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 May 31, 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 as of May 31, 1998
Class A Common Stock, $.01 Par Value - 1,020,930 shares as of
May 31, 1998
CCA INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I FINANCIAL INFORMATION:
Consolidated Balance Sheets as of
May 31, 1998 and November 30, 1997 (Restated). . . . . . . . 1-2
Consolidated Statements of Operations
for the three months and six months ended
May 31, 1998 and 1997 (Restated) . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for
the six months ended May 31, 1998
and 1997 (Restated). . . . . . . . . . . . . . . . . . . . . 4-5
Notes to Consolidated Financial Statements (Restated). . . . .6-14
Management's Discussion and Analysis of
Results of Operations and Financial
Condition (Restated) . . . . . . . . . . . . . . . . . . . 15-16
PART II OTHER INFORMATION. . . . . . . . . . . . . . . . . . . 17-18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
May 31, November 30,
1998 1997
(Restated) (Restated)
Current Assets
Cash and cash equivalents $ 1,771,748 $ 3,649,774
Short-term investments and marketable
securities (Note 10) 1,692,614 1,926,513
Accounts receivable, net of allowances of
$1,070,630 and $664,325, respectively 6,437,960 3,931,273
Inventories 8,131,371 6,014,672
Prepaid expenses and sundry receivables 480,494 248,553
Due from officers - Current 1,500 1,500
Deferred income taxes 763,558 699,294
Deferred advertising 889,090 -
Total Current Assets 20,168,335 16,471,579
Property and Equipment, net of accumulated
depreciation and amortization 540,851 486,029
Intangible Assets, net of accumulated
amortization of $56,997 at May 31, 1998
and $47,956 at November 30, 1997 260,251 163,640
Other Assets
Marketable securities 2,159,809 1,874,175
Due from officers - Non-current 65,250 65,250
Deferred income taxes 124,342 111,006
Other 53,432 52,612
Total Other Assets 2,402,833 2,103,043
Total Assets $23,372,270 $19,224,291
See Notes Consolidated to Financial Statements.
-1-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
May 31, November 30,
1998 1997
(Restated) (Restated)
Current Liabilities
Notes payable $ 697,380 $ -
Accounts payable and accrued liabilities 6,732,380 5,053,665
Income taxes payable 690,765 86,104
Total Current Liabilities 8,120,525 5,139,769
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 61,927
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 4,454,228 4,454,763
Retained earnings 10,759,128 9,578,329
Unrealized gains (losses) on marketable
securities 4,911 ( 2,737)
Minority deficiency of consolidated subsidiary ( 21,224) -
15,269,714 14,102,491
Less: Treasury Stock (7,500 shares at
May 31, 1998) 17,969 17,969
Total Shareholders' Equity 15,251,745 14,084,522
Total Liabilities and Shareholders' Equity $23,372,270 $19,224,291
See Notes to Consolidated Financial Statements.
-2-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
May 31, May 31,
1998 1997 1998 1997
(Restated) (Restated) (Restated) (Restated)
Revenues
Sales of Health and
Beauty Aid
Products - Net $10,770,270$10,552,412 $20,122,701 $19,169,701
Other income 97,272 72,935 183,526 154,163
10,867,542 10,625,347 20,306,227 19,323,864
Costs and Expenses
Costs of sales 4,127,413 3,940,006 7,714,527 7,016,633
Selling, general and
administrative expenses 3,291,583 2,895,449 6,177,049 5,659,790
Advertising, cooperative
and promotions 1,947,555 2,341,726 4,108,340 4,511,451
Research and development 171,740 201,316 305,320 335,180
Provision for doubtful
accounts 15,703 31,562 78,940 66,396
Interest expense 967 2,077 967 4,906
9,554,961 9,412,136 18,385,143 17,594,356
Income before
Income Taxes 1,312,581 1,213,211 1,921,084 1,729,508
Provision for Income
Taxes 529,161 506,499 761,709 712,795
Net Income Including
Minority Deficiency of
Consolidated
Subsidiary 783,420 706,712 1,159,375 1,016,713
Minority Deficiency in Net
Loss of Consolidated
Subsidiary 21,424 - 21,424 -
Net Income $ 804,844 $ 706,712 $ 1,180,799 $ 1,016,713
Earnings per Share (Note 3)
Basic $.11 $.10 $.16 $.14
Diluted $.10 $.09 $.15 $.13
See Notes to Consolidated Financial Statements.
-3-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Six Months
Ended Ended
May 31, May 31,
1998 1997
(Restated) (Restated)
Cash Flows from Operating Activities:
Net income $1,180,799 $1,016,713
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 155,328 183,059
Minority deficiency in consolidated
subsidiaries ( 21,424) -
Amortization of bond premium 942 1,994
(Gain) on sale of marketable securities( 4,727) ( 5,693)
Loss on sale of machinery - 6,701
(Increase) in deferred income taxes ( 77,600) ( 608)
(Increase) in accounts receivable - Net ( 2,506,687) ( 1,089,484)
(Increase) in inventory ( 2,116,699) ( 226,633)
(Increase) decrease in prepaid expenses
and miscellaneous receivables ( 231,740) 119,450
(Increase) in deferred advertising ( 889,090) ( 697,391)
Increase in accounts payable and
accrued liabilities 1,678,715 1,642,867
Increase in taxes payable 604,661 486,388
(Increase) decrease in security deposits ( 820) 375
Net Cash (Used in) Provided by
Operating Activities ( 2,228,342) 1,437,738
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment( 306,762) ( 128,571)
Proceeds from sale of equipment - 40,960
Proceeds of money due from officers - 400
Purchase of marketable securities ( 1,076,706) ( 1,867,252)
Proceeds from sale of investments 1,036,404 1,830,925
Purchase of treasury stock - ( 5,469)
Net Cash (Used in) Investing
Activities ( 347,064) ( 129,007)
Cash Flows from Financing Activities:
Proceeds from borrowings 1,083,539 -
Payment on debt ( 386,159) ( 136,250)
Net Cash Provided by (Used in)
Financing Activities 697,380 ( 136,250)
Net (Decrease) Increase in Cash ( 1,878,026) 1,172,481
Cash at Beginning of Period 3,649,774 1,422,783
Cash at End of Period $1,771,748 $2,595,264
See Notes to Consolidated Financial Statements.
-4-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Six Months Six Months
Ended Ended
May 31, May 31,
1998 1997
(Restated) (Restated)
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $ 967 $ 6,217
Income taxes 150,000 127,850
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 six month period ended May 31, 1998 are not necessar
ily indicative of the results that may be expected for the year ended
November 30, 1998. 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, 1997.
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.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of CCA and the
following subsidiaries:
Subsidiary Name Ownership %
CCA Cosmetics, Inc. 100% Currently Inactive
CCA Labs, Inc. 100% Currently Inactive
Berdell, Inc. 100% Currently Inactive
Fragrance Corporation
of America, Ltd. 80% Acquired March 19, 1998
All significant intercompany accounts and transactions have been eliminated.
Use of Estimates:
The consolidated financial statements include the use of estimates, which
management believes are reasonable.
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.
-6-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 1997 and 1998, two officers/shareholders exercised options to
purchase 60,000 and 70,000 options, respectively, in exchange for 14,000
and 16,470 shares, respectively, previously issued shares of 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
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.
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. Goodwill represents
the excess of cost over the fair value of the net assets acquired and is
amortized over 60 months.
-7-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Reclassifications:
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
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 Common Share:
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" in 1998. Basic earnings per share is
calculated using the average number of shares of common stock outstanding
during the year. Diluted earnings per share is computed on the basis of
the average number of common shares outstanding plus the effect of out-
standing stock options using the "treasury stock method" and convertible
debentures using the "if-converted" method. Common stock equivalents
consist of stock options.
Revenue Recognition:
The Company recognizes sales at the time delivery occurs. Although no legal
right of return exists between the customer and the Company, it is an
industry-wide practice to accept returns from customers. The Company,
therefore, records a reserve for returns equal to its gross profit on its
historical percentage of returns on its last five months sales.
NOTE 4 - INVENTORIES
The components of inventory consist of the following:
May 31, November 30,
1998 1997
Raw materials $ 4,835,981 $ 4,017,838
Finished goods 3,295,390 1,996,834
$ 8,131,371 $ 6,014,672
At May 31, 1998 and November 30, 1997, the Company had a reserve for
obsolescence of $889,444 and $860,417, respectively.
-8-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT
The components of property and equipment consisted of the following:
May 31, November 30,
1998 1997
Machinery and equipment $ 237,468 $ 236,582
Furniture and equipment 364,597 329,526
Tools, dies, and masters 1,749,499 1,584,346
Leasehold improvements 108,474 108,474
2,460,038 2,258,928
Less: Accumulated depreciation
and amortization 1,919,187 1,772,899
Property and Equipment - Net $ 540,851 $ 486,029
Depreciation and amortization expense for the six months ended May 31,
1998 amounted to $146,288 and for the year ended November 30, 1997
amounted to $364,536.
NOTE 6 - INTANGIBLE ASSETS
Intangible assets consist of the following:
May 31, November 30,
1998 1997
Goodwill $ 75,652 $ -
Patents and trademarks 241,595 211,596
317,247 211,596
Less: Accumulated amortization 56,996 47,956
Intangible Assets - Net $ 260,251 $ 163,640
Amortization expense for the six months ended May 31, 1998 amounted
to $9,040 and for the year ended November 30, 1997 amounted to
$11,845.
In March 1998, the Company acquired an 80% interest in the newly formed
Fragrance Corporation of America, Ltd. (FCA). The Company recorded $75,652
of goodwill in connection with the transaction representing the cost over
the fair market value of the assets acquired. FCA subsequently acquired
certain assets (inventory and intangibles) from Shiara, Inc. Since the
price paid by FCA to Shiara was only equal to the fair market value of the
inventory obtained, no value was assigned to the intangibles as a result of
the purchase.
-9-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $889,090 is accordingly reflected in
the balance sheet for the interim period. This deferral is the result of the
Company's $5,000,000 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 six months $2.50 $2.60
Media advertising spent 3.03 3.03
Accrual (deferral) ($ .53) ($ .43)
Anticipated Co-op advertising commitments $3.00 $3.00
Pro-rata portion for six months $1.50 $1.50
Co-op advertising spent 1.86 1.77
Accrual (deferral) ($ .36) ($ .27)
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:
May 31, November 30,
1998 1997
(In 000's) (In 000's)
a) Media advertising $1,474 $ 401
b) Coop advertising 676 375
c) Accrued returns 975 712
d) Bonuses * 286
e) Royalty payable * 269
$3,125 $2,043
-10-
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 May 31:
1998 1997
Interest income $173,734 $144,215
Dividend income 1,137 8,741
Miscellaneous 8,655 1,207
$183,526 $154,163
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 May 31, 1998 and November 30, 1997 were as follows:
May 31, November 30,
1998 1997
Current: COST MARKET COST MARKET
Corporate obligations $ 339,006 $ 342,000 $ 99,006 $ 99,448
Government obligations
(including mortgage
backed securities) 1,349,282 1,350,614 1,827,503 1,827,065
Total 1,688,288 1,692,614 1,926,509 1,926,513
Non-Current:
Corporate obligations 1,366,571 1,369,344 741,893 744,921
Government obli-
gations 792,653 790,465 1,135,023 1,129,254
Total 2,159,224 2,159,809 1,876,916 1,874,175
Total $3,847,512 $3,852,423 $3,803,425 $3,800,688
-11-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
The market value at May 31, 1998 was $3,852,423 as compared to $3,800,688 at November 30, 1997.
The cost and market values of the investments at May 31, 1998 were as 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:
GMAC 2/22/00 5.450 % $200,000 $ 199,226 $ 197,998 $ 197,998
Dreyfus Fund High Yield
Strategies 240,000 240,000 242,000 242,000
GTE Southwest Deb 12/01/99 5.820% 100,000 99,851 99,654 99,654
AT&T 6/01/98 4.750% 100,000 99,006 100,000 100,000
Florida Power & Light 7/01/99 5.500% 300,000 295,776 298,800 298,800
Virginia Electric & Power 4/01/00 5.875% 250,000 246,117 249,890 249,890
GMAC Smartnotes 10/15/99 5.950% 200,000 200,000 199,612 199,612
Florida Power & Light 4/01/00 5.375% 200,000 199,850 198,234 198,234
T.V.A. - Callable 8/01/99 6.250% 125,000 125,751 125,156 125,156
1,705,577 1,711,344 1,711,344
-12-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - 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 $ 99,688 $ 99,688
US Treasury Note 10/31/98 4.750 200,000 199,992 199,376 199,376
US Treasury Note 10/15/98 7.125 250,000 250,000 251,720 251,720
US Treasury Note 7/31/98 5.250 250,000 249,834 250,080 250,080
US Treasury Note 2/28/99 5.875 250,000 249,953 250,625 250,625
US Treasury Note 11/15/99 5.875 250,000 249,141 251,095 251,095
US Treasury Zero Coupon 8/15/99 5.920 148,000 136,038 138,601 138,601
US Treasury Note 2/15/99 5.000 100,000 99,869 99,625 99,625
-13-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - 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)
Federal Nat. Mtg. Note 7/30/99 5.860% 100,000 $ 99,883 $ 100,142 $ 100,142
FHLMC 1628-N 12/15/2023 6.500 50,000 48,024 47,325 47,325
EE Bonds - 7.180 90,000 101,754 101,754 101,754
FNMA 93-G-26-B 8/25/2022 7.000 10,000 6,134 5,041 5,041
FNMA 93-224-D 11/25/2023 6.500 104,000 101,873 97,676 97,676
FNMA 92-2-N 1/25/2024 6.500 52,000 47,424 46,895 46,895
FHLMC 1702-U 3/24/2024 7.000 4,000 2,382 1,936 1,936
FNMA 11/10/98 5.050 200,000 199,950 199,500 199,500
2,141,935 2,141,079 2,141,079
$3,847,512 $3,852,423 $3,852,423
-14-
CCA INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED)
For the six month period ended May 31, 1998, the Company had net sales of
$20,122,701 and net income of $1,180,799 after a provision for income taxes of
$745,992 (net of consolidated subsidiary's deficiency of $14,283), as compared
to net sales of $19,169,701 and net income of $1,016,713 after a provision
for income taxes of $712,795 for the six month period ended May 31, 1997.
Gross margins of 62% for the six months were down from the 63% of the prior
year. Advertising, cooperative and promotional allowance expenditures
decreased during the six month period from $4,511,451 to $4,108,340.
Advertising expenditures were 20% of sales for the six months ended May 31,
1998 as compared with 23.5% for the period ended May 31, 1997. 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 $889,000 is accordingly reflected in the balance
sheet for the interim period, as compared to $697,000 at May 31, 1997. This
deferral is the result of the Company's $5 million 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 lower expenditures in the 3rd and 4th quarters. Specifically, the
Company spent approximately $3.03 million in the first six months on media
advertising and, therefore, expensed $2.5 million and deferred $.53 million as
of May 31, 1998. Similarly, as of May 31, 1998 the Company's co-op advertising
commitments for the year ended November 30, 1997 totaled approximately $3
million of which approximately $1.86 million was spent in the first six months
resulting in an expense of $1.5 million and a deferral of approximately $.36
million as of May 31, 1998.
The provision for doubtful accounts increased due to reserve necessary on
the increase in accounts receivable.
Comparatively as of May 31, 1997, the Company had anticipated media
advertising expense in fiscal year 1997 of $5.2 million and spent approximately
$3.03 million in the first six months resulting in a deferral of approximately
$.43 million ($3.03MM-$2.6MM). The anticipated Co-op commitments as of May 31,
1997 were $3 million for the year of which $1.77 million were spent for the
six months resulting in a $.27 million deferral ($1.77MM-$1.5MM).
Selling, general and administrative expenses ("SG&A") increased compared to
the prior year. The increase to 30.5% from 29.5% was due mostly to salary
increases and the "SG&A" expense incurred by the Company's newly formed
subsidiary relative to its initial two months' disproportionate sales volume.
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CCA INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED)
For the three month period ended May 31, 1998, net sales were $10,770,270 as
compared to $10,552,412 for May 31, 1997. Income for the quarter before taxes
increased to $804,844 from $706,712. Gross margins of 62% for the three
months ended May 31, 1998 were down from 63% in 1997. Advertising,
cooperative and promotional allowance expense during the quarter decreased to
$1,947,555 from $2,341,726. Advertising expenses were 18% of sales for the
quarter in 1998 as compared to 22% in 1997. Selling, general and
administrative expenses were approximately 30.5% in the current quarter as
compared to 27.5% in 1997.
Research and development expense was down for the three month and six month
periods due to the Company's shift from outsourcing its research and develop-
ment to using in-house personnel more.
Interest expense was down for the three month and six month periods due to
the reduction of the Company's long-term debt.
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 May 31, 1998 consists of current assets
of $20,168,335 and current liabilities of $8,120,525. During the six month
period ended May 31, 1998, shareholders' equity increased from $14,084,522 at
November 30, 1997 to $15,272,969 at May 31, 1998. This was due primarily to
the net income generated for the period.
During the six months, the Company used $2.23 million in operations, generated
$697,000 from new borrowings, and used approximately $347,000 to purchase fixed
assets and additional marketable securities. These factors resulted in a net
decrease in the Company's cash of about $1,880,000.
The Company believes that its current financial condition is sufficient to
support its proposed operations for the near future.
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CCA INDUSTRIES, INC.
PART II OTHER INFORMATION
All information pertaining to Part II is omitted pursuant to the instructions
pertaining to that part.
The Form 8K filed on April 16, 1998 is incorporated by reference.
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PART II, ITEM 6. (Continued) EXHIBIT 11
CCA INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
Three Months Ended Six Months Ended
May 31, May 31,
1998 1997 1998 1997
(Restated) (Restated) (Restated) (Restated)
Item 6.
Weighted average shares
outstanding - Basic 7,259,581 7,206,051 7,242,323 7,215,628
Net effect of dilutive stock
options--based on the
treasury stock method
using average market
price 930,907 939,309 826,929 877,283
Weighted average shares
outstanding - Diluted 8,190,488 8,145,360 8,069,252 8,092,911
Net income $ 804,844 $ 706,712$1,180,799 $1,016,713
Per share amount
Basic $.11 $.10 $.16 $.14
Diluted $.10 $.09 $.15 $.13
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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
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