PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
reference to, and should be read in conjunction with, the more detailed
information appearing elsewhere in this prospectus or incorporated by reference
herein. Investors should also carefully
consider the information set forth under Risk Factors beginning on
page 3. As used in this prospectus,
Company, Meade, we, us and our refer to Meade Instruments Corp.
The Company
Meade Instruments Corp. is a multinational consumer optics
company that designs, manufactures, imports and distributes telescopes,
telescope accessories, binoculars, riflescopes, spotting scopes, microscopes,
and other consumer optical products. We
are dedicated to bringing innovative, cutting-edge, consumer-friendly products
to the consumer optics marketplace. Our
brands, which include Meade®, Bresser®, Simmons®, Weaver®, Redfield®, and
Coronado®, are recognized throughout the world and are associated with
innovation in the amateur astronomy, consumer optical and sporting goods
markets. Products such as the recently
announced mySKY, an easy to-use multi-media night sky exploration guide, the
RCX400 high-end telescopes featuring an Advanced Ritchey-Chrétien (ARC)
optical design, the LX200®R series of telescopes that combine the
state-of-the-art LX200 with the precision of the ARC optics, the LX90GPS that
brings GPS capabilities to a moderately priced Schmidt-Cassegrain telescope,
the Deep Sky Imager series of high-performance charge-coupled device cameras
that have advanced astro-imaging to near point-and-shoot simplicity, and
NightView, a compact night vision monocular built on an innovative and
proprietary digital imaging technology, help sustain our brand as a brand known
for innovation in amateur astronomy and other consumer optical products.
In 1999, Meade acquired Bresser Optik GmbH & Co.
KG and
Bresser Optik Geschaftsfuhrung und Verwaltungs GmbH (collectively Bresser).
The Bresser brand, active in the European market for
nearly 30 years, is known for its wide range of modestly-priced products
including binoculars and smaller-aperture telescopes. In addition, Bresser has provided us greater
foreign distribution opportunities for our products. Moreover, Bressers significant presence in
the binocular and low-priced telescope market in Europe has strengthened our
penetration into these markets. In
October 2002, we acquired Simmons Outdoor Corp. (Simmons Outdoor) to
expand our brand name offerings and extend our reach into the worldwide sporting
goods marketplace. With the purchase of
Simmons Outdoor, we acquired the Simmons, Weaver and Redfield brand names. The Simmons, Weaver and Redfield brand names
have long histories in the sporting goods channel (the Redfield brand name will
be 100 years old in 2008). In
December 2004, in our continuing efforts to expand our product offerings,
we purchased substantially all of the assets and assumed substantially all of
the liabilities of Coronado Technology Group, LLC, a supplier of high-end
hydrogen-alpha and other solar filters and high-end dedicated solar telescopes,
as well as various related accessories and more modestly priced dedicated solar
observation equipment.
Meade offers numerous different telescope, riflescope
and binocular models as well as hundreds of accessory products for amateur
astronomy and sporting goods consumers.
Our telescopes range in aperture from under 2 inches to
20 inches and in retail price from less than $50 to almost $50,000. Meade offers several families of binoculars and
riflescopes under our various brand names at retail price points from about $10
to approximately $500. Whether a
consumer is a serious amateur astronomer, an avid naturalist, a hunter or
someone just looking for a good binocular, Meade offers a complete range of
quality products to satisfy the consumer optics buyer.
Founded in 1972, Meade has a reputation for providing
the amateur astronomer with technically sophisticated products at competitive
prices. Combining our manufacturing
expertise with our dedication to innovation, quality and value, we have
developed and produced some of the industrys most technologically advanced
consumer telescopes at affordable prices.
Capitalizing on our brand name recognition among serious amateur
astronomers and our ability to bring advanced technology to lower price points,
we have marketed our less-expensive telescopes to beginning and intermediate
amateur astronomers. We are a supplier
of consumer optics to such retailers as Lidl (in Europe), Wal-Mart, Costco,
Dicks Sporting Goods, Sams Club and Cabelas Inc.
During our fiscal year ended February 28, 2007, we
began a restructuring of our operations.
We replaced a significant number of our executives, including our chief
executive officer, senior officer over operations and our chief financial
officer, and we embarked on a number of initiatives to resolve supply chain
constraints, to reduce our cost structure, to reduce the number of SKUs and
required level of inventory, and to increase investment for new product innovations
and introductions. Our financial
performance in our fiscal years ended February 28, 2007 and the six months
ended August 31, 2007 was negatively impacted as a result of the
restructuring. While we believe that we
have made significant progress in restructuring the Company, we also believe
that the restructuring is not complete and that the turnaround of the Company
will be a continuing effort. This may
result in additional costs associated with the turnaround, which may require
additional investments in working capital.
There can be no assurance that additional sources of capital will be
available on reasonable terms, if at all, or that if necessary, such additional
sources of capital will be non-dilutive to stockholders.
In October 2007, we announced that the Board of
Directors has formed a special committee and engaged an investment bank to
assist the Company in exploring strategic alternatives. Such alternatives may involve a financial
restructuring of the Companys capital structure or potentially the sale of all
or a portion of the Company. At this
time there can be no assurance that the Company will be able to execute on any
strategic alternatives.
We have consistently emphasized a business plan that
is concentrated on new product development and effective targeted
marketing. As an indication of our
commitment to product development, we spent $1.8 million,
$1.5 million and $2.0 million on research and development during
fiscal 2007, 2006 and 2005, respectively, and have, over the last five fiscal
years, expended $10.8 million in the aggregate on research and
development. We also spent $1.0 million and $706,000 on research and
development in the six months ended August 31, 2007, and 2006, respectively. These
research and development
1
expenditures were
centered on the development of technologically advanced telescopes and other
astronomy related products, breakthrough riflescopes for the shooting and
hunting markets and other new products for the general consumer and sports
optics markets as well as product improvement and industrial applications of
our existing technologies.
Meade manufactures a complete line of advanced
astronomical telescopes. Parts and
components for the advanced telescopes are manufactured and assembled in
various plants located in the United States, Mexico, Korea, Taiwan, Japan, the
Philippines and China. The advanced
optical systems are manufactured in our plant in Irvine, California. Our binoculars and riflescopes and many of
our less-expensive telescopes, as well as certain component parts for our
telescopes, are manufactured under proprietary designs by manufacturers located
in Asia, including Mainland China, Taiwan and Japan. We also assemble many of our products and
accessories into finished products in our Mexican assembly plant.
Meade complements its efforts in new product
development with an aggressive marketing plan.
Our marketing plan includes a state-of-the-art web site, print
advertising in astronomy, outdoor and hunting related magazines and, at times, in
general consumer magazines, as well as jointly developed advertising campaigns
with many of our key retail partners, and point-of-sale marketing
displays. In addition, Meade publishes
comprehensive, full-color, high-quality product catalogs that provide
significant product exposure for a broad range of consumers including the
serious amateur astronomer, the avid birder, the weekend sports enthusiast or
the hunter.
In the United States and Canada, we distribute our
products through a network of more than 400 specialty retailers, distributors
and mass merchandisers, which offer our products in more than 12,000 retail
store locations. We also sell certain of
our products to selected national mail order dealers. In addition to products sold through Meade Europe
(formerly Bresser) channels, we sell our products internationally through a
network of over 40 foreign distributors, many of which service dealer locations
in their respective countries. Revenues
from customers outside North America were $44.8 million,
$45.3 million and $32.1 million for the years ended February 28,
2007, 2006 and 2005, representing approximately 44.1%, 37.8% and 28.7% of our
net revenues, respectively, and $13.0 million and $13.3 million for the six
months ended August 31, 2007 and 2006, representing approximately 39% and 36%
of the Companys net revenues, respectively. We intend to continue to pursue an
integrated strategy of product line expansion, aggressive marketing, and
expansion of our domestic and international distribution networks.
Our principal business and executive offices are
located at 6001 Oak Canyon, Irvine, California 92618. Our main telephone number is
(949) 451-1450. Our website is located
at www.meade.com. We do not consider
information contained in our web site to be part of this prospectus.
RISK FACTORS
The shares of our common stock being offered involve a
high degree of risk. You should
carefully consider the following discussion of risks as well as all other
information in this prospectus before purchasing any of the shares offered
pursuant to this prospectus.
Our failure to
comply with any of the financial covenants in our credit facilities or other
debt agreements could have a material adverse impact on our business.
We depend on operating cash flow and availability
under our bank lines of credit, both in the United States and Europe, to
provide short-term liquidity. For the
years ended February 28, 2007, 2006 and 2005 and the six months ended August
31, 2007, we incurred significant operating and net losses which diminished the
availability under our U.S. credit agreement and consumed a significant portion
of our net assets. Continued operating
losses could adversely affect our ability to maintain required financial
covenants under our various debt agreements.
Due to operating losses over the past three years, we have, several times,
renegotiated the financial covenants contained in our U.S. credit agreement. In
addition, during the quarter ended August 31, 2007, the Company was in default
with respect to a financial covenant in the U.S. credit agreement. The Company subsequently negotiated an
amendment to the credit agreement related to financial covenants, and such
default was waived by the lender.
If financial covenants are not maintained, the
creditors will have the option to require immediate repayment of all
outstanding debt under the related debt agreements. In such an event, we may again be required to
renegotiate certain terms of these agreements, obtain waivers from the
creditors, look for additional sources of liquidity such as equity financings
or obtain new debt agreements with other creditors, which may contain less
favorable terms. We can not assure that
such additional sources of capital will be available on reasonable terms, if at
all. If we are unable to renegotiate
acceptable terms, obtain necessary waivers or secure new debt or equity
financing, this could have a material adverse effect on our business, results
of operations and financial condition.
We rely on
independent contract manufacturers and, as a result, we are exposed to
potential disruptions in product supply.
All of our consumer optics products with retail prices
under $500 are currently manufactured by independent contract manufacturers,
principally located in China. We do not
have long-term contracts with our Asian manufacturers, and we compete with
other consumer optics companies for production facilities. We have experienced, and continue to
experience, difficulties with these manufacturers, including reductions in the
availability of production capacity, failure to meet our quality control standards,
failure to meet production deadlines and increased manufacturing costs. Some manufacturers in China are facing labor
shortages as migrant workers seek better wages and working conditions. If this trend continues, our current
manufacturers operations could be adversely affected.
If our current manufacturers cease doing business with
us, we could experience an interruption in the manufacture of our
products. Although we believe that we
could find alternative manufacturers, we may be unable to establish
relationships with alternative manufacturers that will be as favorable as the
relationships we have now. For example,
new manufacturers may have higher prices, less favorable payment terms, lower
manufacturing capacity, lower quality standards or higher lead times for
delivery. If we are unable to provide
products to our customers that are consistent with our standards or the
manufacture of our products is delayed or becomes more expensive, this could
result in our customers canceling orders, refusing to accept deliveries or
demanding reductions in purchase prices, any of which could have a material
adverse effect on our business and results of operations.
We may be unable
to successfully execute our growth and profitability strategies.
Our net sales and operating results have fluctuated
significantly over the past five fiscal years and we may experience similar
fluctuations in the future. Our ability
to grow in the future depends upon, among other things, our ability to return
to profitability, the maintenance and enhancement of our brand image and
expansion of our product offerings and distribution channels. Furthermore, if our business becomes larger,
we may not be able to effectively manage our growth. We anticipate that as the business grows, we
will have to improve and enhance our overall financial and managerial controls,
reporting systems and procedures. We may
be unable to successfully implement our current growth and profitability
strategies or other growth strategies or effectively manage our growth, any of
which would negatively impact our business, results of operations and financial
condition.
3
Our business may
be negatively impacted as a result of changes in the economy.
Our business depends on the general economic
environment and levels of consumer spending that affect not only the ultimate
consumer, but also retailers, our primary direct customers. Purchases of consumer optics tend to decline
in periods of recession or uncertainty regarding future economic prospects,
when consumer spending, particularly on discretionary items, declines. During periods of recession or economic
uncertainty, we may not be able to maintain or increase our sales to existing
customers, make sales to new customers, maintain or increase our international
operations on a profitable basis, or maintain or improve our earnings from
operations as a percentage of net sales.
As a result, our operating results may be materially adversely affected
by downward trends in the economy or the occurrence of events that adversely
affect the economy in general.
The disruption,
expense and potential liability associated with existing and unanticipated
future litigation against us could have a material adverse effect on our
business, results of operations, financial condition and cash flows.
We are subject to various legal proceedings and
threatened legal proceedings from time to time.
Any unanticipated litigation in the future, regardless of its merits,
could significantly divert managements attention from our operations and result
in substantial legal fees being borne by us.
Further, there can be no assurance that any actions that have been or
will be brought against us will be resolved in our favor or, if significant
monetary judgments are rendered against us, that we will have the ability to
pay such judgments. Such disruptions,
legal fees and any losses resulting from these claims could have a material
adverse effect on our business, results of operations financial condition and
cash flows.
Our future success
depends upon our ability to respond to changing consumer demands and
successfully market new products.
The consumer optics industry is subject to changing
consumer demands and technology trends.
Accordingly, we must identify those trends and respond in a timely
manner. Demand for and market acceptance
of new products are uncertain and achieving market acceptance for new products
generally requires substantial product development and marketing efforts and
expenditures. If we do not continue to
meet changing consumer demands and develop successful products in the future,
our growth and profitability will be negatively impacted. We frequently make decisions about product
designs and marketing expenditures several months to years in advance of the
time when consumer acceptance can be determined. If we fail to anticipate, identify or react
appropriately to changes in trends or are not successful in marketing new
products, we could experience excess inventories, higher than normal markdowns
or an inability to profitably sell our products. Because of these risks, the consumer optics
industry has experienced periods of growth in revenues and earnings and
thereafter periods of declining sales and losses. Similarly, these risks could have a material
adverse effect on our results of operations, financial condition or cash flows.
4
Our business and
the success of our products could be harmed if we are unable to maintain our
brand image.
Our principal brands include Meade®, Bresser®,
Simmons®, Weaver®, Redfield® and Coronado®.
If we are unable to timely and appropriately respond to changing
consumer demand, our brand names and brand images may be impaired. Even if we react appropriately to changes in
consumer preferences, consumers may consider these brands to be outdated or
undesirable. If we fail to maintain and
develop our principal brands, our sales and profitability will be adversely
affected.
Our business could
be harmed if we fail to maintain appropriate inventory levels.
We place orders with suppliers for many of our products
prior to the time we receive all of our customers orders. We do this to minimize purchasing costs, the
time necessary to fill customer orders and the risk of non-delivery. We, at times, also maintain an inventory of
certain products that we anticipate will be in greater demand. However, we may be unable to sell the
products we have ordered in advance from manufacturers or that we have in our
inventory. Inventory levels in excess of
customer demand may result in inventory write-downs, and the sale of excess
inventory at discounted prices could significantly impair our brand image and
have a material adverse effect on our operating results and financial
condition. Conversely, if we
underestimate consumer demand for our products or if our suppliers fail to
supply the products that we require with the quality and at the time we need
them, we may experience inventory shortages.
Inventory shortages might delay shipments to our customers, negatively
impact our retailer and distributor relationships, and diminish brand loyalty.
We face intense
competition, including competition from companies with significantly greater
resources, and, if we are unable to compete effectively with these competitors,
our market share may decline and our business could be harmed.
We face intense competition from other established
companies. A number of our competitors
have significantly greater financial, technological, engineering,
manufacturing, marketing and distribution resources than we do. Their greater capabilities in these areas may
enable them to better withstand periodic downturns in the consumer optics
market, compete more effectively on the basis of price and production and more
quickly develop new products. In
addition, new companies may enter the markets in which we compete, further
increasing competition in the consumer optics industry.
We believe that our ability to compete successfully
depends on a number of factors, including the type and quality of our products
and the strength of our brand names, as well as many factors beyond our
control. We may not be able to compete
successfully in the future, and increased competition may result in price
reductions, reduced profit margins, loss of market share and an inability to generate
cash flows that are sufficient to maintain or expand the development and
marketing of new products, any of which would adversely impact our results of
operations and financial condition.
We depend upon a
relatively small group of customers for a large portion of our sales.
During fiscal 2007, 2006 and 2005 and the six months
ended August 31, 2007 and 2006, net sales to our ten largest customers
accounted for approximately 49%, 30%, 35%, 34% and 30%, of total net sales,
respectively. During the fiscal year
2007, 2006 and 2005 and the six months ended August 31, 2007 and 2006 our top
two customers accounted for approximately 30%, 23%, 16%, 11% and 10%,
respectively. Although we have long-term
relationships with many of our customers, those customers do not have
contractual obligations to purchase our products and we cannot be certain that
we will be able to retain our existing major customers. Furthermore, the retail industry regularly
experiences consolidation, contractions and closings which may result in a loss
of customers or the loss of our ability to collect accounts receivable from
major customers in excess of amounts that we have insured. If we lose a major customer, experience a
significant decrease in sales to a major customer or are unable to collect the
accounts receivable of a major customer in excess of amounts insured, our
business could be harmed.
Our international
sales and third-party manufacturing operations are subject to the risks of
doing business abroad, particularly in China, which could affect our ability to
sell or manufacture our products in international markets, obtain products from
foreign suppliers or control product costs.
A significant portion of our net sales continue to be
derived from sales of products manufactured in foreign countries, with most
manufactured in China. We also sell our
products in several foreign countries and plan to increase our international
sales efforts as part of our growth strategy.
Foreign manufacturing and sales are subject to a number of risks,
including the following: political and social unrest, including
5
that related to the U.S.
military presence in Iraq; changing economic conditions; currency exchange rate
fluctuations; international political tension and terrorism; labor shortages
and work stoppages; electrical shortages; transportation delays; loss or damage
to products in transit; expropriation; nationalization; the imposition of
domestic and international tariffs and trade duties, import and export controls
and other non-tariff barriers, exposure to different legal standards
(particularly with respect to intellectual property), compliance with foreign
laws, and changes in domestic and foreign governmental policies. We have not, to date, been materially
affected by any such risks, but we cannot predict the likelihood of such
developments occurring or the resulting long-term adverse impact on our
business, results of operations or financial condition.
In particular, because most of our products are
manufactured in China, adverse changes in trade or political relations with China,
political instability in China, the occurrence of a natural disaster such as an
earthquake or hurricane in China or the outbreak of a pandemic disease such as
Severe Acute Respiratory Syndrome (SARS) or the Avian Flu in China would
severely interfere with the manufacture of our products and would have a
material adverse effect on our operations.
In addition, electrical shortages, labor shortages or work stoppages may
extend the production time necessary to produce our orders, and there may be
circumstances in the future where we may have to incur premium freight charges
to expedite the delivery of product to our customers. If we incur a significant amount of premium
charges to airfreight product for our customers, gross profit will be
negatively affected if we are unable to pass those charges on to our customers.
Also, the manufacturers of our products that are
located in China may be subject to the effects of exchange rate fluctuations
should the Chinese currency not remain stable with the U.S. dollar. The value of the Chinese currency depends to
a large extent on the Chinese governments policies and Chinas domestic and
international economic and political developments. The valuation of the yuan may increase
incrementally over time should the Chinese central bank allow it to do so,
which could significantly increase labor and other costs incurred in the
production of our products in China.
Our business could
be harmed if our contract manufacturers or suppliers violate labor, trade or
other laws.
We require our independent contract manufacturers to
operate in compliance with applicable United States and foreign laws and
regulations. Manufacturers may not use
convicted, forced or indentured labor (as defined under United States law) nor
child labor (as defined by the manufacturers country) in the production
process. Compensation must be paid in
accordance with local law and factories must be in compliance with local safety
regulations. Although we promote ethical
business practices and send sourcing personnel periodically to visit and
monitor the operations of our independent contract manufacturers, we do not
control them or their labor practices.
If one of our independent contract manufacturers violates labor or other
laws or diverges from those labor practices generally accepted as ethical in
the United States, it could result in the loss of certain of our major
customers, adverse publicity for us, damage our reputation in the United States
or render our conduct of business in a particular foreign country undesirable
or impractical, any of which could harm our business.
In addition, if we, or our foreign manufacturers,
violate United States or foreign trade laws or regulations, we may be subject
to extra duties, significant monetary penalties, the seizure and the forfeiture
of the products we are attempting to import or the loss of our import
privileges. Possible violations of
United States or foreign laws or regulations could include inadequate record
keeping of imported products, misstatements or errors as to the origin, quota
category, classification, marketing or valuation of our imported products,
fraudulent visas or labor violations.
The effects of these factors could render our conduct of business in a
particular country undesirable or impractical and have a negative impact on our
operating results.
Our quarterly
revenues and operating results fluctuate as a result of a variety of factors,
including seasonal fluctuations in the demand for consumer optics, delivery
date delays and potential fluctuations in our annualized tax rate, which may
result in volatility of our stock price.
Our quarterly revenues and net operating results have
varied significantly in the past and can be expected to fluctuate in the future
due to a number of factors, many of which are beyond our control. Our major customers generally have no
obligation to purchase forecasted amounts and may cancel orders, change
delivery schedules or change the mix of products ordered with minimal notice
and without penalty. As a result, we may
not be able to accurately predict our quarterly sales or net operating
results. In addition, sales of consumer
optics have historically been seasonal in nature and tied to the winter holiday
shopping season, with the strongest sales generally occurring in our third
fiscal quarter. Holiday shopping sales
typically begin to ship in August, and delays in the timing, cancellation, or
rescheduling of the related orders by our wholesale customers could negatively impact
our net sales and results of operations.
More specifically, the timing of when products are shipped is determined
by the delivery schedules set by our wholesale customers, which could cause
sales to shift between our second, third and fourth quarters. Because our expense levels are partially
based on our expectations of future net sales, expenses may be
disproportionately large relative to our revenues, and we may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shifts or shortfalls, which could have a material adverse effect on our net
operating results. Also, our annualized
tax rate is based upon projections of our domestic and international operating
results for the year, which are reviewed and revised by management as necessary
at the end of each quarter, and it is highly sensitive to fluctuations in the
projected mix of international and domestic earnings. Any quarterly fluctuations in our annualized
tax rate that may occur could have a material impact on our quarterly net
operating results. As a result of these
specific and other general factors, our net operating results vary from quarter
to quarter and the results for any particular quarter may not be necessarily
indicative of results for the full year which may lead to volatility in our stock
price.
Changes in
currency exchange rates could affect our revenues and operating results.
A significant portion of our production is
accomplished offshore, principally in China, and a significant portion of our
net sales, were denominated in foreign currencies and are subject to exchange
rate fluctuation risk. Although we
engage in some hedging activities to reduce foreign exchange transaction risk,
changes in the exchange rates between the U.S. dollar and the currencies of
Europe and Asia could make our products less competitive in foreign markets,
and could reduce the sales and operating results represented by foreign
currencies. Additionally, such
fluctuation could result in an increase in cost of products sold in foreign
markets reducing margins and earnings.
6
We may not be able
to raise additional funds when needed for our business or to exploit
opportunities.
Our future liquidity and capital requirements will
depend on numerous factors, including our success in recognizing and exploiting
opportunities for expansion through potential future acquisitions. We may need to raise additional funds to
support expansion, develop new technologies, respond to competitive pressures,
or take advantage of unanticipated opportunities. If required, we may raise additional funds
through public or private debt or equity financing, strategic relationships or
other arrangements. There can be no
assurance that such financing will be available on acceptable terms, if at all,
and such financing, if obtained, would be dilutive to our stockholders.
Our trademarks,
design patents, utility patents and other intellectual property rights may not
be adequately protected outside the United States.
We believe that our trademarks, design patents,
utility patents and other proprietary rights are important to our business and
our competitive position. We devote
substantial resources to the establishment and protection of our trademarks,
design patents and utility patents on a worldwide basis. Nevertheless, we cannot assure that the
actions we have taken to establish and protect our trademarks and other
proprietary rights outside the United States will be adequate to prevent
infringement of our technologies or trade names by others or to prevent others
from seeking to block sales of our products as a violation of the trademarks
and proprietary rights of others. Also,
we cannot assure that others will not assert rights in, or ownership of, our
trademarks, patents, designs and other proprietary rights or that we will be
able to successfully resolve these types of conflicts to our satisfaction. In addition, the laws of certain foreign
countries may not protect proprietary rights to the same extent as do the laws
of the United States. We may face
significant expenses and liability in connection with the protection of our
intellectual property rights outside the United States, and if we are unable to
successfully protect our rights or resolve intellectual property conflicts with
others, our business or financial condition may be adversely affected.
Our ability to
compete could be jeopardized if we are unable to protect our intellectual
property rights or if we are sued for intellectual property infringement.
We use trademarks on virtually all of our products and
believe that having distinctive marks that are readily identifiable is an
important factor in creating a market for our products, in identifying the
Company and in distinguishing our goods from the goods of others. We consider our Meade®, Bresser®, Simmons®,
Weaver®, Redfield® and Coronado® trademarks and brand names to be among our
most valuable assets and we have registered these trademarks in many
countries. In addition, we own many
other trademarks and trade names, which we utilize in marketing our
products. We continue to vigorously
protect our trademarks against infringement.
We also have a number of utility patents and design patents covering
components and features used in many of our telescope, riflescope, binocular
and other products. We believe our
success depends more upon skills in design, research and development,
production and marketing rather than upon our patent position. However, we have followed a policy of filing
applications for United States and foreign patents on designs and technologies
that we deem valuable as critical contributors to our business.
We are exposed to
potential risks from recent legislation requiring public companies to evaluate
controls under Section 404 of the Sarbanes-Oxley Act of 2002.
We are subject to various regulatory requirements,
including the Sarbanes-Oxley Act of 2002.
We, like all other public companies, are incurring expenses and
diverting managements time in an effort to comply with Section 404 of the
Sarbanes-Oxley Act of 2002 (Section 404). We are a non-accelerated filer and we are in
the early stages of process documentation and evaluation of our systems of
internal control. We are required to
assess our compliance with Section 404 for the year ending
February 29, 2008. We expect to
devote the necessary resources, including additional internal and supplemental
external resources, to support our assessment.
If, in the future, we identify one or more material weaknesses, or our
external auditors are unable to attest that our managements report is fairly
stated or to express an opinion on the effectiveness of our internal controls,
this could result in a loss of investor confidence in our financial reports,
have an adverse effect on our stock price and/or subject us to sanctions or
investigation by regulatory authorities.
Our charter and
bylaws, as well as applicable corporate laws, could limit the ability of others
to take over management control of the Company.
We will have the ability to issue preferred stock, which could adversely
affect the rights of holders of our common stock.
Our Certificate of Incorporation and Bylaws provide
for:
·
advance notice requirements for
stockholder proposals and director nominations,
·
a prohibition on stockholder action by
written consent, and
·
limitations on calling stockholder meetings.
7
In addition, we are subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibits us from engaging in a business combination with an interested
stockholder for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner.
These provisions could have the effect of discouraging certain attempts
to acquire the Company, which could deprive our stockholders of the opportunity
to sell their shares of common stock at prices higher than prevailing market
prices. In addition, our Board of
Directors has authority to issue up to 1,000,000 shares of preferred stock and
to fix the price, rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
stockholders. The rights of the holders
of our common stock will be subject to, and may be adversely affected by, the
rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock
could affect adversely the voting power of holders of our common stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation. Additionally, the issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for our common stock at a
premium over the market price of the common stock and may affect adversely the
market price of and the voting and other rights of the holders of our common
stock.