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Equipment Discussions >> Cats & Casses

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EddWen
Pooh-Bah


Reged: 04/26/08

Re: The plot thickens (Meade takeover) [Re: EddWen]
      #5976250 - 07/17/13 03:52 PM

Meade is really in a sad state right now. As I read the 10-Q last night, I really felt empathy for these guys. I know none of them, but several have made Meade their career. I’m sure they all did their best but now they know they didn’t do well enough. There were some good times, but not now.

Whenever I read a filing, I gravitate to the financial numbers, mostly the Operating Statement. Others like the Balance sheet. There are always Management’s Analysis of the financials. I usually just skim them, but I did read them last night.

Here is a snip from the Discussion. It compares the Mar-Apr-May results for 2013 to 2012. I’ve put in a few comments and emphasis.



MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Results of Operations
Three Months Ended May 31, 2013 Compared to Three Months Ended May 31, 2012

The Company reported net sales of $2.8 million for the quarter ended May 31, 2013, a decrease of $1.3 million or 32% from net sales of $4.1 million in the same period in the prior year. This decrease in net sales was across all product categories of the Company.

Approximately 26% or $0.3 million of this decrease in net sales was attributed to a decrease in net sales of accessories, which was attributed to the decrease of sales across all product categories and increased competition.

Approximately 23% or $0.3 million of this decrease in net sales was attributed to a decrease in net sales of solar telescopes due to a high amount of these products having been sold in the prior year due to new product introductions and promotions.

I suggest the above is mostly attributable to competition from Lunt.

Approximately 22% or $0.3 million of the decrease in net sales was attributed to a decrease in net sales of intermediate telescopes due to reduced sales of the Company’s LS and LT line of intermediate telescopes.

Approximately $0.2 million or 17% of the decrease in net sales was attributable to a net decrease in sales of high end telescopes due to a reduction in sales of the Company’s LX200 telescopes offset partially by sales of the Company’s new LX850 and LX600 telescopes.

I suggest the decrease sales of the LX200 scopes are due to premature advertising of new product.

Gross profit of $0.6 million during the three months ended May 31, 2013 decreased $0.3 million or 27% compared to $0.9 million during the three months ended May 31, 2012. The decrease in gross profit was primarily attributable to the decline in net sales, offset slightly by reductions in indirect costs of sales.

Selling expenses for the first quarter ended May 31, 2013 were $0.4 million, which was equal to the first quarter ended May 31, 2012, but which amounted to 15% of net sales compared to 10% of net sales during the same quarter in the prior year. The increase in selling expenses as a percentage of net sales was due an increase in bad debt expense of $0.1 million, which offset reductions in other selling expenses due to reduced net sales and cost reduction efforts.

Selling expense remain the same but didn’t produce results. It should have been reduced earlier.

General and administrative expenses for the three months ended May 31, 2013 were $1.0 million or 35% of net sales compared to $0.9 million or 22% of net sales during the three months ended May 31, 2012. The increase in general and administrative expenses was mainly due to approximately $0.1 million of legal fees associated with the Company’s merger and acquisition activities.

G@A is running mostly at the same rate as the prior year. Why ??

Research and development expenses during the three months ended May 31, 2013 were lower by $0.1 million or 45% due to the fact that the Company completed development of its LX800/850 and LX600 telescopes in February and April 2013, respectively.

Apparently no on-going product development for the future.

Release of warranty liability of $0.3 million during the three months ended May 31, 2012 pertained to a reduction in the Company’s warranty accrual which was recorded based upon an agreement which released the Company of its remaining warranty liability associated with those products. No such adjustment applied to the current year.
Interest expense of $13 thousand was incurred during the three months ended May 31, 2013 due to advances on the Company’s credit facility. No interest was incurred in the prior year because the Company was not advancing on its credit facility in the prior year.

Rosenthal & Rosenthal is now requiring monthly interest payments, a change from earlier.

No provision for income taxes was recorded in the current or prior period presented due to the significance of the Company’s net loss.

Seasonality
Historically, a substantial portion of the Company’s net sales and results from operations typically occurred in the second and third quarter of the Company’s fiscal year primarily due to the higher customer demand for less-expensive telescopes during the holiday season. Mass merchandisers, along with specialty retailers, purchase a considerable amount of their inventories to satisfy 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. The Company continues to experience sales to mass merchandisers. Accordingly, the Company’s net sales, working capital requirements and results from operations may be higher in its third quarter than in the other quarters of its fiscal year.

________________________________________

Liquidity and Capital Resources

The Company incurred a net loss of $0.9 million during the three months ended May 31, 2013. Cash used in operating activities was $0.4 million, compared to $1.1 million during the three months ended May 31, 2012, due to approximately $0.8 million in inventory reductions resulting from the Company completing development of its new LX800/850 and LX600 telescopes in February 2013 and April 2013, respectively, and being able to convert raw materials and work in process inventories into saleable product. The Company increased inventory by approximately $2.6 million during the six months ended August 31, 2012 due primarily to product development problems associated with the LX800/850 and LX600 telescope products which caused delays in shipments of those products. The Company must continue to reduce its inventories in order to have sufficient liquidity to continue its operations.

The current inventory level covers 6 months of sales. Not really JIT.

During the three months ended may 31, 2013, the Company obtained $0.3 million in cash from net advances on its credit facility. However, the Company has limited working capital and access to credit. The Company had only $91 thousand of remaining availability on its credit facility at May 31, 2013. In addition, while the Company’s financing agreement with its lender does not contain explicit financial covenants, the Agreement allows the Company’s lender significant latitude to restrict, reduce or eliminate the Company’s access to credit or require the Company to repay any and all amounts outstanding under the Agreement. If its lender restricts, reduces or eliminates the Company’s access to credit, or requires immediate repayment of the amounts outstanding under the agreement, the Company would be required to pursue additional or alternative sources of liquidity such as equity financings, a new debt agreement with other creditors, or liquidate assets. However, the Company cannot assure that any such additional sources of liquidity would be available on reasonable terms, if at all.

The burn rate is $300,000 per month. The $91,000 will not go far.

The Company’s financial statements for the quarterly period ended May 31, 2013 were prepared assuming the Company would continue as a going concern; however, the Company’s declining revenues, recurring losses, weakened financial position and reduced liquidity raise substantial doubt about its ability to continue as a going concern, as disclosed in the Company’s Form 10-K for its fiscal year ended February 28, 2013. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s board of directors decided in January 2013 that the Company should consider its strategic alternatives to preserve and maximize shareholder value, which ultimately culminated in the execution of a merger agreement.
Due to the Company’s declining revenues, recurring losses, limited liquidity and weakened financial position, the Company may not be able to operate long enough to execute the planned merger.

I go back and wonder why it took until January 2013 to discover they were in trouble.

Capital expenditures were approximately $82 thousand during the three months ended May 31, 2012 related to purchases of tools, molds and dies associated with new products. The Company had no capital expenditures during the three months ended May 31, 2013 and no material capital expenditure commitments as of that date. However, certain of the Company’s machinery and equipment is old and fully depreciated and it is possible that certain of the Company’s machinery and equipment could require replacement in the near future.


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bicparker
Carpal Tunnel


Reged: 02/07/05

Loc: Texas Hill Country
Re: The plot thickens (Meade takeover) [Re: Brian P]
      #5976257 - 07/17/13 03:57 PM

Quote:

Quote:

Quote:

OTOH, under the Sunny offer, what happens to Meade Europe?




They'll receive a decent payment (I think it was $250,000?) as liquidated (means predetermined) damages for Meade abrogating the merger agreement.




The payment was done yesterday -- $250K to the joint venture of JOC/ES/Meade Europe. No idea what Meade Europe got out of it.

I'm starting to wonder if Sunny has cash from somewhere, and is interested in getting a bolt-on high end telescope company. They would keep making the mass market high volume stuff and use Meade to play in the high end world.

Not a great business plan -- I think the discussion on this thread has shown the high-end telescope business is at best around $15 to $25 million tops. But if they are content with that it could be interesting.

Assuming they do what was mentioned above, and rationalize the business and run it efficiently.

Whether they are a golden knight to save Meade Instruments and run it as a well oiled high end SCT juggernaught, or shut the place down and start putting 'Meade' on their multicolored tubes, we'll have to wait and see!




Reviewing the 8-K filing for this deal, Meade has borrowed $250,000 from Sunny (SOI) to pay the JOC termination fee. The borrowing is under a note that can be funded up to $750,000 through the course of the the merger proceedings (stockholder approval, FTC anti-trust approval, etc.) in two additional $250,000 payments.

This note is at a whopping 10% interest rate.

SOI won't be giving away wads of cash here for free in this deal. As an investor, SOI will probably be expecting consolidated rates of returns (interest on loans, management fees, and other ROI) that are much higher, which is typical in such arrangements.


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Starhawk
Space Ranger
*****

Reged: 09/16/08

Loc: Tucson, Arizona
Re: The plot thickens (Meade takeover) [Re: bicparker]
      #5976327 - 07/17/13 04:33 PM

Egad. Falling revenue, no progress in decreasing expenses, inventory in gridlock, loan sharks own the debt, and the factory is full of relics, anyway.

The assumption from Sunny they can extract lots of cash from Meade makes me wonder, though. How do they expect massive ROI from a shop which is in the red? It's not a cash cow; it's a money pit.

Interestingly, the LX80, LX800, and LX600 were apparently developed not on the $millions other posters have assumed, but on a shoestring. No wonder they've had so much trouble.

-Rich

Edited by Starhawk (07/17/13 04:36 PM)


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bicparker
Carpal Tunnel


Reged: 02/07/05

Loc: Texas Hill Country
Re: The plot thickens (Meade takeover) [Re: EddWen]
      #5976329 - 07/17/13 04:34 PM

Edd,
Great summary from the Management Discussion. This is a situation where they bear scrutiny, because the numbers alone only raise questions.

You can see that Meade is burning inventory that has increasingly marginal value. It sounded like they had a lot of work-in-process (WIP) inventory that was essentially not sellable, which explains why they have not had much of anything to sell in terms of their Advanced Series scopes in recent months (which I think most of us had already figured out).

With respect to those LX600, and 800/850 scopes, it almost looks like they had to spend an extra $1 to make $1 of the LX inventory sellable (i.e., they had to make a bunch of unfinished scopes finished).

That is an interesting catch you made regarding the end of life of the R&D for new scopes. It was sort of expected, but seeing it in black and white frames it more clearly.

Thanks for identifying the burn rate. That, at this point, should be the only thing Meade focuses on right now. They are basically in a race with their dwindling cash to the shareholder ratification. It appears that at least $250,000 per month may be subsidized with loaned funds from SOI (at 10%!!!! YIKES!).

This are really brutal times for Meade. I can appreciate how some may want to put some emotional positive spin on this, but we are seeing the end results of a pure meltdown right now. And the end game is still very complicated:

1) SOI may re-adjust their offer downward after due diligence (which, after looking at the 10-Q, would only make sense).
2) We will probably have some notion in the next few days as to how successful MIT Cap was in their tender offer. If they were, SOI will not be a slam dunk. This means Meade management and board members will out of the decision making process and a proxy fight may ensue.
3) The aforementioned burn rate of $300,000 per month could quickly escalate well beyond Meade's means if: A) the merger is delayed, B) shareholder lawsuits are filed, and/or C) the FTC invokes any anti-trust restrictions or administrative delays.

Brutal.


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Starhawk
Space Ranger
*****

Reged: 09/16/08

Loc: Tucson, Arizona
Re: The plot thickens (Meade takeover) [Re: bicparker]
      #5976340 - 07/17/13 04:40 PM

Edd and Bic,

OK, so if someone gave you $1 billion and said, "Go do something with Meade," what would you do?

-Rich


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Roy McCoy
Pooh-Bah
*****

Reged: 10/13/05

Loc: Glendale, AZ
Re: The plot thickens (Meade takeover) [Re: Pak]
      #5976416 - 07/17/13 05:17 PM

Quote:

Mead is something I could see myself getting passionate about.




Edited by Roy McCoy (07/17/13 06:01 PM)


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Starhawk
Space Ranger
*****

Reged: 09/16/08

Loc: Tucson, Arizona
Re: The plot thickens (Meade takeover) [Re: Roy McCoy]
      #5976447 - 07/17/13 05:28 PM

Be nice. Making fun isn't going to help.

-Rich


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rmollise
Postmaster
*****

Reged: 07/06/07

Re: The plot thickens (Meade takeover) [Re: Starhawk]
      #5976460 - 07/17/13 05:36 PM

Quote:

Edd and Bic,

OK, so if someone gave you $1 billion and said, "Go do something with Meade," what would you do?

-Rich




I don't know about him, but I'd throw a big party for whoever remains on the staff, hand out some lovely bonus checks, and head for the Caribbean.


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bicparker
Carpal Tunnel


Reged: 02/07/05

Loc: Texas Hill Country
Re: The plot thickens (Meade takeover) [Re: Starhawk]
      #5976484 - 07/17/13 05:52 PM

Quote:

Edd and Bic,

OK, so if someone gave you $1 billion and said, "Go do something with Meade," what would you do?

-Rich




Well, first I would give $950 million or more back. Put simply, a year's interest on $1 billion would be more than the best net income that Meade ever achieved. It would not be used effectively. I will take the remaining $50 million as my fee.

Second, do a due diligence, and decide if this is even salvageable. This is what the other suitors have done or will do (in the case of MIT Cap and SOI) in their due diligence. It is worth noting that from Meade's accounts, the original guest list of serious suitors invited by Meade (which was not a small list) included a fairly large number that looked at the books and walked away from any deal. They didn't walk away because they thought this was a good deal for an investment or purchase.

Third, assuming it does look like something can be salvaged, do what SOI, JOC, and MIT Cap planned on doing... pay cash and take it private. Meade is not a business that should have ever been a publicly traded company. When you are publicly held, your administrative costs are generally much higher (Meade never could afford this properly). You are also under the microscope of shareholder scrutiny that may or may not give you the flexibility to make strategic (read long term) moves in R&D that that hinge on single product lines. Paying cash will allow the buyer to take the highest advantage of any tax preference items (normally).

Seriously, though, I would stop before the purchase and let SOI/JOC/MIT Cap have it. If I wasn't already in the business, I would not be able to leverage any existing value in my own company to do something with Meade. Right now, that is Meade's best bet. Their inventories are down, their manufacturing capabilities are either outsourced or using old equipment falling into obsolescence. Meade needs a company that already has manufacturing capability and capacity. The best company for this can be found among its competitors who have successfully driven it into the ground.

And thanks for the $50 million!


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Roy McCoy
Pooh-Bah
*****

Reged: 10/13/05

Loc: Glendale, AZ
Re: The plot thickens (Meade takeover) [Re: Starhawk]
      #5976494 - 07/17/13 05:59 PM

Quote:

Be nice. Making fun isn't going to help.

-Rich




Rich, I was responding to the play on my misspelling of the name, not the plight of Meade.


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Whichwayisnorth
Pooh-Bah
*****

Reged: 07/04/11

Loc: Southern California
Re: The plot thickens (Meade takeover) [Re: bicparker]
      #5976502 - 07/17/13 06:02 PM

I guess I better get back to selling my LX850 before there is a fire sale and I'm lucky to get anything for it.

This whole thing is really depressing.


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EFT
Vendor - Deep Space Products
*****

Reged: 05/07/07

Loc: Phoenix, AZ
Re: The plot thickens (Meade takeover) [Re: Whichwayisnorth]
      #5976519 - 07/17/13 06:10 PM

Quote:

I guess I better get back to selling my LX850 before there is a fire sale and I'm lucky to get anything for it.

This whole thing is really depressing.




They actually returned it? I was wondering if you would ever see it again.


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Alph
Carpal Tunnel


Reged: 11/23/06

Loc: Melmac
Re: The plot thickens (Meade takeover) [Re: Whichwayisnorth]
      #5976530 - 07/17/13 06:14 PM

Quote:

I guess I better get back to selling my LX850 before there is a fire sale and I'm lucky to get anything for it.

This whole thing is really depressing.



My advice,

Edited by Cotts (07/18/13 10:04 AM)


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jgraham
Postmaster
*****

Reged: 12/02/04

Loc: Miami Valley Astronomical Soci...
Re: The plot thickens (Meade takeover) [Re: Alph]
      #5976556 - 07/17/13 06:22 PM

Historically, just how accurate have Cloudy Nights prognostications been? Sit back and enjoy the show.

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Whichwayisnorth
Pooh-Bah
*****

Reged: 07/04/11

Loc: Southern California
Re: The plot thickens (Meade takeover) [Re: EFT]
      #5976598 - 07/17/13 06:36 PM

Quote:

Quote:

I guess I better get back to selling my LX850 before there is a fire sale and I'm lucky to get anything for it.

This whole thing is really depressing.




They actually returned it? I was wondering if you would ever see it again.




You and me both.


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geminijk
scholastic sledgehammer


Reged: 04/03/08

Loc: TN
Re: The plot thickens (Meade takeover) [Re: Whichwayisnorth]
      #5976645 - 07/17/13 07:07 PM

I'm shaking my head in disbelief that the JOC offer was dropped. Who is this Sunny Optics???? Do they make anything that we are even somewhat familiar with?

John


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csrlice12
Postmaster
*****

Reged: 05/22/12

Loc: Denver, CO
Re: The plot thickens (Meade takeover) [Re: geminijk]
      #5976694 - 07/17/13 07:44 PM

They make those 750X scopes you see in Walmart at Christmas time. On the plus side, they have a lesser ( for the better) return/repair rate then Meade...

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EddWen
Pooh-Bah


Reged: 04/26/08

Re: The plot thickens (Meade takeover) [Re: Alph]
      #5976695 - 07/17/13 07:44 PM

Alph, you are either naive or trying to mislead people for whatever reason I can't imagine. Go to my post above. Everything quoted in that post in black lettering below the title MANAGENT'S DISCUSSION was written by the Meade guys. Do you really think they were laughing when they wrote it?




[Quote]
Quote:

I guess I better get back to selling my LX850 before there is a fire sale and I'm lucky to get anything for it.

This whole thing is really depressing. [/quote
]
My advice,

Edited by EddWen (07/19/13 12:59 PM)

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jrcrillyAdministrator
Refractor wienie no more
*****

Reged: 04/30/03

Loc: NE Ohio
Re: The plot thickens (Meade takeover) [Re: Whichwayisnorth]
      #5976728 - 07/17/13 08:06 PM

Quote:

I guess I better get back to selling my LX850 before there is a fire sale and I'm lucky to get anything for it.

This whole thing is really depressing.




It's disappointing; the JOC/ES merger sounded pretty good to me. I'll hang onto my LX850, though. There's still no way to know what Meade or its product line will look like when the smoke settles.


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cn register 5
scholastic sledgehammer


Reged: 12/26/12

Re: The plot thickens (Meade takeover) [Re: geminijk]
      #5976731 - 07/17/13 08:06 PM

Quote:

I'm shaking my head in disbelief that the JOC offer was dropped. Who is this Sunny Optics???? Do they make anything that we are even somewhat familiar with?



AIUI the Meade management didn't really have any choice. Their duty is to maximise their shareholder's return and so they didn't have any option but to accept this significantly higher offer.

Chris


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