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, 1998 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 - $6,246,151 shares of as February 28, 1998 Class A Common Stock, $.01 Par Value - $1,020,930 shares as of February 28, 1998 CCA INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page Number PART I FINANCIAL INFORMATION: Consolidated Balance Sheets as of February 28, 1998 and November 30, 1997 1-2 Consolidated Statements of Operations for the three months ended February 28, 1998 and February 28, 1997 3 Consolidated Statements of Cash Flows for the three months ended February 28, 1998 and February 28, 1997 4-5 Notes to Consolidated Financial Statements 6-13 Management Discussion and Analysis of Results of Operations and Financial Condition 14 PART II OTHER INFORMATION 15-16 SIGNATURES 17 CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS A S S E T S February 28, November 30, 1998 1997 Current Assets Cash and cash equivalents $ 2,568,863 $ 3,649,774 Short-term investments and marketable securities (Note 4) 1,650,366 1,926,513 Accounts receivable, net of allowances of $720,594 and $664,325, respectively (Note 8) 6,316,133 3,931,273 Inventories 6,617,428 6,014,672 Prepaid expenses and sundry receivables 411,994 248,553 Due from officers - Current 1,500 1,500 Deferred income taxes 426,754 391,604 Deferred advertising 583,787 - Total Current Assets 18,576,825 16,163,889 Property and Equipment, net of accumulated depreciation and amortization 520,513 486,029 Intangible Assets, net of accumulated amortization of $51,068 at February 28, 1998 and $47,956 at November 30, 1997 160,528 163,640 Other Assets Marketable securities 2,170,325 1,874,175 Due from officers - Non-current 65,250 65,250 Deferred income taxes 65,898 62,164 Other 52,612 52,612 Total Other Assets 2,354,085 2,054,201 Total Assets $21,611,951 $18,867,759 See Notes Consolidated to Financial Statements. -1- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY February 28, November 30, 1998 1997 Current Liabilities Accounts payable and accrued liabilities $ 7,149,405 $ 5,053,665 Income taxes payable 352,416 86,103 Total Current Liabilities 7,501,821 5,139,768 Shareholders' Equity Common stock, $.01 par; authorized 15,000,000 shares; issued and outstanding 6,246,151 and 6,192,621 shares, respectively 62,462 61,926 Class A common stock, $.01 par; authorized 5,000,000 shares; issued and outstanding 1,020,930 and 1,020,930 shares, respectively 10,209 10,209 Additional paid-in capital 4,454,229 4,454,764 Retained earnings 9,597,753 9,221,798 Unrealized (losses) on marketable securities 3,446 ( 2,737) 14,128,099 13,745,960 Less: Treasury Stock (7,500 shares at February 28, 1998) 17,969 17,969 Total Shareholders' Equity 14,110,130 13,727,991 Total Liabilities and Shareholders' Equity $21,611,951 $18,867,759 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 28, 1998 1997 Sales of health and beauty products, net $9,352,431 $8,617,289 Other income 86,254 81,228 9,438,685 8,698,517 Costs and Expenses Costs of sales 3,587,114 3,076,627 Selling, general and administrative expenses 2,885,466 2,764,341 Advertising, cooperative and promotions 2,160,785 2,169,725 Research and development 133,580 133,864 Provision for doubtful accounts 63,237 34,834 Interest expense - 2,829 8,830,182 8,182,220 Income before Income Taxes 608,503 516,297 Provision for Income Taxes 232,548 206,296 Net Income $ 375,955 $ 310,001 Net Income per Common Share $.05 $.04 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 28, 1998 1997 Cash Flows from Operating Activities: Net income $ 375,955 $ 310,001 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 73,996 93,060 Amortization of bond premium 472 266 Gain on sale of securities ( 2,976)( 3,202) (Increase) decrease in deferred income taxes ( 38,884) 11,613 (Increase) in accounts receivable ( 2,384,860) ( 161,791) (Increase) in inventory ( 602,756) ( 357,776) (Increase) in prepaid expenses ( 163,441) ( 293,735) (Increase) in deferred advertising ( 583,787) - Increase in accounts payable 2,095,740 1,052,334 Increase in income taxes payable 266,313 66,833 Net Cash (Used in) Provided by Operating Activities ( 964,228) 717,603 Cash Flows from Investing Activities: Acquisition of property, plant and equipment( 105,368)( 72,765) Proceeds of monies due from officers - 2,400 Decrease in other assets - 350 Purchase of short-term investments ( 532,119) ( 1,236,702) Proceeds from sale of investments 520,804 794,915 Purchase of treasury stock - ( 5,469) Net Cash (Used in) Investing Activities( 116,683) ( 517,271) Cash Flows from Financing Activities: Payment on debt - ( 81,750) Net (Decrease) Increase in Cash ( 1,080,911) 118,582 Cash and Cash Equivalents at Beginning of Period 3,649,774 1,422,783 Cash and Cash Equivalents at End of Period $2,568,863 $1,541,365 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ - $ 1,667 Income taxes 5,119 127,850 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 28, 1998 1997 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 $35,000 $30,000 Common stock issued ( 35,000) ( 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, 1998 are not necessarily indicative of the results that may be expected for the year ended November 30, 1997. 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, 1996. NOTE 2 - ORGANIZATION AND DESCRIPTION OF BUSINESS CCA Industries, Inc. ("CCA") was incorporated in the State of Delaware on March 25, 1983. CCA manufactures and distributes health and beauty aid products. CCA has several subsidiaries (CCA Cosmetics, Inc., CCA Labs, Inc., and Berdell, Inc.), all of which are currently inactive. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of CCA and its wholly-owned subsidiaries (collectively the "Company"). All significant inter- company accounts and transactions have been eliminated. The consolidated financial statements include the use of estimates, which management believes are reasonable. Use of Estimates: The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. Short-Term Investments and Marketable Securities: Short-term investments and marketable securities consist of corporate and government bonds 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. -6- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Statements of Cash Flows Disclosure: 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. During fiscal 1998, two officers/shareholders exercised in the aggregate 70,000 options in exchange for previously issued common stock. The common shares were put into treasury and were subsequently cancelled. 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 oftheir 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. 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, whichever 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. Financial Instruments: The carrying value of assets and liabilities considered financial instruments approximate their respective fair value. Income Taxes: Income tax expense includes federal and state taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. -7- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Tax Credits: Tax credits, when present, are accounted for using the flow-through method as a reduction of income taxes in the years utilized. Income Per Common Share: Income per common share has been computed using the weighted average number of shares of common stock outstanding during the periods based on the treasury stock method using average market price. Fully diluted earnings per share are not presented because they are either anti-dilutive or result in dilution of less than 3%. NOTE 4 - INVENTORIES The components of inventory consist of the following: February 28, November 30, 1998 1997 Raw materials $4,477,416 $ 4,017,838 Finished goods 2,140,012 1,996,834 $6,617,428 $ 6,014,672 NOTE 5 - PROPERTY AND EQUIPMENT The components of property and equipment consisted of the following: February 28, November 30, 1998 1997 Machinery and equipment $ 236,582 $ 236,582 Furniture and equipment 329,526 329,526 Tools, dies, and masters 1,689,714 1,584,346 Leasehold improvements 108,474 108,474 2,364,296 2,258,928 Less: Accumulated depreciation and amortization 1,843,783 1,772,899 Property and Equipment - Net $ 520,513 $ 486,029 Depreciation and amortization expense for the three months ended February 28, 1998 amounted to $70,884 and for the year ended November 30, 1997 amounted to $364,536. NOTE 6 - INTANGIBLE ASSETS Intangible assets consist of the following: February 28, November 30, 1998 1997 Patents and trademarks $ 211,596 $ 211,596 Less: Accumulated amortization 51,068 47,956 Intangible Assets - Net $ 160,528 $ 163,640 -8- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - INTANGIBLE ASSETS (Continued) Amortization expense for the three months ended February 28, 1998 amounted $3,112 and for the year ended November 30, 1997 amounted to $11,845. NOTE 7 - 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 $583,787 is accordingly reflected in the balance sheet for the interim period.This deferral is the result of the Company's $-0- media budget for the year which contemplates 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: 1998 1997 (In Millions) (In Millions) Media advertising budget for the fiscal year $5.00 $5.20 Pro-rata portion for three months $1.25 $1.30 Media advertising spent 1.61 1.48 Accrual (deferral) ($ .36) ($ .18) Anticipated Co-op advertising commitments $3.00 $3.00 Pro-rata portion for three months $ .75 $ .75 Co-op advertising spent .97 .87 Accrual (deferral) ($ .22) ($ .12) NOTE 8 - 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, 1998 1997 a) Media advertising $1,900 $ 401 b) Coop advertising 537 375 c) Accrued returns 926 712 d) Bonuses * 286 e) Royalty payable * 269 $3,363 $2,043 -9- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Continued) All other liabilities were for trade payables or individually did not exceed 5% of total current liabilities. * under 5% NOTE 9 - OTHER INCOME Other income consists of the following at February 28: 1998 1997 Interest income $ 89,725 $71,864 Dividend income 343 4,217 Miscellaneous ( 3,814) 5,147 $86,254 $81,228 NOTE 10 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES Short-term investments and marketable securities, which consist of stock and various corporate and government obligations, are stated at market value. The Company has classified its investments as Available-for-Sale securities and considers as current assets those investments which will mature or are likely to be sold in the next fiscal year. The remaining investments are considered non-current assets. The cost and market values of the invest ments at February 28, 1998 and November 30, 1997 were as follows: February 28, November 30, 1998 1997 Current: COST MARKET COST MARKET Corporate obligations $ 99,006 $ 99,500$ 99,006 $ 99,448 Government obligations (including mortgage backed securities) 1,549,288 1,550,865 1,827,503 1,827,065 Total 1,648,294 1,650,365 1,926,509 1,926,513 Non-Current: Corporate obligations 1,167,345 1,170,360 741,893 744,921 Government obli- gations 1,001,609 999,966 1,135,023 1,129,254 Total 2,168,954 2,170,326 1,876,916 1,874,175 Total $3,817,248 $3,820,691$3,803,425$3,800,688 -10- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS