. Since 1990, the Company has worked
closely with the Taiwanese Factory, developing proprietary telescope designs and
instructing the Taiwanese Factory's personnel in the production of telescopes
that meet the Company's quality standards. In May 1998, in order to assure a
reliable flow of products to meet the Company's increasing requirements, and in
order to ensure the Company would be able to exert sufficient control over the
manufacturing process and thus ensure that its quality standards are maintained,
the Company and the Taiwanese Factory entered into a supply agreement ("the 1998
agreement") wherein the Taiwanese Factory agreed to manufacture telescopes
exclusively for sale through Meade and wherein Meade agreed to purchase many of
its less-expensive telescopes from the Taiwanese Factory. The 1998 agreement
expires on December 31, 2003. The Company owns many of the designs, molds and
dies used by the Taiwanese Factory and regularly sends manufacturing and
engineering personnel to the manufacturing facility in Taiwan to ensure that
high quality products are produced.

During fiscal year 2000 the Company began an assembly operation in a
26,000 sq. ft. building located in Tijuana, Mexico (the "Mexico Facility"). This
facility currently employs approximately 80 people engaged in the assembly of
several products including mid-priced telescopes, electronic sub-assemblies, and
accessory products. In December 1999, the Company entered into an agreement to
expand the Mexico Facility by approximately 24,000 square feet (the "Mexican
Expansion"). This expansion is expected to be operational in June, 2000.

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COMPETITION

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

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

EMPLOYEES

As of February 29, 2000, Meade had 455 full-time employees. The Company
believes that it offers competitive compensation and other benefits and that its
employee relations are good. None of the Company's United States-based employees
is represented by a union. The Company's employees at the Mexico Facility are
represented by a union. The success of the Company's future operations depends
in large part on the Company's ability to attract and retain highly skilled
technical, marketing and management personnel. There can be no assurance that
the Company will be successful in attracting and retaining such key personnel.

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

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EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the names, ages, titles and present and past
positions of the persons serving as executive officers of the Company as of May
15, 2000:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John C. Diebel................ 56 Chairman of the Board and Chief Executive Officer
Steven G. Murdock............. 48 President, Chief Operating Officer, Secretary, Director
Joseph A. Gordon, Jr.......... 50 Senior Vice President -- North American Sales, Director
Brent W. Christensen.......... 41 Vice President -- Finance and Chief Financial Officer
Mark D. Peterson.............. 38 Vice President and General Counsel
Kenneth W. Baun............... 52 Vice President -- Engineering
Robert A. Wood, III........... 39 Vice President -- Manufacturing
</TABLE>

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

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

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

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

Mark D. Peterson has been the Company's Vice President and General
Counsel since October 1997. From October 1991 to October 1997, Mr. Peterson was
an attorney with O'Melveny & Myers LLP, specializing in corporate and securities
law. Mr. Peterson received a BS degree in accounting from Brigham Young
University and a JD degree from the University of California -- Berkeley, Boalt
Hall School of Law.

Kenneth W. Baun has been the Company's Vice President -- Engineering
since June 1995. From March 1995 to June 1995, he worked as an engineering
manager for the Company. From 1991 to 1995, Mr. Baun was the President of Summit
Instruments Corp., a producer of disk drive test equipment. In addition, from
1973 to 1980, Mr. Baun worked as an engineering department manager at UNISYS.
Mr. Baun received a BA degree in electrical engineering and an MS degree in
computer science from the University of California at Los Angeles.

Robert A. Wood, III has been the Company's Vice President -
Manufacturing since June 1995. From March 1991 to June 1995, he was the
Company's Manager-Optics. From October 1988 to March 1991, he worked as a
project engineer for the Company. Mr. Wood received a BS degree in electronics
engineering technology from Brigham Young University.

7
<PAGE> 10

ITEM 2. PROPERTIES

The Company leases a 161,000 square foot manufacturing, distribution and
corporate facility and a 42,000 square foot warehouse both of which are located
in Irvine, California. The leases expire in 2007 and 2003, respectively. The
Company also leases a 26,000 square foot assembly plant in Tijuana, Mexico that
will be expanded to approximately 50,000 square feet as of June, 2000 (See Item
1. "Business-Operations"). The Tijuana lease expires in 2004 with three, five
year options. The Company owns a 30,000 square foot office and distribution
facility located in Borken, Germany. The Company also leases a 13,500 square
foot office, repair and distribution facility in Graefelfing, Germany which
expires in August 2002. The Company's management believes that all facilities
occupied by the Company are adequate for present requirements; and that the
Company's current equipment is in good condition and suitable for the operations
involved.

ITEM 3. LEGAL PROCEEDINGS

Meade Instruments Corporation v. Reddwarf Starware, LLC, aka Reddwarf
Instruments, LLC ("Reddwarf"), Civil No. 98-240 GLT. United States District
Court for the Central District of California. Action for declaratory relief
initiated by a complaint filed March 16, 1998, by the Company for declaratory
judgment of non-infringement of Reddwarf's U.S. Patent No. 4,764,881, for
declaratory judgment that Reddwarf's patent is invalid, void and unenforceable,
and for an injunction and damages under Federal antitrust statutes and for an
injunction and other relief under California unfair competition statutes. A
counterclaim dated June 3, 1998 alleging infringement by the Company's LX200
series telescope system (and unspecified other products) of Reddwarf's U.S.
Patent No. 4,764,881 was also filed against the Company. The counterclaim
further alleges that the infringement is willful and seeks unspecified damages,
an injunction and other relief against the Company. The Company contends the
counterclaim is without merit and vigorously contests its allegations. On April
29, 1999, the Company filed a motion requesting summary judgment that the
Company has not infringed Reddwarf's 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 held
that the Company has not infringed Reddwarf's patent. On July 27, 1999, Reddwarf
filed a Notice of Appeal with respect to the summary judgment motion. In
addition, on August 19, 1999, the Company stipulated to the dismissal, without
prejudice, of its actions for injunctive relief, damages under Federal antitrust
statutes and injunctive and other relief under California unfair competition
statutes. The Company intends to vigorously defend the judgment before the
appellate court. Due to the uncertainties of litigation, the Company is unable
to provide an evaluation of the likelihood of an unfavorable outcome in the
case, or an estimate of the amount of potential loss in the event of an
unfavorable outcome.

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

Prior to the reacquisition of the Company by certain members of its
senior management, Meade agreed to be bound by the provisions of an order
("Order") of the United States Federal Trade Commission ("FTC") prohibiting the
Company from making certain acquisitions. The Order provides that before Meade
may acquire any stock, equity interest or assets, other than purchases of
manufactured product in the ordinary course of business, of any company engaged
in the manufacture or sale of Schmidt-Cassegrain telescopes with apertures of 8
to 11 inches in the United States, Meade must provide the FTC with prior notice
of such event. The Order is effective until August 30, 2001.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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

8
<PAGE> 11

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's initial public offering was completed on April 14, 1997
(the "Offering"), and from that date to the present, the Company's common stock
has been listed on the Nasdaq National Market under the symbol "MEAD." The high
and low sales prices on a per share basis for the Company's common stock during
each quarterly period for the fiscal years ended February 29, 2000 and February
28, 1999 were:

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29, 2000: HIGH LOW YEAR ENDED FEBRUARY 28, 1999: HIGH LOW
------------------------------ ------- ------ ------------------------------ ------ ------
<S> <C> <C> <C> <C> <C>
Fourth quarter.............. $30.25 $23.63 Fourth quarter............... $13.63 $10.75
Third quarter............... $30.50 $20.00 Third quarter................ $11.00 $ 9.25
Second quarter.............. $20.50 $14.00 Second quarter............... $11.00 $ 9.38
First quarter............... $13.88 $10.63 First quarter................ $11.13 $ 9.13
</TABLE>

The reported closing sales price of the Company's common stock on the
Nasdaq National Market on May 25, 2000 was $43.31. As of May 25, 2000, there
were 48 holders of record of the Company's common stock.

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

9
<PAGE> 12

ITEM 6. SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND WEIGHTED AVERAGE SHARE AMOUNTS)

The following data have been derived from the Company's audited
consolidated financial statements, including the consolidated balance sheets at
February 28 (29), 2000 and 1999 and the consolidated statements of income for
the three years ended February 29, 2000 and the notes thereto appearing
elsewhere herein.

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
---------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ........................................... $ 126,808 $ 76,321 $ 59,905 $ 47,151 $ 29,770
Cost of sales ....................................... 75,780 44,255 38,245 31,845 20,054
----------- ----------- ------------ ----------- ----------
Gross profit ...................................... 51,028 32,066 21,660 15,306 9,716
Selling expenses .................................... 15,471 12,268 6,771 4,759 2,832
General and administrative expenses ................. 10,355 7,325 5,464 5,970 2,951
ESOP contribution expense ........................... 1,861 1,200 1,100 -- --
Research and development expenses ................... 1,361 978 854 628 518
----------- ----------- ------------ ----------- ----------
Operating income .................................. 21,980 10,295 7,471 3,949 3,415
Interest expense .................................... 977 473 1,034 1,657 659
----------- ----------- ------------ ----------- ----------
Income before income taxes ........................ 21,003 9,822 6,437 2,292 2,756
Income taxes ........................................ 9,048 4,223 2,702 960 1,200
----------- ----------- ------------ ----------- ----------
Net income before accretion ......................... 11,955 5,599 3,735 1,332 1,556
Accretion on redeemable preferred stock(1) .......... -- -- (374) (4,310) --
----------- ----------- ------------ ----------- ----------
Net income (loss) available to common
stockholders ...................................... $ 11,955 $ 5,599 $ 3,361 $ (2,978) $ 1,556
=========== =========== ============ =========== ==========
Per share information:
Net income before adjustment to net income
available per common share -- basic ............... $ 1.69 $ 0.82 $ 0.58 $ 0.34 $ 0.34
Accretion on redeemable preferred stock(1) .......... -- -- (0.06) (1.10) --
----------- ----------- ------------ ----------- ----------
Net income (loss) per share available to common
stockholders -- basic ............................. $ 1.69 $ 0.82 $ 0.52 $ (0.76) $ 0.34
=========== =========== ============ =========== ==========
Net income (loss) per share available
to common stockholders -- diluted ................. $ 1.60 $ 0.80 $ 0.52 $ (0.76) $ 0.34
=========== =========== ============ =========== ==========
Weighted average common shares
outstanding -- basic .............................. 7,056,000 6,859,000 6,410,000 3,938,000 4,571,000
=========== =========== ============ =========== ==========
Weighted average common shares
outstanding -- diluted ............................ 7,472,000 7,035,000 6,485,000 3,938,000 4,571,000
=========== =========== ============ =========== ==========
BALANCE SHEET DATA:
Working capital ..................................... $ 36,553 $ 21,388 $ 15,417 $ 6,252 $ 4,183
Total assets ........................................ 64,091 34,624 24,592 20,524 13,035
Total current liabilities ........................... 16,485 9,134 5,829 11,775 7,364
Long-term debt, net of current portion .............. 4,500 -- -- 6,599 450
Redeemable preferred stock .......................... -- -- -- 6,490 --
Stockholders' equity (deficit) ...................... 42,665 25,267 18,422 (4,952) 4,771
</TABLE>

----------

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

10
<PAGE> 13

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
--------------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Net sales ................................... 100.0% 100.0% 100.0%
Cost of sales ............................... 59.8 58.0 63.8
------ ------ ------
Gross profit ................................ 40.2 42.0 36.2
Operating expenses:
Selling expenses .......................... 12.2 16.0 11.3
General and administrative expenses ....... 8.2 9.6 9.1
ESOP contribution expense ................. 1.4 1.6 1.9
Research and development expenses ......... 1.1 1.3 1.4
------ ------ ------
Total operating expenses ............... 22.9 28.5 23.7
------ ------ ------
Income from operations ...................... 17.3 13.5 12.5
Interest expense ............................ 0.8 0.6 1.8
------ ------ ------
Income before income taxes .................. 16.5 12.9 10.7
Provision for income taxes .................. 7.1 5.5 4.5
------ ------ ------
Net income .................................. 9.4 7.4 6.2
====== ====== ======
</TABLE>

FISCAL 2000 COMPARED TO FISCAL 1999

Net sales increased from $76.3 million in fiscal 1999 to $126.8 million
in fiscal 2000, an increase of 66.2%. This increase was primarily due to
increases in unit sales of less-expensive telescopes including those
manufactured domestically and those manufactured in Taiwan and continuing strong
sales of telescope accessories. Approximately $13.0 million of the increase in
net sales was attributable to the Bresser acquisition.

Gross profit increased from $32.1 million (42.0% of net sales) in fiscal
1999 to $51.0 million (40.2% of net sales) in fiscal 2000, an increase of 59.1%.
While gross margin for the Company's core business experienced little change
from the previous year, 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 $12.3 million (16.0% of net sales) in
fiscal 1999 to $15.5 million (12.2% of net sales) in fiscal 2000, an increase of
26.1%. This dollar increase principally reflects higher freight costs, higher
commissions and other selling costs to support higher sales volumes in fiscal
2000 as compared to fiscal 1999

General and administrative expenses increased from $7.3 million (9.6% of
net sales) in fiscal 1999 to $10.4 million (8.2% of net sales) in fiscal 2000,
an increase of 41.4%. This dollar increase was generally due to increases in
personnel and benefit related costs.

ESOP contribution expense increased from $1.2 million (1.6% of net
sales) in fiscal 1999 to $1.9 million (1.4% of net sales) in fiscal 2000, an
increase of 55.1%. The increase in this non-cash charge was due to increases in
the average market price of the Company's stock allocated to the Employee Stock
Ownership Plan during fiscal 2000. To the extent that the market value of the
Company's common stock continues to increase, the non-cash ESOP contribution
expense is expected to continue to increase.

Research and development expenses increased from $978,000 (1.3% of net
sales) in fiscal 1999 to $1.4 million (1.1% of net sales) in fiscal 2000, an
increase of 39%. This dollar increase was due to higher personnel related costs
and higher outside consulting costs during fiscal 2000 as compared to the prior
fiscal year.

Interest expense increased from $473,000 for the fiscal year ended
February 28, 1999 to $977,000 for fiscal 2000, an increase of 106.6%. This
increase was principally due to interest expense on the $5.0 million Term Loan
and interest expense on short-term bank borrowings in Germany for the period.

11
<PAGE> 14

FISCAL 1999 COMPARED TO FISCAL 1998

Net sales increased from $59.9 million in fiscal 1998 to $76.3 million
in fiscal 1999, an increase of 27.4%. This increase was primarily due to (i) an
increase of approximately $11.0 million in net sales of entry-level telescopes,
reflecting demand for smaller aperture more affordable telescopes and (ii) a
combined increase of approximately $6.0 million in net sales of advanced
telescopes and telescope accessories offset by approximately $1.0 million
decrease in binocular sales.

Gross profit increased from $21.7 million (36.2% of net sales) in fiscal
1998 to $32.1 million (42.0% of net sales) in fiscal 1999, an increase of 47.9%.
Gross profit as a percentage of net sales improved due to a sales mix that
favored more profitable lines of domestically manufactured products, increased
sales of accessories which generally have a higher gross profit margin than many
of the Company's other products and downward cost pressure on purchases from
Asia.

Selling expenses increased from $6.8 million (11.3% of net sales) in
fiscal 1998 to $12.3 million (16.0% of net sales) in fiscal 1999, an increase of
80.9%. This increase principally reflects (i) higher advertising and marketing
expenses to support higher sales volumes for the 1999 fiscal year as compared to
the 1998 fiscal year, (ii) higher provisions for bad debts prompted by the
bankruptcy of a significant customer (iii) higher freight and other shipping
costs due to higher sales volumes in fiscal 1999 as compared to fiscal 1998 and
(iv) higher selling and shipping personnel expenses for fiscal 1999 as compared
to fiscal 1998.

General and administrative expenses increased from $5.5 million (9.1% of
net sales) in fiscal 1998 to $7.3 million (9.6% of net sales) in fiscal 1999, an
increase of 34.1%. This increase was generally due to increases in personnel
related costs, and increases in consulting and professional fees.

ESOP contribution expense increased from $1.1 million (1.9% of net
sales) in fiscal 1998 to $1.2 million (1.6% of net sales) in fiscal 2000, a 9.1%
increase. The slight increase in this non-cash charge was due to increases in
the average market price of the Company's stock allocated to the Employee Stock
Ownership Plan during fiscal 1999.

Research and development expenses increased from $854,000 (1.4% of net
sales) in fiscal 1998 to $978,000 (1.3% of net sales) in fiscal 1999, an
increase of 14.5%. This increase was due to higher personnel related costs and
higher outside consulting costs during fiscal 1999 as compared to the prior
fiscal year.

Interest expense decreased from $1.0 million for the fiscal year ended
February 28, 1998 to $473,000 for the 1999 fiscal year, a decrease of 52.7%.
Included in interest expense for the 1998 fiscal year was approximately $400,000
recognized pursuant to the write-off of previously capitalized debt issuance
costs related to bank term debt that was retired with the proceeds of the
Offering in April 1997. Interest expense in fiscal 1999 decreased 25.4% compared
to interest expense for the 1998 fiscal year before the write-off of $400,000 of
debt issuance costs. This decrease was due to lower average interest rates on
the Company's line of credit during fiscal 1999 as well as the elimination of
long-term bank debt that was retired with the proceeds of the Offering in early
fiscal 1998.

SEASONALITY AND QUARTERLY RESULTS OF OPERATIONS

The Company has experienced, and expects to continue to experience,
substantial fluctuations in its sales, gross margins and profitability from
quarter to quarter. Factors that influence these fluctuations include the volume
and timing of orders received, changes in the mix of products sold, market
acceptance of the Company's products, competitive pricing pressures, the
Company's ability to meet increasing demand and delivery schedules, the timing
and extent of research and development expenses, the timing and extent of
product development costs and the timing and extent of advertising expenditures.
In addition, a substantial portion of the Company's net sales and operating
income typically occurs in the third quarter of the Company's fiscal year
primarily due to disproportionately higher customer demand for less-expensive
telescopes during the holiday season. The Company has recently experienced
increased 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.

12
<PAGE> 15
The following tables (in thousands of dollars) present unaudited
financial results for each of the eight quarters in the period ended February
29, 2000. The Company believes that all necessary adjustments have been included
to present fairly the quarterly information when read in conjunction with the
consolidated financial statements and notes included elsewhere in this Report.
The operating results for any quarter are not necessarily indicative of the
results for any subsequent quarter.

<TABLE>
<CAPTION>
FISCAL 2000 FISCAL 1999
---------------------------------------------- ----------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales .............. $17,101 $24,134 $63,725 $21,848 $14,821 $15,412 $31,247 $14,841
Gross profit ........... 7,117 10,137 24,764 9,010 6,080 6,511 13,291 6,184
Operating income ....... 1,957 3,957 14,256 1,810 1,015 1,352 7,065 863
Net income ............. 1,144 2,216 7,696 899 554 690 3,896 459
</TABLE>

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

LIQUIDITY AND CAPITAL RESOURCES

The Company funded its operations with internally generated cash flow
and borrowings from banks. Internally generated cash flow from net income
adjusted for non-cash charges and decreases in accounts receivable exceeded
increases in inventories and deferred taxes during the year generating
approximately $8.5 million in cash from operations. Close credit management
contributed to the decrease in accounts receivable (down $2.9 million from
February 28, 1999). Inventories increased (up $10.3 million from February 28,
1999) to support the higher sales volume. Net working capital totaled
approximately $37.1 million at February 29, 2000, 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 September 1, 1999 the Company acquired 100% of the stock and equity
interests in Bresser for $5.0 million in cash and 100,915 shares of the
Company's common stock valued at approximately $2.0 million. Bresser is a German
distributor of binoculars, telescopes, microscopes and other consumer optical
products. To fund the cash portion of the purchase price the Company borrowed
$5.0 million under the Term Loan on August 31, 1999. The Company views Bresser
as not only a going concern with products and services that are similar to
Meade's traditional business, but as a beachhead from which the Company will
bring Meade's latest computer-guided, affordably-priced telescopes to Europe.
Further to that end, in January 2000, the Company purchased what was formerly
its German distributor for approximately $1.1 million cash.

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 $40.0 million credit
facility consisting of a five year $35.0 million revolving credit line (the
"Revolving Loan") and a five year $5.0 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 guaranteed 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, the Company borrowed $5.0 million
under the Term Loan on August 31, 1999.

Capital expenditures, including financed purchases of equipment,
aggregated $2.7 million, $2.1 million and $3.1 million for the fiscal years
ended February 28(29), 2000, 1999 and 1998, respectively. Included in purchases
of equipment for fiscal 1999 is approximately $1.3 million for equipment sold
and leased back under operating leases. The Company had no material capital
expenditure commitments as of February 29, 2000. The Company is expanding its
Mexico Facility from approximately 26,000 sq. ft. to approximately 50,000 sq.
ft. (See Item 1. "Business-Operations"). Capital expenditures for the Mexican
Expansion are not expected to be material to the Company's financial position or
results of operations.

In April 1997 the Company completed the Offering which generated net
proceeds to the Company of approximately $18.0 million upon the sale of
2,875,500 shares of Common Stock by the Company.

Contributions to the Company's Employee Stock Ownership Plan ("ESOP")
are accounted for as a contribution expense on the Company's income statement
and are accrued quarterly based upon the expected annual contribution amount. As
quarterly contributions are accrued, the corresponding number of shares are
added to the Weighted Average Common Shares Outstanding and Unearned ESOP Shares
on the Company's Balance Sheet are reduced. The ESOP uses the contributions to
repay amounts due on the ESOP Loan. The ESOP contribution expense is a net
non-cash charge which is added back to net income to arrive at cash flows
provided by operating activities. As the Company makes these non-cash
contributions to the ESOP to fund the repayment of the ESOP Loan, the Company
will realize cash tax savings equal to the product of the tax basis of the
contributions, multiplied by the applicable statutory tax rates in effect at the
time.
13
<PAGE> 16

Following the close of fiscal 2000, the Company announced that it will
be an original equipment manufacturer for TeraBeam, an emerging service provider
for gigabit IP connectivity in metropolitan areas. Meade will supply the
Seattle-based company with key components for TeraBeam's wireless optical
network. The components use existing Meade telescope technology and are
currently in limited production by Meade. The ultimate quantities and timing of
the products ordered by TeraBeam will depend upon TeraBeam's market roll-out.

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 near term. In the event that the Company
requires 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.

INFLATION

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

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133; Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 is required to be adopted in
fiscal years beginning after June 15, 2000 and establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Company does not anticipate that the adoption of SFAS 133 will have a material
impact on its financial position or result of operations.

YEAR 2000

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
system 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. The Company's total incremental costs of addressing Year 2000 issues
during fiscal 2000 were not material. Monitoring costs past January 1, 2000 are
not expected to be material.

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; the extent to which Meade will
supply key components for TeraBeam; 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

14
<PAGE> 17

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, increasing ESOP charges in the event the market price of
the Company's stock increases, 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

The Company does not enter into derivatives or other financial
instruments for trading, speculative purposes or to manage its interest rate
risk. The Company's financial instruments consist of cash, accounts receivable,
accounts payable, and long-term obligations. The Company's exposure to market
risk for changes in interest rates relates primarily to short-term investments
and short-term obligations. As a result, the Company does not expect
fluctuations in interest rates to have a material impact on the fair value of
these instruments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

15
<PAGE> 18

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

16
<PAGE> 19

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

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

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
1. Financial Statements:
Report of Independent Accountants...................................................... F-1
Consolidated Balance Sheets at February 29, 2000 and February 28, 1999................. F-2
Consolidated Statements of Income for each of the three years
in the period ended February 29, 2000................................................ F-3
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended February 29, 2000................................................ F-4
Consolidated Statements of Cash Flows for each of the three years
in the period ended February 29, 2000................................................ F-5
Notes to Consolidated Financial Statements............................................. F-6
2. Financial Statement Schedules:
For each of the three years in the period ended February 29, 2000- II
- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
3. Exhibits included or incorporated herein: See Exhibit Index.
</TABLE>

(b) REPORTS ON FORM 8-K:

The Company filed the following Reports with the SEC on the following
dates:

1. 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.

17
<PAGE> 20

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF MEADE INSTRUMENTS CORP.

In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)(1) on page 17 present fairly, in all material
respects, the financial position of Meade Instruments Corp. and Subsidiaries
at February 29, 2000 and February 28, 1999, and the results of their operations
and their cash flows for each of the three years in the period ended February
29, 2000, in conformity with accounting principles generally accepted in the
United States. In addition, in our opinion, the financial statement schedule
listed in the index appearing under 14(a)(2) on page 17, presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

Costa Mesa, California
April 19, 2000

F-1
<PAGE> 21

MEADE INSTRUMENTS CORP.

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
2000 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash ............................................................ $ 2,180,000 $ 1,283,000
Accounts receivable, less allowance for doubtful accounts of
$3,861,000 in 2000 and $2,243,000 in 1999 .................... 8,451,000 10,864,000
Inventories ..................................................... 34,311,000 14,191,000
Deferred income taxes ........................................... 7,770,000 3,928,000
Prepaid expenses and other current assets ....................... 326,000 256,000
------------ ------------
Total current assets .................................... 53,038,000 30,522,000
Other assets ...................................................... 4,087,000 274,000
Property and equipment, net ....................................... 6,966,000 3,828,000
------------ ------------
$ 64,091,000 $ 34,624,000
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Bank line of credit ............................................. $ 2,784,000 $ --
Accounts payable ................................................ 3,889,000 1,503,000
Accrued liabilities ............................................. 6,479,000 5,386,000
Income taxes payable ............................................ 2,550,000 1,991,000
Current portion of long-term debt and capital lease obligations.. 783,000 254,000
------------ ------------
Total current liabilities ............................... 16,485,000 9,134,000
------------ ------------
Long-term bank debt ............................................... 4,500,000 --
Long-term capital lease obligations, net of current portion ....... 441,000 223,000
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock; $0.01 par value; 20,000,000 shares
authorized; 8,107,000 and 7,882,000 shares issued and
outstanding at February 29, 2000
and February 28, 1999, respectively ........................... 81,000 79,000
Additional paid-in capital ...................................... 26,830,000 21,803,000
Retained earnings ............................................... 22,457,000 10,502,000
Accumulated other comprehensive income .......................... (333,000) --
------------ ------------
49,035,000 32,384,000
Unearned ESOP shares ............................................ (6,370,000) (7,117,000)
------------ ------------
Total stockholders' equity .............................. 42,665,000 25,267,000
------------ ------------
$ 64,091,000 $ 34,624,000
============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-2
<PAGE> 22

MEADE INSTRUMENTS CORP.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
----------------------------------------------
2000 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
Net sales ...................................... $126,808,000 $76,321,000 $59,905,000
Cost of sales .................................. 75,780,000 44,255,000 38,245,000
------------ ----------- -----------
Gross profit ................................. 51,028,000 32,066,000 21,660,000
Selling expenses ............................... 15,471,000 12,268,000 6,771,000
General and administrative expenses ............ 10,355,000 7,325,000 5,464,000
ESOP contribution expense ...................... 1,861,000 1,200,000 1,100,000
Research and development expenses .............. 1,361,000 978,000 854,000
------------ ----------- -----------
Operating income ............................. 21,980,000 10,295,000 7,471,000
Interest expense ............................... 977,000 473,000 1,034,000
------------ ----------- -----------
Income before income taxes ................... 21,003,000 9,822,000 6,437,000
Provision for income taxes ..................... 9,048,000 4,223,000 2,702,000
------------ ----------- -----------
Net income before accretion .................... 11,955,000 5,599,000 3,735,000
Accretion on redeemable preferred stock ........ -- -- 374,000
------------ ----------- -----------
Net income available to common stockholders .... $ 11,955,000 $ 5,599,000 $ 3,361,000
============ =========== ===========
Net income per share available to common
stockholders -- basic ........................ $ 1.69 $ 0.82 $ 0.52
============ =========== ===========
Net income per share available to common
stockholders -- diluted ...................... $ 1.60 $ 0.80 $ 0.52
============ =========== ===========
Weighted average common shares
outstanding -- basic ......................... 7,056,000 6,859,000 6,410,000
============ =========== ===========
Weighted average common shares
outstanding -- diluted ....................... 7,472,000 7,035,000 6,458,000
============ =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 23

MEADE INSTRUMENTS CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
SERIES A AND B
COMMON STOCK COMMON STOCK ADDITIONAL
----------------------------- ------------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- ----------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1997 .................. 5,000,000 $ 3,511,000 -- -- --
Issuance of common stock at initial public
offering, net of offering costs ............. -- -- 2,875,500 $ 29,000 $ 21,345,000
Conversion of Series A and B
common stock to common stock ............... (5,000,000) (3,511,000) 5,000,000 50,000 --
Release of ESOP shares ........................ -- -- -- -- 100,000
Net income available to
common stockholders ......................... -- -- -- -- --
----------- ----------- ---------- -------- ------------
Balance at February 28, 1998 .................. -- -- 7,875,500 79,000 21,445,000
Exercise of stock options ..................... -- -- 6,500 -- 46,000
Release of ESOP shares ........................ -- -- -- -- 312,000
Net income available to
common stockholders ......................... -- -- -- -- --
----------- ----------- ---------- -------- ------------
Balance at February 28, 1999 .................. -- -- 7,882,000 79,000 21,803,000
Exercise of stock options ..................... -- -- 124,000 1,000 933,000
Tax benefit of stock options exercised ........ -- -- -- -- 937,000
Release of ESOP shares ........................ -- -- -- -- 1,114,000
Shares issued in Bresser acquisition .......... -- -- 101,000 1,000 2,043,000
Comprehensive income:
Currency translation adjustment ........... -- -- -- -- --
Net income available to
common stockholders ..................... -- -- -- -- --

Total comprehensive income .................... -- -- -- -- --
----------- ----------- ---------- -------- ------------
Balance at February 29, 2000 .................. -- $ -- 8,107,000 $ 81,000 $ 26,830,000
=========== =========== ========== ======== ============
</TABLE>

<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE RETAINED UNEARNED
INCOME (LOSS) EARNINGS ESOP SHARES TOTAL
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at February 28, 1997 .................. -- $ 1,542,000 $(10,005,000) $ (4,952,000)
Issuance of common stock at initial public
offering, net of offering costs ............. -- -- -- 21,374,000
Conversion of Series A and B
common stock to common stock ............... -- -- -- (3,461,000)
Release of ESOP shares ........................ -- -- 2,000,000 2,100,000
Net income available to
common stockholders ......................... -- 3,361,000 -- 3,361,000
--------- ----------- ------------ ------------
Balance at February 28, 1998 .................. -- 4,903,000 (8,005,000) 18,422,000
Exercise of stock options ..................... -- -- -- 46,000
Release of ESOP shares ........................ -- -- 888,000 1,200,000
Net income available to
common stockholders ......................... -- 5,599,000 -- 5,599,000
--------- ----------- ------------ ------------
Balance at February 28, 1999 .................. -- 10,502,000 (7,117,000) 25,267,000
Exercise of stock options ..................... -- -- -- 934,000
Tax benefit of stock options exercised ........ -- -- -- 937,000
Release of ESOP shares ........................ -- -- 747,000 1,861,000
Shares issued in Bresser acquisition .......... -- -- -- 2,044,000
Comprehensive income:
Currency translation adjustment ........... (333,000) -- -- (333,000)
Net income available to
common stockholders ..................... -- 11,955,000 -- 11,955,000
------------
Total comprehensive income .................... -- -- -- 11,622,000
--------- ----------- ------------ ------------
Balance at February 29, 2000 .................. $(333,000) $22,457,000 $ (6,370,000) $ 42,665,000
========= =========== ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 24

MEADE INSTRUMENTS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
-------------------------------------------------
2000 1999 1998
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income before accretion ................................ $ 11,955,000 $ 5,599,000 $ 3,735,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities: .............. -- -- --
Depreciation and amortization ............................ 1,296,000 755,000 513,000
Debt issuance costs ...................................... -- -- 400,000
ESOP contribution ........................................ 1,861,000 1,200,000 1,100,000
Allowance for doubtful accounts .......................... 1,567,000 1,758,000 --
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts receivable .................................... 2,854,000 (6,598,000) (1,194,000)
Inventories ............................................ (10,318,000) (2,281,000) 167,000
Deferred income taxes .................................. (3,357,000) (2,504,000) (539,000)
Prepaid expenses and other current assets .............. 44,000 (17,000) (8,000)
Other assets ........................................... 92,000 87,000 303,000
Accounts payable ....................................... 454,000 177,000 (869,000)
Accrued liabilities .................................... 737,000 2,694,000 1,334,000
Income taxes payable ................................... 1,324,000 385,000 544,000
------------ ----------- ------------
Net cash provided by operating activities ............ 8,509,000 1,255,000 5,486,000
------------ ----------- ------------
Cash flows from investing activities:
Capital expenditures ................................... (1,911,000) (2,921,000) (2,130,000)
Acquisition of Bresser Optik net of cash acquired ...... (4,968,000) -- --
Acquisition of certain assets of Astrocom .............. (1,147,000) -- --
Proceeds from the sale and lease back
of equipment ......................................... -- 1,323,000 --
------------ ----------- ------------
Net cash used in investing activities ................ (8,026,000) (1,598,000) (2,130,000)
------------ ----------- ------------
Cash flows from financing activities:
Payments on long-term debt ............................. (183,000) -- (8,183,000)
Proceeds from long-term loan ........................... 5,000,000 -- --
Net payments under bank line of credit ................. (4,926,000) -- (4,358,000)
Net proceeds from issuance of common stock ............. -- 46,000 17,913,000
Redemption of preferred stock .......................... -- -- (6,864,000)
Exercise of stock options .............................. 934,000 -- --
Payments under capital lease obligations ............... (367,000) (69,000) (219,000)
------------ ----------- ------------
Net cash provided by (used in) financing
activities ......................................... 458,000 (23,000) (1,711,000)
------------ ----------- ------------
Effect of exchange rate changes on cash .................... (44,000) -- --
------------ ----------- ------------
Net increase (decrease) in cash ............................ 897,000 (366,000) 1,645,000
Cash at beginning of year .................................. 1,283,000 1,649,000 4,000
------------ ----------- ------------
Cash at end of year ........................................ $ 2,180,000 $ 1,283,000 $ 1,649,000
============ =========== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .............................................. $ 789,000 $ 503,000 $ 500,000
Income taxes .......................................... $ 11,038,000 $ 6,342,000 $ 2,699,000
Non-cash financing activities:
Capital lease obligations ............................. $ 614,000 $ 170,000 --
Accretion on redeemable preferred stock ............... -- -- $ 374,000
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 25

MEADE INSTRUMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

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

In April 1997 the Company completed an initial public offering of
3,875,500 shares of common stock (including the underwriters' 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 $18,000,000 for the Company
(after underwriting discounts and offering expenses). Net proceeds from the
offering were used to redeem approximately $6,900,000 of outstanding Series A
preferred stock, including accrued dividends, and to repay approximately
$11,000,000 of existing bank term and revolving debt. Prior to the closing of
the offering, the Company reincorporated into a Delaware corporation pursuant to
a merger with and into a newly-formed and wholly-owned 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 completion of the initial public
offering.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

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

Revenue recognition

Sales are recorded when products are shipped.

Foreign currency translation

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

Allowance for doubtful accounts

The Company evaluates the collectibility of its accounts receivable at
least quarterly, based upon various factors including the financial condition
and payment history of major customers and an overall review of collections
experience on other accounts and economic factors or events expected to effect
the Company's future collections experience.

Inventories

Inventories are stated at the lower of cost, as determined using the
first-in, first-out ("FIFO") method, or market. Costs include materials, labor
and manufacturing overhead. The Company evaluates the carrying value of its
inventories at least quarterly, taking

F-6
<PAGE> 26

into account such factors as historical and anticipated future sales compared
with quantities on hand and the price the Company expects to obtain for its
products in their respective markets compared with historical costs.

Property and equipment

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

Goodwill and intangibles

The difference between the purchase price and the fair value of net
assets acquired (goodwill) at the date of acquisition is included in the
accompanying consolidated balance sheets in other assets. Goodwill and
intangible assets are amortized over the estimated period to be benefited which
ranges from seven to fifteen years. Goodwill and intangible assets are reviewed
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. The Company reviews the recoverability by
comparing the estimated future cash flows on an undiscounted basis to the net
book value of the assets. In the event that projected undiscounted cash flows
are less than the net book value of the assets, the carrying value of the assets
are written down to their fair value, less costs to sell. Fair value is
generally based on a discounted cash flow analysis. Assets that are to be
disposed of are measured at the lower of cost or fair value, less costs to sell.

Income taxes

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

Advertising

The Company expenses the production costs of advertising as incurred.
For the years ended February 28(29), 2000, 1999 and 1998, the Company incurred
advertising expenses of approximately $6,400,000, $6,300,000 and $3,000,000,
respectively.

Research and development

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

Net income per share

Basic earnings per share amounts exclude the dilutive effect of
potential common shares. Basic earnings per share is based upon the
weighted-average number of common shares outstanding. Diluted earnings per share
is based upon the weighted-average number of common shares and dilutive
potential common shares outstanding. Potential common shares are outstanding
stock options under the Company's stock incentive plan which are included under
the treasury stock method.

The following is a reconciliation of the denominators of the basic and
diluted earnings per share computations for net income available to common
stockholders for the fiscal years ended February 28 (29), 2000, 1999 and 1998.

F-7
<PAGE> 27

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net income available
to common stockholders ............... $11,955,000 $ 5,599,000 $ 3,361,000
=========== =========== ===========
Shares outstanding-basic ............... 7,056,000 6,859,000 6,410,000
Effect of dilutive securities:
Stock options ........................ 416,000 176,000 48,000
----------- ----------- -----------
Shares outstanding-diluted ............. 7,472,000 7,035,000 6,458,000
=========== =========== ===========
Net income available
to common stockholders-basic ......... $ 1.69 $ 0.82 $ 0.52
=========== =========== ===========
Net income available
to common stockholders-diluted ....... $ 1.60 $ 0.80 $ 0.52
=========== =========== ===========
</TABLE>

Comprehensive income

Comprehensive income is defined as a change in the equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. In the accompanying financial statements, the only
component of comprehensive income other than net income is currency translation
adjustments.

Concentration of credit risk

Financial instruments which potentially subject the Company to
concentration of credit risk are principally accounts receivable. The Company
maintains an allowance for doubtful accounts at a level deemed appropriate by
management based on historical and other factors that affect collectibility. One
of the Company's significant customers filed for voluntary reorganization during
fiscal year 1999. Based upon the Company's assessment of the recoverability of
the receivable from this customer and in the opinion of management, the Company
has established adequate provisions related to this receivable.

Fair value of financial instruments

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

Use of estimates in the preparation of financial statements

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

Stock-based compensation

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

Accounting pronouncements

In June 1998 the Financial Accounting Standards Board issued SFAS No.
133; Accounting for Derivative Instruments and Hedging Activities. SFAS 133 is
required to be adopted in fiscal years beginning after June 15, 2000 and
establishes accounting and reporting standards for derivative instruments and
for hedging activities. Management does not expect the adoption of SFAS 133 to
have a material impact on the Company's financial position or results of
operations.

Reclassifications

Certain reclassifications have been made to conform prior year
information to the fiscal 2000 presentation.

F-8
<PAGE> 28

2. ACQUISITIONS

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 $5,000,000 in cash and 100,915
shares of the Company's common stock valued at $2,044,000. 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
$5,000,000 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 February 29, 2000
and is being amortized on a straight-line basis over the period to be benefited
which is estimated to be fifteen years.

The following table presents unaudited consolidated pro forma financial
information for the two years ended February 29, 2000, as though the acquisition
occurred on March 1, 1998.

<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28 (29),
------------------------------
2000 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Net sales .................. $133,023,000 $101,507,000
Operating income ........... $ 22,095,000 $ 11,802,000
Net income ................. $ 11,768,000 $ 5,660,000
Earnings per share
Basic .................... $ 1.66 $ 0.82
Diluted .................. $ 1.58 $ 0.80
</TABLE>

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:

<TABLE>
<S> <C>
Current assets (excluding cash of $32,000)............ $ 12,251,000
Property, plant and equipment......................... 1,782,000
Trademark............................................. 1,398,000
Goodwill.............................................. 2,325,000
Current liabilities................................... (10,744,000)
------------
Total purchase price........................ $ 7,012,000
============
</TABLE>

In January 2000 the Company's German subsidiary acquired certain assets
of Astrocom GmbH, formerly the Company's German distributor. For consideration
of approximately $1,100,000 cash the Company acquired certain property and
equipment, inventory and customer accounts. The acquisition is not material to
the results of operations or the financial position of the Company.

3. BANK DEBT

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 $40,000,000 credit
facility consisting of a five year $35,000,000 revolving credit facility (the
"Revolving Loan") and a five year $5,000,000 term loan (the "Term Loan"). The
Term Loan is subject to quarterly principal 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 (9.0% at February 29, 2000) 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 Optik (see Note
2), the Company borrowed $5,000,000 under the Term Loan on August 31, 1999. At
February 29, 2000 the Company guaranteed up to approximately $4,000,000 of
indebtedness of its German operating subsidiary. Short-term bank borrowings at
the German subsidiary, totaling $2,784,000 at February 29, 2000, bear interest
at the banks' base rates (ranging from 5.1% to 7.5% at February 29, 2000).

F-9
<PAGE> 29

4. COMMITMENTS AND CONTINGENCIES

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

In August 1999, the Company entered into a lease for an assembly
facility in Tijuana, Mexico. The lease term is five years with three, five year
renewal options. In January 2000, the Company entered into a lease for an
office, repair and distribution facility in Graefelfing, Germany. The lease
expires in August 2002.

Aggregate future minimum commitments under noncancellable leases and
other agreements at February 29, 2000 that have remaining terms in excess of one
year are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL OPERATING
----------- -------- -----------
<S> <C> <C>
2001.............................................. $335,000 $ 2,065,000
2002.............................................. 279,000 2,132,000
2003.............................................. 176,000 1,897,000
2004.............................................. 32,000 1,108,000
2005.............................................. 1,070,000
Thereafter........................................ 2,918,000
-------- -----------
Net minimum lease payments........................ 822,000 $11,190,000
===========
Less amount representing interest................. 98,000
--------
Capital lease obligations......................... $724,000
========
</TABLE>

For the fiscal years ended February 28 (29), 2000, 1999 and 1998, the
Company incurred rent expense of $1,521,000, $1,207,000 and $698,000,
respectively.

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 held 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.

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

5. REDEEMABLE PREFERRED STOCK

At February 28, 1997 the Series A preferred stock had a cumulative 14%
dividend per annum payable quarterly. In January 1997 the Company entered into a
binding agreement to accelerate the redemption date to April 14, 1997 from the
original date of April 23, 2001. For the year ended February 28, 1997 the
Company recorded $3,400,000 in accelerated accretion of the Series A preferred
stock pursuant to the new redemption agreement. Upon redemption of the Series A
preferred stock on April 14, 1997, the Company recorded a final accretion
adjustment of $374,000.

6. EMPLOYEE STOCK OWNERSHIP PLAN

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

In April 1996 the ESOP purchased all of the outstanding shares of the
Company's Series B common stock (1,500,000 shares) held by the existing
stockholders for $11,000,000. The Series B common stock had a cumulative
dividend of $0.513 per share and a

F-10
<PAGE> 30

liquidation preference over the Series A common stock. The ESOP financed the
purchase of the Series B common stock (the "financed shares") with the proceeds
of an $11,000,000 term loan (the "acquisition loan") from the Company (all
shares of Series A and B common stock were converted into shares of common stock
upon the completion of the initial public offering, Note 1). The financed shares
are held by the Meade Instruments Corp. Employee Stock Ownership Trust (the
"ESOP trust"). The ESOP pledged the financed shares to the Company as security
for the acquisition loan. The financed shares were initially credited to a
suspense account on the books of the ESOP and will be allocated to the accounts
of individual ESOP participants, as of each plan year end, for payments made on
the acquisition loan. The acquisition loan has a twenty year term and bears
interest at 6% per annum. Principal and interest is due annually, subject to the
Company making contributions to the ESOP to fund the principal and interest
payments. The release of financed shares from collateral is based on a formula
defined in the plan. The Company accounts for its ESOP in accordance with
Statement of Position 93-6. Accordingly, the shares pledged as collateral are
reported as unearned ESOP shares in the balance sheet. As shares are committed
to be released from collateral, the Company records compensation expense, and
the shares become outstanding for net income per share purposes. Any dividends
on allocated shares are recorded as a reduction of retained earnings; any
dividends on unallocated ESOP shares are recorded as a reduction of debt and
accrued interest.

For the years ended February 29, 2000, February 28, 1999 and 1998 the
Company recognized ESOP contribution expense of $1,861,000, $1,200,000 and
$1,100,000, respectively

As of February 29, 2000 approximately 501,000 shares in the ESOP trust
have been allocated to individual participants. Allocation to individual
participant accounts are made in the ratio that the compensation of each
participant bears to the total compensation of all such participants. There are
approximately 102,000 shares committed to be released as of February 29, 2000.
Shares in suspense at February 29, 2000 are 999,000.

The fair value of the common stock upon purchase from the existing
stockholders in April 1996 was determined to be $7.33 per share. Under the terms
of the ESOP, the fair value of the common stock at any plan year end is to be
determined by an independent appraiser so long as the stock is not readily
tradable on an established market. The fair value of the shares held by the ESOP
at February 29, 2000 was $23.62 per share, the market price as determined by the
Nasdaq National Market. At February 29, 2000, there was no repurchase
obligation.

7. INCOME TAXES

Pretax income from continuing operations for each of the three years
ended February 28 (29), 2000, 1999 and 1998 consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
-----------------------------------
2000 1999 1998
----------- ---------- ----------
<S> <C> <C> <C>
Domestic........................... $19,474,000 $9,822,000 $6,437,000
Foreign............................ 1,529,000 -- --
----------- ---------- ----------
$21,003,000 $9,822,000 $6,437,000
=========== ========== ==========
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
------------------------------------
2000 1999 1998
----------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal......................... $ 9,753,000 $ 5,250,000 $2,729,000
State........................... 1,976,000 1,477,000 512,000
Foreign......................... 676,000 - -
----------- ----------- ----------
12,405,000 6,727,000 3,241,000
----------- ----------- ----------
Deferred:
Federal......................... (2,886,000) (1,982,000) (454,000)
State........................... (575,000) (522,000) (85,000)
Foreign......................... 104,000 - -
----------- ----------- ----------
(3,357,000) (2,504,000) (539,000)
----------- ----------- ----------
$ 9,048,000 $ 4,223,000 $2,702,000
=========== =========== ==========
</TABLE>

F-11
<PAGE> 31

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

<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28 (29),
----------------------
2000 1999 1998
----- ----- ----
<S> <C> <C> <C>
Federal income tax rate.......................... 35.0% 34.0% 34.0%
State income taxes, net of federal income tax
benefit........................................ 5.7 6.1 6.1
Other............................................ 2.4 2.9 1.9
---- ---- ----
43.1% 43.0% 42.0%
==== ==== ====
</TABLE>

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

<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
2000 1999
----------- -----------
<S> <C> <C>
Sales returns.................................... $2,640,000 $1,131,000
Inventory and accounts receivable................ 2,368,000 1,791,000
Accrued liabilities.............................. 2,412,000 790,000
Other............................................ 350,000 216,000
---------- ----------
$7,770,000 $3,928,000
========== ==========
</TABLE>

8. BUSINESS SEGMENTS, GEOGRAPHIC DATA AND MAJOR CUSTOMERS

The Company is a multinational consumer optics company that designs,
manufactures, imports and distributes telescopes, telescope accessories,
binoculars and other optical products. The Company is organized and operates as
one segment in two principal geographic locations - North America and Europe.
The following tables present information about product sales and geographic data
for the fiscal years ended February 28 (29), 2000, 1999 and 1998.

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
----------------------------------------
2000 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
Product sales:
Telescope and telescope accessories...... $117,393,000 $74,031,000 $56,910,000
Binoculars............................... 8,135,000 2,290,000 2,995,000
Other.................................... 1,280,000 - -
------------ ----------- -----------
$126,808,000 $76,321,000 $59,905,000
============ =========== ===========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
----------------------------------------
2000 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
Geographic data - product sales:
North America............................ $ 98,309,000 $64,721,000 $48,605,000
Germany.................................. 15,734,000 2,115,000 3,497,000
Other foreign............................ 12,765,000 9,485,000 7,803,000
------------ ----------- -----------
$126,808,000 $76,321,000 $59,905,000
============ =========== ===========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
----------------------------------------
2000 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
Geographic data - long-lived assets:
North America............................ $ 5,461,000 $ 3,828,000 $ 2,985,000
Germany.................................. 5,093,000 - -
------------ ----------- -----------
$ 10,554,000 $ 3,828,000 $ 2,985,000
============ =========== ===========
</TABLE>

No single customer accounted for 10% or more of the Company's revenue
for the year ended February 29, 2000. The Company generated 14% and 12% of its
revenue from one customer during the years ended February 28, 1999 and 1998,
respectively, and 14% of its revenue from another customer during the year ended
February 28, 1998.

9. STOCK INCENTIVE PLAN

In February 1997, the Company's Board of Directors adopted the 1997
Stock Incentive Plan (the "Plan"). The Plan provides for the grant of incentive
and non-qualified stock options, restricted stock, stock appreciation rights
("SARs"), and performance share awards to certain key employees (including
officers, whether or not directors) of the Company or its subsidiaries. The
Company has received director and stockholder approval to grant options and
other awards with respect to 2,000,000 shares of common stock under the Plan.
Awards under the Plan generally vest after six months and become exercisable
over a four-year period, or as determined by the Compensation Committee of the
Board of Directors. Stock options generally remain exercisable for a period of
ten years from the

F-12
<PAGE> 32

date of grant. The Board of Directors has also granted non-qualified stock
options to purchase common stock to each of the Company's non-employee
directors. The non-employee directors are granted 5,000 options each when
elected and 5,000 each upon their re-election to the Board of Directors at the
Company's Annual Meeting each year. The directors' options vest in equal annual
amounts over three years. Option activity during fiscal years 2000 and 1999 was
as follows:

<TABLE>
<CAPTION>
WEIGHTED
OPTION AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Options outstanding at February 28, 1998 ........... 625,000 7.86
Granted ............................................ 268,000 9.49
Exercised .......................................... (6,000) 7.14
Forfeited .......................................... (18,000) 8.16
---------
Options outstanding at February 28, 1999 ........... 869,000 8.36
Granted ............................................ 470,000 11.14
Exercised .......................................... (124,000) 7.53
Forfeited .......................................... (32,000) 10.18
---------
Options outstanding at February 29, 2000 ........... 1,183,000 9.84
=========
</TABLE>

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------------- --------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
EXERCISE REMAINING AVERAGE AVERAGE
PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
----------------- ------------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 7.00 - $ 7.25 217,000 7.2 years $ 7.06 125,000 $7.06
$ 7.63 - $ 7.81 23,000 7.5 years 7.69 6,000 7.76
$ 8.88 - $ 9.75 505,000 8.0 years 9.13 218,000 9.08
$10.63 - $ 12.94 388,000 9.1 years 10.66
$20.63 - $ 24.25 50,000 9.7 years 23.76
--------- -------
1,183,000 349,000
========= =======
</TABLE>

The exercise price of options granted to employees was equal to the
market price at the grant date. Those options become exercisable 25% after one
year and ratably over the following 36 months. At February 29, 2000, outstanding
options for common stock held by Company employees totaled 1,183,000 of which
1,132,000 were vested. The option prices range from $7.00 to $24.25 per share
and are exercisable over periods ending no later than 2010.

The Company has adopted the disclosure only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the fixed stock option
plans. Had compensation cost for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates for awards under
those plans, consistent with the method prescribed by SFAS No. 123, the
Company's net income available to common stockholders and earnings per share
would have been reduced to the pro forma amounts indicated below.

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
--------------------------------------
Pro forma: 2000 1999 1998
----------- ---------- ----------
<S> <C> <C> <C>
Net income available to common stockholders..... $11,362,000 $5,311,000 $3,243,000
Earnings per share-basic........................ 1.62 0.77 0.52
Earnings per share-diluted...................... 1.46 0.77 0.52
</TABLE>

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

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

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29)
-------------------------------
2000 1999 1998
-------- ------- ------
<S> <C> <C> <C>
Weighted average life (years)................ 4.0 4.0 4.0
Volatility................................... 38.6% 30.2% 32.4%
Risk-free interest rate...................... 6.64% 5.25% 6.5%
Expected dividends........................... None None None
Weighted average fair value
of options granted......................... $ 4.56 $ 2.67 $ 2.77
</TABLE>

10. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS

F-13
<PAGE> 33

The composition of inventories is as follows:

<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
2000 1999
------------ ------------
<S> <C> <C>
Raw materials................................. $ 7,335,000 $ 3,417,000
Work in process............................... 6,600,000 1,514,000
Finished goods................................ 20,376,000 9,260,000
----------- -----------
$34,311,000 $14,191,000
=========== ===========
</TABLE>

The composition of other assets is as follows:

<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
2000 1999
------------ -----------
<S> <C> <C>
Goodwill........................................ $ 2,325,000 $ --
Trademarks...................................... 1,398,000 --
Other long-term assets.......................... 504,000 274,000
----------- ----------
4,227,000
Accumulated amortization........................ (140,000) --
------------ ----------
$ 4,087,000 $ 274,000
=========== ==========
</TABLE>

The composition of property and equipment is as follows:

<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
2000 1999
------------ -----------
<S> <C> <C>
Land............................................ $ 168,000 -
Buildings....................................... 1,728,000 -
Molds and dies.................................. 3,354,000 1,924,000
Machinery and equipment......................... 2,776,000 1,885,000
Furniture and fixtures.......................... 1,636,000 945,000
Autos and trucks................................ 153,000 130,000
Leasehold improvements.......................... 1,066,000 1,015,000
----------- -----------
10,881,000 5,899,000
Less accumulated depreciation and amortization.. (3,915,000) (2,071,000)
----------- -----------
$ 6,966,000 $ 3,828,000
=========== ===========
</TABLE>

The gross value of assets under capital leases included above are
$1,700,000 and $1,100,000 at February 29, 2000, and February 28, 1999,
respectively. For the fiscal years ended February 28(29), 2000, 1999 and 1998,
the Company incurred depreciation expense of $1,156,000, $755,000 and $408,000,
respectively.

The composition of accrued liabilities is as follows:

<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
2000 1999
------------ -----------
<S> <C> <C>
Salaries, wages, bonuses and other associated
payroll costs................................. $ 3,039,000 $ 1,384,000
Advertising, cooperative advertising, shows
and convention expenses....................... 1,131,000 1,354,000
Professional fees............................... 999,000 957,000
Other........................................... 1,310,000 1,691,000
----------- -----------
$ 6,479,000 $ 5,386,000
=========== ===========
</TABLE>

11. SUBSEQUENT EVENT (UNAUDITED)

On May 5, 2000, the Company declared a two-for-one split of the
Company's common stock, to be effected in the form of a dividend payable on
June 22, 2000 for stockholders of record on May 22, 2000. Had the additional
shares resulting from the proposed stock split been outstanding throughout all
of fiscal years 2000, 1999 and 1998, net income per basic and diluted share
would have been as follows:

YEAR ENDED FEBRUARY 28 (29),
----------------------------
Pro forma: 2000 1999 1998
---- ---- ----

Earnings per share - basic $0.85 $0.41 $0.26
===== ===== =====
Earnings per share - diluted $0.80 $0.40 $0.26
===== ===== =====

Financial information contained elsewhere in this report has not been
adjusted to reflect the impact of the proposed common stock split.

F-14
<PAGE> 34

SIGNATURES

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

Dated: May 30, 2000
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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN C. DIEBEL Chairman of the Board and Chief Executive Officer May 30, 2000
---------------------------------- (Principal Executive Officer)
John C. Diebel

/s/ STEVEN G. MURDOCK Director, President, Chief Operating Officer and May 30, 2000
---------------------------------- Secretary
Steven G. Murdock

/s/ BRENT W. CHRISTENSEN Vice President -- Finance and May 30, 2000
---------------------------------- Chief Financial Officer
Brent W. Christensen (Principal Financial and Accounting Officer)

/s/ JOSEPH A. GORDON, JR. Director and Senior Vice President -- North May 30, 2000
---------------------------------- American Sales
Joseph A. Gordon, Jr.

/s/ TIMOTHY C. MCQUAY Director May 30, 2000
----------------------------------
Timothy C. McQuay

Director
----------------------------------
Harry L. Casari

Director
----------------------------------
Michael P. Hoopis
</TABLE>

<PAGE> 35

II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGED TO COSTS CHARGED TO OTHER BALANCE AT END
ALLOWANCE FOR DOUBTFUL ACCOUNTS PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS (1) OF PERIOD
---------------------------------- ------------ ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1998 ..... $ 248,000 $ 237,000 $ 485,000

Year ended February 28, 1999 ..... $ 485,000 $1,810,000 52,000 $2,243,000

Year ended February 29, 2000 ..... $2,243,000 $1,598,000 82,000 62,000 $3,861,000
</TABLE>

------------

(1) Write-off of delinquent accounts

<PAGE> 36

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT INCORPORATION
NUMBER DESCRIPTION REFERENCE
------- ----------- -------------
<S> <C> <C>
2.1+ Interest Purchase Agreement, dated as of July 15-16, 1999, by and among Bresser Optik GmbH & Co. KG,
a German limited partnership, Bresser Optik Geschaftsfuhrung und Verwaltungs GmbH, a German limited
liability company, Rudolph Bresser, the Company and Meade Instruments Europe Corp., a California
corporation (excluding Exhibits and Schedules thereto) .................................................... (h)

3.1+ Certificate of Incorporation of the Company, as amended ................................................... (c)

3.2+ Amended and Restated Bylaws of the Company ................................................................ (i)

3.3 Amendment to Amended and Restated Bylaws of the Company ...................................................

4.1+ Specimen stock certificate ................................................................................ (d)

10.7+ Industrial Lease (Single Tenant; Net; Stand-Alone), dated December 20, 1996, between The Irvine
Company and the Company ................................................................................... (a)

10.13+ Meade Instruments Corp. Employee Stock Ownership Plan (the "ESOP"), as amended and restated
effective as of January 1, 1999 ........................................................................... (f)

10.14+ Employee Stock Ownership Trust Agreement, as Amended and Restated as of April 9, 1997, between the
Company and Wells Fargo Bank, N.A. ........................................................................ (e)

10.15+ Employee Stock Ownership Plan Loan and Pledge Agreement, dated April 23, 1996, between the ESOP and
the Company, as amended ................................................................................... (a)

10.20+ Form of Trademark Distribution Agreement for EEC Countries ................................................ (a)

10.21+ Form of Trademark Distribution Agreement for Non-EEC Countries ............................................ (a)

10.24+ Celtic Master Lease, dated as of February 23, 1995, by and between the Company and Celtic Leasing
Corp. ..................................................................................................... (b)

10.29+ Meade Instruments Corp. 1997 Stock Incentive Plan, as amended ............................................. (g)

10.30+ Form of Agreement of Merger, by and between the Company and the predecessor of the Company ................ (b)

10.31+ Preferred Stock Redemption Agreement, dated as of January 31, 1997, by and between the Company and
Churchill ................................................................................................. (b)

10.33+ Agreement, dated as of May 5, 1998, by and between the Company and Weidy Optical Co., Ltd. ................ (e)

10.35+ Form Indemnification Agreement, by and between the Company and each member of the Board of Directors
and certain executive officers ............................................................................ (e)

10.41+ Loan Agreement, dated as of August 31, 1999, by and among the Company, the lenders named therein and
Bank of America, N.A., as Administrative Agent for itself and for the other lenders (excluding
Exhibits and Schedules thereto)............................................................................ (h)

10.42 Form Employment Agreement, by and between the Company and current executive officers of the Company .......

10.43 Lease Agreement, dated as of August 16, 1999, as amended, by and among Refugio Geffroy De Flourie,
Meade Instruments Mexico, S. De R. L. De C.V. and Meade Instruments Holding Corp. .........................

23.1 Consent of PricewaterhouseCoopers LLP .....................................................................

27.1 Financial Data Schedule ...................................................................................
</TABLE>

------------

+ Previously filed with the Securities and Exchange Commission as set forth in
the following table:

<PAGE> 37

(a) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-21123), as filed with the Securities and Exchange
Commission on February 4, 1997.

(b) Incorporated by reference to the Company's Amendment No. 1 to Registration
Statement on Form S-1 (Registration No. 333-21123), as filed with the
Securities and Exchange Commission on February 27, 1997.

(c) Incorporated by reference to the Company's Amendment No. 2 to Registration
Statement on Form S-1 (Registration No. 333-21123), as filed with the
Securities and Exchange Commission on March 13, 1997.

(d) Incorporated by reference to the Company's Amendment No. 3 to Registration
Statement on Form S-1 (Registration No. 333-21123), as filed with the
Securities and Exchange Commission on March 25, 1997.

(e) Incorporated by reference to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended February 28, 1998, as filed with the Securities and
Exchange Commission on May 29, 1998.

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

(g) Incorporated by reference to the Company's 1999 Proxy Statement on Schedule
14A, as filed with the Securities and Exchange Commission on June 8, 1999.

(h) Incorporated by reference to the Company's Current Report on Form 8-K, as
filed with the Securities and Exchange Commission on September 15, 1999.

(i) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the Quarterly Period Ended November 30, 1999, as filed with the Securities
and Exchange Commission on January 14, 2000.