<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 30, 2000
-OR-
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file 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 BOULEVARD, SUITE 310
SANTA MONICA, CALIFORNIA 90401-1206
(Address of principal executive office, zip code)
(Registrant's telephone number, including area code) (310) 458-1574
Securities registered pursuant to Section 12(b) of the Act
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
No par value Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
or Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X}
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of September 8, 2000, computed by reference to the closing sales
price of such shares on such date was $16,566,215.
The number of shares of registrant's common stock outstanding as of September 8,
2000 was 1,042,867.
DOCUMENTS INCORPORATED BY REFERENCE:
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<CAPTION>
Part of Form 10-K into which
Document Document incorporated
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<S> <C>
Annual Report to Shareowners for the fiscal year ended June 30, 2000 Parts I, II, and IV
Proxy Statement for the Annual Meeting of Shareholders to be held
October 17, 2000 Parts III and IV
</TABLE>
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TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
For the Fiscal Year Ended June 30, 2000
SCOPE INDUSTRIES
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PART I
Page
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Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 7
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures 8
PART III
Item 10. Directors and Executive Officers of the Registrant 8
Item 11. Executive Compensation 8
Item 12. Security Ownership of Certain Beneficial Owners and Management 8
Item 13. Certain Relationships and Related Transactions 8
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 9
Signatures 11
</TABLE>
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PART I
ITEM 1. BUSINESS
Except for the historical information contained in this Annual Report on Form
10-K, the information contained herein constitutes forward looking information
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, including, in particular statements about the Company's plans,
strategies, and prospects. These statements, which may include words such as
"may," "will," "expect," "believe," "intend," "plan," "anticipate," "estimate"
or similar words, are based on the Company's current beliefs, expectations and
assumptions as reflected therein, and are reasonable. The Company's actual
results and financial performance may prove to be very different from what the
Company might have predicted on the date of this Annual Report on Form 10-K.
Some of the risks and uncertainties that might cause such differences are
discussed below and others are discussed under the heading "Risk Factors."
GENERAL DEVELOPMENT AND DESCRIPTION OF BUSINESS
The Registrant was organized in 1938 and incorporated in the State of California
on February 8, 1938. The term "Registrant" for purposes of this Item 1 includes
the subsidiaries of the Registrant, unless the content discloses otherwise. The
Registrant and its subsidiaries have organized its business into principally two
business segments: (1) Waste Material Recycling and (2) Beauty Schools.
OPERATING SEGMENTS
Waste Material Recycling Segment
In this business, the Registrant operates plants for the collection and
processing of bakery waste materials into food supplement for animals. The
Registrant currently operates 14 manufacturing facilities throughout the United
States under the name of Dext Company, International Processing Corporation
("IPC") and ReConserve, Inc. in which animal food supplement is produced.
Principal customers are dairies, feed lots, pet food manufacturers and poultry
farms. The Registrant also owns and operates a plant in Vernon, California,
where bakery waste material is processed and converted into breadcrumbs for
human consumption. The principal customers are pre-packaged and restaurant
supply food processors. This business segment is dependent upon the Registrant's
ability to secure surplus and waste material, which it does under contract with
bakeries and snack food manufacturers. The competition for securing the waste
and surplus material is widespread and intensive. During fiscal 2000, the
Registrant purchased raw material contracts from a competitor in the Chicago
area that significantly increased the raw material supply helping to reduce
processing cost by increasing the efficiency of the new Chicago plant.
The selling price of recycled bakery waste material is affected by fluctuating
commodity prices, primarily corn. Corn commodity prices and the Registrant's
average unit selling prices were approximately 6% and 2% lower in fiscal 2000
respectively, than they were in the prior fiscal year. Sales tonnage volume for
fiscal 2000 increased 118% above the prior year, due primarily to the full year
operations of the IPC facilities compared to only the three-month period
subsequent to its acquisition last year.
The Waste Material Recycling segment contributed 91%, 84% and 80% of the sales
and revenues of the Registrant for fiscal years 2000, 1999 and 1998,
respectively. The Waste Material Recycling segment operated profitability for
fiscal year 1998 but in fiscal 1999 and 2000 the segment operated at a loss.
Capital expenditures for the Waste Material Recycling segment were $6,069,997
and represented 94% of the Registrant's total capital expenditures for fiscal
2000. In fiscal 1999 and 1998, capital expenditures for the Waste Material
Recycling segment was $3,889,838, (94%) and $1,872,305, (71%), respectively, of
those fiscal years. A new manufacturing facility near Chicago was constructed
during fiscal 1999 and 2000; the new plant became operational during the second
fiscal quarter of this year and replaced two former facilities that previously
operated in the Chicago area. A new bakery waste recycling facility is to be
constructed in Georgia and is being partly financed through the issuance of
$6,000,000 in Gainesville
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ITEM 1. BUSINESS. (CONTINUED)
and Hall County Development Authority, State of Georgia tax exempt Industrial
Revenue Bonds. Capital expenditures for expansion and modernization of existing
bakery waste material recycling operations are expected to continue for the next
few years. Cash flows from operations, remaining proceeds from the industrial
revenue bond financing and liquid instrument holdings are expected to be
sufficient to meet fiscal 2001 capital expenditures and operating cash
requirement needs without incurring additional debt.
Vocational School Group Segment
Scope Beauty Enterprises, Inc., doing business as Marinello Schools of Beauty,
is comprised of 12 vocational beauty schools where cosmetology and manicuring
are taught. The schools are located in southern California and Nevada. At its
vocational beauty schools, the Registrant enrolls students who pay tuition to
learn to become cosmetologist or manicurist. Vocational programs and Federal
grants are also utilized for the students' tuition. In addition, members of the
public patronize the schools for hair styling and other cosmetological services,
which are performed by students. There usually are competitive schools available
to the public near each of the Registrant's schools.
This segment has contributed 8%, 16% and 18% of the Registrant's total revenues
for the past three years. In fiscal 2000 and 1998 the segment incurred an
operating loss before income tax benefit of $22,466 and $52,893, respectively,
and in fiscal 1999 the segments operating income before taxes was $53,635.
Other Business
The Registrant owns various oil and gas royalty and working interests. Oil and
gas revenues represent 2% or less of total sales and revenues in fiscal years
2000, 1999 and 1998.
The Registrant owns various real estate, including 207 acres of land in Somis,
Ventura County, California, purchased in 1979. Various options are being
considered for the use or sale of the real estate. The Registrant also owns and
manages various marketable securities, U.S. Treasury Bills and other short-term
investments.
Investment income consists primarily of interest income and gains or losses on
the sale of marketable securities. At June 30, 2000 and June 30, 1999, the
Registrant held $19,100,000 and $15,000,000 par value respectively, in U.S.
Treasury Bills maturing in less than one year. In fiscal 2000, 1999 and 1998,
interest income from Treasury obligations amounted to $732,177, $1,733,642 and
$1,616,585, respectively. Net gains from the sale of securities of $10,186,300
and $23,290,926 were recognized in fiscals 2000 and 1998, respectively. A net
loss of $288,957 was recognized in fiscal 1999. In fiscal 2000, the Registrant
sold all of its excess Emission Reduction Credits realizing a gain of
$3,727,000. The Registrant recognized losses on securities whose decline in
value was deemed to be other than temporary of $423,800 and $299,215 in fiscals
2000 and 1999, respectively.
Impact of Environmental Protection Measures
Certain of the Registrant's activities are affected by federal, state and/or
local air and water pollution control regulations. Compliance with these
regulations has required the purchase and installation of pollution abatement
equipment and adjustment of production procedures. The Registrant has followed a
policy of regular expenditures to assure compliance with such regulations. Air
pollution control equipment to be installed at the soon to be constructed
production facility in Georgia is estimated will cost approximately $1.5
million.
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ITEM 1. BUSINESS. (CONTINUED)
Risk Factors
The market value of Bakery Waste Material recycled into animal food supplement
products is directly tied to commodity prices, primarily corn and some animal
grade fat items that are alternatives to our finished product. As such, the
sales price of our product is directly correlated by the selling prices of the
related commodity items. Historically, over the last 20 years corn prices have
averaged $2.52 per bushel. The past two years has seen the price of corn at its
lowest level in over 11 years. In fiscal 1999 the corn price averaged $2.02 per
bushel and fiscal 2000 corn prices averaged $1.90 per bushel due to record
harvest of corn. Currently, this next year is forecasted to produce another
record corn crop for the American farmers. The average price per bushel of corn
for the month of August 2000 was $1.49.
State government legislates requirements for licensing of beauticians and
manicurists who are trained at our beauty schools. Federal and state government
through its educational assistance programs provide much of the money that
enables the students to obtain the training. Should the federal or state
government change its directions towards licensing requirements or reduce its
student educational assistance programs the beauty schools would be severely
impacted financially.
Employees
The Registrant (including its subsidiaries) employs approximately 433
individuals.
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ITEM 2. PROPERTIES
Principal properties owned by the Registrant are listed below:
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Location Function
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Waste Material Recycling Segment:
Los Angeles, CA Processing Plant
San Jose, CA Processing Plant
Vernon, CA Processing Plant
Lodi, CA Collection Depot
Denver, CO Processing Plant
Conley, GA Processing Plant
Lake City, GA Processing Plant
Hodgkins, IL Processing Plant
Kansas City, KS Processing Plant
Baltimore, MD Processing Plant
Secaucus, NJ Collection Depot
Dallas, TX Processing Plant
Mt. Pleasant, TX Processing Plant
Flowery Branch, GA Processing Plant (to be constructed)
Unimproved Land:
Somis, CA
Riverside, CA
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Principal properties leased by the Registrant are:
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Location Function
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Waste Material Recycling Segment:
Fresno, CA Collection Depot
Terre Haute, IN Processing Plant
Carteret, NJ Processing Plant
Durham, NC Processing Plant
Fairfield, OH Processing Plant
Vocation School Group Segment:
Eleven Southern California Locations Beauty Schools
Las Vegas, Nevada Location Beauty School
Administrative Offices:
Santa Monica, CA
Tucker, GA
</TABLE>
For additional lease information, Note 5 to the Financial Statements in the 2000
Annual Report to Shareowners, page 14, is hereby incorporated by reference.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Registrant, any of
its subsidiaries or any of their property, and none other than routine
litigation incidental to the business, as noted in the 2000 Annual Report to
Shareowners, Note 7 on page 15, which is hereby incorporated by reference.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended June 30, 2000 no matters were
submitted to a vote of the Shareowners of the Registrant, either through the
solicitation of proxies, or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Reference is made to the information with respect to the principal market on
which the Registrant's common stock is being traded, and the high and low sales
prices for each quarterly period for the last two fiscal years set forth on page
2 and outside back cover of the Registrant's 2000 Annual Report to Shareowners
and, by reference, such information is incorporated herein.
The number of holders of record of the Registrant's common stock as of July 31,
2000, based on a listing of the Registrant's Transfer Agent, was 79.
Reference is made to the information regarding the dividends declared during the
past two years with respect to the Registrant's common stock set forth on page 2
of the Registrant's 2000 Annual Report to Shareowners and, by reference, such
information is incorporated herein. Dividends per share were paid in January
2000 ($1.00), and January 1999 ($1.00).
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the financial data with respect to the Registrant set forth
on the inside front cover of the Registrant's 2000 Annual Report to Shareowners
and, by reference, such financial data is incorporated herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Reference is made to Management's Discussion and Analysis of Financial Condition
and Results of Operations set forth on pages 3 to 5 of the Registrant's 2000
Annual Report to Shareowners and, by reference, such information is incorporated
herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Registrant and its
subsidiaries included in its Annual Report to Shareowners for the year ended
June 30, 2000 are incorporated herein by reference:
Consolidated Balance Sheets - June 30, 2000 and 1999.
Consolidated Statements of Operations - Years ended June 30, 2000, 1999
and 1998.
Consolidated Statements of Cash Flows - Years ended June 30, 2000, 1999
and 1998
Consolidated Statements of Shareowners' Equity - Years ended June 30,
2000, 1999 and 1998
Consolidated Statements of Comprehensive Income - Year ended June 30,
2000, 1999 and 1998
Notes to Consolidated Financial Statements
Unaudited Quarterly Financial Data shown on page 2 of the Registrant's 2000
Annual Report to Shareowners for the years ended June 30, 2000 and 1999 is
incorporated herein by reference.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Registrant did not change accountants and there were no disagreements on any
matters involving accounting principles or financial statement disclosures
during the two-year period ended June 30, 2000.
PART III
Reference is made to the definitive Proxy Statement pursuant to Regulation 14A,
which involves the election of directors at the Annual Meeting of Shareowners to
be held on October 17, 2000, which was filed with the Securities and Exchange
Commission on September 12, 2000 and, by such reference, said Proxy Statement is
incorporated herein in response to the information called for by Part III (ITEM
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; ITEM 11. EXECUTIVE
COMPENSATION; ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.)
The following additional information is furnished in response to Item 10:
Executive Officers of the Registrant
The name, age, position and business experience of each of the executive
officers of the Registrant as of June 30, 2000 are listed below:
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Name, Age and Position Business Experience During Past Five Years
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Meyer Luskin, 74 Chairman, President and Chief Executive Officer since
Chairman of the Board, President 1961; responsible primarily for the formation of overall
and Chief Executive Officer corporate policy and oversight of the main business
segments.
Robert E. McMullen, 54 Chief Operating Officer of Waste Material Recycling
President of Subsidiary Segment since April 1999, responsible for the operations
(Scope Products, Inc.) of waste material recycling business. From February
1997 to April 1999, he was President of International
Processing Corporation, a wholly owned subsidiary of
Darling International, Inc. From March 1982 to February
1997, he served in various management positions of
International Processing Corporation and its
predecessor companies.
F. Duane Turney, 53 Chief Operating Officer of Vocational School Group
President of Subsidiary segment since July 1991, responsible for the operations
(Scope Beauty Enterprises, Inc.) of beauty schools.
Eric M. Iwafuchi, 55 Vice President-Finance and Chief Financial Officer since
Vice President-Finance and November, 1999; responsible primarily for the overall
Chief Financial Officer corporate accounting and financial policies and
procedures and a variety of treasury functions. From
1987 to 1999, he was Vice President and Chief Financial
Officer of Concept Enterprises, Inc., a manufacturer,
importer and distributor of consumer electronic products.
Mr. Iwafuchi is a Certified Public Accountant.
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<TABLE>
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Eleanor R. Smith, 68 Controller since 1974, Assistant Secretary, 1978 - 1986,
Secretary, Controller Secretary since 1986, responsible for financial reporting
and Chief Accounting Officer and recording keeping, internal controls, systems and
procedures, as well as corporate secretarial functions.
</TABLE>
Officers are elected by the Board of Directors and serve for a one-year period
and until their successors are elected. No officers have employment contracts
with the Registrant. There are no family relationships among any of the
Registrant's directors and officers.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) The following financial statements of the Registrant, together with the
Independent Auditors' Report, included as part of the Registrant's 2000
Annual Report to Shareowners, on pages 6 through 19 thereof, are
incorporated by reference and filed herewith as part of Item 8 of this
report:
Independent Auditors' Report.
Consolidated Balance Sheets at June 30, 2000 and 1999.
Consolidated Statements of Operations for the years ended June 30, 2000,
1999 and 1998
Consolidated Statements of Cash Flows for the years ended June 30, 2000,
1999 and 1998
Consolidated Statements of Shareowners' Equity for the years ended June
30, 2000, 1999 and 1998
Consolidated Statements of Comprehensive Income for the years ended
June 30, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(2) Independent Auditors' Report on Schedules
(3) Financial Statement Schedule
Schedule II: Valuation and Qualifying Accounts
All other schedules have been omitted as they are not applicable, not
material or the required information is given in the financial
statements or notes thereto.
(b) Registrant did not file any reports on Form 8-K during the fourth quarter
ended June 30, 2000.
(c) Exhibits:
(3.1) Registrant's Restated Articles of Incorporation that was Exhibit No.
3.1 to Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1989 is incorporated herein by this reference.
(3.2) Registrant's By-laws as amended, is being filed as Exhibit 3.2 with
Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 2000.
(10) Material Contracts:
1992 Stock Option Plan, reference is made to Exhibit 4(a) to the
Registrant's Registration Statement on Form S-8 (File No. 33-47053),
and by reference such information is incorporated herein.
(13) Annual Report to Shareowners
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(21) Subsidiaries of Registrant
(22) Proxy Statement for the Annual Meeting of Shareowners to be held on
October 17, 2000, which was filed with the Securities and Exchange
Commission on September 12, 2000, and by reference such information is
incorporated herein in response to the information called for by Part
III (ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; ITEM
11, EXECUTIVE COMPENSATION; ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT; AND ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS.)
(23) Independent Auditors' Consent
(27) Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SCOPE INDUSTRIES
By /s/ Eric M. Iwafuchi September 22, 2000
---------------------- ------------------
Eric M. Iwafuchi Date
Vice President-Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
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<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Meyer Luskin Chairman of the Board, President, September 22, 2000
--------------------------- Chief Executive Officer and ---------------------
Meyer Luskin Director
/s/ Eric M. Iwafuchi Vice President-Finance and September 22, 2000
--------------------------- Chief Financial Officer ---------------------
Eric M. Iwafuchi (Principal Financial Officer)
/s/ Eleanor R. Smith Secretary and Controller September 22, 2000
--------------------------- (Principal Accounting Officer) ---------------------
Eleanor R. Smith
/s/ Babette Heimbuch Director September 22, 2000
--------------------------- ---------------------
Babette Heimbuch
/s/ Robert Henigson Director September 22, 2000
--------------------------- ---------------------
Robert Henigson
/s/ William H. Mannon Director September 22, 2000
--------------------------- ---------------------
William H. Mannon
/s/ Franklin Redlich Director September 22, 2000
--------------------------- ---------------------
Franklin Redlich
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INDEPENDENT AUDITORS' REPORT
Board of Directors and
Shareowners
Scope Industries
Santa Monica, California
We have audited the consolidated financial statements of Scope Industries and
subsidiaries as of June 30, 2000 and 1999, and for each of the three years in
the period ended June 30, 2000, and have issued our report thereon dated August
28, 2000; such financial statements and report are included in the 2000 Annual
Report to Shareowners and are incorporated herein by reference. Our audits also
included the financial statement schedule of Scope Industries and subsidiaries,
listed in Item 14 (a) (3). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based upon our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
Los Angeles, California
August 28, 2000
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SCOPE INDUSTRIES AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
JUNE 30, 2000
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<CAPTION>
Balance at Charged to Charged to Balance at
Beginning Cost Other End of
Description of Period Expenses Accounts Deductions Period
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Year Ended June 30, 2000:
Allowance for doubtful accounts-
Accounts receivable $484,885 $174,120 $ 0 $ 13,102(b) $645,903
Year Ended June 30, 1999:
Allowance for doubtful accounts-
Accounts receivable $205,318 $188,658 $194,987(a) $104,078(b) $484,885
Year Ended June 30, 1998:
Allowance for doubtful accounts-
Accounts receivable $159,167 $116,297 $ 0 $ 70,147(b) $205,318
</TABLE>
(a) Valuation allowances received upon the acquisition of International
Processing Corporation.
(b) Uncollectable accounts charged against allowance, net.
