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 August 31, 1999 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 August 31, 1999 Class A Common Stock, $.01 Par Value - 1,020,930 shares as of August 31, 1999 CCA INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page Number PART I FINANCIAL INFORMATION: Consolidated Balance Sheets as of August 31, 1999 and November 30, 1998. . . . . . . . . . . . 1-2 Consolidated Statements of Operations for the three months and nine months ended August 31, 1999 and 1998 . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Comprehensive Income for the three months and nine months ended August 31, 1999 and 1998 . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows for the nine months ended August 31, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6 Notes to Consolidated Financial Statements . . . . . . . . .7-16 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . 17-19 PART II OTHER INFORMATION. . . . . . . . . . . . . . . . . . . 20-21 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS A S S E T S
August 31, November 30, 1999 1998 Current Assets Cash and cash equivalents $ 836,061 $ 542,289 Short-term investments and marketable securities 1,071,738 1,633,452 Accounts receivable, net of allowances of $1,236,012 and $1,318,185, respectively 6,933,892 7,878,000 Inventories 7,063,088 9,059,456 Prepaid expenses and sundry receivables 349,328 317,318 Deferred income taxes 945,264 974,922 Prepaid income taxes and refunds due 1,294,598 72,513 Deferred advertising 1,551,113 - Total Current Assets 20,045,082 20,477,950 Property and Equipment, net of accumulated depreciation and amortization 764,523 866,663 Intangible Assets, net of accumulated amortization of $71,840 at August 31, 1999 and $71,373 at November 30, 1998 169,756 245,875 Other Assets Marketable securities 1,632,012 2,172,253 Due from officers - Non-current 63,393 65,250 Deferred income taxes 42,031 127,256 Other 55,289 54,889 Total Other Assets 1,792,725 2,419,648 Total Assets $22,772,086 $24,010,136
See Notes Consolidated to Financial Statements. -1- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
August 31, November 30, 1999 1998 Current Liabilities Notes payable $ 1,900,000 $ 1,550,000 Accounts payable and accrued liabilities 6,206,542 6,259,967 Income taxes payable - 600,720 Total Current Liabilities 8,106,542 8,410,687 Minority Interest in Consolidated Subsidiary - 7,798 Shareholders' Equity Common stock, $.01 par; authorized 15,000,000 shares; issued and outstanding 6,246,151 and 6,246,151 shares, respectively 62,462 62,462 Class A common stock, $.01 par; authorized 5,000,000 shares; issued and 1,020,930 and 1,020,930 shares, respectively 10,209 10,209 Additional paid-in capital 4,454,228 4,454,228 Retained earnings 10,406,853 11,238,704 Unrealized gains (losses) on marketable securities ( 103,042) ( 18,343) 14,830,710 15,747,260 Less: Treasury Stock (95,996 and 89,519 shares at August 31, 1999 and November 30, 1998, respectively) 165,166 155,609 Total Shareholders' Equity 14,665,544 15,591,651 Total Liabilities and Shareholders' Equity$22,772,086 $24,010,136
See Notes to Consolidated Financial Statements. -2- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended August 31, August 31, 1999 1998 1999 1998 Revenues Sales of Health and Beauty Aid Products - Net $8,631,951 $9,774,723 $28,398,978 $29,449,621 Other income 102,623 71,418 186,702 254,944 8,734,574 9,846,141 28,585,680 29,704,565 Costs and Expenses Costs of sales 3,481,368 3,384,348 11,073,391 10,944,866 Selling, general and administrative expenses3,153,378 3,047,802 9,509,870 8,855,642 Advertising, cooperative and promotions 1,851,391 2,683,437 6,636,603 6,748,631 Research and development 118,183 152,425 373,392 457,745 Provision for doubtful accounts ( 4,044) 24,181 89,758 91,829 8,600,276 9,292,193 27,683,014 27,098,713 Income before Provision for Income Taxes 134,298 553,948 902,666 2,605,852 Provision for Income Taxes 38,697 193,882 290,648 1,004,141 Income From Continuing Operations 95,601 360,066 612,018 1,601,711 Income (Loss) From Discontinued Operations (1,252,768) 80,289 (1,451,509) 19,443 Net Income (Loss) ($1,157,167) $ 440,355 ($ 839,491) $1,621,154 Basic Diluted Basic Diluted Basic Diluted Basic Diluted Earnings per Share Continuing Operations $ .01 $.01 $.05 $.04 $.09 $.09 $.22 $.20 Discontinued Operations( .17) ( .17) .01 .01 ( .21) ( .21) - - ($.16) ($.16) $.06 $.05 ($.12) ($.12) $.22 $.20
See Notes to Consolidated Financial Statements. -3- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended Nine Months Ended August 31, August 31, 1999 1998 1999 1998 Net Income (Loss) ($1,157,167) $440,355 ($ 839,491) $1,621,154 Other Comprehensive Income Unrealized holding gains (loss) on investments ( 77,580) ( 47,841) ( 84,699) ( 40,193) Comprehensive Income ($1,234,747) $392,514 ($924,190) $1,580,961 Earnings Per Share: Basic ($.17) $.05 ($.13) $.22 Diluted ($.17) $.05 ($.13) $.20
See Notes to Consolidated Financial Statements. -4- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Nine Months Ended Ended August 31, August 31, 1999 1998 Cash Flows from Operating Activities: Net (loss) income ($ 839,491) $1,621,154 Adjustments to reconcile net income to net cash (used in) operating activities: Depreciation and amortization 287,428 244,689 Minority deficiency in consolidated subsidiaries ( 155) ( 25,897) Amortization of bond premium 1,414 1,415 Loss on abandoned intangibles 463,512 - (Gain) on sale of marketable securities ( 21,532) ( 5,707) Decrease (increase) in deferred income taxes 114,883 ( 413,999) Decrease (increase) in accounts receivable - Net 944,108 ( 3,436,102) Decrease (increase) in inventory 1,996,368 ( 2,971,028) (Increase) in prepaid expenses and miscellaneous receivables ( 32,010) ( 1,668,334) (Increase) in deferred advertising (1,551,113) - (Decrease) increase in accounts payable and accrued liabilities ( 53,425) 2,747,041 (Decrease) increase in taxes payable ( 600,720) 559,701 (Increase) in security deposits ( 400) ( 820) (Increase) in prepaid income taxes and refunds due ( 1,222,085) - Net Cash (Used in) Operating Activities ( 513,218) ( 3,347,887) Cash Flows from Investing Activities: Acquisition of property, plant and equipment( 117,946) ( 487,533) Acquisition of intangible assets ( 454,735) ( 105,651) Proceeds of money due from officers 1,857 - Purchase of marketable securities ( 282,960) ( 1,492,833) Proceeds from sale and maturity of investments 1,320,331 1,513,943 Net Cash Provided by (Used in) Investing Activities 466,547 ( 572,074) Cash Flows from Financing Activities: Proceeds from borrowings 2,850,000 700,000 Payment on debt ( 2,500,000) - Purchase of treasury stock ( 9,557) - Net Cash Provided by Financing Activities 340,443 700,000 Net Increase (Decrease) in Cash 293,772 ( 3,219,961) Cash at Beginning of Period 542,289 3,649,774 Cash at End of Period $ 836,061 $ 429,813
See Notes to Consolidated Financial Statements. -5- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)
Nine Months Nine Months Ended Ended August 31, August 31, 1999 1998 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 95,971 $ 4,305 Income taxes 1,128,793 725,000 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 Common stock issued - ( 35,000) $ - $ - Minority Shareholders' Losses Absorbed by the Company: Minority interest $ 7,643 $ - Retained earnings ( 7,643) - $ - $ -
See Notes to Consolidated Financial Statements. -6- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial state- ments have been prepared in accordance with generally accepted ac- counting principles for interim financial information and with the instruc- tions 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. Operating results for the nine month period ended August 31, 1999 are not necessarily indicative of the results that may be expected for the year ended November 30, 1999. 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, 1998. 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 Corporation, 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., ("FCA"), which manufactures and distributes perfume products. During the third quarter of fiscal 1999, CCA adopted a formal plan to dispose of the intangible assets and substantially all of the inventory of FCA. CCA anticipates the disposal to be completed by the last quarter of fiscal 2000. As a result, inventory has been written down to expected net realizable value. In addition, CCA has written off intangible assets associated with the acquisition of and advances to FCA. The previous periods financial statements have been restated to give effect to the discontinued operations. Components of discontinued operations consist of:
Three Months Ended Nine Months Ended August 31, August 31, 1999 1998 1999 1998 Income (loss) from operations of FCA to be disposed ($ 431,885) $123,490 ($ 919,052) ($21,577) Provision (benefit) of income taxes 67,603 ( 43,201) 356,029 41,020 ( 364,282) 80,289 ( 563,023) 19,443 Estimated loss on disposal of FCA ( 1,467,226) - ( 1,467,226) - (Provision) benefit of income taxes 578,740 - 578,740 - ( 888,486) - ( 888,486) - Total ($1,252,768) $ 80,289 ($1,451,509) $19,443
-7- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 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. 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 1998, two officers/shareholders exercised in the aggregate 70,000 options in exchange for 16,470 shares 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 of their original cost or market, as appropriate. Obsolete inventory is written off and its value is removed from inventory at the time its obsoles cence is determined. -8- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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. Intangible assets represents the excess of cost over the fair value of the net assets acquired and is amortized over 60 months. Patents and trademarks are amortized on the straight-line method over a period of 17 years. 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. Tax Credits: Tax credits, when present, are accounted for using the flow-through method as a reduction of income taxes in the years utilized. -9- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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: August 31, November 30, 1999 1998 Raw materials $4,210,995 $5,828,257 Finished goods 2,852,093 3,231,199 $7,063,088 $9,059,456 At August 31, 1999 and November 30, 1998, the Company had reserves for obsolescence as follows: August 31, November 30, 1999 1998 CCA $ 954,625 $736,805 FCA 1,150,843 100,000 Total $2,105,468 $836,805 -10- 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: August 31, November 30, 1999 1998 Machinery and equipment $ 299,527 $ 297,615 Furniture and equipment 742,549 721,296 Transportation equipment 10,918 10,918 Tools, dies, and masters 1,892,082 1,819,974 Leasehold improvements 131,147 108,474 3,076,223 2,958,277 Less: Accumulated depreciation and amortization 2,311,700 2,091,614 Property and Equipment - Net $ 764,523 $ 866,663 Depreciation expense for the nine months ended August 31, 1999 amounted to $220,086 and for the year ended November 30, 1998 amounted to $318,715. NOTE 6 - INTANGIBLE ASSETS Intangible assets consist of the following: August 31, November 30, 1999 1998 Intangibles $ - $ 75,652 Patents and trademarks 241,596 241,596 241,596 317,248 Less: Accumulated amortization 71,840 71,373 Intangible Assets - Net $169,756 $245,875 Amortization expense for the nine months ended August 31, 1999 amounted to $67,342 and for the year ended November 30, 1998 amounted to $23,417. During the third quarter of fiscal 1999, the Company wrote off $66,875 of accumulated amortization associated with the disposal of FCA. (See Note 2). In March 1998, the Company acquired, through its newly formed 80% owned subsidiary, FCA, certain intangibles (consisting of trademarks, licenses, customer lists, know-how, etc.) from Shiara, Inc. as well as certain inventory. The costs incurred to date ($529,739) with regard to the acquisition, in excess of the fair market of the inventory obtained, had been recorded as intangible assets on FCA's books but has consequently been written off in full in conjunction with the discontinuance of FCA's perfume lines. During the third quarter of fiscal 1999, the Company wrote off $66,875 of accumulated amortization associated with the disposal of FCA. (See Note 2). -11- 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 $1,551,113 is accordingly reflected in the balance sheet for the interim period. This deferral is the result of the Company's $5,300,000 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: August August 1999 1998 (In Millions)(In Millions) Media advertising budget for the fiscal year $5.30 $5.50 Pro-rata portion for nine months $3.98 $4.13 Media advertising spent 4.71 5.25 Accrual (deferral) ($ .73) ($1.12) Anticipated Co-op advertising commitments $3.30 $3.10 Pro-rata portion for nine months $2.48 $2.33 Co-op advertising spent 3.30 2.78 Accrual (deferral) ($ .82) ($ .45) 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: August 31, November 30, 1999 1998 (In 000's) (In 000's) a) Media advertising $ 543 $ 820 b) Coop advertising 612 494 c) Accrued returns 1,485 1,107 -12- 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. NOTE 9 - OTHER INCOME Other income consists of the following at August 31: 1999 1998 Interest income $146,190 $242,038 Dividend income 32,673 7,198 Miscellaneous 7,839 5,708 $186,702 $254,944 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 investments at August 31, 1999 and November 30, 1998 were as follows:
August 31, November 30, 1999 1998 Current: COST MARKET COST MARKET Corporate obligations $1,040,045 $1,043,648$ 780,776$ 786,233 Government obligations (including mortgage backed securities) - - 841,067 847,219 Other equity invest- ments 32,893 28,090 - - Total 1,072,938 1,071,738 1,621,843 1,633,452 Non-Current: Corporate obligations 190,000 190,000 1,030,044 1,038,450 Government obli- gations 562,202 553,166 298,600 298,931 Preferred stock 512,561 488,257 512,561 511,500 Other equity investments 469,092 400,589 361,000 323,372 Total 1,733,855 1,632,012 2,202,205 2,172,253 Total $2,806,793 $2,703,750$3,824,048$3,805,705 -13- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED) The market value at August 31, 1999 was $2,703,751 as compared to $3,805,705 at November 30, 1998. The cost and market values of the investments at August 31, 1999 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 MaturityInterest 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 $ 199,698 $ 199,698 GTE Southwest Deb 12/01/99 5.820% 100,000 99,851 99,916 99,916 Virginia Electric & Power 4/01/00 5.875% 250,000 246,118 249,698 249,698 GMAC Smartnotes 10/15/99 5.950% 200,000 200,000 200,050 200,050 Florida Power & Light 4/01/00 5.375% 200,000 199,850 199,286 199,286 Mid American-NB & TC-CD 8/07/01 5.600% 95,000 95,000 95,000 95,000 Mid First Bank-CD 8/14/00 5.550% 95,000 95,000 95,000 95,000 MBNA-CD 8/13/01 5.650% 95,000 95,000 95,000 95,000 1,230,045 1,233,648 1,233,648
-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 GOVERNMENT OBLIGATIONS: US Treasury Note 11/30/00 4.625% 100,000 $ 100,190 $ 98,719 $ 98,719 US Treasury Note 9/30/00 5.920 300,000 300,925 296,439 296,439 FHLMC 1628-N 12/15/2023 6.500 50,000 34,264 33,922 33,922 FNMA 93-224-D 11/25/2023 6.500 104,000 96,031 92,587 92,587 FNMA 94-2-N 1/25/2024 6.500 52,000 30,792 31,499 31,499 562,202 553,166 553,166
-15- 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 MaturityInterest 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: Tennessee Valley Authority (QIDS) Qtrly Income Debt Secs - Matures 3/31/2045 3/31/00 8.00% 13,600 $ 362,561 $ 344,257 $ 344,257 Merrill Lynch Trust 9/30/08 7.28% 6,000 150,000 144,000 144,000 Other Equity Investments: First Australia Prime 100,000 100,000 100,000 Dreyfus Premier Limited Term High Income CL B 133,497 116,059 116,059 Dreyfus High Yield Strategies Fund 268,488 212,621 212,621 1,014,546 916,937 916,937 $2,806,793 $2,703,751 $2,703,751
-16- CCA INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) For the nine month period ended August 31, 1999, the Company adopted a plan for substantially discontinuing operations of its fragrance subsidiary company, Fragrance Corporation of America, Ltd. As a one time loss, it wrote off $1,476,226 primarily consisting of intangible assets and substantially all of the inventory of its subsidiary and incurred $919,052 of losses from dis- continued operations resulting in a net after taxes charge to income of $1,451,509. For the nine month period for the continuing operations, the Company had revenues of $28,585,680 and net income of $612,018 after a provision for income taxes of $290,648, as compared to revenues of $29,704,565 and net income of $1,601,711 after a provision for income taxes of $1,004,141. Net sales for the nine months ended August 31, 1999 of $28,398,978 were down approximately $1,050,000 from the 1998 sales for nine months of $29,449,621. Sales returns continue to run approximately 8% of gross sales. Other income of $186,702 versus $254,944 was less due to the decrease in the company's interest income due to their use of cash in financing FCA. Gross margins of 61% for the nine months were down from 62.8% from the prior year. Advertising, cooperative and promotional allowance expenditures decreased during the nine month period from $6,748,631 to $6,636,603. Advertising expenditures were 23.4% of sales for the nine months ended August 31, 1999 as compared with 23% for the period ended August 31, 1998. 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 pro- motions 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 $1,551,113 is accordingly reflected in the balance sheet for the interim period, as compared to $1,575,814 at August 31, 1998. This deferral is the result of the Company's $5.3 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 4th quarter. Specifically, the Company spent approximately $4.71 million in the nine months on media adver- tising and, therefore, expensed $3.98 million and deferred $.73 million as of August 31,1999. Similarly, as of August 31, 1999, the Company's co-op advertising commitments for the year ended November 30, 1999 are anticipated to be approximately $3.3 million of which approximately $3.3 million was spent in the first nine months resulting in an expense of $2.48 million and a deferral of approximately $.82 million as of August 31, 1999. Comparatively as of August 31, 1998, the Company had anticipated media advertising expense in fiscal year 1998 of $5.5 million and spent approximately $5.25 million in the first nine months resulting in a deferral of approximately $1.12 million. The anticipated Co-op commitments as of August 31, 1998 were $3.1 million for the year of which $2.78 million were spent for the nine months resulting in a $.45 million deferral. -17- CCA INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) Selling, general and administrative expenses ("SG&A") increased compared to the prior year. The increase to $9,509,870 from $8,855,642 was due mostly to the cost of improving the software programs to comply with the Y2K issues, the introduction of a website and additional sales promotions and warehouse. For the three month period ended August 31, 1999, net sales were $8,631,951 as compared to $9,774,723 for August 31, 1998. Income for the quarter before taxes decreased to $134,298 from $553,948. Gross margins of approximately 60% for the three months ended August 31, 1999 were down from 65% in 1998. Advertising, cooperative and promotional allowance expense during the quarter decreased to $1,851,391 from $2,683,437. Advertising expenses were 21.45% of sales for the quarter in 1999 as compared to 27.45% in 1998. Selling, general and administrative expenses were approximately 36.5% in the current quarter as compared to 31.2% in 1998. Research and development expenses for the three and nine months were less due to the economies of utilizing the services of more in-house staff rather than outside consultants. Bad debt expense for the periods decreased due to the reduction in reserves on the decreasing accounts receivable. Actual write-offs were approximately $42,000 in 1999 as compared to none in 1998. The Company's interest expense of $108,626, all of which was attributable to its discontinued operations, was up from $4,305 for the prior year period. The Company's sales were primarily to drugstore chains, food chains and mass merchandisers. The Company's financial position as at August 31, 1999 consists of current assets of $20,045,082 and current liabilities of $8,106,542. The Company's cash position increased due mostly to the liquidation of some of its marketable securities. The Company's accounts payable decreased by $53,425. During the nine month period ended August 31, 1999, shareholders' equity decreased from $15,591,651 at November 30, 1998 to $14,665,544 at August 31, 1999. This was due primarily to the net loss generated for the period. During the nine months, the Company used $513,000 in operations, $454,000 to pay for costs incurred relating to the acquisition of Shiara Inc's assets in excess of their fair market value and $118,000 to purchase new fixed assets; and generated, $350,000 from new borrowings and approximately $1,037,000 from the net liquidations of securities. These factors resulted in a net increase in the Company's cash of about $294,000. -18- CCA INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, in- cluding, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Based on a 1998 assessment, the Company determined that it had to substantially modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereeafter. The Company presently believes that with these modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. The Company has initiated formal communications with all of its significant service providers and suppliers, including its clearing broker, to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 issues. The Company's estimate to complete includes the estimated time associated with the impact of third party's Year 2000 Issues based on presently available information. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted and would not have an adverse effect on the Company's systems. The Company does not believe that the Year 2000 issue will have a material effect on any of the embedded technology in its manufacturing, warehousing or distribution equipment. The Company will utilize both internal and external resources to reprogram, or replace, and test the software for Year 2000 modifications. The Company believes it will complete the Year 2000 modifications in a timely fashion based on management's best estimate, which was derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that this estimate will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. The cost of addressing the Company's Year 2000 issues is expected to be approximately $400,000 to $500,000. However, some of these costs should be offset by a grant received from the State of New Jersey to help pay for the retraining of the Company's staff. The net cost should not have a material adverse effect on the Company's cash flow or financial position. It could pos- sibly, however adversely effect the Company's earnings in the year the majority of costs are incurred. The Company is executing its Year 2000 plan through its own employees as well as various computer consultants and vendors. The Year 2000 testing and reprogramming is being done in conjunction with other ongoing maintenance and reprogramming efforts. The Company has a contingency plan in place in the event their Year 2000 issue is not resolved timely. -19- PART II, ITEM 6. (Continued) EXHIBIT 11 CCA INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (UNAUDITED) Three Months Ended Nine Months Ended August 31, August 31, 1999 1998 1999 1998 Item 6. Weighted average shares outstanding - Basic 7,171,133 7,259,581 7,171,133 7,243,417 Net effect of dilutive stock options--based on the treasury stock method using average market price * 812,644 * 777,515 Weighted average shares outstanding - Diluted 7,171,133 8,072,225 7,171,133 8,020,932 Net income (loss) ($1,157,167) $ 440,355 ($ 839,491) $1,621,153 Per share amount Basic ($.16) $.06 ($.12) $.22 Diluted ($.16) $.05 ($.12) $.20 Stock options were not included in computed diluted weighted average shares outstanding because their effect were antidilutive. -20- 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 nine months ended August 31, 1999. -21- 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 -22-