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<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the Quarter Ended Commission File
September 30, 1995 Number 1-3552
</TABLE>
SCOPE INDUSTRIES
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
California 95-1240976
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
233 Wilshire Blvd., Ste.310, Santa Monica, CA 90401
(Address of principal executive office) (ZIP Code)
Registrant's telephone number, including area code (310) 458-1574
</TABLE>
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 preceeding 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class Outstanding at October 27, 1995
- -------------------------- -------------------------------
Common Stock, no par value 1,233,565
</TABLE>
<PAGE> 2
SCOPE INDUSTRIES AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Part I. Financial Information:
Consolidated Balance Sheets -
September 30, 1995 and June 30, 1995 3
Consolidated Statements of Income -
Three Months Ended
September 30, 1995 and 1994 4
Consolidated Statements of Cash Flows -
Three Months Ended
September 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Results of Operations and
Financial Condition 7
Part II. Other Information:
Item 2. Increases and Decreases in
Outstanding Securities and
Indebtedness 8
Item 4. Submission of Matters to a Vote of
Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
</TABLE>
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
SCOPE INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30
1995 1995
----------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 637,677 $ 242,794
Treasury bills (par value $4,790,000 at
September 30, 1995 and $2,290,000 at
June 30, 1995) 4,712,445 2,258,883
Accounts and notes receivable, less allowance
for doubtful accounts of $289,939 at
September 30, 1995 and $298,834 at June 30, 1995 2,140,747 2,256,766
Inventories 534,185 423,177
Prepaid expenses and other current assets 999,225 1,109,106
----------- -----------
TOTAL CURRENT ASSETS 9,024,279 6,290,726
----------- -----------
NOTES RECEIVABLE 3,616,153 3,474,398
----------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Machinery and equipment 21,613,309 21,162,104
Land, buildings and improvements 9,779,113 10,272,459
----------- -----------
31,392,422 31,434,563
Less accumulated depreciation
and amortization 20,402,428 20,210,689
----------- -----------
10,989,994 11,223,874
----------- -----------
OTHER ASSETS:
Deferred charges and other assets 136,771 423,266
Investments 24,160,231 21,656,014
----------- -----------
24,297,002 22,079,280
----------- -----------
$47,927,428 $43,068,278
=========== ===========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 232,630 $ 61,746
Accounts payable 985,981 899,372
Other accrued liabilities 1,236,163 1,196,004
Accrued payroll and related
employee benefits 762,930 414,707
Income taxes payable 607,186 192,836
----------- -----------
TOTAL CURRENT LIABILITIES 3,824,890 2,764,665
----------- -----------
DEFERRED INCOME TAXES 1,065,000
-----------
SHAREOWNERS' EQUITY:
Common stock, no par value, 5,000,000 shares
authorized; shares issued and outstanding
September 30, 1995 1,233,565
June 30, 1995 1,244,865 3,921,287 3,921,287
Retained earnings 28,644,419 27,874,671
Net unrealized gain on investments 10,471,832 8,507,655
----------- -----------
43,037,538 40,303,613
----------- -----------
$47,927,428 $43,068,278
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE> 4
SCOPE INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
------------------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUES:
Sales $ 5,684,076 $ 4,856,606
Vocational school revenues 1,186,105 961,818
----------- -----------
6,870,181 5,818,424
----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales 3,438,161 3,110,962
Vocational school expenses 883,351 921,675
Depreciation and amortization 525,106 567,838
General and administrative 1,222,818 1,096,304
----------- -----------
6,069,436 5,696,779
----------- -----------
800,745 121,645
OTHER INCOME:
Investment and other income 735,628 188,325
----------- -----------
Income before taxes 1,536,373 309,970
Provision for income taxes 450,000 10,600
----------- -----------
NET INCOME $ 1,086,373 $ 299,370
=========== ===========
INCOME PER SHARE $ 0.87 $ 0.24
=========== ===========
Weighted average number of shares
outstanding 1,242,134 1,260,811
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE> 5
SCOPE INDUSTRIES AND SUBSDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
------------------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,086,373 $ 299,370
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 525,106 567,838
(Gains) losses on investments (482,347) 3,774
(Gains) losses on sale of equipment (2,718) (31,113)
Deferred income taxes (20,000) 4,803
Changes in operating assets and liabilities:
Accounts and notes receivable 126,264 (525,205)
Inventories (111,008) (54,304)
Prepaid expenses and other current assets 109,881 76,030
Accounts payable and accrued liabilities 474,991 (62,584)
Income taxes payable 414,350 8,405
----------- -----------
Net cash flows from operating activities 2,120,892 287,014
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of U.S. Treasury bills (3,743,562) (1,734,088)
Maturities or dispositions of U.S.
Treasury bills 1,290,000 1,750,000
Purchase of property and equipment (562,386) (320,964)
Disposition of property and equipment 285,178 784,970
Purchase of non-current investments (573,000) (708,807)
Disposition of non-current investments 1,865,307 387,226
Other assets (141,805)
----------- -----------
Net cash flows from (used in) investing activities (1,580,268) 158,337
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (316,625) (25,525)
Change in bank overdraft 170,884 (169,944)
----------- -----------
Net cash used in financing activities (145,741) (195,469)
----------- -----------
Net change in cash and cash equivalents 394,883 249,882
Cash and cash equivalents at beginning
of period 242,794 30,397
----------- -----------
Cash and cash equivalents at end of period $ 637,677 $ 280,279
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE> 6
SCOPE INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995
1. In the opinion of the Registrant, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly Scope
Industries' financial position as of September 30, 1995 and June 30,
1995, and the results of its operations for the three months ended
September 30, 1995 and 1994. The accounting policies followed by the
Registrant are set forth in Note 1 of its financial statements in the
1995 Scope Industries Annual Report which is incorporated by reference
on Form 10-K.
2. Quarterly results of operations are not necessarily indicative of the
results to be expected for the full year.
3. Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30 June 30
1995 1995
------------ --------
<S> <C> <C>
Finished products $171,585 $116,711
Raw materials 158,816 125,642
Operating supplies 203,784 180,824
-------- --------
$534,185 $423,177
======== ========
</TABLE>
4. In the three month period ended September 30, 1995, net unrealized
holding gains on investments increased by $1,964,177 and were
$10,471,832 (net of deferred income taxes of $1,350,000) at September
30, 1995.
<TABLE>
<CAPTION>
Amount At Which
Carried On The
Balance Sheet
September 30, 1995
------------------
<S> <C>
Held To Maturity Securities
(Cost $828,425; Market $787,981) $ 828,425
Available For Sale Securities
(Cost $11,509,974 ; Market $23,331,806) 23,331,806
-----------
$24,160,231
===========
</TABLE>
-6-
<PAGE> 7
SCOPE INDUSTRIES AND SUBSIDIARIES
OF OPERATIONS AND FINANCIAL CONDITIONS
(UNAUDITED)
RESULTS OF OPERATIONS
For the quarter ended September 30, 1995, net income was $1,086,373 or $0.87
per share compared to $299,370 or $0.24 per share for the same quarter last
year.
Total revenue for the quarter ended September 30, 1995 was 18% greater than the
revenue for the same quarter last year. Both the Waste Material Recycling
segment and the Vocational School Group business experienced increased sales
and revenues. Waste Material Recycling sales increased 18% from last year's
comparable quarter due primarily to higher selling prices. Vocational School
Group revenues were 23% above the year earlier quarter as a result of increased
student enrollments. Operating costs for the Waste Material Recycling segment
increased compared to the same quarter of last year but the increase was at a
lesser rate than the revenue gain. Vocational School Group operating costs for
the current quarter were lower than costs for the prior year's first quarter.
General and Administrative expenses increased 12%. Legal expenses were higher
in the current quarter than in the comparable quarter last year. During this
year's first quarter, both business segments operated profitably. During the
first quarter of last fiscal year, the Waste Material Recycling segment
operated profitably and the Vocational School Group business operated at a
loss.
FINANCIAL POSITION
Working Capital increased to $5,199,389 at September 30, 1995. It was
$3,526,061 at June 30, 1995. The working capital ratio at September 30, 1995
is 2.4 and at June 30, 1995 was 2.3.
Investments are accounted for under Statement of Financial Accounting Standards
No. 115 (SFAS 115) "Accounting For Certain Investments in Debt and Equity
Securities". At September 30, 1995, investments include $11,821,832 in
unrealized gains based on fair values that exceed adjusted costs for certain
securities. Shareowners' equity under the provisions of SFAS 115 reflects net
unrealized gain on investments of $10,471,832 after a provision for deferred
income taxes.
TAXES
The provision for income taxes for the quarter ended September 30, 1995 is
$450,000 and represents an effective rate of 29.3% for federal and state income
taxes. For the first quarter of the previous fiscal year, the income tax
provision was $10,600 and the effective tax rate was 3.4%. Available tax loss
carryforwards were more extensive for the first quarter of the prior fiscal
year than are available currently.
-7-
<PAGE> 8
SCOPE INDUSTRIES AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 2. Increases and Decreases in Outstanding Securities and Indebtedness.
Increases and decreases in outstanding equity securities in the three months
ending September 30, 1995, were as follows:
<TABLE>
<CAPTION>
Common Stock
No Par Value
------------
<S> <C>
Shares outstanding June 30, 1995 1,244,865
Shares purchased and retired
during the three months (11,300)
---------
Shares outstanding September 30, 1995 1,233,565
=========
</TABLE>
A corporate resolution requires the retirement of all
reacquisitions of common stock. During the three months ended
September 30, 1995, the Registrant purchased and retired 11,300
shares of common stock at a cost of $316,625.
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of shareowners held on October 24, 1995 with
1,244,565 shares entitled to vote, five directors were elected to
serve for the ensuing year and until their successors have been
elected and qualified.
<TABLE>
<CAPTION>
VOTES VOTES VOTES
DIRECTORS FOR AGAINST WITHHELD TOTAL
--------- ----- ------- -------- -----
<S> <C> <C> <C> <C>
Richard L. Fruin, Jr 1,144,114 -0- 4,791 1,148,905
Meyer Luskin 1,144,114 -0- 4,791 1,148,905
William H. Mannon 1,144,114 -0- 4,791 1,148,905
Franklin Redlich 1,144,114 -0- 4,791 1,148,905
Paul D. Saltman 1,143,864 -0- 5,041 1,148,905
</TABLE>
Item 5. Other Information.
On October 24, 1995 the Registrant's board of directors declared a dividend
of $0.50 per share payable on January 8, 1996 to shareowners of record at
December 1, 1995.
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits - None
(B) No Form 8-K was filed for the quarter ended
September 30, 1995.
-8-
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized and accepting
responsibility as the signatory.
SCOPE INDUSTRIES
(Registrant)
<TABLE>
<S> <C> <C>
DATE: November 9, 1995 /s/ John J. Crowley
----------------------- -----------------------------------
John J. Crowley, Vice President
and Chief Financial Officer
</TABLE>
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1995 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE QUARTER ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 637,677
<SECURITIES> 24,160,231
<RECEIVABLES> 2,140,747
<ALLOWANCES> 289,930
<INVENTORY> 534,185
<CURRENT-ASSETS> 9,024,279
<PP&E> 31,392,422
<DEPRECIATION> 20,402,428
<TOTAL-ASSETS> 47,927,428
<CURRENT-LIABILITIES> 3,824,890
<BONDS> 0
<COMMON> 3,921,287
0
0
<OTHER-SE> 39,116,251
<TOTAL-LIABILITY-AND-EQUITY> 47,927,428
<SALES> 5,684,076
<TOTAL-REVENUES> 6,870,181
<CGS> 3,438,161
<TOTAL-COSTS> 6,069,436
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,536,373
<INCOME-TAX> 450,000
<INCOME-CONTINUING> 1,086,373
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,086,373
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
</TABLE>
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