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 August 31, 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 - $5,977,471 shares as of August 31, 1996 Class A Common Stock, $.01 Par Value - $1,191,280 shares as of August 31, 1996 CCA INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page Number PART I FINANCIAL INFORMATION: Consolidated Balance Sheets as of August 31, 1996 and November 30, 1995. . . . . . . . . . . . 1-2 Consolidated Statements of Operations for the three Months and nine months ended August 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Cash Flows for the nine months ended August 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Notes to Consolidated Financial Statements . . . . . . . . . .5-11 Management Discussion and Analysis of Results of Operations and Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . 12-13 PART II OTHER INFORMATION. . . . . . . . . . . . . . . . . . . 14-15 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS A S S E T S
August 31, 1996 November 30, (Unaudited) 1995 Current Assets Cash and cash equivalents $ 75,782 $ 312,150 Short-term investments and marketable securities (Note 6) 1,648,663 2,539,037 Accounts receivable, net of allowances of $1,072,432 and $905,953, respectively 5,724,815 4,044,420 Inventories 7,043,888 6,414,097 Prepaid expenses and sundry receivables 278,044 329,935 Deferred advertising costs (Note 2) 1,525,288 - Due from officers - Current 11,384 1,500 Prepaid income taxes - 652,710 Deferred income taxes 647,233 698,415 Total Current Assets 16,955,097 14,992,264 Property and Equipment, net of accumulated depreciation and amortization 735,995 713,125 Intangible Assets, net of accumulated amortization of $32,851 at August 31, 1996 and $25,945 at November 30, 1995 143,391 128,538 Other Assets Marketable securities 1,426,063 1,701,138 Treasury bonds 90,576 87,300 Due from officers - Non-current 25,250 25,250 Deferred income taxes 55,636 33,807 Other 52,983 62,664 Total Other Assets 1,650,508 1,910,159 Total Assets $19,484,991 $17,744,086
See Notes to Consolidated Financial Statements. -1- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
August 31, 1996 November 30, (Unaudited) 1995 Current Liabilities Notes payable - Current portion $ 772,500 $ 298,078 Accounts payable and accrued liabilities 7,005,706 6,878,425 Income taxes payable 120,023 - Total Current Liabilities 7,898,229 7,176,503 Long-Term Debt (net of current portion) - 111,067 Shareholders' Equity Common stock, $.01 par; authorized 15,000,000 shares; issued and outstanding 5,977,471 and 5,603,871 shares, respectively 59,774 56,039 Class A common stock, $.01 par; authorized 5,000,000 shares; issued and outstanding 1,191,280 shares, respectively 11,912 11,912 Additional paid-in capital 4,455,212 4,282,008 Retained earnings 7,086,090 6,101,229 Unrealized (losses) gains on marketable securities ( 26,226) 5,328 Total Shareholders' Equity 11,586,762 10,456,516 Total Liabilities and Shareholders'Equity $19,484,991 $17,744,086
See Notes to Consolidated Financial Statements. -2- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended August 31, August 31, 1996 1995 1996 1995 Revenues Sales of health and beauty products, net $10,232,749 $9,023,458 $30,855,971 $29,401,865 Other income 51,239 103,248 165,330 264,555 10,283,988 9,126,706 31,021,301 29,666,420 Costs and Expenses Costs of sales 3,872,840 3,993,808 11,730,860 11,669,715 Selling, general and administrative expenses 2,514,954 2,159,398 8,296,401 8,110,982 Advertising, cooperative and promotions 3,475,998 3,646,273 8,656,522 9,953,575 Research and development 100,478 100,740 367,169 397,110 Provision for doubtful accounts 13,809 7,830 111,803 116,104 Interest expense 11,291 13,459 45,353 56,003 9,989,370 9,921,508 29,208,108 30,303,489 Net Income before Income Taxes 294,618 ( 794,802) 1,813,193 ( 637,069) Provision for Income Taxes 142,502 ( 305,407) 828,332 ( 225,671) Net Income $ 152,116 ($ 489,395) $ 984,861 ($ 411,398) Income Per Common Share (Note 2): Net income from operations $.02 ($.07) $.12 ($.06)
See notes to Financial Statements. -3- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED AUGUST 31, (UNAUDITED)
1996 1995 Cash Flows from Operating Activities: Net income (loss) $ 984,861 ($ 411,398) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 289,874 239,654 Amortization of bond premium 1,792 5,553 Gain on sale of securities ( 6,684) ( 1,416) Decrease (increase) in deferred income taxes 29,354 ( 4,014) (Increase) decrease in accounts receivable ( 1,680,395) 1,623,504 (Increase) decrease in inventory ( 629,791) 1,412,414 (Increase) in deferred expenses and miscellaneous receivable ( 1,483,281) ( 1,076,637) Increase (decrease) in accounts payable and accrued liabilities 127,281 ( 1,670,567) Increase (decrease) in taxes payable 772,733 ( 6,354) Decrease (increase) in security deposits 9,681 ( 4,036) Net Cash (Used in) Provided by Operating Activities ( 1,584,575) 106,703 Cash Flows from Investing Activities: Acquisition of property, plant and equipment( 327,597) ( 307,490) Purchase of short-term investments and securities ( 109,961) ( 313,795) Advances of money to officers ( 54,890) - Proceeds of money due from officers 54,912 19,231 (Increase) in other assets - ( 6,192) Proceeds from sale of investments 1,245,448 755,078 Net Cash Provided by Investing Activities 807,912 146,832 Cash Flows from Financing Activities: Proceeds from borrowings 1,000,000 - Payment on debt ( 636,645) ( 216,000) Proceeds from stock options exercises 176,940 6,460 Net Cash Provided by (Used in) Financing Activities 540,295 ( 209,540) Net (Decrease) Increase in Cash ( 236,368) 43,995 Cash at Beginning of Period 312,150 100,705 Cash at End of Period $ 75,782 $ 144,700 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 48,600 $ 57,273 Income taxes 27,315 94,525
See notes to 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 six month period ended August 31, 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 consoli- dated 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. -5- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. Financial Instruments The carrying value of assets and liabilities considered financial instruments under SFAS Note #107 approximate their respective fair value. 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. -6- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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: August 31, November 30, 1996 1995 Raw materials $4,643,287 $3,875,751 Finished goods 2,400,601 2,538,346 $7,043,888 $6,414,097 NOTE 4: DEFERRED ADVERTISING 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. Consequently a deferral of $1,525,288 is accordingly reflected in the balance sheet for the interim period. This deferral is the result of the Company's $8,000,000 media budget for the year which contemplates drastically lower spending in the 4th quarter than in the other three quarters; as well as the Company's Co-op advertising commitments which also anticipates a lower expenditure in the 4th quarter. The table below sets forth the calculation: 1996 1995 (In Millions) (In Millions) Media advertising budget for the fiscal year $8.0 $ 9.3 Pro-rata portion for nine months $6.0 $ 7.0 Media advertising spent 7.1 7.3 Accrual (Deferral) ($1.1) ($ . 3) Anticipated Co-op advertising commitments $3.4 $ 3.5 Pro-rata portion for nine months $2.5 $ 2.6 Co-op advertising spent 2.9 2.9 Accrual (Deferral) ($ .4) ($ .3) -7- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5: 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: August 31, November 30, 1996 1995 a) Media advertising $1,803 $1,812 b) Coop advertising 485 519 c) Accrued returns 595 435 $2,883 $2,766 All other liabilities were for trade payables or individually did not exceed 5% of total current liabilities. NOTE 6: OTHER INCOME Other income consists of the following at August 31, 1996 and 1995: 1996 1995 Interest income $150,109 $223,112 Royalty income - 8,349 Dividend income 8,474 12,154 Miscellaneous 6,747 20,940 $165,330 $264,555 NOTE 7: 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 August 31, 1996 was $3,165,302 as compared to $4,327,475 at November 30, 1995. The cost and market values of the investments at August 31, 1996 were as follows: -8- NOTE 7: SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES - (CONTINUED) CCA INDUSTRIES, INC. AND SUBSIDIARIES MARKETABLE SECURITIES - OTHER INVESTMENTS
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 $ 97,125 $ 97,125 Bank America 7/15/97 6.000 200,000 200,000 199,694 199,694 Con Edison 12/15/96 5.900 100,000 99,875 100,024 100,024 Dayton P & L 5/01/97 5.625 100,000 98,265 99,762 99,762 General Motors Acceptance Corp. 10/01/96 8.000 200,000 200,050 200,000 200,000 Tennessee Valley 3/04/98 5.125 100,000 100,000 98,188 98,188 Union Electric 3/01/97 5.500 50,000 49,244 49,902 49,902 $846,440 $844,695 $844,695
-9- NOTE 7: SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES - (CONTINUED) CCA INDUSTRIES, INC. AND SUBSIDIARIES MARKETABLE SECURITIES - OTHER INVESTMENTS
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 $ 96,781 $ 96,781 US Treasury Note 10/31/98 4.750 200,000 199,992 193,562 193,562 US Treasury Note 11/15/96 4.375 100,000 99,969 99,781 99,781 US Treasury Note 10/15/98 7.125 250,000 252,260 253,828 253,828 US Treasury Note 1/31/97 6.250 100,000 99,500 100,313 100,313 US Treasury Note 12/31/96 6.125 200,000 197,423 200,500 200,500 US Treasury Note 11/15/96 4.375 200,000 197,852 199,562 199,562 US Treasury Note 11/15/96 4.375 200,000 196,133 199,562 199,562 US Treasury Note 11/15/96 4.375 100,000 98,003 99,781 99,781 US Treasury Note 11/15/96 4.375 100,000 97,855 99,781 99,781
-10- NOTE 7: SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES - (CONTINUED) CCA INDUSTRIES, INC. AND SUBSIDIARIES MARKETABLE SECURITIES - OTHER INVESTMENTS
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 11/17/96 5.22% $ 63,000 $ 62,191 $ 62,385 $ 62,385 US Treasury Note 11/21/96 5.200 45,000 44,424 44,471 44,471 FHLMC 1628-N 12/25/2013 6.500 50,000 48,024 42,903 42,903 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 8,246 8,246 FNMA 93-224-D 11/25/2023 6.500 104,000 101,873 88,314 88,314 FNMA 92-2-N 1/28/2024 6.500 52,000 47,424 42,378 42,378 FHJMC 1702-U 3/15/2024 7.00 4,000 3,058 2,821 2,821 FNMA 11/10/98 5.050 200,000 199,950 194,062 194,062 2,145,088 2,119,607 2,119,607 EQUITY SECURITIES: Number of Shares Preferred Stock: Bank America Corp. 8,000 200,000 201,000 201,000 $3,191,528 $3,165,302 $3,165,302
-11- CCA INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) For the nine month period ended August 31, 1996, the Company had net sales of $30,855,971 and net income of $984,861 after a provision for income taxes of $828,332, as compared to net sales of $29,401,865 and net loss of ($411,398) after a provision for income taxes of($225,671) for the nine month period ended August 31, 1995. Gross margins of 62% for the nine months were better than the 60% margins realized for the nine months in 1995 due to the higher percentage overhead costs (added into the cost of goods) represented in the total cost of goods in 1995, as well as certain product mix fluctuating. Advertising, cooperative and promotional allowance expenditures decreased during the nine month period from $9,953,575 to $8,656,522. Advertising expenditures were 28% of sales for the nine months ended August 31, 1996 as compared with 34% for the period ended August 31, 1995. 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. 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. Consequently a deferral of $1.5 million is accordingly reflected in the balance sheet for the interim period. This deferral is the result of the Company's $8.0 million media budget for the year which contemplates drastically lower spending in the 4th quarter than in the other three quarters; as well as the Company's Co-op advertising commitments which also anticipates lower expenditures in the 4th quarter. Specifically, the Company spent approximately $7.1 million in the first nine months on media advertising and, therefore, expensed $6.0 million and deferred $1.1 million as of August 31, 1996. Similarly, as of August 31, 1996 the Company's Co-op advertising commitments for the year ended November 30, 1996 totaled approximately $3.4 million of which $2.9 million was spent in the first nine months resulting in an expense of $2.5 million and a deferral of approximately $.4 million as of August 31, 1996. Comparatively as of August 31, 1995, the Company had anticipated media advertising expense in fiscal year 1995 of $9.3 million and spent approximately $7.3 million in the first nine months resulting in a deferral of approximately $.3 million. The anticipated Co-op commitments as of August 31, 1996 were $3.5 million of which $2.9 million was spent resulting in a deferral of $.3 million. Selling, general and administrative expenses ("SG&A") decreased as a percentage of sales compared to the prior year. The decrease to 27% from 28% was due to the slightly higher sales volume. -12- CCA INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) For the three month period ended August 31, 1996, net sales were $10,232,749 as compared to $9,023,458 for August 31, 1995. Income for the quarter before taxes increased to $294,618 from ($794,802). Gross margins of 62% for the three months ended August 31, 1996 were up from 56% in 1995. Advertising, cooperative and promotional allowance expense during the quarter decreased to $3,475,998 from $3,646,273. Advertising expenses were 34% of sales for the quarter in 1996 as compared to 40% in 1995. Selling, general and administrative expenses were approximately 25% in the current quarter as compared to 24% in 1995. All of the Company's sales were primarily to drugstore chains, food chains and mass merchandisers throughout the United States. The Company's financial position as at August 31, 1996 consists of current assets of $16,955,097 and current liabilities of $7,898,229. During the nine month period ended August 31, 1996, shareholders' equity increased from $10,456,516 at November 30, 1995 to $11,586,762 at August 31, 1996. This was due primarily to the net income generated for the period. During the six months, the Company used $1,584,575 in operations, $136,645 to reduce borrowings, and $327,597 to purchase fixed assets; but offset most of the cash requirements by the liquidation of short-term investments of $1,135,487, the proceeds from stock option exercises ($176,940) and proceeds from short-term borrowings of $500,000. These factors resulted in a net decrease in the Company's cash of approximately $236,000. The Company believes that its current financial condition is sufficient to support its proposed operations for the near future. -13- 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 August 31, 1996. -14- PART II, ITEM 6. (Continued) EXHIBIT 11 CCA INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
Three Months Ended Nine Months Ended August 31, August 31, 1996 1995 1996 1995 Item 6. Primary: Average shares outstanding 7,168,751 6,794,733 7,105,596 6,794,108 Net effect of dilutive stock options--based on the treasury stock method using average market price 663,557 * 898,599 * TOTALS 7,832,308 6,794,733 8,004,195 6,794,108 Net income $ 152,116 ($ 489,395) $ 984,861 ($ 411,398) Per share amount $.02 ($.07) $.12 ($.06)
* Anti-Dilutive -15- 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: John Bingman, Treasurer -16-