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 Quarter Ended February 29, 1996 Commission File Number 2-85538 CCA INDUSTRIES, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 04-2795439 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification Number) 200 Murray Hill Parkway East Rutherford, NJ 07073 (Address of principal executive offices) (Zip Code) (201) 330-1400 Registrant's telephone number, including area code Not applicable 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. Yes X No APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $.01 Par Value - 5,952,471 shares as of February 29, 1996 Class A Common Stock, $.01 Par Value - 1,191,280 shares as of February 29, 1996 CCA INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page Number PART I FINANCIAL INFORMATION: Consolidated Balance Sheets as of February 29, 1996 and November 30, 1995 1-2 Consolidated Statements of Operations for the three months ended February 29, 1996 and 1995 3 Consolidated Statements of Cash Flows for the three months ended February 29, 1996 and 1995 4 Notes to Consolidated Financial Statements 5-11 Management Discussion and Analysis of Results of Operations and Financial Condition 12 PART II OTHER INFORMATION 13-14 SIGNATURES 15 CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS A S S E T S
February 29, November 30, 1996 1995 Current Assets Cash and cash equivalents $ 145,796 $ 312,150 Short-term investments and marketable securities (Note 4) 2,544,168 2,539,037 Accounts receivable, net of allowances of $988,348 and $905,953, respectively (Note 8) 6,762,065 4,044,420 Inventories 6,003,409 6,414,097 Prepaid expenses and sundry receivables 302,558 329,935 Due from officers - Current 71,490 1,500 Prepaid income taxes 547,498 652,710 Deferred income taxes 719,871 698,415 Deferred Advertising 701,506 - Total Current Assets 17,798,361 14,992,264 Property and Equipment, net of accumulated depreciation and amortization 676,310 713,125 Intangible Assets, net of accumulated amortization of $28,245 at February 29, 1996 and $25,945 at November 30, 1995 130,024 128,538 Other Assets Marketable securities 1,298,643 1,701,138 Treasury bonds 90,576 87,300 Due from officers - Non-current 25,250 25,250 Deferred income taxes 39,444 33,807 Other 63,614 62,664 Total Other Assets 1,517,527 1,910,159 Total Assets $20,122,222 $17,744,086
See Notes Consolidated to Financial Statements. -1- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
February 29, November 30, 1996 1995 Current Liabilities Notes payable - Current portion $ 688,000 $ 298,078 Accounts payable and accrued liabilities 8,181,683 6,878,425 Income taxes payable 218,526 - Total Current Liabilities 9,088,209 7,176,503 Long-Term Debt (net of current portion) 39,067 111,067 Shareholders' Equity Common stock, $.01 par; authorized 15,000,000 shares; issued and outstanding 5,952,471 and 5,603,871 shares, respectively 59,525 56,039 Class A common stock, $.01 par; authorized 5,000,000 shares; issued and outstanding and 1,191,280 shares, respectively 11,912 11,912 Additional paid-in capital 4,445,462 4,282,008 Retained earnings 6,469,389 6,101,229 Unrealized gains (losses) on marketable securities 8,658 5,328 Total Shareholders' Equity 10,994,946 10,456,516 Total Liabilities and Shareholders' Equity $20,122,222 $17,744,086
See Notes to Consolidated Financial Statements. -2- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Three Months Ended Ended February 29, February 28, 1996 1995 Sales of health and beauty products, net $10,125,118 $9,442,194 Other income 60,591 92,041 10,185,709 9,534,235 Costs and Expenses Costs of sales 3,855,577 3,713,318 Selling, general and administrative expenses 2,844,468 3,027,642 Advertising, cooperative and promotions 2,609,294 2,882,863 Research and development 136,286 154,944 Provision for doubtful accounts 60,768 4,509 Interest expense 13,441 17,920 9,519,834 9,801,196 Income before Income Taxes 665,875 ( 266,961) Provision for Income Taxes 297,715 ( 84,379) Net Income $ 368,160 ($ 182,582) Net Income per Common Share (Note 2) $.05 ($.03)
See Notes to Consolidated Financial Statements. -3- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Three Months Ended Ended February 29, February 28, 1996 1995 Cash Flows from Operating Activities: Net Income (loss) $ 368,160 ($ 182,582) Adjustments to reconcile net income to net cash (used in) operating activities: Depreciation and amortization 86,081 71,666 Amortization of bond premium 762 2,082 (Increase) in deferred income taxes ( 27,093) ( 1,363) (Increase) decrease in accounts receivable ( 2,717,645) 1,229,039 Decrease in inventory 410,688 251,515 (Increase) in prepaid expenses ( 744,119) ( 431,428) Increase (decrease) in accounts payable 1,299,869 ( 768,363) (Decrease) increase in income taxes payable 323,738 ( 6,354) Net Cash (Used in) Provided by Operating Activities ( 999,559) 164,212 Cash Flows from Investing Activities: Acquisition of property, plant and equipment ( 50,752) ( 53,193) Proceeds of monies due from officers - 7,598 (Increase) in other assets ( 950) ( 5) Purchase of short-term investments - ( 79,768) Proceeds from sale of investments 400,045 29,678 Net Cash Provided by (Used in) Investing Activities 348,343 ( 95,690) Cash Flows from Financing Activities: Payment on debt ( 82,078) ( 72,000) Proceeds from stock option exercises 166,940 6,250 Proceeds form short term borrowing 400,000 - Net Cash Provided by (Used in) Financing Activities 484,862 ( 65,750) Net (Decrease) Increase in Cash ( 166,354) 2,772 Cash and Cash Equivalents at Beginning of Period 312,150 100,705 Cash and Cash Equivalents at End of Period $ 145,796 $ 103,477 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 14,246 $18,372 Income taxes - 55,181
See Notes to Consolidated Financial Statements. -4- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1: BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended February 29, 1996 are not necessarily indicative of the results that may be expected for the year ended November 30, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended November 30, 1995. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. Advertising and Related Costs In accordance with APB 28 Interim Financial Reporting the Company expenses its advertising and related costs proportionately over the interim periods based on its total expected costs per its various advertising programs. Any necessary accrual or deferral is accordingly reflected in the balance sheet for the interim period. However, for annual reporting purposes, no advertising or related costs are capitalized and all are expensed in the fiscal year in which they are incurred. Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of less than three months to be cash equivalents. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Product returns are recorded in inventory when they are received at the lower of their original cost or market, as appropriate. Obsolete inventory is written off and its value is removed from inventory at the time its obsolescence is determined. -5- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and Equipment and Depreciation and Amortization: Property and equipment are stated at cost. The Company charges to expense repairs and maintenance items, while major improvements and betterments are capitalized. When the Company sells or otherwise disposes of property and equipment items, the cost and related accumulated depreciation are removed from the respective accounts and any gain or loss is included in earnings. Depreciation and amortization are provided on the straight-line method over the following estimated useful lives or lease terms of the assets: Machinery and equipment 7-10 years Furniture and fixtures 5-7 years Tools, dies and masters 2--7 years Transportation equipment 7 years Leasehold improvements 7-10 years or life of lease which ever is shorter Intangible Assets: Intangible assets are stated at cost. Patents and trademarks are amortized on the straight-line method over a period of 17 years; organization expenses are amortized on the straight-line method over five (5) years. Tax Credits: Tax credits, when present, are accounted for using the flow-through method as a reduction of income taxes in the years utilized. Earnings Per Share Earnings per share have been computed based on the weighted average of outstanding common shares and common stock equivalents during the periods, based on the treasury stock method using average market price. Fully diluted earnings per share are not presented because they result in dilution of less than 3%. NOTE 3: INVENTORIES The components of inventory consist of the following: February 29, November 30, 1996 1995 Raw materials $3,516,130 $3,875,751 Finished goods 2,487,279 2,538,346 $6,003,409 $6,414,097 -6- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The following items which exceeded 5% of total current liabilities are included in accounts payable and accrued liabilities as of: February 29, November 30, 1996 1995 a) Media advertising $2,872 $1,812 b) Coop advertising 708 519 c) Accrued returns 631 435 d) Payroll and bonuses 571 * $4,782 $2,766 All other liabilities were for trade payables or individually did not exceed 5% of total current liabilities. * Under 5%. NOTE 5: OTHER INCOME Other income consists of the following at February 29, 1996 1995 Interest income $56,532 $69,864 Royalty income - 8,349 Dividend income 4,059 4,016 Miscellaneous - 9,812 $60,591 $92,041 NOTE 6: SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES Short-Term Investments and Marketable Securities: Short-term investments and marketable securities consist of corporate and government bonds and equity securities. In 1994 the Company adopted the accounting principles promulgated by SFAS No. 115 Accounting for Certain Investments in Debt and Equity Securities. The Company has classified its investments as Available-for-Sale securities. Accordingly, such investments are reported at fair market value, with the resultant unrealized gains and losses reported as a separate component of shareholders' equity. Prior to 1994, the Company reported marketable securities at the lower of cost or market value; unrealized losses were charged to earnings. The market value at February 29, 1996 was $3,933,387 as compared to $4,327,475 at November 30, 1995. The cost and market values of the investments at February 29, 1996 were as follows: -7- SCHEDULE I CCA INDUSTRIES, INC. AND SUBSIDIARIES MARKETABLE SECURITIES - OTHER INVESTMENTS SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
COL. A COL. B COL. C COL.D COL.E Amount at Which Each Portfolio Number of Market Of Equity Security Units-Principal Value of Issues and Each Amount of Each Issue Other Security Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet CORPORATE OBLIGATIONS: AT&T 6/01/98 4.750% $100,000 $ 99,006 $ 98,500 $ 98,500 Bank America 7/15/97 6.000 200,000 200,000 200,882 200,882 Bankers Trust 7/01/96 4.700 100,000 100,084 99,663 99,663 Con Edison 12/15/96 5.900 100,000 99,875 99,997 99,997 Dayton P & L 5/01/97 5.625 100,000 98,265 99,979 99,979 General Motors Acceptance Corp. 10/01/96 8.000 200,000 200,350 202,648 202,648
-8- SCHEDULE I (Continued) CCA INDUSTRIES, INC. AND SUBSIDIARIES MARKETABLE SECURITIES - OTHER INVESTMENTS SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
COL. A COL. B COL. C COL.D COL.E Amount at Which Each Portfolio Number of Market Of Equity Security Units-Principal Value of Issues and Each Amount of Each Issue Other Security Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet CORPORATE OBLIGATIONS:(Continued) Merrill Lynch 6/24/96 4.750% $100,000 $ 100,057 $ 99,774 $ 99,774 Merrill Lynch 6/24/96 4.750 100,000 100,057 99,774 99,774 Tennessee Valley 3/04/98 5.125 100,000 100,000 98,781 98,781 Union Electric 3/01/97 5.500 50,000 49,244 49,921 49,921 $1,146,938 $1,149,919 $ 1,149,919
-9- SCHEDULE I (Continued) CCA INDUSTRIES, INC. AND SUBSIDIARIES MARKETABLE SECURITIES - OTHER INVESTMENTS SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
COL. A COL. B COL. C COL.D COL.E Amount at Which Each Portfolio Number of Market Of Equity Security Units-Principal Value of Issues and Each Amount of Each Issue Other Security Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet GOVERNMENT OBLIGATIONS: US Treasury Note 10/31/98 4.750% $100,000 $ 99,684 $ 98,094 $ 98,094 US Treasury Note 10/31/98 4.750 200,000 199,992 196,188 196,188 US Treasury Note 5/15/96 4.250 100,000 99,939 99,844 99,844 US Treasury Note 5/15/96 4.250 100,000 100,002 99,844 99,844 US Treasury Note 11/15/96 4.375 100,000 99,969 99,438 99,438 US Treasury Note 10/15/98 7.125 250,000 252,791 259,610 259,610 US Treasury Note 5/15/96 4.250 100,000 99,909 99,844 99,844 US Treasury Note 1/31/97 6.250 100,000 99,500 100,938 100,938 US Treasury Note 12/31/96 6.125 200,000 197,423 201,562 201,562 US Treasury Note 11/15/96 4.375 200,000 197,852 198,876 198,876 US Treasury Note 11/15/96 4.375 200,000 196,133 198,876 198,876 US Treasury Note 11/15/96 4.375 100,000 98,003 99,438 99,438 US Treasury Note 11/15/96 4.375 100,000 97,855 99,438 99,438 US Treasury Bill 7/25/96 5.330 45,000 42,552 44,113 44,113
-10- SCHEDULE I (Continued) CCA INDUSTRIES, INC. AND SUBSIDIARIES MARKETABLE SECURITIES - OTHER INVESTMENTS SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
COL. A COL. B COL. C COL.D COL.E Amount at Which Each Portfolio Number of Market Of Equity Security Units-Principal Value of Issues and Each Amount of Each Issue Other Security Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet GOVERNMENT OBLIGATIONS: (Continued) US Treasury Note 8/15/96 4.375% $200,000 $ 195,936 $ 199,312 $ 199,312 FHLMC 1628-N 12/25/2013 6.500 50,000 48,024 46,008 46,008 EE Bonds - 7.050 90,000 90,576 90,576 90,576 FNMA 93-6-26-B 8/25/2023 7.000 10,000 8,897 8,629 8,629 FNMA 93-224-D 11/25/2023 6.500 104,000 101,873 94,786 94,786 FNMA 92-2-N 1/28/2024 6.500 52,000 47,424 45,897 45,897 FHJMC 1702-U 3/15/2024 7.00 4,000 3,507 3,469 3,469 FNMA 11/10/98 5.050 200,000 199,950 196,688 196,688 2,577,791 2,581,468 2,581,468 EQUITY SECURITIES: Number of Shares Preferred Stock: Bank America Corp. 8,000 200,000 202,000 202,000 $3,924,729 $3,933,387 $3,933,387
-11- CCA INDUSTRIES, INC. MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) For the three month period ended February 29, 1996, the Company had net sales of $10,125,118 and net income of $368,180 after a provision for income taxes of $297,715, as compared to net sales of $9,442,194 and net (loss) of ($182,582) after provision for income taxes of ($84,379) for the three month period ended February 28, 1995. All of the Company's sales were primarily to mass merchandisers throughout the United States. The cost of sales percentage for the quarter decreased from 39% in 1995 to 38% in 1996 primarily due to the higher percentage overhead costs (factored into the cost of goods) represented in the total cost of goods in 1995; as well as certain product mix fluctuations. Advertising, cooperative and promotional allowance expenditures during the quarter decreased as a percentage of sales from 31% in 1995 to 26% in 1996 due to the increase in sales volume and the decision of the Company to reduce the percentage of sales spent on the media for the year. As part of the registrant's business it is necessary to enter into co-operative advertising agreements and other promotional activities with its accounts, especially upon the introduction of a new product. Both co-op advertising and promotions have a material effect on the Company's operations. If the advertising and promotions are successful, revenues will be increased accordingly. Should the co-op and promotions not be successful, it will have a negative impact on the Company's promotional cost per sale, and have a negative effect on income. The Company attempts to anticipate its advertising and promotional commitments as a percent of gross sales in order to attempt to control its effect on its net income. The Company was able to anticipate its sales level better in 1996 and accordingly the percentage dropped. Income before taxes for the quarter increased to $665,875 from ($266,961). This was primarily a result of the higher sales and reduced advertising as compared to the prior year. Selling, general and administrative expenses ("SG&A") decreased due to decreased personnel costs as well as other cost retainment factors. This decrease in SG&A costs coupled with the increase in sales resulted in the sharp decrease in the percentage of sales from 32% in 1995 to 28% in 1996. The Company's financial position as at February 29, 1996 consists of current assets of $17,798,361 and current liabilities of $9,088,096. Shareholders' Equity increased for the three month period from $10,456,516 on November 30, 1995 to $10,995,059 as of February 29, 1996 primarily due to the income of $368,160 for the period, and the exercise of stock options of $166,940. Although the Company's operations resulted in a use of cash of nearly $1,000,000, the Company was easily able to cover its cash needs by selling some of its "Available for Sale" securities and using $400,000 of its $3,000,000 line of credit. Due to its accessibility to funds, the Company believes that its current financial condition is sufficient to support its proposed operations for the near future. -12- CCA INDUSTRIES, INC. PART II OTHER INFORMATION All information pertaining to Part II is omitted pursuant to the instructions pertaining to that part. The Company did not file any reports on Form 8-K during the three months ended February 29, 1996. -13- PART II, ITEM 6. (Continued) EXHIBIT 11 CCA INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (UNAUDITED) Three Months Three Months Ended Ended February 29, February 28, 1996 1995 Item 6. Primary: Average shares outstanding 6,986,689 6,793,118 Net effect of dilutive stock options--based on the treasury stock method using average market price 833,087 * TOTALS 7,819,776 6,793,118 Net income $ 368,160 ($ 182,582) Per share amount $.05 ($.03) * Not included as their effect would be anti-dilutive. -14- SIGNATURES Pursuant to the requirements 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. CCA INDUSTRIES, INC. By: David Edell, President By: Ira W. Berman, Secretary -15-