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, 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 May 31, 1997 Class A Common Stock, $.01 Par Value - 1,154,930 shares as of May 31, 1997 CCA INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page Number PART I FINANCIAL INFORMATION: Consolidated Balance Sheets as of May 31, 1997 and November 30, 1996 . . . . . . . . . . . . . 1-2 Consolidated Statements of Operations for the three months and six months ended May 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Cash Flows for the six months ended May 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 4-5 Notes to Consolidated Financial Statements . . . . . . . . . .6-12 Management Discussion and Analysis of Results of Operations and Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . 13-14 PART II OTHER INFORMATION. . . . . . . . . . . . . . . . . . . 15-16 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
A S S E T S May 31, 1997 November 30, (Unaudited) 1996 Current Assets Cash and cash equivalents $ 2,595,264 $ 1,422,783 Short-term investments and marketable securities (Note 6) 1,325,613 1,546,289 Accounts receivable, net of allowances of $1,167,517 and $1,066,549, respectively 5,106,984 4,017,500 Inventories (Note 3) 6,102,375 5,875,742 Prepaid expenses and sundry receivables 572,054 603,952 Due from officers - Current 3,500 3,900 Prepaid income taxes - 87,552 Deferred income taxes 487,717 496,267 Deferred advertising 697,391 - Total Current Assets 16,890,898 14,053,985 Property and Equipment, net of accumulated depreciation and amortization 617,671 729,706 Intangible Assets, net of accumulated amortization of $41,965 at May 31, 1997 and $36,111 at November 30, 1996 164,923 155,037 Other Assets Marketable securities (Note 6) 1,771,214 1,540,596 Treasury bonds (Note 6) 97,227 93,996 Due from officers - Non-current 25,250 25,250 Deferred income taxes 64,450 55,292 Other 53,842 54,217 Total Other Assets 2,011,983 1,769,351 Total Assets $19,685,475 $16,708,079
See Notes Consolidated to Financial Statements. -1- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY May 31, 1997 November 30, (Unaudited) 1996 Current Liabilities Notes payable - Current portion $ 27,250 $ 163,500 Accounts payable and accrued liabilities (Note 4) 6,437,732 4,794,865 Income taxes payable 511,893 25,505 Total Current Liabilities 6,976,875 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 8,232,876 7,216,163 Unrealized (losses) on marketable securities ( 33,206) ( 6,353) 12,726,569 11,736,709 Less: Treasury stock (7,500 and 5,000 shares, respectively) 17,969 12,500 Total Shareholders' Equity 12,708,600 11,724,209 Total Liabilities and Shareholders' Equity $19,685,475 $16,708,079
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, 1997 1996 1997 1996 Revenues Sales of Health and Beauty Aid Products - Net $10,552,412$10,498,104 $19,169,701$20,623,222 Other income 72,935 53,500 154,163 114,091 10,625,347 10,551,604 19,323,864 20,737,313 Costs and Expenses Costs of sales 3,940,006 4,002,443 7,016,633 7,858,020 Selling, general and administrative expenses 2,895,449 2,936,979 5,659,790 5,781,447 Advertising, cooperative and promotions 2,341,726 2,571,230 4,511,451 5,180,524 Research and development 201,316 130,405 335,180 266,691 Provision for doubtful accounts 31,562 37,226 66,396 97,994 Interest expense 2,077 20,621 4,906 34,062 9,412,136 9,698,904 17,594,356 19,218,738 Income before Income Taxes 1,213,211 852,700 1,729,508 1,518,575 Provision for Income Taxes 506,499 388,115 712,795 685,830 Net Income $ 706,712 $ 464,585 $ 1,016,713 $ 832,745 Net Income per Common Share (Note 2) $.09 $.06 $.13 $.10
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, 1997 1996 Cash Flows from Operating Activities: Net income $1,016,713 $ 832,745 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 183,059 185,855 Amortization of bond premium 1,994 1,326 Gain on sale of investments ( 5,693) - Loss on sale of machinery 6,701 - (Increase) decrease in deferred income taxes ( 608) 43,597 (Increase) in accounts receivable ( 1,089,484) ( 1,887,139) (Increase) in inventory ( 226,633) ( 303,948) (Increase) in deferred expenses and miscellaneous receivables ( 577,941) ( 2,306,691) Increase in accounts payable 1,642,867 2,186,712 Increase in taxes payable 486,388 639,918 Decrease in security deposits 375 9,475 Net Cash Provided by (Used in) Operating Activities 1,437,738 ( 598,150) Cash Flows from Investing Activities: Acquisition of property, plant and equipment( 128,571) ( 223,953) Proceeds from sale of equipment 40,960 - Proceeds of money due from officers 400 52,573 Advances of money to officers - ( 57,490) Purchase of short-term investments ( 1,867,252) - Proceeds from sale of investments 1,830,925 700,045 Purchase of treasury stock ( 5,469) - Net Cash (Used in) Provided by Investing Activities ( 129,007) 471,175 Cash Flows from Financing Activities: Proceeds from borrowings - 400,000 Payment on debt ( 136,250) ( 554,078) Proceeds from stock option exercises - 176,940 Net Cash (Used in) Provided by Financing Activities ( 136,250) 22,862 Net Increase (Decrease) in Cash 1,172,481 ( 104,113) Cash at Beginning of Period 1,422,783 312,150 Cash at End of Period $2,595,264 $ 208,037
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, 1997 1996 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 6,217 $ 33,872 Income taxes 127,850 2,315 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 six month period ended May 31, 1997 are not necessar ily indicative of the results that may be expected for the year ended November 30, 1996. 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, 1996. 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: May 31, November 30, 1997 1996 Raw materials $3,876,313 $4,065,961 Finished goods 2,226,062 1,809,781 $6,102,375 $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: May 31, November 30, 1997 1996 (In Thousands) a) Media advertising $1,881 $ * b) Coop advertising 487 321 c) Accrued returns 576 505 d) Wages and commissions 475 * $3,419 $ 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 May 31,1997 and May 31, 1996: 1997 1996 Interest income $144,215 $105,919 Dividend income 8,741 8,172 Miscellaneous 1,207 - $154,163 $114,091 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 May 31, 1997 was $3,194,054 as compared to $3,180,881 at November 30, 1996. The cost and market values of the investments at May 31, 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 $ 98,750 $ 98,750 Bank America 7/15/97 6.000 200,000 200,000 200,094 200,094 Tennessee Valley 3/04/98 5.125 100,000 100,000 99,469 99,469 $399,006 $398,313 $398,313
-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 $ 98,250 $ 98,250 US Treasury Note 10/31/98 4.750 200,000 199,992 196,500 196,500 US Treasury Note 10/15/98 7.125 250,000 250,000 253,588 253,588 US Treasury Bill 8/14/97 5.220 110,000 108,588 108,906 108,906 US Treasury Note 4/30/98 5.125 190,000 189,883 188,813 188,813 US Treasury Note 4/30/98 5.125 10,000 9,992 9,938 9,938 US Treasury Note 7/31/98 5.250 250,000 249,834 248,125 248,125 US Treasury Note 2/28/99 5.885 250,000 249,953 248,908 248,908 US Treasury Note 6/12/97 5.170 45,000 43,869 44,936 44,936 US Treasury Bill 6/12/97 5.170 75,000 74,041 74,893 74,893 US Treasury Bill 8/28/97 5.164 200,000 197,458 197,590 197,590 US Treasury Note 11/15/99 6.026 250,000 249,141 247,658 247,658 US Treasury Note 1/31/98 5.125 200,000 199,695 199,000 199,000
-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 $ 42,906 $ 42,906 EE Bonds - 7.180 90,000 97,227 97,227 97,227 FNMA 93-G-26-B 8/25/2022 7.000 10,000 8,688 8,230 8,230 FNMA 93-224-D 11/25/2023 6.500 104,000 101,873 86,615 86,615 FNMA 92-2-N 1/25/2024 6.500 52,000 47,424 42,023 42,023 FHLMC 1702-U 3/24/2024 7.00 4,000 2,938 2,716 2,716 FNMA 11/10/98 5.050 200,000 199,950 196,919 196,919 2,628,254 2,593,741 2,593,741 EQUITY SECURITIES: Number of Shares Preferred Stock: Bank America Corp. 8,000 200,000 202,000 202,000 $3,227,260 $3,194,054 $3,194,054
-12- CCA INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) For the six month period ended May 31, 1997, the Company had net sales of $19,169,701 and net income of $1,016,713 after a provision for income taxes of $712,795, as compared to net sales of $20,623,222 and net income of $832,745 after a provision for income taxes of $685,830 for the six month period ended May 31, 1996. Gross margins of 63% for the six months were up from the 62% of the prior year. Advertising, cooperative and promotional allowance expenditures decreased during the six month period from $5,180,524 to $4,511,451. Advertis ing expenditures were 23.5% of sales for the six months ended May 31, 1997 as compared with 25% for the period ended May 31, 1996. 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 $697,000 is accordingly reflected in the balance sheet for the interim period, as compared to $2.3 million at May 31, 1996. 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 $2.9 million in the first six months on media advertising and, therefore, expensed $2.5 million and deferred $.4 million as of May 31, 1997. Similarly, as of May 31, 1997 the Company's co-op advertising commitments for the year ended November 30, 1996 totaled approximately $3 million of which approximately $1.8 million was spent in the first six months resulting in an expense of $1.5 million and a deferral of approximately $.3 million as of May 31, 1997. Comparatively as of May 31, 1996, the Company had anticipated media advertising expense in fiscal year 1996 of $8 million and spent approximately $5.7 million in the first six months resulting in a deferral of approximately $1.7 million ($5.7MM-$4MM). The anticipated Co-op commitments as of May 31, 1996 were $2.8 million for the year of which $2 million were spent for the six months resulting in a $.6 million deferral ($2MM-$1.4MM). Selling, general and administrative expenses ("SG&A") decreased compared to the prior year in real dollars although they increased as a percentage of sales. The increase to 29.5% from 28% was due mostly to the slightly lower sales volume. -13- CCA INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) For the three month period ended May 31, 1997, net sales were $10,552,412 as compared to $10,498,104 for May 31, 1996. Income for the quarter before taxes increased to $706,712 from $464,585. Gross margins of 63% for the three months ended May 31, 1997 were up from 62% in 1996. Advertising, cooperative and promotional allowance expense during the quarter decreased to $2,341,726 from $2,571,230. Advertising expenses were 22% of sales for the quarter in 1997 as compared to 24.5% in 1996. Selling, general and administrative expenses were approximately 27.5 % in the current quarter as compared to 28% in 1996. 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, 1997 consists of current assets of $16,890,898 and current liabilities of $6,976,875. During the six month period ended May 31, 1997, shareholders' equity increased from $11,724,209 at November 30, 1996 to $12,708,600 at May 31, 1997. This was due primarily to the net income generated for the period. During the six months, the Company generated $1.4 million in operations, used $136,000 to reduce borrowings, and approximately $130,000 to purchase fixed assets. These factors coupled with proceeds from the sale of equipment ($40,000) resulted in a net increase in the Company's cash of about $1,172,000. The Company believes that its current financial condition is sufficient to support its proposed operations for the near future. -14- 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, 1997 1996 1997 1996 Item 6. Primary: Average shares outstanding 7,206,051 7,160,055 7,215,628 7,073,846 Net effect of dilutive stock options--based on the treasury stock method using average market price 939,309 1,002,282 877,283 879,313 TOTALS 8,145,360 8,162,337 8,092,911 7,953,159 Net income $ 706,712 $ 464,585 $1,016,713 $832,745 Per share amount $.09 $.06 $.13 $.10
-16- 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 May 31, 1997. -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 under- signed, thereunto duly authorized. CCA INDUSTRIES, INC. By: David Edell, President By: Ira W. Berman, Secretary -17-