<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
December 31, 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 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 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 January 25, 1996
-------------------------- -------------------------------
Common Stock, no par value 1,231,565
</TABLE>
<PAGE> 2
SCOPE INDUSTRIES AND SUBSIDIARIES
INDEX
Page
----
Part I. Financial Information:
Consolidated Balance Sheets -
December 31, 1995 and June 30, 1995 3
Consolidated Statements of Income -
Three Months Ended
December 31, 1995 and 1994 4
Consolidated Statements of Income -
Six Months Ended
December 31, 1995 and 1994 5
Consolidated Statements of Cash Flows -
Six Months Ended
December 31, 1995 and 1994 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Results of Operations and
Financial Condition 8
Part II. Other Information:
Item 2. Increases and Decreases in
Outstanding Securities and
Indebtedness 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
SCOPE INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1995 1995
----------- ---------
<S> <C> <C>
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 824,805 $ 242,794
Treasury bills (par value $4,790,000 at
December 31, 1995 and $2,290,000 at
June 30, 1995) 4,716,633 2,258,883
Accounts and notes receivable, less allowance
for doubtful accounts of $132,800 at
December 31, 1995 and $298,834
at June 30, 1995 2,461,670 2,256,766
Inventories 332,790 423,177
Prepaid expenses and other current assets 909,085 1,109,106
----------- -----------
TOTAL CURRENT ASSETS 9,244,983 6,290,726
----------- -----------
NOTES RECEIVABLE 3,670,720 3,474,398
----------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Machinery and equipment 21,976,329 21,162,104
Land, buildings and improvements 9,621,492 10,272,459
----------- -----------
31,597,821 31,434,563
Less accumulated depreciation
and amortization 20,653,987 20,210,689
----------- -----------
10,943,834 11,223,874
----------- -----------
OTHER ASSETS:
Deferred charges and other assets 152,855 423,266
Investments 25,169,850 21,656,014
----------- -----------
25,322,705 22,079,280
----------- -----------
$49,182,242 $43,068,278
=========== ===========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 344,516 $ 61,746
Accounts payable 1,009,292 899,372
Other accrued liabilities 1,865,313 1,196,004
Accrued payroll and related
employee benefits 898,721 414,707
Income taxes payable 459,236 192,836
----------- -----------
TOTAL CURRENT LIABILITIES 4,577,078 2,764,665
----------- -----------
DEFERRED INCOME TAXES 990,000
-----------
SHAREOWNERS' EQUITY:
Common stock, no par value, 5,000,000 shares
authorized; shares issued and outstanding
December 31, 1995 1,232,565
June 30, 1995 1,244,865 3,921,287 3,921,287
Retained earnings 28,881,903 27,874,671
Net unrealized gain on investments 10,811,974 8,507,655
----------- -----------
43,615,164 40,303,613
----------- -----------
$49,182,242 $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
DECEMBER 31
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
REVENUES:
Sales $6,327,743 $4,736,371
Vocational school revenues 1,199,997 999,614
---------- ----------
7,527,740 5,735,985
---------- ----------
OPERATING COSTS AND EXPENSES:
Cost of sales 3,736,452 3,191,205
Vocational school expenses 848,017 889,308
Depreciation and amortization 535,719 564,217
General and administrative 1,160,740 995,389
---------- ----------
6,280,928 5,640,119
---------- ----------
1,246,812 95,866
OTHER INCOME:
Investment and other income 169,205 164,912
---------- ----------
Income before taxes 1,416,017 260,778
Provision for income taxes 530,000 19,400
---------- ----------
NET INCOME $ 886,017 $ 241,378
========== ==========
INCOME PER SHARE $ 0.72 $ 0.19
========== ==========
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.50 $ 0.35
Weighted average number of shares
outstanding 1,234,775 1,257,686
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE> 5
SCOPE INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
REVENUES:
Sales $12,011,819 $ 9,592,977
Vocational school revenues 2,386,102 1,961,432
----------- -----------
14,397,921 11,554,409
----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales 7,174,613 6,302,167
Vocational school expenses 1,731,368 1,810,983
Depreciation and amortization 1,060,825 1,132,055
General and administrative 2,383,558 2,091,693
----------- -----------
12,350,364 11,336,898
----------- -----------
2,047,557 217,511
OTHER INCOME:
Investment and other income 904,833 353,237
----------- -----------
Income before taxes 2,952,390 570,748
Provision for income taxes 980,000 30,000
----------- -----------
NET INCOME $ 1,972,390 $ 540,748
=========== ===========
INCOME PER SHARE $ 1.59 $ 0.43
=========== ===========
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.50 $ 0.35
Weighted average number of shares
outstanding 1,239,064 1,259,079
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE> 6
SCOPE INDUSTRIES AND SUBSDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,972,390 $ 540,748
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 1,060,825 1,132,055
(Gains) losses on investments (73,984) (19,910)
(Gains) losses on sale of equipment (20,814) (31,656)
Deferred income taxes (210,000)
Changes in operating assets and liabilities:
Accounts and notes receivable (171,226) (395,044)
Inventories 90,387 8,003
Prepaid expenses and other current assets 200,021 28,212
Accounts payable and accrued liabilities 1,263,243 600,586
Income taxes payable 266,400 22,205
----------- -----------
Net cash flows from operating activities 4,377,242 1,885,199
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of U.S. Treasury bills (6,287,750) (2,007,259)
Maturities or dispositions of U.S.
Treasury bills 3,830,000 2,997,883
Purchase of property and equipment (1,123,612) (1,077,134)
Disposition of property and equipment 386,241 796,163
Purchase of long-term notes receivable (230,000)
Purchase of non-current investments (1,742,044) (2,277,955)
Disposition of non-current investments 2,071,511 410,910
Other (17,189)
----------- -----------
Net cash flows used in investing activities (3,112,843) (1,157,392)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to shareowners (616,783) (439,123)
Repurchase of common stock (348,375) (173,155)
Change in bank overdraft 282,770 (112,994)
----------- -----------
Net cash flows used in financing activities (682,388) (725,272)
----------- -----------
Net change in cash and cash equivalents 582,011 2,535
Cash and cash equivalents at beginning
of period 242,794 30,397
----------- -----------
Cash and cash equivalents at end of period $ 824,805 $ 32,932
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE> 7
SCOPE INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 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 December 31, 1995 and June 30, 1995,
and the results of its operations for the three and six months ended
December 31, 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>
December 31 June 30
1995 1995
----------- ----------
<S> <C> <C>
Finished products $ 83,358 $116,711
Raw materials 43,311 125,642
Operating supplies 206,121 180,824
-------- --------
$332,790 $423,177
======== ========
</TABLE>
4. In the six month period ended December 31, 1995, net unrealized holding
gains on investments increased by $2,304,319 and were $10,811,974 (net of
deferred income taxes of $1,465,000) at December 31, 1995.
<TABLE>
<CAPTION>
Amount At Which
Carried On The
Balance Sheet
December 31, 1995
-----------------
<S> <C>
Held To Maturity Securities
(Cost $650,425; Market $641,969) $ 650,425
Available For Sale Securities
(Cost $12,242,451; Market $24,519,425) 24,519,425
-----------
$25,169,850
===========
</TABLE>
-7-
<PAGE> 8
SCOPE INDUSTRIES AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
For the second quarter ended December 31, 1995, net income was $886,017 or
$0.72 per share compared to $241,378 or $0.19 per share for the same quarter
last year. Total revenues for the second quarter were 31% greater than the
revenues 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 36% from last year's
comparable quarter due primarily to higher selling prices for animal feed
products. Vocational School Group revenues were 20% 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 were contained at a lower level than expenses for
the prior year's comparable quarter. General and Administrative expenses
increased 17%. Legal expenses were higher in the current quarter than in the
comparable quarter last year. During this year's second quarter both business
segments operated profitably. During the second quarter of last fiscal year,
the Waste Material Recycling segment operated profitably and the Vocational
School Group business operated at a loss.
For the six months ended December 31, 1995, net income was $1,972,390 or $1.59
per share. Last year net income was $540,748 or $0.43 per share for the
comparable six months. Revenues for the six months ended December 31, 1995
were 25% greater than for the comparable six months last year. The Waste
Material Recycling segment and the Vocational School Group both operated
profitably for the current six month period. During the comparable six month
period last year, the Waste Material Recycling segment operated profitably and
the Vocational School Group business operated at a loss.
FINANCIAL POSITION
Working Capital was $4,677,905 at December 31, 1995. It was $3,526,061 at June
30, 1995. The working capital ratio at December 31, 1995 was 2.0 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 December 31, 1995, investments include $12,276,974 unrealized
gains based on fair values that exceed adjusted costs for certain securities.
Shareowners' equity under the provisions SFAS 115 reflects $10,811,974 net
unrealized gain on investments after a reduction for estimated income tax
liability.
TAXES
The provision for income taxes for the quarter ended December 31, 1995 is
$530,000 and represents an effective rate of 37.4% for federal and state income
taxes. For the second quarter of last fiscal year, the income tax provision
was $19,400 and the effective tax rate was 7.4%. For the six months ended
December 31, 1995 and 1994, the effective income tax rates were 33.2% and 5.3%
respectively. Most available tax loss carryforwards were utilized and
exhausted in the prior fiscal year. The current fiscal year income, with minor
exceptions, is subject to income taxes without adjustments for loss
carryforwards.
-8-
<PAGE> 9
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 six months
ending December 31, 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 six months (12,300)
---------
Shares outstanding December 31, 1995 1,232,565
=========
</TABLE>
A corporate resolution requires the retirement of all reacquisitions of common
stock. During the six months ended December 31, 1995, the Registrant purchased
and retired 12,300 shares of common stock at a cost of $348,375.
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits - None
(B) No Form 8-K was filed for the quarter ended
December 31, 1995.
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)
DATE: February 9, 1996 /s/ John J. Crowley
--------------------- -------------------------------
John J. Crowley, Vice President
and Chief Financial Officer
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE QUARTER ENDED DECEMBER 31, 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> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 824,805
<SECURITIES> 25,169,850
<RECEIVABLES> 2,461,670
<ALLOWANCES> 132,800
<INVENTORY> 332,790
<CURRENT-ASSETS> 9,244,983
<PP&E> 31,597,821
<DEPRECIATION> 20,653,987
<TOTAL-ASSETS> 49,182,242
<CURRENT-LIABILITIES> 4,577,078
<BONDS> 0
0
0
<COMMON> 3,921,287
<OTHER-SE> 39,693,877
<TOTAL-LIABILITY-AND-EQUITY> 49,182,242
<SALES> 6,327,743
<TOTAL-REVENUES> 7,527,740
<CGS> 3,736,452
<TOTAL-COSTS> 6,280,928
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,416,017
<INCOME-TAX> 530,000
<INCOME-CONTINUING> 886,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 886,017
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
</TABLE>
