UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended December 31, 2001

-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
(State or other jurisdiction of
incorporation or organization) 95-1240976
(I.R.S. Employer
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

(Former name, former address and former fiscal year, if changed since last report.)

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

The number of shares of registrant’s common stock outstanding at February 6, 2002 was 1,029,267.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
PART II. OTHER INFORMATION
	Item 2. Increases and Decreases in Outstanding Securities and Indebtedness.
	Item 5. Other Information.
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES

SCOPE INDUSTRIES AND SUBSIDIARIES

INDEX

		Page
Part I	Financial Information:
	Consolidated Balance Sheets - December 31, 2001 and June 30, 2001	3
	Consolidated Statements of Operations - Three Months Ended December 31, 2001 and 2000	4
	Consolidated Statements of Operations - Six Months Ended December 31, 2001 and 2000	5
	Consolidated Statements of Cash Flows - Six Months Ended December 31, 2001 and 2000	6
	Notes to Consolidated Financial Statements	7
	Management’s Discussion and Analysis of Results of Operations and Financial Condition	9
Part II	Other Information:
Item 2.	Increases and Decreases in Outstanding Securities and Indebtedness	12
Item 4.	Submission of Matters to a Vote of Security Holders	12
Item 5	Other Information	12
Item 6.	Exhibits and Reports on Form 8-K	12
	Signatures	13

2

PART I. FINANCIAL INFORMATION
SCOPE INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

			December 31,		June 30,
			2001		2001
			(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents		$	3,884,847	$	563,234
	Treasury bills available for sale-at fair value			4,983,165		9,926,527
	Accounts and notes receivable, less allowance for doubtful accounts of $679,817 at December 31, 2001 and $691,283 at June 30, 2001			4,007,318		3,870,559
	Income taxes receivable			1,645,253		1,645,253
	Inventories			664,766		874,446
	Deferred income taxes			894,000		944,000
	Prepaid expenses and other current assets			2,004,488		2,387,804
		Total current assets		18,083,837		20,211,823
Notes Receivable				903,115		594,891
Property and Equipment:
	Machinery and equipment			47,993,451		42,581,045
	Land, buildings and improvements			18,608,126		17,034,166
				66,601,577		59,615,211
	Less accumulated depreciation and amortization			31,635,906		30,349,635
				34,965,671		29,265,576
Collection Routes and Contracts, less accumulated amortization of $6,293,687 at December 31, 2001 and $5,111,973 at June 30, 2001				3,238,621		4,700,326
Other Assets:
	Non-appropriated funds (Industrial Revenue Bonds)			230,110		1,962,598
	Deferred charges and other assets			626,495		680,969
	Deferred income taxes			—		231,000
	Investments available for sale-at fair value			17,907,230		4,871,810
	Other equity investments-at cost			8,325,403		8,474,155
				27,089,238		16,220,532
			$	84,280,482	$	70,993,148
LIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities:
	Accounts payable		$	3,100,602	$	4,498,515
	Dividends payable			1,029,267		—
	Other accrued liabilities			1,915,192		1,852,487
	Accrued payroll and related employee benefits			2,001,265		1,572,553
		Total current liabilities		8,046,326		7,923,555
Industrial Revenue Bond				6,000,000		6,000,000
Deferred Income Taxes				4,697,000		—
				18,743,326		13,923,555
Shareowners’ Equity:
	Common stock, no par value, 5,000,000 shares authorized, shares issued and outstanding at December 31, 2001 - 1,029,267 and June 30, 2001 - 1,029,267			4,576,050		4,576,050
	Retained earnings			49,853,996		50,143,924
	Accumulated other comprehensive income			11,107,110		2,349,619
				65,537,156		57,069,593
			$	84,280,482	$	70,993,148

The accompanying notes are an integral part of these consolidated financial statements.

3

SCOPE INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Three Months Ended
		December 31,
		2001			2000
Revenues:
	Sales	$	14,889,861		$	13,706,185
	Vocational school revenues		1,468,543			1,206,709
			16,358,404			14,912,894
Operating Costs and Expenses:
	Cost of sales		11,592,692			12,260,029
	Vocational school expenses		1,127,947			929,776
	Depreciation and amortization		1,733,810			1,774,291
	General and administrative		2,256,129			1,977,409
			16,710,578			16,941,505
			(352,174	)		(2,028,611	)
Other income and expense:
Investment and other income			122,165			476,630
Interest expense			(50,560	)		(88,524	)
			71,605			388,106
(Loss) before income taxes			(280,569	)		(1,640,505	)
(Benefit) for income taxes			(98,000	)		(515,000	)
Net (Loss)		$	(182,569	)	$	(1,125,505	)
Net (Loss) Per Share — Basic and Diluted		$	(0.18	)	$	(1.09	)
Average shares outstanding — Basic			1,029,267			1,031,392
Average shares outstanding — Diluted			1,029,267			1,031,392

The accompanying notes are an integral part of these consolidated financial statements.

4

SCOPE INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Six Months Ended
		December 31,
		2001			2000
Revenues:
	Sales	$	30,176,357		$	26,719,204
	Vocational school revenues		2,866,020			2,411,279
			33,042,377			29,130,483
Operating Costs and Expenses:
	Cost of sales		23,241,923			23,667,616
	Vocational school expenses		2,251,044			1,938,838
	Depreciation and amortization		3,425,377			3,540,941
	General and administrative		4,235,321			3,929,350
			33,153,665			33,076,745
			(111,288	)		(3,946,262	)
Other income and expense:
Investment and other income			1,404,387			956,584
Interest expense			(105,761	)		(173,538	)
			1,298,626			783,046
Income (loss) before income taxes			1,187,338			(3,163,216	)
Provision (benefit) for income taxes			448,000			(999,000	)
Net Income (Loss)		$	739,338		$	(2,164,216	)
Net Income (Loss) Per Share — Basic and Diluted		$	0.72		$	(2.08	)
Average shares outstanding — Basic			1,029,267			1,038,881
Average shares outstanding — Diluted			1,029,267			1,038,881

The accompanying notes are an integral part of these consolidated financial statements.

5

SCOPE INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

			Six Months Ended
			December 31,
			2001			2000
Cash Flows from Operating Activities:
Net income (loss)			$	739,338		$	(2,164,216	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
		Depreciation and amortization		2,243,672			2,359,236
		Amortization of contracts and routes		1,181,705			1,181,705
		(Gains) on investments available for sale		(762,868	)		(49,287	)
		(Gains) losses on sale of property and equipment		(514,091	)		16,225
		Deferred income taxes		(913,266	)		(425,000	)
Changes in operating assets and liabilities:
		Accounts and notes receivable		(444,983	)		203,426
		Inventories		209,680			(16,202	)
		Prepaid expenses and other current assets		383,609			191,594
		Accounts payable and accrued liabilities		(906,496	)		(634,085	)
		Dividends Payable		1,029,267			1,029,567
		Income taxes receivable		—			(712,785	)
		Tax benefit applied to purchase of routes and contracts		280,000			280,000
		Other assets		202,936			8,857
Net cash flows from operating activities				2,728,503			1,269,035
Cash Flows from Investing Activities:
Purchase of U.S. Treasury bills				(5,056,638	)		(11,313,500	)
Maturities of U.S. Treasury bills				10,000,000			17,098,840
Purchase of property and equipment				(8,090,357	)		(3,779,091	)
Proceeds from disposition of property and equipment				660,681			20,000
Purchase of investments available for sale				—			(159,009	)
Proceeds from disposition of investments available for sale				1,346,936			56,485
Purchase of other equity investments				—			(1,000,000	)
Non-appropriated bond fund proceeds held by Trustee				1,732,488			548,286
Net cash flows from investing activities				593,110			1,472,011
Cash Flows from Financing Activities:
Repurchases of common stock				—			(1,435,595	)
Net increase in cash and cash equivalents				3,321,613			1,305,451
Cash and cash equivalents at beginning of period				563,234			4,045,582
Cash and cash equivalents at end of period			$	3,884,847		$	5,351,033
Supplemental Disclosures:
Cash paid during the six months for:
	Interest		$	72,148		$	133,897
	Income taxes		$	78,536		$	25,765

The accompanying notes are an integral part of these consolidated financial statements.

6

SCOPE INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2001

Note 1. Basis of Financial Statement Preparation

     The accompanying consolidated financial information of Scope Industries and its subsidiaries (“Scope” or the “Company”) should be read in conjunction with the Notes to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K to the Securities and Exchange Commission for the year ended June 30, 2001. The accompanying financial information includes all subsidiaries on a consolidated basis and all normal recurring adjustments that are considered necessary by the Company’s management for a fair presentation of the financial position, results of operations and cash flows for the periods presented. However, these results are not necessarily indicative of results for a full fiscal year. Certain prior year balances have been reclassified to conform to current period presentation.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Note 2. Treasury Bills

     Treasury bills consisted of the following:

	December 31,		June 30,
	2001		2001
At adjusted cost which approximates fair value	$	4,983,165	$	9,926,527
At par value		5,000,000		10,000,000

Note 3. Inventories

     Inventories consisted of the following:

	December 31,		June 30,
	2001		2001
Finished products	$	315,194	$	368,348
Raw materials		195,698		356,425
Operating supplies		153,874		149,673
	$	664,766	$	874,446

Note 4. Investments

     Investments consisted of the following:

			Gross Unrealized Gains
			Before Provision For
	Cost		Income Taxes		Fair Value
At December 31, 2001:
Equity securities — available for sale	$	1,661,120	$	16,246,110	$	17,907,230
Other equity securities		8,325,403				8,325,403	(a)
At June 30, 2001:
Equity securities — available for sale	$	2,245,187	$	2,626,623	$	4,871,810
Other equity securities		8,474,155				8,474,155	(a)

(a) No quoted market prices are available for these securities.

7

SCOPE INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2001
(continued)

Note 5. Industrial Revenue Bond

     In fiscal 2000, the Company issued $6,000,000 in tax exempt Industrial Revenue Bonds (“IRB”) for the new plant in Georgia currently under construction. At December 31, 2001, the Bond Trustee held non-appropriated funds of $230,110 that are restricted for construction of the new plant. At December 31, 2001, the Company was in compliance with all financial covenants under the debt agreement.

Note 6. Comprehensive income (loss)

	Six Months Ended
	December 31,
	2001			2000
Comprehensive income (loss) consisted of the following:
Net income (loss)	$	739,338		$	(2,164,216	)
Unrealized holding gains (losses) arising during the period, net of income taxes		9,245,727			(1,015,736	)
Reclassify gains realized and included in net income, net of income taxes		(488,236	)		(32,038	)
Other comprehensive income (loss)		8,757,491			(1,047,774	)
Comprehensive income (loss)	$	9,496,829		$	(3,211,990	)

Note 7. Income Taxes

     For the six month period ended December 31, 2001, the effective rate for income taxes is 38% of the income before taxes and for the comparable six month period last year the effective rate for income tax benefit is 32% of the loss before taxes. The determination of the income tax or benefit for income tax considers certain permanent differences between taxable income or loss and income or loss as reported using accounting methods generally accepted in the United States of America. Those differences sometimes cause distortions in the relationships between income or loss before income taxes and the provision or benefit for income taxes.

Note 8. Business Segment Information

	Six Months Ended
	December 31,
	2001			2000
Revenues:
Waste Material Recycling	$	29,896,177		$	26,471,860
Vocational School Group		2,866,020			2,411,279
Other		280,180			247,344
	$	33,042,377		$	29,130,483
Income (loss) before income taxes:
Waste Material Recycling operating income (loss)	$	3,499,307		$	(483,587	)
Vocational School Group operating income		503,776			358,603
Other operating income		120,950			108,072
General and administrative expenses		(4,235,321	)		(3,929,350	)
Other income and expense		1,298,626			783,046
	$	1,187,338		$	(3,163,216	)

8

SCOPE INDUSTRIES AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS

Three Months Ended December 31, 2001 and 2000:

     The Company incurred a net loss of $182,569, or $0.18 per share, for second the quarter ended December 31, 2001, compared to the previous year’s second quarter net loss of $1,125,505, or $1.09 per share. Total company revenues for the quarter ended December 31, 2001 were $16,358,404 compared to $14,912,894 for the comparable quarter last year. The 10% increase in revenues for the current first quarter over the prior year’s comparable quarter was attributable to both the Waste Material Recycling and Beauty School segments.

     Waste Material Recycling segment sales for the current quarter increased $2,244,808 or 17% over the comparable quarter last year. The increase was due primarily to a 12% increase in the average selling prices on slightly higher sales volume of recycled dried bakery products. The increase is primarily attributed to the volatility in the commodities market due to reductions in the estimated volume of future corn crops compared to record corn crops produced during the past three years. The average price of corn for the current quarter was approximately $1.90 per bushel compared to $1.92 per bushel for the comparable quarter last year and $1.95 per bushel for the quarter ended September 30, 2001. The average price of corn for the month of January 2002 increased to $1.95 per bushel. The Waste Material Recycling segment generated increased operating profit in the current quarter against an operating loss in the comparable quarter last year due primarily to reduced raw material costs, improved production efficiencies from new capital equipment and slightly higher volume.

     Vocational School Group revenues increased 16% from the comparable quarter last year due primarily to increased enrollment at the schools. The Vocational School Group had operating income for both the current quarter and the comparable quarter last year. A new school near Las Vegas, Nevada opened in January 2002.

     General and administrative expenses for the Company increased (14%) for the quarter ended December 31, 2001, as compared to the prior year quarter. The increase is due primarily to the increases in employee health benefit costs, workers’ compensation insurance, auto, property, and liability insurance and professional services.

     Investment and other income for the three months ended December 31, 2001, was $122,165 compared to $476,630 for the comparable quarter last year. Included in the current quarter in investment and other income were gains of $113,721 from the sale of investment securities. Interest income of approximately $94,000 from U.S. Treasury bills comprised most of the remainder of investment income in the current quarter compared to $405,600 for the comparable quarter last year. The reduction in interest income was primarily due to lower interest rates and a smaller investment portfolio. Offsetting the above investment and other income were losses on the disposition of equipment and losses recognized on an investment accounted for by the equity method of accounting.

     Interest expense for the three months ended December 31, 2001, was $50,560 compared to $88,524 for the comparable quarter last year. The interest is primarily related to the Industrial Revenue Bond financing, (includes both interest and amortization of bond financing costs). Interest on the bonds is paid monthly and varies weekly based upon the tax-exempt interest rate in the bond market (2.45% at December 31, 2001).

9

SCOPE INDUSTRIES AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)

RESULTS OF OPERATIONS

Six Months Ended December 31, 2001 and 2000:

     The Company had net income of $739,338, or $0.72 per share, for six months ended December 31, 2001, compared to the previous year’s six months net loss of $2,164,216, or $2.08 per share. Total company revenues for the six months ended December 31, 2001 were $33,042,377 compared to $29,130,483 for the comparable period last year. The 13% increase in revenues for the current six months over the prior year’s comparable period was attributable to both the Waste Material Recycling and Beauty School segments.

     Waste Material Recycling segment sales for the current six months increased $3,424,317 or 13% over the comparable six months last year. The increase was due primarily to a 13% increase in the average selling prices on slightly higher sales volume of recycled dried bakery products. The increase in price is primarily attributed to the volatility in the commodity market due to early reductions in the estimated volume of future corn crops compared to record corn crops produced during the past three years. The average price of corn for the six months was approximately $1.93 per bushel compared to $1.73 per bushel for the comparable six months last year. The average price of corn for the month of January 2002 increased to $1.95 per bushel. The Waste Material Recycling segment generated operating profit in the current six months against an operating loss in the comparable six months last year due primarily to higher average selling prices, reduced raw material costs and improved production efficiencies from new capital equipment.

     Vocational School Group revenues increased 19% from the comparable six months last year due primarily to increased enrollment at the schools. The Vocational School Group had operating income for both the current six months and the comparable six months last year. A new school near Las Vegas, Nevada opened in January 2002.

     General and administrative expenses for the Company increased 8% for the six months ended December 31, 2001, as compared to the prior year six months. The increase is due primarily to the increases in employee health benefit costs, workers’ compensation insurance, auto, property, and liability insurance and professional services.

     Investment and other income for the six months ended December 31, 2001, was $1,404,387 compared to $956,584 for the comparable six months last year. Included in investment and other income were gains of $762,868 from the sale of investment securities and a net gain of $575,359 from the sale of idle property and equipment no longer being utilized in the Waste Material Recycling operations. Interest income of $214,912 from U.S. Treasury bills comprised most of the remainder of investment income in the current six months compared to $675,826 for the comparable six months last year. The reduction in interest income was primarily due to lower interest rates and a smaller interest bearing investment portfolio. Offsetting the above investment and other income were losses on the disposition of equipment and losses recognized on an investment accounted for by the equity method of accounting.

     Interest expense for the six months ended December 31, 2001, was $105,761 compared to $173,538 for the comparable six months last year. The interest is primarily related to the Industrial Revenue Bond financing, (includes both interest and amortization of bond financing costs). Interest on the bonds is paid monthly and varies weekly based upon the tax-exempt interest rate in the bond market (2.45% at December 31, 2001).

10

SCOPE INDUSTRIES AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)

LIQUIDITY AND CAPITAL RESOURCES

     We have used our cash principally to fund our capital expenses and for working capital. We funded our cash requirements principally from operations, the utilization of unappropriated funds from the IRB and proceeds from the sale of investments. During the current six months we expended $8,090,357 for capital projects primarily within the Waste Material Recycling segment. Our working capital ratio of 2.3 to 1 at December 31, 2001 decreased when compared to the June 30, 2001 ratio of 2.6 to 1. The change in components of working capital is mainly attributed to the reduction in Treasury bills used to help finance capital expenditures. Capital expenditures for fiscal 2002 approximating $10,000,000 are planned primarily for the Waste Material Recycling segment. The Company believes that the combination of cash on hand, Treasury bills, investments available for sale and cash flow expected to be generated from operations will be sufficient to fund planned investments and working capital requirements through fiscal 2002.

     Subsequent to December 31, 2001, the Company entered into a Three Million Dollars ($3,000,000) Revolving Line of Credit with its bank to provide the Company additional future liquidity should the requirement arise. The Line of Credit is for one year with no fees and borrowings under the agreement bear interest at LIBOR plus 2.00% or the banks prime rate minus 0.25%, interest to be paid monthly. The agreement contains customary affirmative and negative covenants requiring the maintenance of specific consolidated leverage ratios and a minimum net worth. The Company has not drawn upon the line.

NEW ACCOUNTING STANDARDS

     Effective July 1, 2001, the Company early adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). The statement establishes accounting and reporting standards for goodwill and other intangible assets. The early adoption of SFAS No. 142 did not have a material impact on the Company’s financial statements.

     In 2001, the Financial Standards Accounting Board issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) and becomes effective for the Company’s fiscal year starting July 2002. The statement retains the previous cash flow test for impairment and broadens the presentation of discontinued operations. The adoption of SFAS No. 144 is not expected have a material impact on the Company’s financial statements.

FORWARD LOOKING STATEMENTS

     Certain statements contained in this Management’s Discussion and Analysis of Results of Operations and Financial Condition that are not related to historical results are forward looking statements. Actual results may differ materially from those stated or implied in the forward-looking statements. Further, certain forward-looking statements are based upon assumptions of future events, which may not prove to be accurate. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Potential risk and uncertainties include, but are not limited to, general business conditions, unusual volatility in equity and interest rate markets and in competing commodity markets, disruptions in the availability or pricing of raw materials, transportation difficulties, changing governmental educational aid policies, or disruption of operations due to unavailability of fuels or from acts of God.

11

PART II. OTHER INFORMATION
SCOPE INDUSTRIES AND SUBSIDIARIES

Item 2. Increases and Decreases in Outstanding Securities and Indebtedness.

     There were no changes in the outstanding Common Stock of the Company during the six months ended December 31, 2001.

Item 5. Other Information.

     On October 23, 2001, the Company’s board of directors declared a regular dividend of $1.00 per share payable on January 4, 2002, to shareowners of record at November 23, 2001.

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, 2001.

12

PART II. OTHER INFORMATION (continued)
SCOPE INDUSTRIES AND SUBSIDIARIES

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.

	SCOPE INDUSTRIES        (Registrant)
Dated: February 13, 2002	/s/	Eric M. Iwafuchi
		Eric M. Iwafuchi, Vice President, Chief Financial Officer and Secretary

13