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, 2002 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 re- quired 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 - 6,024,627 shares as of May 31, 2002 Class A Common Stock, $.01 Par Value - 1,020,930 shares as of May 31, 2002 CCA INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page Number PART I FINANCIAL INFORMATION: Consolidated Balance Sheets as of May 31, 2002 and November 30, 2001 . . . . . . . . . . . . . 1-2 Consolidated Statements of Operations for the three months and six months ended May 31, 2002 and 2001 . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Comprehensive Income for the three months and six months ended May 31, 2002 and 2001. . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows for the six months ended May 31, 2002 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . . .6-15 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . 16-17 PART II OTHER INFORMATION. . . . . . . . . . . . . . . . . . . 18-19 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
A S S E T S May 31, November 30, 2002 2001 (Unaudited) Current Assets Cash and cash equivalents $ 1,903,531 $ 2,555,938 Short-term investments in marketable securities (Notes 3 and 10) 760,138 355,345 Accounts receivable, net of allowances of $1,288,032 and $1,295,085 respectively 6,865,686 4,464,991 Inventories 4,463,369 4,783,530 Prepaid expenses and sundry receivables 552,634 401,403 Deferred income taxes 1,538,487 1,617,403 Prepaid income taxes and refunds due 1,703 221,989 Deferred advertising 1,982,753 - Total Current Assets 18,068,301 14,400,599 Property and Equipment, net of accumulated depreciation and amortization 459,899 482,261 Intangible Assets, net of accumulated amortization of $155,216 at May 31, 2002 and $131,323 at November 30, 2001 597,986 618,933 Other Assets Marketable securities (Notes 3 and 10) 7,630,681 4,979,758 Due from officers - Non-current 19,227 20,598 Deferred income taxes 38,514 40,105 Other 56,663 56,663 Total Other Assets 7,745,085 5,097,124 Total Assets $26,871,271 $20,598,917
See Notes Consolidated to Financial Statements. -1- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY May 31, November 30, 2002 2001 (Unaudited) Current Liabilities Accounts payable and accrued liabilities $ 8,405,751 $ 4,154,256 Income tax payable 528,625 9,366 Total Current Liabilities 8,934,376 4,163,622 Subordinate Debentures (Due August 1, 2005) 502,656 510,656 Shareholders' Equity Common stock, $.01 par; authorized 15,000,000 shares; issued and outstanding 6,242,823 shares 62,428 62,428 Class A common stock, $.01 par; authorized 5,000,000 shares; issued and outstanding 1,020,930 10,209 10,209 Additional paid-in capital 3,834,296 3,834,296 Retained earnings 13,833,111 12,315,062 Accumulated other comprehensive income ( 58,600) ( 50,151) 17,681,444 16,171,844 Less: Treasury Stock (218,196 shares at May 31, 2002 and November 30, 2001, respectively) 247,205 247,205 Total Shareholders' Equity 17,434,239 15,924,639 Total Liabilities and Shareholders' Equity $26,871,271 $20,598,917
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, 2002 2001 2002 2001 Revenues Sales of Health and Beauty Aid Products - Net $13,213,844$12,787,878 $23,372,230 $22,884,407 Other income 98,503 76,605 187,311 158,161 13,312,347 12,864,483 23,559,541 23,042,568 Costs and Expenses Costs of sales 4,399,740 4,372,263 8,164,644 8,616,410 Selling, general and administrative expenses 3,865,127 3,880,089 7,601,451 6,901,420 Advertising, cooperative and promotions 2,858,396 2,501,421 5,121,922 4,613,893 Research and development 138,259 249,272 228,061 340,220 Provision for doubtful accounts ( 41,801) 24,155 ( 146,161) 114,673 Interest expense 8,320 10,895 17,235 51,201 11,228,041 11,038,095 20,987,152 20,637,817 Income before Income Taxes 2,084,306 1,826,388 2,572,389 2,404,751 Provision for Income Taxes 866,320 688,609 1,054,340 930,126 Net Income $1,217,986$ 1,137,779 $ 1,518,049 $ 1,474,625 Earnings per Share Basic $.17 $.17 $.22 $.21 Diluted $.16 $.16 $.20 $.20
See Notes to Consolidated Financial Statements. -3- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended Six Months Ended May 31, May 31, 2002 2001 2002 2001 Net Income $1,217,986 $1,137,779 $1,518,049 $1,474,625 Other Comprehensive Income Unrealized holding gains(loss) on investments 3,566 ( 4,682)( 8,449) 34,835 Provision (Benefit) for Taxes 1,266 ( 2,527)( 3,362) 13,473 Other Comprehensive Income (Loss) - Net 2,300 ( 2,155)( 5,087) 21,362 Comprehensive Income $1,220,286 $1,135,624 $1,512,962 $1,495,987 Earnings Per Share: Basic $.17 $.17 $.21 $.22 Diluted $.16 $.16 $.20 $.21
See Notes to Consolidated Financial Statements. -4- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) Six Months Six Months Ended Ended May 31, May 31, 2002 2001 Cash Flows from Operating Activities: Net income $1,518,049 $1,474,625 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 183,186 202,615 (Gain) loss on sale of marketable securities ( 3,025) 1,642 Decrease (increase) in deferred income taxes 80,507 ( 148,595) (Increase) in accounts receivable - Net ( 2,400,695) ( 1,123,604) Decrease (increase) in inventory 320,161 ( 89,920) (Increase) in prepaid expenses and miscellaneous receivables ( 151,231) ( 140,488) (Increase) in deferred advertising ( 1,982,753) ( 2,155,380) Increase in income taxes payable 519,259 265,751 Increase in accounts payable and accrued liabilities 4,251,495 3,760,271 Decrease in prepaid income taxes and refunds due 220,286 777,691 (Increase) in security deposits - ( 2,550) Net Cash Provided by Operating Activities 2,555,239 2,822,058 Cash Flows from Investing Activities: Acquisition of property, plant and equipment ( 136,932) ( 16,431) Acquisition of intangible assets ( 2,945) ( 22,756) Decrease (increase) of money due from officers 1,371 ( 355) Purchase of marketable securities ( 3,387,647) ( 3,189,974) Proceeds from sale and maturity of investments 324,507 2,938,681 Net Cash (Used in) Investing Activities ( 3,201,646) ( 290,835) Cash Flows from Financing Activities: Payment on debt - ( 1,500,000) Purchase of treasury stock - ( 55,303) Repurchase of outstanding debenture ( 6,000) ( 22,500) Net Cash (Used in) Financing Activities ( 6,000) ( 1,577,803) Net (Decrease) Increase in Cash ( 652,407) 953,420 Cash at Beginning of Period 2,555,938 804,508 Cash at End of Period $1,903,531 $1,757,928 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 17,235 $ 52,271 Income taxes 324,810 51,806
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 finan- cial 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 re- quired by generally accepted accounting principles for complete financial statements. In the opinion of manage- ment, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended May 31, 2002 are not necessarily indicative of the results that may be expected for the year ended November 30, 2002. 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, 2001. 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 wholly-owned subsidiaries (CCA Cosmetics, Inc., CCA Labs, Inc., Berdell, Inc., Nutra Care Corpora- tion, and CCA Online Industries, Inc.), all of which are currently inactive. In March of 1998 CCA acquired 80% of the newly organized Fragrance Corporation of America, Ltd. which manufactures and distributes perfume products. In 1999, the Company adopted a formal plan to discontinue the operations of the subsidiary. As of November 30, 2001, the Company had completed its plan of dissolution. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the ac- counts of CCA and its wholly-owned subsidiaries (collec - tively the "Company"). The minority interest in the discontinued consolidated subsidiary is no longer re- flected in the financial statements. All significant inter-company accounts and transactions have been elimi- nated. -6- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. Short-Term Investments in Marketable Securities: Short-term investments in 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 unreal ized 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. 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 obso- lescence is determined. -7- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment and Depreciation and Amortization Property and equipment are stated at cost. The Company charges to expense repairs and maintenance items, while major improvements and betterments are capitalized. When the Company sells or otherwise disposes of property and equipment items, the cost and related accumulated depre- ciation 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 trade marks 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 tempo- rary differences between income for financial reporting and income tax purposes. Tax Credits: Tax credits, when present, are accounted for using the flow-through method as a reduction of income taxes in the years utilized. -8- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 outstanding stock options using the "treasury stock method" and convertible debentures using the "if-converted" method. Common stock equivalents consist of stock options. In fiscal 2001, the Company repriced all of the outstanding stock options to $.50. Revenue Recognition: The Company recognizes net sales upon shipment of mer- chandise. Net sales comprise gross revenues less ex- pected returns, trade discounts, customer allowances and various sales incentives. Although no legal right of return exists between the customer and the Company, it is an industry-wide practice to accept returns from custom ers. The Company, therefore, records a reserve for re- turns equal to its gross profit on its historical per- centage of returns on its last five months sales. Accounts Receivable: Accounts receivable with credit balances have been in cluded as a current liability in "Accounts payable and accrued liabilities" in the accompanying balance sheet. The Company uses the allowance method to account for uncollectible accounts receivable. Accounts receivable are presented net of an allowance for doubtful accounts of $439,602 and $391,806 as of May 31, 2002 and November 30, 2001, respectively. Shipping and Handling Costs: The Company presents shipping and handling costs as part of Selling, general and administrative expense and not as part of Cost of sales. Freight costs were $1,057,947 and $1,271,719 for the six months ended May 31, 2002 and 2001, respectively. Comprehensive Income: The Company adopted SFAS #130, Comprehensive Income, which considers the Company's financial performance in that it includes all changes in equity during the period from transactions and events from non-owner sources. Reclassifications Certain prior year amounts have been reclassified to conform to the 2002 presentation. -9- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - INVENTORIES The components of inventory consist of the following: May 31, November 30, 2002 2001 Raw materials $3,476,156 $2,225,814 Finished goods 2,134,523 3,610,432 $5,610,679 $5,836,246 At May 31, 2002 and November 30, 2001, the Company had a reserve for obsolescence of $1,147,310 and $1,052,716, respectively. NOTE 5 - PROPERTY AND EQUIPMENT The components of property and equipment consisted of the following: May 31, November 30, 2002 2001 Machinery and equipment $ 171,196 $ 168,421 Furniture and equipment 775,984 741,414 Transportation equipment 10,918 10,918 Tools, dies, and masters 583,004 550,825 Leasehold improvements 229,690 162,283 1,770,792 1,633,861 Less: Accumulated depreciation and amortization 1,310,893 1,151,600 Property and Equipment - Net $ 459,899 $ 482,261 Depreciation expense for the six months ended May 31, 2002 and 2001 amounted to $159,293 and $179,231, respec- tively. NOTE 6 - INTANGIBLE ASSETS Intangible assets consist of the following: May 31, November 30, 2002 2001 Patents and trademarks $753,202 $750,256 Less: Accumulated amortization 155,216 131,323 Intangible Assets - Net $597,986 $618,933 Amortization expense for the six months ended May 31, 2002 and 2001 amounted to $23,893 and $23,384, respec- tively. -10- 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 pro portionately over the interim periods based on its total expected costs per its various advertising programs. Consequently a deferral of $1,982,753 is accordingly reflected in the balance sheet for the interim period. This deferral is the result of the Company's $7,500,000 media budget for the year which contemplates lower spend ing 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: May May 2002 2001 (In Millions) (In Millions) Media advertising budget for the fiscal year $7.50 $6.50 Pro-rata portion for six months $3.75 $3.25 Media advertising spent 5.14 4.63 Accrual (deferral) ($1.39) ($1.38) Anticipated Co-op advertising commitments $4.00 $4.00 Pro-rata portion for six months $2.00 $2.00 Co-op advertising spent 2.59 2.78 Accrual (deferral) ($ .59) ($0.78) 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, 2002 2001 (In Thousands) (In Thousands) Vacation accrual $ * $ 254 Media advertising 1,904 424 Coop advertising 1,540 392 Accrued returns 686 301 Accrued bonuses 536 510 $4,666 $1,881 * under 5% -11- 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 individ- ually did not exceed 5% of total current liabilities. NOTE 9 - OTHER INCOME Other income consists of the following at May 31: 2002 2001 Interest income $150,347 $120,393 Dividend income 6,175 8,678 Miscellaneous 30,789 29,090 $187,311 $158,161 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 securi- ties 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 investments at May 31, 2002 and November 30, 2001 were as follows: May 31, November 30, 2002 2001 Current: COST MARKET COST MARKET Corporate obligations $ 390,000 $ 397,339 $ - $ - Mutual Funds 164,955 107,286 159,805 107,015 Government obligations including mortgage backed securities) 250,179 255,513 247,330 248,330 Total 805,134 760,138 407,135 355,345 Non-Current: Corporate obligations 2,701,846 2,713,737 2,416,846 2,434,080 Government obli- gations 4,184,485 4,163,004 2,311,273 2,294,058 Preferred stock 757,954 753,940 250,000 251,620 Total 7,644,285 7,630,681 4,978,119 4,979,758 Total $8,449,419 $8,390,819 $5,385,254 $5,335,103 The market value at May 31, 2002 was $8,390,819 as compared to $5,335,103 at November 30, 2001. The gross unrealized gains and losses as at May 31, 2002 and November 30, 2001 were $40,762 and ($99,362) for May 31, 2002 and $35,542 and ($85,693) for November 30, 2001, respectively. The cost and market values of the investments at May 31, 2002 were as follows: -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 Of Number of Market 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 Smartnotes 10/15/03 4.600% 250,000 $ 250,000 $ 251,825 $ 251,825 GMAC Smartnotes 10/15/03 4.750 325,000 325,000 327,831 327,831 GMAC Smartnotes 1/15/03 5.550 250,000 250,000 254,483 254,483 GMAC Smartnotes 2/15/03 5.750 140,000 140,000 142,856 142,856 GMAC Smartnotes 6/15/03 4.750 300,000 300,000 302,895 302,895 GMAC Smartnotes 7/15/03 4.650 200,000 200,000 201,692 201,692 GMAC Smartnotes 8/15/03 4.250 499,000 499,000 500,697 500,697 GMAC Smartnotes 5/15/04 4.250 250,000 250,000 249,245 249,245 GMAC Smartnotes 5/15/05 5.000 175,000 175,000 174,967 174,967 Household Finance Corp. Internotes 5/15/04 4.250 250,000 250,000 249,260 249,260 International Business Machines 9/22/03 5.370 100,000 102,040 102,726 102,726 Colgate-Palmolive 12/1/03 5.270 100,000 100,860 102,572 102,572 Ford Motor Credit 3/20/04 6.125 245,000 249,946 250,027 250,027 3,091,846 3,111,076 3,111,076
-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: FHLMC 1628-N 12/15/2023 6.500% 14,286 $ 13,724 $ 14,563 $ 14,563 FNMA 93-224-D 11/25/2023 6.500 1,676 2,133 1,684 1,684 FHLB 9/15/2003 5.125 255,000 266,200 262,571 262,571 FHLB 11/15/2005 4.250 750,000 753,004 748,245 748,245 US Treasury Note 11/15/2003 4.250 200,000 199,891 202,366 202,366 US Treasury Note 11/15/2003 4.250 250,000 250,169 257,056 257,056 FNMA 11/6/2009 4.250 250,000 250,000 242,243 242,243 FNMA 11/6/2009 4.250 500,000 500,000 485,565 485,565 FHLMC 2/27/12 4.000 225,000 225,000 223,961 223,961 FNMA 9/15/04 3.500 250,000 249,805 250,157 250,157 FHLMC 12/6/05 4.600 225,000 225,000 226,055 226,055 FNMA Global 10/15/06 4.375 200,000 199,559 198,812 198,812 FNMA 11/23/04 4.000 250,000 250,000 250,860 250,860 FNMA 2/24/05 4.100 200,000 200,000 201,062 201,062 FNMA 5/20/05 3.500 200,000 200,000 199,100 199,100 FNMA 11/15/05 4.250 200,000 200,000 199,602 199,602 FNMA 5/16/06 4.000 200,000 200,000 199,102 199,102 Muniyield NJ Insd Frd Inc. 3,500 50,945 52,185 52,185 Muniholdings NJ Insd FD Inc. 3,700 49,502 50,024 50,024 Nuveen NJ Invt Quality Mun Fd 3,300 49,686 50,589 50,589 Nuveen NJ Invt Prem Inc Mun Fd 3,300 49,112 50,325 50,325 Van Kamp Amer Cap Inv Gr NJ 3,100 50,934 52,390 52,390 4,434,664 4,418,517 4,418,517
-14- 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 EQUITY: Preferred Stock: Merrill Lynch Trust 9/30/08 7.28% 6,000 $ 150,000 $ 149,760 $ 149,760 Tennessee Valley Auth Ser A 5/1/29 6.50 8,000 207,954 203,040 203,040 Corporate Backed Trust Certificates For AIG Sun America 5/17/07 6.70 6,000 150,000 151,140 151,140 Corporate Backed Trust Certificates For Bristol Myers Squibb 5/23/07 6.80 6,000 150,000 150,000 150,000 Other Equity Investments: Aberdeen Asia Pacific Income Fund 100,000 100,000 100,000 Dreyfus Premier Limited Term High Income CL B 9.96%* 12,824 164,955 107,286 107,286 922,909 861,226 861,226 *as of May 2002 $8,449,419 $8,390,819 $8,390,819
-15- CCA INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) For the three month period ended May 31, 2002, the Company had revenues of $13,312,347 and net income of $1,217,986 after a provision for taxes of $866,320. Last year,for the May 31 quarter, the Company had $12,864,483 of revenue and net income of $1,137,779. This represents a 3% and 7% improvement for sales and net income, respectively. Gross margins improved from 65.8% to 66.7%. This was primarily due to economies of scale derived as a result of the higher sales volume. Selling, general and administrative (SG&A) expenses remained the same at $3.9 million. For the three month period ending May 31, 2002, advertis- ing, cooperative and promotional allowance expenditures were $2.86 million. Last year, for the same three month period ending May 31, 2001, they were $2.5 million. The increase was due to an estimated increase in advertising. Advertising expenditures were 21.6% of sales compared to 19.6% last year. Since both co-op advertising and promotions have a material effect on the Company's operation, the Company attempts to anticipate its advertising and promotional commitments as a percent of gross sales in order to control its effect on its net income. In accordance with APB No. 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 $1.4 million for media expense and $.6 million for co-op expenditures for the six month period is reflected in the balance sheet. The Company deferred $2.16 million of media costs in the prior year for the six month period. The deferral is the result of the Company's current $7.5 million media budget for the entire year, which is predi- cated on substantially lower spending in the third and fourth quarters. Co-op expenditures are budgeted at $4 million for the year. Specifically, the Company spent $5.14 million for media advertising in the six months and $2.6 million in co-op advertising. The difference between the actual expense and the budgeted expense is deferred or accrued over the subsequent six month period, and by the end of the year will be fully expensed. For the six month period ended May 31, 2002, the Company had revenue of $23,559,541 and a net income of $1,518,049 after a provision of income taxes of $1,054,340. In the prior year's period, the Company had revenues of $23,042,568 and net income of $1,474,625 after a provision for income taxes of $930,126. Gross profit margins for the six month period ending May 31, 2002 increased from 62.4% in the prior year to 65%. For the six month period ended May 31, 2002, advertising cooperative and promotional allowance expenditures was $5,121,922 as compared to $4,613,893 for the six month period ending May 31, 2001. This is primarily due to an estimated increase in the national advertising budget from $6.5 million to $7.5 million annually. Advertising expenditures were 21.9% of sales vs. 20.2% last year. For the six month period ending May 31, 2002, research and development expenses were $228,061 compared to $340,200 last year. -16- CCA INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) The Company's financial position as of May 31, 2002 con- sists of current assets of $18,068,301 and current liabilities of $8,934,376. In addition, shareholders' equity increased from $15,924,639 at November 30, 2001 to $17,434,239 at May 31, 2002 primarily due to net income earned during the period. The Company generated $2.56 million in cash from operations due to the six month net income of $1.5 million, a $4.25 mil- lion increase in accounts payable, a $820,000 net increase in income taxes due, and an inventory reduction of $320,000. Cash decreased due to the increase in the Company's accounts receiv- able of $2.4 million and an increase in deferred advertising of $2.0 million. Both the increase in deferred advertising and accounts receivable are "normal" seasonal increases. The $2.6 million cash generated by operations, however, was used to invest in liquid marketable securities of $3.1 million and for the acquisition of computer equipment of $135,000, leaving the Company with a net decrease in its cash position of approximately $650,000. -17- 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, 2002 2001 2002 2001 Item 6. Weighted average shares outstanding - Basic 7,045,557 6,877,058 7,045,557 6,893,183 Net effect of dilutive stock options--based on the treasury stock method using average market price 533,691 399,909 547,560 316,814 Weighted average shares outstanding - Diluted 7,579,248 7,276,967 7,593,117 7,209,997 Net income $1,217,986 $1,137,779 $1,518,049 $1,474,625 Per share amount Basic $.17 $.17 $.22 $.21 Diluted $.16 $.16 $.20 $.20 -18- 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 filed a report on Form 8-K on May 23, 2002 which is hereby incorporated by reference. -19- 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 -20-