<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
For the Quarter Ended Commission File
March 31, 1996 Number 1-3552
-------------- -------------
SCOPE INDUSTRIES
(Exact name of Registrant as specified in its charter)
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
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.
Class Outstanding at April 18, 1996
- -------------------------- -----------------------------
Common Stock, no par value 1,212,565
<PAGE> 2
SCOPE INDUSTRIES AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I. Financial Information:
Consolidated Balance Sheets -
March 31, 1996 and June 30, 1995 3
Consolidated Statements of Income -
Three Months Ended
March 31, 1996 and 1995 4
Consolidated Statements of Income -
Nine Months Ended
March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows -
Nine Months Ended
March 31, 1996 and 1995 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
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
SCOPE INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
1996 1995
----------- ----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,044,126 $ 242,794
Treasury bills (par value $5,035,000 at
March 31, 1996 and $2,290,000 at
June 30, 1995) 4,993,162 2,258,883
Accounts and notes receivable, less allowance
for doubtful accounts of $118,857 at
March 31, 1996 and $298,834 at June 30, 1995 2,060,199 2,256,766
Inventories 478,057 423,177
Prepaid expenses and other current assets 888,033 1,109,106
----------- -----------
TOTAL CURRENT ASSETS 10,463,577 6,290,726
----------- -----------
NOTES RECEIVABLE 3,662,258 3,474,398
----------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Machinery and equipment 21,630,955 21,162,104
Land, buildings and improvements 9,626,935 10,272,459
----------- -----------
31,257,890 31,434,563
Less accumulated depreciation
and amortization 20,471,738 20,210,689
----------- -----------
10,786,152 11,223,874
----------- -----------
OTHER ASSETS:
Deferred charges and other assets 140,096 423,266
Investments 27,721,162 21,656,014
----------- -----------
27,861,258 22,079,280
----------- -----------
$52,773,245 $43,068,278
=========== ===========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 98,767 $ 61,746
Accounts payable 1,184,100 899,372
Other accrued liabilities 1,344,855 1,196,004
Accrued payroll and related
employee benefits 1,013,554 414,707
Income taxes payable 955,385 192,836
----------- -----------
TOTAL CURRENT LIABILITIES 4,596,661 2,764,665
----------- -----------
DEFERRED INCOME TAXES 1,940,000
-----------
SHAREOWNERS' EQUITY:
Common stock, no par value, 5,000,000 shares
authorized; shares issued and outstanding
March 31, 1996 1,231,365
June 30, 1995 1,244,865 3,921,287 3,921,287
Retained earnings 29,786,001 27,874,671
Net unrealized gain on investments 12,529,296 8,507,655
----------- -----------
46,236,584 40,303,613
----------- -----------
$52,773,245 $43,068,278
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 4
SCOPE INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------
1996 1995
------------ ------------
<S> <C> <C>
REVENUES:
Sales $ 5,913,408 $ 4,525,933
Vocational school revenues 1,136,612 1,010,546
----------- -----------
7,050,020 5,536,479
----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales 3,383,687 3,229,555
Vocational school expenses 847,414 853,975
Depreciation and amortization 544,520 551,479
General and administrative 1,042,498 875,755
----------- -----------
5,818,119 5,510,764
----------- -----------
1,231,901 25,715
OTHER INCOME:
Investment and other income 322,062 289,106
----------- -----------
Income before taxes 1,553,963 314,821
Provision for income taxes 610,000 30,000
----------- -----------
NET INCOME $ 943,963 $ 284,821
=========== ===========
NET INCOME PER SHARE $ 0.76 $ 0.23
=========== ===========
Weighted average number of shares
outstanding 1,236,173 1,253,651
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 5
SCOPE INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
--------
1996 1995
------------ ------------
<S> <C> <C>
REVENUES:
Sales $17,925,227 $14,118,910
Vocational school revenues 3,522,714 2,971,978
----------- -----------
21,447,941 17,090,888
----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales 10,558,300 9,531,722
Vocational school expenses 2,578,782 2,664,958
Depreciation and amortization 1,605,345 1,683,534
General and administrative 3,426,056 2,967,448
----------- -----------
18,168,483 16,847,662
----------- -----------
3,279,458 243,226
OTHER INCOME:
Investment and other income 1,226,895 642,343
----------- -----------
Income before taxes 4,506,353 885,569
Provision for income taxes 1,590,000 60,000
----------- -----------
NET INCOME $ 2,916,353 $ 825,569
=========== ===========
NET INCOME PER SHARE $ 2.36 $ 0.66
=========== ===========
CASH DIVIDENDS PAID PER COMMON SHARE $ 0.50 $ 0.35
Weighted average number of shares
outstanding 1,237,805 1,257,372
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 6
SCOPE INDUSTRIES AND SUBSDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
--------
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 2,916,353 $ 825,569
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 1,605,345 1,683,534
(Gains) losses on investments (89,052) (12,232)
(Gains) losses on sale of equipment (47,470) (53,330)
Deferred income taxes (295,000) (75,000)
Changes in operating assets and liabilities:
Accounts and notes receivable 238,707 501,662
Inventories (54,880) (1,243)
Prepaid expenses and other current assets 221,073 (324,492)
Accounts payable and accrued liabilities 1,032,426 (64,529)
Income taxes payable 762,549 83,282
----------- -----------
Net cash flows from operating activities 6,290,051 2,563,221
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of U.S. Treasury bills (8,104,279) (2,992,392)
Maturities or dispositions of U.S.
Treasury bills 5,370,000 4,295,159
Purchase of property and equipment (1,499,150) (1,781,742)
Disposition of property and equipment 412,897 967,464
Purchase of long-term notes receivable (230,000)
Purchase of non-current investments (1,805,371) (2,639,729)
Disposition of non-current investments 2,350,916 1,065,782
Other (15,730)
----------- -----------
Net cash flows used in investing activities (3,520,717) (1,085,458)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to shareowners (616,783) (439,088)
Repurchase of common stock (388,240) (210,668)
Change in bank overdraft 37,021 (201,912)
----------- -----------
Net cash used in financing activities (968,002) (851,668)
----------- -----------
Net change in cash and cash equivalents 1,801,332 626,095
Cash and cash equivalents at beginning
of period 242,794 30,397
------------ ------------
Cash and cash equivalents at end of period $ 2,044,126 $ 656,492
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 7
SCOPE INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
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 March 31, 1996 and June 30, 1995, and
the results of its operations for the three and nine months ended March 31,
1996 and 1995. 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>
March 31 June 30
1996 1995
---- ----
<S> <C> <C>
Finished products $ 192,610 $ 116,711
Raw materials 85,286 125,642
Operating supplies 200,161 180,824
---------- ----------
$ 478,057 $ 423,177
========== ==========
</TABLE>
4. In the nine month period ended March 31, 1996, net unrealized holding gains
on investments increased by $4,021,641 and were $12,529,296 (net of deferred
income taxes of $2,500,000) at March 31, 1996.
<TABLE>
<CAPTION>
Amount At Which
Carried On The
Balance Sheet
March 31, 1996
--------------
<S> <C>
Held To Maturity Securities
(Cost $650,425; Market $632,975) $ 650,425
Available For Sale Securities
(Cost $12,041,441 ; Market $27,070,737) 27,070,737
-----------
$27,721,162
===========
</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 third quarter ended March 31, 1996, net income was $943,963 or $0.76
per share compared to $284,821 or $0.23 per share for the same quarter last
year. Total revenues for the third quarter were 27% 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 32% from last year's comparable
quarter. Higher selling prices for animal feed products are driving the
revenue growth. Vocational School Group revenues were 12% 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 the same level as
expenses for the prior year's comparable quarter. General and Administrative
expenses increased 19%. Legal expenses and profit sharing provisions were
higher in the current quarter than in the comparable quarter last year. During
this year's third quarter, both business segments operated profitably. During
the third quarter of last fiscal year, the Waste Material Recycling segment
operated profitably and the Vocational School Group business operated at a
loss.
For the nine months ended March 31, 1996, net income was $2,916,353 or $2.36
per share. Last year net income was $825,569 or $0.66 per share for the
comparable nine months. Revenues for the nine months ended March 31, 1996 were
25% greater than for the comparable nine months last year. The Waste Material
Recycling segment and the Vocational School Group both operated profitably for
the current nine month period. During the comparable 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 $5,866,916 at March 31, 1996. It was $3,526,061 at June
30, 1995. The working capital ratio was 2.3 at March 31, 1996 and at June 30,
1995.
Investments are accounted for under Statement of Financial Accounting Standards
No. 115 (SFAS 115) "Accounting For Certain Investments in Debt and Equity
Securities". At March 31, 1996, investments include $15,029,296 in unrealized
gains based on fair values that exceed adjusted costs for certain securities.
Shareowners' equity under the provisions of SFAS 115 reflects $12,529,296 net
unrealized gain on investments after a provision for deferred income taxes.
TAXES
The provision for income taxes for the quarter ended March 31, 1996 is $610,000
and represents an effective rate of 39.3% for federal and state income taxes.
For the third quarter of last fiscal year, the income tax provision was $30,000
and the effective tax rate was 9.5%. For the nine months ended March 31, 1996
and 1995, the effective income tax rates were 35.3% and 6.8% 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 nine months
ending March 31, 1996 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 nine months (13,500)
---------
Shares outstanding March 31, 1996 1,231,365
=========
</TABLE>
A corporate resolution requires the retirement of all reacquisitions of common
stock. During the nine months ended March 31, 1996, the Registrant purchased
and retired 13,500 shares of common stock at a cost of $388,240.
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits - None
(B) No Form 8-K was filed for the quarter ended March 31, 1996.
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: May 8, 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 MARCH 31, 1996 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE QUARTER ENDED MARCH 31, 1996 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> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,044,126
<SECURITIES> 27,721,162
<RECEIVABLES> 2,060,199
<ALLOWANCES> 118,857
<INVENTORY> 478,057
<CURRENT-ASSETS> 10,463,577
<PP&E> 31,257,890
<DEPRECIATION> 20,471,738
<TOTAL-ASSETS> 52,773,245
<CURRENT-LIABILITIES> 4,596,661
<BONDS> 0
0
0
<COMMON> 3,921,287
<OTHER-SE> 42,315,297
<TOTAL-LIABILITY-AND-EQUITY> 52,773,245
<SALES> 5,913,408
<TOTAL-REVENUES> 7,050,020
<CGS> 3,383,687
<TOTAL-COSTS> 5,818,119
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,553,963
<INCOME-TAX> 610,000
<INCOME-CONTINUING> 943,963
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 943,963
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.76
</TABLE>