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 28, 1997 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 - $6,058,621 shares as of February 28, 1997 Class A Common Stock, $.01 Par Value - $1,154,930 shares as of February 28, 1997 CCA INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page Number PART I FINANCIAL INFORMATION: Consolidated Balance Sheets as of February 28, 1997 and November 30, 1996 1-2 Consolidated Statements of Operations for the three months ended February 28, 1997 and February 29, 1996 3 Consolidated Statements of Cash Flows for the three months ended February 28, 1997 and February 29, 1996 4-5 Notes to Consolidated Financial Statements 6-12 Management Discussion and Analysis of Results of Operations and Financial Condition 13 PART II OTHER INFORMATION 14-15 SIGNATURES 16 CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
A S S E T S February 28, November 30, 1997 1996 Current Assets Cash and cash equivalents $1,541,365 $1,422,783 Short-term investments and marketable securities (Note 4) 1,486,244 1,546,289 Accounts receivable, net of allowances of $1,013,392 and $1,066,549, respectively (Note 8) 4,179,291 4,017,500 Inventories 6,233,518 5,875,742 Prepaid expenses and sundry receivables 603,074 603,952 Due from officers - Current 1,500 3,900 Prepaid income taxes 42,911 87,552 Deferred income taxes 479,775 496,267 Deferred Advertising 294,613 - Total Current Assets 14,862,291 14,053,985 Property and Equipment, net of accumulated depreciation and amortization 701,490 729,706 Intangible Assets, net of accumulated amortization of $39,001 at February 28, 1997 and $36,111 at November 30, 1996 162,958 155,037 Other Assets Marketable securities 2,023,151 1,540,596 Treasury bonds 95,904 93,996 Due from officers - Non-current 25,250 25,250 Deferred income taxes 60,171 55,292 Other 53,867 54,217 Total Other Assets 2,258,343 1,769,351 Total Assets $17,985,082 $16,708,079
See Notes Consolidated to Financial Statements. -1- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY February 28, November 30, 1997 1996 Current Liabilities Notes payable - Current portion $ 81,750 $ 163,500 Accounts payable and accrued liabilities 5,847,199 4,794,865 Income taxes payable 47,697 25,505 Total Current Liabilities 5,976,646 4,983,870 Shareholders' Equity Common stock, $.01 par; authorized 15,000,000 shares; issued and outstanding 6,058,621 and 6,012,621 shares, respectively 60,586 60,126 Class A common stock, $.01 par; authorized 5,000,000 shares; issued and outstanding 1,154,930 shares, respectively 11,549 11,549 Additional paid-in capital 4,454,764 4,455,224 Retained earnings 7,526,164 7,216,163 Unrealized (losses) on marketable securities ( 26,658)( 6,353) 12,026,405 11,736,709 Less: Treasury Stock (7,500 shares at February 28, 1997) 17,969 12,500 Total Shareholders' Equity 12,008,436 11,724,209 Total Liabilities and Shareholders' Equity $17,985,082 $16,708,079
See Notes to Consolidated Financial Statements. -2- CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Three Months Ended Ended February 28, February 29, 1997 1996 Sales of health and beauty products, net $8,617,289 $10,125,118 Other income 81,228 60,591 8,698,517 10,185,709 Costs and Expenses Costs of sales 3,076,627 3,855,577 Selling, general and administrative expenses 2,764,341 2,844,468 Advertising, cooperative and promotions 2,169,725 2,609,294 Research and development 133,864 136,286 Provision for doubtful accounts 34,834 60,768 Interest expense 2,829 13,441 8,182,220 9,519,834 Income before Income Taxes 516,297 665,875 Provision for Income Taxes 206,296 297,715 Net Income $ 310,001 $ 368,160 Net Income per Common Share (Note 2) $.04 $.05
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 28, February 29, 1997 1996 Cash Flows from Operating Activities: Net Income $ 310,001 $ 368,160 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 93,060 86,081 Amortization of bond premium 266 762 Gain on sale of securities ( 3,202) Decrease (increase) in deferred income taxes 11,613 ( 27,093) (Increase) in accounts receivable ( 161,791) ( 2,717,645) (Increase) decrease in inventory ( 357,776) 410,688 (Increase) in prepaid expenses ( 293,735) ( 744,119) Increase in accounts payable 1,052,334 1,299,869 Increase in income taxes payable 66,833 323,738 Net Cash Provided by (Used in) Operating Activities 717,603 ( 999,559) Cash Flows from Investing Activities: Acquisition of property, plant and equipment( 72,765) ( 50,752) Proceeds of monies due from officers 2,400 - Decrease (increase) in other assets 350 ( 950) Purchase of short-term investments ( 1,236,702) - Proceeds from sale of investments 794,915 400,045 Purchase of treasury stock ( 5,469) - Net Cash (Used in ) Provided by Investing Activities ( 517,271) 348,343 Cash Flows from Financing Activities: Payment on debt ( 81,750)( 82,078) Proceeds from stock option exercises - 166,940 Proceeds form short term borrowing - 400,000 Net Cash (Used in) Provided by Financing Activities ( 81,750) 484,862 Net Increase (Decrease) in Cash 118,582 ( 166,354) Cash and Cash Equivalents at Beginning of Period 1,422,783 312,150 Cash and Cash Equivalents at End of Period $1,541,365 $ 145,796 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 1,667 $ 14,246 Income taxes 127,850 -
See Notes to Consolidated Financial Statements. -4- CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) (UNAUDITED) Three Months Three Months Ended Ended February 28, February 29, 1997 1996 Supplemental Schedule of Noncash Investing and Financing Activities: The Company issued common stock in exchange for exercise of options and surrender of options and surrender of outstanding shares of stock: Common stock retired $30,000 $ - Common stock issued ( 30,000) - $ - $ -
See Notes to Consolidated Financial Statements. -5- 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. Operat ing results for the three month period ended February 28, 1997 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 Com pany 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. -6- 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 dis poses 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 ex- penses 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%. -7- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Financial Instruments The carrying value of assets and liabilities considered financial instruments under SFAS No.107 approximate their respective fair value. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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 esti mates. NOTE 3: INVENTORIES The components of inventory consist of the following: February 28, November 30, 1997 1996 Raw materials $3,977,836 $4,065,961 Finished goods 2,255,682 1,808,781 $6,233,518 $5,875,742 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 28, November 30, 1997 1996 a) Media advertising $1,211 $ * b) Coop advertising 481 321 c) Accrued returns 477 505 $2,169 $ 826 All other liabilities were for trade payables or individually did not exceed 5% of total current liabilities. * Under 5%. -8- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5: OTHER INCOME Other income consists of the following at February 28, 1997 and February 29, 1996 1997 1996 Interest income $71,864 $56,532 Dividend income 4,217 4,059 Miscellaneous 5,147 - $81,228 $60,591 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 share holders' equity. The market value at February 28, 1997 was $3,605,299 as compared to $3,180,881 at November 30, 1996. The cost and market values of the investments at February 28, 1997 were as follows: -9- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED) A detail list of the securities held follows:
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 6.000 200,000 200,000 200,096 200,096 Dayton P & L 5/01/97 5.625 100,000 98,265 99,982 99,982 Tennessee Valley 3/04/98 5.125 100,000 100,000 99,156 99,156 Union Electric 3/01/97 5.500 50,000 49,244 50,000 50,000 $546,515 $547,734 $547,734
-10- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
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 $ 97,969 $ 97,969 US Treasury Note 10/31/98 4.750 200,000 199,992 195,938 195,938 US Treasury Note 10/15/98 7.125 250,000 251,728 254,063 254,063 US Treasury Note 5/2/97 5.275 200,000 194,874 197,690 197,690 US Treasury Note 1/31/98 5.125 200,000 199,695 198,562 198,562 US Treasury Note 4/30/98 5.125 190,000 189,883 188,457 188,457 US Treasury Note 4/30/98 5.125 10,000 9,992 9,919 9,919 US Treasury Note 5/29/97 5.010 700,000 691,138 691,124 691,124 US Treasury Note 7/31/98 5.250 250,000 249,834 247,813 247,813 US Treasury Note 2/28/99 5.885 250,000 249,953 249,063 249,063 US Treasury Note 6/12/97 5.170 45,000 43,869 44,352 44,352
-11- CCA INDUSTRIES, INC. AND SUBSIDIARIES MARKETABLE SECURITIES - OTHER INVESTMENTS NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
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) FHLMC 1628-N 12/15/2023 6.500 50,000 $ 48,024 $ 43,969 $ 43,969 EE Bonds - 7.050 90,000 95,904 95,904 95,904 FNMA 93-G-26-B 8/25/2022 7.000 10,000 8,688 8,339 8,339 FNMA 93-224-D 11/25/2023 6.500 104,000 101,873 89,024 89,024 FNMA 92-2-N 1/25/2024 6.500 52,000 47,424 43,003 43,003 FHJMC 1702-U 3/24/2024 7.00 4,000 2,938 2,815 2,815 FNMA 11/10/98 5.050 200,000 199,950 196,562 196,562 2,885,443 2,854,565 2,854,565 EQUITY SECURITIES: Number of Shares Preferred Stock: Bank America Corp. 8,000 200,000 203,000 203,000 $3,631,958 $3,605,299 $3,605,299
-12- CCA INDUSTRIES, INC. MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) For the three month period ended February 28, 1997, the Company had net sales of $8,617,289 and net income of $310,001 after a provision for income taxes of $206,296, as compared to net sales of $10,125,118 and net income of $368,160 after provision for income taxes of $297,715 for the three month period ended February 29, 1996. 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 38% in 1996 to 36% in 1997 primarily due to the reduction of product promotions for the period; as well as certain product mix fluctuations. Advertising, cooperative and promotional allowance expenditures during the quarter decreased as a percentage of sales from 26% in 1996 to 25% in 1997 due to 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 1997 and accordingly the percentage dropped. Income before taxes for the quarter decreased to $516,297 from $665,875. This was primarily a result of the lower sales 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, however, was not sufficient to offset the decrease in sales and therefore the percentage to sales increased from 28% in 1996 to 32% in 1997. The Company's financial position as at February 28, 1997 consists of current assets of $14,862,291 and current liabilities of $5,976,646. Shareholders' Equity increased for the three month period from $11,724,209 on November 30, 1996 to $12,008,436 as of February 28, 1997 primarily due to the income of $310,001 for the period. Although the Company's operations resulted in the generation of approximately $700,000 of cash, the Company used approximately $500,000 to purchase "Available for Sale" securities and fixed assets. The Company also used approximately $80,000 to reduce its debt. 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. - 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 February 28, 1997. -14- 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 28, February 29, 1997 1996 Item 6. Primary: Average shares outstanding 7,208,551 6,986,689 Net effect of dilutive stock options--based on the treasury stock method using average market price 864,342 833,087 TOTALS 8,072,893 7,819,776 Net income $ 310,001 $ 368,160 Per share amount $.04 $.05 * Not included as their effect would be 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 David Edell, President By: Ira W. Berman Ira W. Berman, Secretary -16-