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, 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 August 31, 1998
Class A Common Stock, $.01 Par Value - 1,154,930 shares as of August 31, 1998
<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I FINANCIAL INFORMATION:
Consolidated Balance Sheets as of
August 31, 1998 and November 30, 1997. . . . . . . . . . . . 1-2
Consolidated Statements of Operations for the three
months and nine months ended August 31, 1998
and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for
the nine months ended August 31, 1998
and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 4-5
Notes to Consolidated Financial Statements . . . . . . . . . .6-15
Management Discussion and Analysis of
Results of Operations and Financial
Condition. . . . . . . . . . . . . . . . . . . . . . . . . 16-18
PART II OTHER INFORMATION. . . . . . . . . . . . . . . . . . . 19-20
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
A S S E T S
<CAPTION>
August 31,
1998 November 30,
(Unaudited) 1997
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 429,813 $ 3,649,774
Short-term investments and marketable
securities 1,948,771 1,926,513
Accounts receivable, net of allowances of
$1,008,942 and $664,325, respectively 7,367,375 3,931,273
Inventories 8,985,700 6,014,672
Prepaid expenses and sundry receivables 341,073 248,553
Due from officers - Current 1,500 1,500
Deferred income taxes 772,650 391,604
Deferred advertising 1,575,814 -
Total Current Assets 21,422,696 16,163,889
Property and Equipment, net of accumulated
depreciation and amortization 745,101 486,029
Intangible Assets, net of accumulated
amortization of $64,184 at August 31, 1998
and $47,956 at November 30, 1997 253,063 163,640
Other Assets
Marketable securities 1,793,353 1,874,175
Due from officers - Non-current 65,250 65,250
Deferred income taxes 95,116 62,164
Other 55,185 52,612
Total Other Assets 2,008,904 2,054,201
Total Assets $24,429,764 $18,867,759
</TABLE>
See Notes to Consolidated Financial Statements.
-1-
<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
August 31,
1998 November 30,
(Unaudited) 1997
<S> <C> <C>
Current Liabilities
Notes payable - Current portion $ 810,811 $ -
Accounts payable and accrued liabilities 7,689,896 5,053,665
Income taxes payable 645,804 86,103
Total Current Liabilities 9,146,511 5,139,768
Shareholders' Equity
Common stock, $.01 par; authorized
15,000,000 shares; issued and
outstanding 6,246,151 and 6,192,621
shares, respectively 62,462 61,926
Class A common stock, $.01 par; authorized
5,000,000 shares; issued and outstanding
1,020,930 shares, respectively 10,209 10,209
Additional paid-in capital 4,454,229 4,454,764
Retained earnings 10,842,949 9,221,798
Unrealized (losses) on marketable
securities ( 42,930) ( 2,737)
Minority deficiency of consolidated
subsidiary ( 25,697) -
15,301,222 13,745,960
Less: Treasury Stock (7,500 shares at
August 31, 1998 and November 30,
1997) 17,969 17,969
Total Shareholders' Equity 15,283,253 13,727,991
Total Liabilities and Shareholders' Equity $24,429,764 $18,867,759
</TABLE>
See Notes to Consolidated Financial Statements.
-2-
<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues
Sales of health
and beauty
products, net $11,147,343 $10,227,594 $31,270,044 $29,397,295
Other income 71,418 81,609 254,944 235,772
11,218,761 10,309,203 31,524,988 29,633,067
Costs and Expenses
Costs of sales 4,006,010 3,850,509 11,720,537 10,867,142
Selling, general and
administrative
expenses 3,596,643 3,257,666 9,773,692 8,917,456
Advertising,
cooperative
and promotions 2,769,556 1,814,930 6,877,896 6,326,381
Research and
development 152,425 215,102 457,745 550,282
Provision for doubtful
accounts 53,495 ( 12,485) 132,435 53,911
Interest expense 3,338 750 4,305 5,656
10,581,467 9,126,472 28,966,610 26,720,828
Income before Income
Taxes 637,294 1,182,731 2,558,378 2,912,239
Provision for Income
Taxes 201,412 456,478 963,121 1,169,273
Net Income Including
Minority Deficiency
Of Consolidated
Subsidiary 435,882 726,253 1,595,257 1,742,966
Minority Deficiency in Net
Loss of Consolidated
Subsidiary ( 4,473) - ( 25,897) -
Net Income $ 440,355 $ 726,253 $ 1,621,154 $ 1,742,966
Income Per Common
Share (Note 2):
Net income from
operations $.05 $.09 $.20 $.22
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 31,
(UNAUDITED)
<CAPTION>
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $1,621,154 $1,742,966
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 244,689 277,646
Minority deficiency in consolidated
subsidiaries ( 25,897) -
Amortization of bond premium 1,414 1,994
(Gain) on sale of securities ( 5,707) ( 5,693)
Loss on sale of machinery - 6,701
(Increase) decrease in deferred income
taxes ( 413,998) 56,965
(Increase) in accounts receivable (3,436,102) ( 861,223)
(Increase) in inventory (2,971,028) ( 217,195)
(Increase) in deferred expenses and
miscellaneous receivable (1,668,334) (1,390,533)
Increase in accounts payable
and accrued liabilities 2,747,041 1,551,257
Increase in taxes payable 559,701 106,874
(Increase) decrease in security deposits ( 820) 350
Net Cash (Used in) Provided by
Operating Activities (3,347,887) 1,270,109
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment ( 487,533) ( 143,965)
Acquisition of intangible assets ( 105,651) -
Purchase of short-term investments and
securities (1,492,833) (2,749,685)
Advances of money to officers - ( 40,000)
Proceeds of money due from officers - 2,400
Proceeds from sale of equipment - 40,960
Proceeds from sale of investments 1,513,943 2,455,968
Purchase of treasury stock - ( 5,469)
Net Cash (Used in) Investing Activities ( 572,074) ( 439,791)
Cash Flows from Financing Activities:
Proceeds from borrowings 700,000 -
Payment on debt - ( 163,500)
Net Cash Provided by (Used in)
Financing Activities 700,000 ( 163,500)
Net (Decrease) Increase in Cash (3,219,961) 666,818
Cash at Beginning of Period 3,649,774 1,422,783
Cash at End of Period $ 429,813 $2,089,601
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED AUGUST 31,
(UNAUDITED)
<CAPTION>
1998 1997
<S> <C> <C>
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $ 4,305 $ 6,793
Income taxes 725,000 1,052,850
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)
$ - $ -
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
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 nine month period ended August 31, 1998 are not
necessarily indicative of the results that may be expected for the year
ended November 30, 1998. 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,
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
Nutra Care Corporaiton 100% Currently Inactive
Fragrance Corporation
of America, Ltd. 80% Acquired March 19, 1998
All significant intercompany accounts and transactions have been eliminated.
The consolidated financial statements include the use of estimates, which
management believes are reasonable.
-6-
<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates:
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of the
date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
Short-Term Investments and Marketable Securities:
Short-term investments and marketable securities consist of corporate and
government bonds and equity securities. The Company has classified its
investments as Available-for-Sale securities. Accordingly, such investments
are reported at fair market value, with the resultant unrealized gains and
losses reported as a separate component of shareholders' equity.
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 options to purchase
70,000 shares of stock by exchanging 16,470 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.
-7-
<PAGE>
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
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 is
amortized over 60 months.
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.
-8-
<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Tax Credits:
Tax credits, when present, are accounted for using the flow-through method
as a reduction of income taxes in the years utilized.
Income Per Common Share:
Income per common share has been computed using the weighted average
number of shares of common stock outstanding during the periods based on
the treasury stock method using average market price.
Fully diluted earnings per share are not presented because they result in
dilution of less than 3%.
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,
1998 1997
Raw materials $5,521,003 $ 4,017,838
Finished goods 3,464,697 1,996,834
$8,985,700 $ 6,014,672
NOTE 5 - PROPERTY AND EQUIPMENT
The components of property and equipment consisted of the following:
August 31, November 30,
1998 1997
Machinery and equipment $ 259,352 $ 236,582
Furniture and equipment 584,421 329,526
Tools, dies, and masters 1,783,296 1,584,346
Transportation equipment 10,918 -
Leasehold improvements 108,474 108,474
2,746,461 2,258,928
Less: Accumulated depreciation and
amortization 2,001,360 1,772,899
Property and Equipment - Net $ 745,101 $ 486,029
-9-
<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation and amortization expense for the nine months ended August
31, 1998 amounted to $228,461 and for the year ended November 30,
1997 amounted to $364,536.
NOTE 6 - INTANGIBLE ASSETS
Intangible assets consist of the following:
August 31, November 30,
1998 1997
Goodwill $ 75,652 $ -
Patents and trademarks 241,595 211,596
317,247 211,596
Less: Accumulated amortization 64,184 47,956
Intangible Assets - Net $ 253,063 $ 163,640
Amortization expense for the nine months ended August 31, 1998 amounted
to $16,228 and for the year ended November 30, 1997 amounted to
$11,845.
NOTE 7 - DEFERRED ADVERTISING
In accordance with APB 28 Interim Financial Reporting the Company
expenses its advertising and related costs proportionately over the interim
periods based on its total expected costs per its various advertising
programs. Consequently a deferral of $1,575,814 is accordingly reflected
in the balance sheet for the interim period. This deferral is the result of
the Company's $5,500,000 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.
-10-
<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - DEFERRED ADVERTISING (CONTINUED)
The table below sets forth the calculation:
1998 1997
(In Millions)(In Millions)
Media advertising budget for the fiscal year $5.50 $5.20
Pro-rata portion for nine months $4.13 $3.90
Media advertising spent 5.25 5.00
Accrual (deferral) ($1.12) ($1.10)
Anticipated Co-op advertising commitments $3.10 $3.00
Pro-rata portion for nine months $2.33 $2.25
Co-op advertising spent 2.78 2.60
Accrual (deferral) ($ .45) ($ .35)
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,
1998 1997
(In 000's) (In 000's)
a) Media advertising $1,418 $ 401
b) Coop advertising 769 375
c) Accrued returns 1,023 712
d) Bonuses * 286
e) Royalty payable * 269
$3,210 $2,043
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 August 31:
1998 1997
Interest income $242,038 $216,761
Dividend income 7,198 13,318
Miscellaneous 5,708 5,693
$254,944 $235,772
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<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - FRAGRANCE CORPORATION OF AMERICA
On March 19, 1988, the Company acquired 80% of the newly formed
company, Fragrance Corporation of America, Inc. ("FCA") (a New Jersey
corporation), for an initial investment of $800. As of August 31, 1998, the
Company has advanced approximately $1,825,000 to aid FCA in the
purchase of inventory and certain tangible and intangible assets, as well as
providing FCA with working capital. The intercompany transactions have
been eliminated in the consolidating financial statements and all of the
accounts of FCA have been included in the consolidated financial statements
of the Company. Accordingly, the minority deficiency has also been
recorded.
NOTE 11 - MINORITY DEFICIENCY
The minority deficiency shown in the accompanying consolidated balance
sheets primarily represents the minority shareholders' share of Fragrance
Corporation of America, Inc.'s ("FCA") losses in excess of its investment for
all periods prior to August 31, 1998. The minority deficiency is expected to
be restored through allocations of future income.
NOTE 12- 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 August 31, 1998 and November 30, 1997 were as follows:
August 31, November 30,
1998 1997
Current: COST MARKET COST MARKET
Corporate obligations $ 656,776 $ 606,184 $ 99,006 $ 99,448
Government obligations
(including mortgage
backed securities) 1,339,468 1,342,587 1,827,503 1,827,065
Total 1,996,244 1,948,771 1,926,509 1,926,513
Non-Current:
Corporate obligations 1,230,044 1,234,630 741,893 744,921
Government obli-
gations 558,766 558,723 1,135,023 1,129,254
Total 1,788,810 1,793,353 1,876,916 1,874,175
Total $3,785,054 $3,742,124 $3,803,425 $3,800,688
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<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
NOTE 12 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
The market value at August 31, 1998 was $3,742,124 as compared to $3,800,688
at November 30, 1997. The cost and market values of the investments at August
31, 1998 were as follows:
<CAPTION>
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:
<S> <C> <C> <C> <C> <C> <C>
GMAC 2/22/00 5.450% $200,000 $ 199,226 $ 198,990 $ 198,990
Dreyfus Fund High Yield
Strategies 361,000 361,000 306,658 306,658
GTE Southwest Deb 12/01/99 5.820% 100,000 99,851 100,159 100,159
Florida Power & Light 7/01/99 5.500% 300,000 295,776 299,526 299,526
Virginia Electric & Power 4/01/00 5.875% 250,000 246,117 251,035 251,035
GMAC Smartnotes 10/15/99 5.950% 200,000 200,000 200,098 200,098
Florida Power & Light 4/01/00 5.375% 200,000 199,850 199,348 199,348
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
1,886,820 1,840,814 1,840,814
</TABLE>
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<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
NOTE 12 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
<CAPTION>
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:
<S> <C> <C> <C> <C> <C> <C>
US Treasury Note 10/31/98 4.750% 100,000 $ 99,684 $ 99,906 $ 99,906
US Treasury Note 10/31/98 4.750 200,000 199,992 199,812 199,812
US Treasury Note 10/15/98 7.125 250,000 250,000 250,705 250,705
US Treasury Note 2/28/99 5.875 250,000 249,953 250,860 250,860
US Treasury Note 11/15/99 5.875 250,000 249,141 252,188 252,188
US Treasury Zero Coupon 8/15/99 5.920 148,000 140,137 141,072 141,072
US Treasury Note 2/15/99 5.000 100,000 99,869 99,906 99,906
</TABLE>
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<PAGE>
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
NOTE 12 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
Federal Nat. Mtg. Note 7/30/99 5.860% 100,000 $ 99,883 $ 100,450 $ 100,450
FHLMC 1628-N 12/15/2023 6.500 50,000 48,024 48,873 48,873
EE Bonds - 7.180 90,000 103,788 103,788 103,788
FNMA 93-G-26-B 8/25/2022 7.000 10,000 6,134 3,069 3,069
FNMA 93-224-D 11/25/2023 6.500 104,000 101,873 101,067 101,067
FNMA 92-2-N 1/25/2024 6.500 52,000 47,424 48,313 48,313
FHLMC 1702-U 3/24/2024 7.000 4,000 2,382 1,425 1,425
FNMA 11/10/98 5.050 200,000 199,950 199,876 199,876
1,898,234 1,901,310 1,901,310
$3,785,054 $3,742,124 $3,742,124
</TABLE>
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<PAGE>
CCA INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED)
For the nine month period ended August 31, 1998, the Company had revenues of
$31,524,988 and net income of $1,621,154 after a provision for income taxes of
$963,121 (net of consolidated subsidiary's deficiency of $25,897), as compared
to net revenues of $29,633,067 and net income of $1,742,966 after a provision
for income taxes of $1,169,273 for the nine month period ended August 31, 1997.
Sales for the nine months ended August 31, 1998 were up approximately $1.87
million primarily due to the sales of the Company's new subsidiary, Fragrance
Corporation of America, Inc. (FCA), whose sales consist of newly licensed
perfumes. FCA's net sales for the nine months were $1.82 million. Sales
returns continue to run approximately 7% to 8% of gross sales. Other income
($255,000 vs. $236,000) was approximately the same for both years. Gross
margins of 62.5% for the nine months were approximately the same as the 63%
of the prior year. Advertising, cooperative and promotional allowance
expenditures increased during the six month period from $6,326,381 to
$6,877,896. Advertising expenditures were 22% of sales for the nine months
ended August 31, 1998as compared with 21.5% for the period ended August 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
$1,575,814 is accordingly reflected in the balance sheet for the interim
period, as compared to $1,457,838 at August 31, 1997. This deferral is the
result of the Company's $5.5 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 4th quarter. Specifically, the Company
spent approximately $5.25 million in the nine months on media advertising and,
therefore, expensed $4.125 million and deferred $1.125 million as of
August 31, 1998. Similarly, as of August 31, 1998 the Company's co-op
advertising commitments for the year ended November 30, 1998 totaled
approximately $3.1 million of which approximately $2.75 million was spent in
the first nine months resulting in an expense of $2.325 million and a deferral
of approximately $.45 million as of August 31, 1998.
Comparatively as of August 31, 1997, the Company had anticipated media
advertising expense in fiscal year 1997 of $5.2 million and spent
approximately $5 million in the first nine months resulting in a deferral of
approximately $1.1 million ($5MM-$3.9MM). The anticipated Co-op commitments
as of August 31, 1997 were $3 million for the year of which $2.6 million were
spent for the nine months resulting in a $.35 million deferral
($2.6MM-$2.25MM).
Selling, general and administrative expenses ("SG&A") increased compared to
the prior year. The increase to $9,774,000 from $8,917,000 was due mostly to
the "SG&A" expenses ($883,000) incurred by the Company's newly formed
subsidiary.
-16-
<PAGE>
CCA INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED)
For the three month period ended August 31, 1998, total revenue was
$11,218,761 as compared to $10,309,203 for August 31, 1997. CCA's sales for
the quarter were down approximately $500,000 due to significantly lower
international sales and slightly lower sales of most of its core products.
However, FCA's net sales of approximately $1,400,000 resulted in the increase
of approximately $900,000. Income for the quarter before taxes decreased from
$1,182,731 to $637,294. Gross margins of 64% for the three months ended
August 31, 1998 were up from 62.5% in 1997. This was primarily the result of
the product mix for the quarter. Advertising, cooperative and promotional
allowance expense during the quarter increased to $2,769,556 from $1,814,930.
Advertising expenses were 25% of sales for the quarter in 1998 as compared to
18% in 1997. This was largely due in part to the impact to the current quarter
of the revision in the Company's advertising budgets resulting in a catch-up of
approximately $300,000 from the prior quarters and higher anticipated spending.
Selling, general and administrative expenses were approximately the same at
32% in the current quarter as well as in 1997.
Research and development expenses for the nine months and three 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 increased due to the necessary reserves on
the increased accounts receivable. Actual write-offs were approximately
$20,000 in 1998 as compared to approximately $3,000 in 1997. The Company
continued to have virtually no interest expense for the periods.
The Company's sales were primarily to drugstore chains, food chains and mass
merchandisers .
The Company's financial position as at August 31, 1998 consists of current
assets of $21,422,696 and current liabilities of $9,146,511. The Company's
cash position decreased significantly due to the significant increase in its
accounts receivable primarily caused by the sales of its new subsidiary as
well as a slight increase in its own receivables. The Company's inventory and
accounts payable also increased due to FCA's new business. During the nine
month period ended August 31, 1998, shareholders' equity increased from
$13,727,991 at November 30, 1997 to $15,283,253 at August 31, 1998. This was
due primarily to the net income generated for the period.
During the nine months, the Company used $3.35 million in operations,
generated $700,000 from new borrowings, and used approximately $570,000 to
purchase assetsand additional marketable securities. These factors resulted in
a net decrease in the Company's cash of about $3,220,000.
-17-
<PAGE>
CCA INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED)
In 1998, the Company will commence, for all of its systems, a year 2000 date
conversion project to address all necessary code changes, testing, and
implementation. Project completion is planned for the middle of 1999 at an
estimated total cost of approximately $500,000. The Company expects its year
2000 date conversion project to be completed on a timely basis. However, there
can be no assurance that the systems of other companies on which the Company's
systems rely also will be timely converted or that any such failure to convert
by another company would not have an adverse effect on the Company's systems.
The Company has made an application for a program developed in the State of
New Jersey for the reimbursement of the expenses in connection with the
training of the personnel for the conversion of the current data processing
systems. There can be no assurance, however, that the application will be
approved, or as to the extent of the reimbursement.
The Company believes that its current financial condition is sufficient to
support its proposed operations for the near future.
-18-
<PAGE>
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 August 31, 1998.
-19-
<PAGE>
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,
1998 1997 1998 1997
Item 6.
Basic:
Average shares
outstanding 7,259,581 7,206,051 7,243,417 7,217,952
Net effect of dilutive stock
options--based on the
treasury stock method
using average market
price 812,644 916,688 777,515 874,908
TOTALS 8,072,225 8,122,739 8,020,932 8,092,860
Net income $ 440,355 $ 726,253 $1,621,153 $1,742,966
Per share amount $.05 $.09 $.20 $.22
-20-
<PAGE>
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:
John Bingman, Treasurer
-21-
<PAGE>
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