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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
November 30, 1998 2-85538-B
CCA INDUSTRIES, INC.
(Exact Name of Registrant as specified in Charter)
DELAWARE 04-2795439
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Murray Hill Parkway, East Rutherford, New Jersey 07073
(Address of principal executive offices, including zip code)
(201) 330-1400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Class A Common Stock, par value $.01 per share
(Title of Class)
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 filed
such reports), and (2) has been subject to such filing requirement
for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ X ].
The aggregate market value of the voting stock held by non-
affiliates of the Registrant (i.e., by persons other than officers
and directors of the Registrant), at the average bid and asked
prices, at February 8, 1999, was as follows:
Class of Voting Stock Market Value
5,667,937 shares; Common Bid Asked
Stock, $.01 par value $7,616,290 $7,793,413
At February 8, 1999 there were an aggregate of 7,177,562
shares of Common Stock and Class A Common Stock of the Registrant
outstanding.
-ii-
CROSS REFERENCE SHEET
Headings in this Form
Form 10-K 10-K for Year Ended
Item No. November 30, 1998
1. Business Business
2. Properties Property
3. Legal Proceedings Legal Proceedings
4. Submission of Matters Submission of Matters to a
to a Vote of Security Vote of Security Holders
Holders
5. Market for Registrant's Market for the Company's
Common Equity and Common Stock and Related
Related Stockholder Shareholder Matters
Matters
6. Selected Financial Data Selected Financial Data
7. Management's Discussion Management's Discussion and
and Analysis of Financial Analysis of Financial
Condition and Results Condition and Results of
of Operation Operations
8. Financial Statements Financial Statements
and Supplementary Data and Supplementary Data
9. Changes In and Dis- Changes In and Dis-
agreements With agreements With
Accountants On Accounting Accountants On Accounting
and Financial Disclosure and Financial Disclosure
10. Directors and Directors and Executive
Executive Officers Officers
of the Registrant
11. Executive Compensation Executive Compensation
12. Security Ownership Security Ownership
Of Certain Beneficial of Certain Beneficial
Owners and Management Owners and Management
13. Certain Relationships Certain Relationships
and Related Transactions and Related Transactions
-iii-
Headings in this Form
Form 10-K 10-K for Year Ended
Item No. November 30, 1998
14. Exhibits, Financial Exhibits, Financial
Statement Schedules, Statement Schedules,
and Reports on Form and Reports on Form
8-K 8-K
-iv-
TABLE OF CONTENTS
ITEM PAGE
PART I
1. Business........................................ 1
2. Property........................................ 6
3. Legal Proceedings............................... 6
4. Submission of Matters to a
Vote of Security Holders........................ 6
PART II
5. Market for the Company's Common Stock
and Related Shareholder Matters................. 8
6. Selected Financial Data......................... 9
7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................................10
7A. Quantitative And Qualitative Disclosure
About Market Risk..............................14
8. Financial Statements and
Supplementary Data..............................14
9. Changes In and Disagreements
with Accountants On Accounting and
Financial Disclosure............................15
PART III
10. Directors and Executive Officers...............15
11. Executive Compensation.........................17
12. Security Ownership of Certain
Beneficial Owners and Management...............24
13. Certain Relationships and Related
Transactions...................................25
PART IV
14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.............26
-v-
PART I
Item 1. BUSINESS
(a) General
CCA INDUSTRIES, INC. was incorporated in Delaware in 1983.
(Hereinafter, CCA Industries, Inc. and its 80%-owned subsidiary,
Fragrance Corporation of America, Ltd., a New Jersey corporation
incorporated in 1998, will be referenced together as the "Company";
and, separately, as "CCA" and "Fragrance Corp.")
The Company operates in one industry segment, in what may be
generally described as the health-and-beauty aids business, selling
numerous products, in several health-and-beauty categories. Almost
all are manufactured by contract manufacturers, pursuant to the
Company's specifications and formulations.
The Company owns (or owns license to use) registered
trademarks for all of its brand-name products. Its nail treatment
products are sold under the trademarked names "Nutra Nail" and
"Nutra 60"; hair treatment products are sold under the names "Pro
Perm," "Wash 'n Curl," "Wash n Tint" and "Wash 'n Straight";
depilatory products under the name "Hair Off"; skin care products
under the name "Sudden Change"; oral health-care products under the
name "Plus+White"; dietary products under the names "Eat 'n Lose,"
"Hungrex Plus" and "Permathene"; and perfume products, through
Fragrance Corp., under the names "Cherry Vanilla," "Mandarin
Vanilla," "Cloud Dance," "Vision," "Sunset Cafe," and "Amber Musk."
The Fragrance Corp. perfume-products result from the Company's
1998 purchase of inventory and other assets, including perfume
formulas, previously owned by Shiara, Inc., and a March 1998
License Agreement with Shiara Holdings, Inc., pursuant to which the
Company acquired exclusive license to use the trademark names used
by Fragrance Corp. (See "Business-License Agreements")
In May of 1998, the Company entered into a License Agreement
with Solar Sense, Inc., for the marketing of sun care products
under trademark names. (See "Business-License Agreements") The
Company only commenced the marketing of such products in November
of 1998.
All of the products sold under licensed names, including
Fragrance Corp.'s perfumes, and all of the Company's "wholly-owned"
products, are sold to major drug and food chains, mass
merchandisers, and wholesale beauty-aids distributors throughout
the United States and Canada.
The Company's total sales revenues in fiscal 1998 were
approximately $41 million. Foreign sales accounted for
approximately 5% of sales.
Including the principal members of management (see Directors
and Executive Officers), the Company, at November 30, 1998, had 139
sales, administrative, creative, accounting, receiving, and
warehouse personnel in its employ. Included are the three
employees of Fragrance Corp. who are, in aggregate, owners of 20%
of that subsidiary, pursuant to a Shareholder Agreement with the
Company, Fragrance Corp.'s 80% owner. The services of those three
Fragrance Corp. shareholder-employees are solely dedicated to
Fragrance Corp. (None of them is a member of CCA's management, and
none had any prior relationship with the Company.)
In 1998, the Company advanced approximately $3,000,000 to
Fragrance Corp., for inventory, other assets and working capital.
Sales of Fragrance Corp. products produced approximately $3.7
million of revenues during fiscal 1998.
(b) Manufacturing and Shipping
The Company manufactures its hot-wax depilatory 'in house.'
Otherwise, the Company creates formulations, chooses colors and
mixtures, and arranges with independent contractors for the
manufacture of its products pursuant to Company specifications.
Manufacturing and component-supply arrangements are maintained with
several manufacturers and suppliers. Almost all orders and other
product shipments are delivered from the Company's own warehouse
facilities, which results in more effective inventory control, more
efficient shipping procedures, and the realization of related
economies.
(c) Marketing
The Company markets its products through an in-house sales
force of employees, and independent sales representatives
throughout the United States. Major drug, food and mass-
merchandise retail chains, and leading wholesalers, are the primary
focus of the overall sales effort.
The Company sells its products to approximately 600 accounts,
most of which have numerous outlets. (The Company estimates that
at least one of its brands is sold in approximately 40,000 stores.)
During the fiscal year ended November 30, 1998, the Company's two
largest customers were WalMart (approximately 29% of sales) and
Walgreen (approximately 9%). The loss of either of these principal
customers could materially and negatively effect the Company's
earnings. The Company has no short or long-term contracts with
either company except for co-op advertising contracts written in
the normal course of business.
Sales of the Company's products are not seasonally dependent.
Nevertheless, certain products are sensitive to seasonal trends.
For example, sales of depilatories, sun care products and diet
aids, customarily, are considerably stronger in Spring and Summer
2
months, and fragrance-product sales are considerably stronger in
the Fall and Winter.
The Company has an in-house advertising department. The
advertising staff designs point-of-purchase displays (including
'blister cards'), sales brochures and packaging layouts. Actual
production of displays, brochures, layouts and the like is
accomplished through contract suppliers.
(d) License Agreements
i. Alleghany Pharmacal
On March 3, 1986, the Company entered into a license agreement
with Alleghany Pharmacal Corporation (the "Alleghany Pharmacal
License"). Under the terms of the Alleghany Pharmacal License, the
Company was granted, and yet retains, the exclusive right to
manufacture subject products, and to use their trademarks: "Nutra
Nail," "Nutra 60," "Pro Perm," "Hair Off," "Permathane", "Hungrex
Plus," and "IPR 3."
The Alleghany Pharmacal license requires the Company (a) to
pay royalties of 6% per annum on net sales of nail-enamel products
sold under the "Nutra Nail" trademark, hair-care products ("Pro-
Perm") and dietary products ("Permathane," "Hungrex Plus" and "IPR
3"); and (b) to pay a 1% royalty for nail-enamel products sold
under the name "Nutra 60," and for a mitten product sold for use in
connection with the "Hair-Off" line of depilatory products.
The Company is required to pay not less than $360,000 per
annum in order to maintain exclusive rights under the Alleghany
Pharmacal License. (Royalties have always exceeded the minimum;
but, if they did not, the Company would be entitled to maintain
exclusive license rights by electing to pay the 'difference.' At
the same time, the Company would not be required to pay any fee in
excess of actual royalties if sales did not yield 'minimum
royalties' and the Company chose in such circumstance to concede
the exclusive license-rights.)
The Alleghany Pharmacal License agreement provides that if,
and when, in aggregate, $9,000,000 in royalties has been paid
thereunder, the royalty-rate for those products now 'charged' at 6%
will be reduced to 1%. As at November 30, 1998, the Company had
paid or accrued $6,263,831 in royalty payments.
The products subject of the Alleghany-Pharmacal License
accounted for approximately $15,700,000, and 38% of net sales in
the fiscal year ended November 30, 1998. "Nutra Nail" and "Nutra
60" combined accounted for approximately $5.9 million(approximately
14.5% of net sales) in the aggregate. "Hair-Off" accounted for
approximately $4.5 million (approximately 11% of net sales).
3
ii. Shiara
The Shiara-Holdings, Inc. license requires the Company to pay
royalties of 5% per annum on net sales of all products sold under
the "Cherry Vanilla," "Mandarin Vanilla," and "Cloud Dance"
trademarks (see above, "Business-General") until royalties totaling
$2,000,000 are paid, and royalties of one-half of 1% thereafter.
(No royalties are payable in respect of sales of products under
these Shiara license trademarks: "Vision," "Sunset Cafe," and
"Amber Musk.") A minimum of $100,000 is required to be paid for
the period from commencement (April 1998) through June 1999, and a
minimum of $150,000 for each subsequent twelve-month period, in
order to retain the exclusive license-rights.
"Cloud Dance" accounted for approximately one-half of the
sales revenues from products subject of the Shiara license, and
Fragrance Corp. operations. Total sales of Fragrance Corp.
products accounted for approximately 9% of the Company's sales.
iii. Solar Sense, Inc.
The Company's License Agreement with Solar Sense, Inc. is for
the exclusive use of the trademark names "Solar Sense" and "Kids
Sense," in connection with the commercial exploitation of sun care
products that the Company only recently commenced marketing. The
Company will pay a 5% royalty. If minimum royalties of $100,000 do
not result, the license may be terminated unless the Company
chooses to pay the 'difference' between realized royalties and
$100,000.
iv. Other Licenses
The Company has entered into various other license agreements,
none of which has had material impact upon the Company's sales or
financial results.
(e) "Wholly-Owned" Products
The overwhelming majority of sales revenues other than those
realized 'under' the Alleghany-Pharmacal and Shiara licenses, are
from sales of the Company's own, "wholly owned" and trademarked
products, including "Plus+White" toothpaste, "Sudden Change" skin
treatment, "Bikini Zone" analgesic cream, "Wash-n-Curl" hair
treatment, "Young 'n Lovely" nail polish for children, "Mood Magic"
lipstick, "Femback," a pill-form product for women's periodic back-
pain, and "Hair-Off" depilatories.
Of all of the Company's wholly-owned products, only
"Plus+White" (approximately 24%) and "Sudden Change" (approximately
19%) accounted for as much as 10% of sales.
4
(f) Advertising
The Company primarily utilizes local and national television
advertisements to promote its leading brands. On occasion, print
and radio advertisements are engaged. In addition and more-or-less
continuously, store-centered product promotions are co-operatively
undertaken with customers.
Each of the Company's brand-name products has attraction for
a particular demographic segment of the consumer market, and
advertising campaigns are directed to the respective market-
segments.
The Company's in-house staff is responsible for the 'traffic'
of its advertising. Placement is accomplished directly and through
media-service companies.
(g) Trademarks
The Company's own trademarks and its licensed-use trademarks
serve to identify the products and the Company's proprietary
interests, for and in respect of domestic and international sales.
The Company considers these marks to be valuable assets, but there
can be no assurance that trademark registration results, or will
result, in 'enforceable' marketplace advantages.
(h) Competition
The market for cosmetics and perfumes, and health-and-beauty
aids products in general, including patent medicines, is
characterized by vigorous competition among producers, many of
which have substantially greater financial, technological and
marketing resources than the Company. Competitors such as Revlon,
L'Oreal, Colgate, Del Laboratories, Unilever, and Procter & Gamble,
have Fortune 500 or like status, and public recognition of their
products is immediate and 'universal.' Moreover, the Company and
its products compete with a large number of manufacturers and
distributors of lesser renown that may also have greater resources
than the Company.
(i) Government Regulation
All of the products that the Company markets, or which the
Company may develop and plan for the market, are subject or
potentially subject to particular regulation by government
agencies, such as the U.S. Food and Drug Administration, the
Federal Trade Commission, and various state and/or local regulatory
bodies. In the event that any future regulation were to require
particular regulatory approvals, the Company would attempt to
obtain necessary approvals and/or licenses, assuming reasonable and
sufficient market expectations for the regulated product(s) or
planned product(s), but there can be no assurance, in the absence
5
of particular circumstances, that any such regulatory requirements
will result in approvals and issuance of licenses. In the event
such license-requirement circumstances should arise, delays
inherent in any application-and-approval process could have a
material adverse affect upon any subject operations ('existing'
products) or plan of operations.
Item 2. PROPERTY
The principal executive offices of the Company are located at
200 Murray Hill Parkway, East Rutherford, New Jersey. There, under
a net lease, the Company occupies approximately 62,500 square feet
of space. Approximately 45,000 square feet in such premises is
used for warehousing and 17,500 for offices. The annual rental is
$259,284. The lease expires on March 31, 2001, but the Company has
a five-year renewal option.
The Company leases an additional 45,000 square feet of
warehouse space in Paterson, New Jersey, on a net lease basis, for
$9,999 a month. That lease expires on November 30, 1999.
Item 3. LEGAL PROCEEDINGS
The Company is not engaged in any material litigation, but is
involved in various legal proceedings in the ordinary course of its
business activities.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 16, 1998, the Company held its annual meeting of
shareholders. Approximately 6,000,000 shares were voted, in person
or by proxy. The actions and voting were as follows:
(1) David Edell, Ira W. Berman, Jack Polak, and Stanley
Kreitman were elected as directors by the holders of Class A Common
Stock. (No proxy was solicited therefor, whereas Messrs. Berman,
Polak and David Edell own more than 98% of the Class A Common
Stock, and they proposed themselves and Mr. Kreitman.) As proposed
by the Board, Sidney Dworkin, Dunnan Edell and Rami Abada were
elected as directors by the holders of the Common Stock, with
5,212,832 votes "For" the slate.
(2) The Board's proposal, for authorization to amend the
Company's Certificate of Incorporation, to authorize the Board of
Directors to issue up to 20,000,000 shares of Preferred Stock,
6
$1.00 par value, in one or more series and with such preferences,
limitations and relative rights as the Board should determine, was
approved, with 4,180,000 votes "For." (The Certificate of
Incorporation has not as yet been amended as permitted by the vote,
and will not be amended until such time, if ever, as issuance of
preferred shares should be required or deemed advisable, so as to
avoid related expenditures in the absence of need.)
(3) The Board's appointment of Sheft Kahn & Company LLP as the
Company's independent certified public accountants for the 1998
fiscal year was approved, with 5,393,000 votes "For."
The Company has not submitted any matter to a vote of security
holders since the 1998 Annual Meeting.
7
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on NASDAQ. The range of
high and low bids during each quarter of the 1998 and 1997 fiscal
years is as follows:
bought
Quarter Ended 1998 1997
February 28 2 11/16 - 2 1/16 3 3/8 - 2 1/16
May 31 3 5/16 - 2 3/8 3 9/16 - 2 1/8
August 31 2 3/4 - 1 5/8 3 3/8 - 2 9/16
November 30 1 7/8 - 1 1/16 3 5/8 - 2 3/8
The published bid and asked for February 8, 1999 was 1 11/32
bid, 1 3/8 asked.
The only unregistered securities sold by the Company during
the 1998 fiscal year resulted from sales of common stock effected
upon exercises of stock options previously issued pursuant to the
Company's stock option plans (see "Executive Compensation") as
follows:
Number of Per Share
Date Purchaser Shares Consideration
December 1997 David Edell 50,000 $.50
December 1997 Ira W. Berman 20,000 .50
Each of the Purchasers is a director and/or officer (see
"Directors and Executive Officers"). The registration exemption
relied upon is that afforded by Section 4(2) of the Securities Act
of 1933.
As at February 8, 1999, there were approximately 290 holders
of shares of the Company's equity stock. (There are a substantial
number of shares held of record in various street and depository
trust accounts which represent approximately 1000 additional
shareholders.)
The Company has never paid any Common Stock dividend.
8
Item 6. SELECTED FINANCIAL DATA
Year Ended November 30,
1998 1997 1996 1995 1994
Statement of Income
Sales $41,083,974 $ 37,708,922 $39,469,098 $36,849,803 $47,311,591
Other income 318,296 293,953 235,925 316,928 357,080
41,402,270 38,002,875 39,705,023 37,166,731 47,668,671
Costs and Expenses 38,570,096 34,730,052 37,790,397 39,397,255 42,956,794
Income (Loss) Before
Provision for Income
Taxes 2,832,174 3,272,823 1,914,626 ( 2,230,524) 4,711,877
Minority Interest in
Consolidated Subsidiary 7,598 - - - -
Net Income (Loss) 1,660,375 2,031,494 1,051,334 ( 1,354,584) 2,846,750
Earnings Per Share:
Basic $ .23 $ .28 $ .15 ($ .20) $ .42
Diluted $ .21 $ .25 $ .13 ($ .20) $ .35
Weighted Average Number
of Shares Outstanding 7,243,956 7,205,904 7,120,099 6,794,368 6,777,241
Weighted Average Number
of Shares and Common Stock
Equivalents Outstanding 8,075,169 8,108,482 7,989,383 6,794,368 8,116,489
Balance Sheet Data:
As At November 30,
1998 1997 1996 1995 1994
Working Capital $12,067,263 $11,331,810 $ 9,367,639 $ 8,191,830 $ 7,777,269
Total Assets 24,010,136 19,224,291 17,038,752 18,138,359 20,236,182
Total Liabilities 8,410,687 5,139,769 4,983,870 7,287,570 8,293,534
Total Stockholders' Equity 15,591,651 14,084,522 12,054,882 10,850,788 11,942,648
9
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Under the terms of the Alleghany Pharmacal License (see
"Business-License Agreements"), the royalty-rate for those
Alleghany Pharmacal License products now 'charged' at 6% will be
reduced to 1% after the sum of $9,000,000 in royalties has been
paid thereunder. (Certain products subject of the license are,
even now, 'charged' at only 1%. See "Business-License Agreements")
As at November 30, 1998, the Company had paid or accrued
$6,263,831 in royalty payments.
Comparison of Results for Fiscal Years 1998 and 1997
The Company's revenues increased from $38,002,875 in fiscal
1997 to $41,402,270 in fiscal 1998, due to approximately $3,700,000
of sales generated from the perfume products sold pursuant to the
license acquired by its newly formed majority-owned subsidiary,
Fragrance Corporation of America, Ltd.(Fragrance Corp.). CCA's own
sales for the year were down slightly due to lower international
sales as well as a small drop in sales of a few of its core
products. There were no significant changes in the products sold in
either volume or price, or in the history of returns.
Gross margins for the year were 63% in 1998, up from 62% in
fiscal 1997. This was due primarily to the gross margins realized
from the sales of Fragrance Corp.
Management kept its advertising, cooperative, and promotional
budget in line with its sales projections for fiscal 1998 by
keeping its expense to $8,882,106 and 22% of net sales in 1998
similar to the $8,450,461, and 22% of net sales in 1997.
Research and development expenses for fiscal 1998 were lower
than fiscal 1997 by approximately $120,000 due to the economies of
utilizing the services of more in-house staff rather than outside
consultants.
Bad debt expense for fiscal 1998 were up significantly from
fiscal 1997 [$201,630 vs. ($17,779)] due to the necessary reserves
on the increased accounts receivable. Actual write-offs were
approximately $50,000 in 1998 as compared to approximately $6,000
in 1997.
The Company's interest expense also increased in fiscal 1998
due to its use of its credit line to absorb approximately half of
its approximate $3,000,000 advance to Fragrance Corp. for working
capital and initial purchase of inventory.
10
The increase in selling, general and administrative expenses
of $2,432,288 [$13,579,182 in fiscal 1998 as compared to
$11,146,894 in fiscal 1997] accounted for the offset to the higher
sales and better margins, however, and resulted in a slightly lower
pre-tax profit of $2,832,175, down from $3,272,823 in 1997. The
increase in SG&A was mostly due to the costs associated with the
start-up of Fragrance Corp. and the increased overhead of the new
operations, as well as the increase in royalties and commissions on
CCA's own products due to fluctuations in the product mix of sales.
Comparison of Results for Fiscal Years 1997 and 1996
The Company's revenues decreased from $39,705,023 in fiscal
1996, to $38,002,875 in fiscal 1997, due in part to the mergers and
consolidations of major customers, which impacted upon previously
planned sales promotions. There were no significant changes in the
products sold in either volume or price, or in the history of
returns.
Gross margins for the year were 62% in both 1997 and 1996.
Advertising, cooperative and promotional expenses were $8,450,461
and 22% of sales, in 1997, and $10,655,495 and 27% of sales, in
1996.
Research and development costs were up approximately $225,000
for the year due to the Company's increased efforts to find new
products and improve existing lines.
Selling, general and administrative expenses were $11,146,894
and 29.5% of sales in 1997, and $11,408,154 and 29% of sales in
1996.
The provision for doubtful accounts decreased for the year due
to the decrease in accounts receivable.
Interest expense for the year decreased due to the repayment
of the Company's long-term debt and its improved working capital
position due to its increased profits.
Liquidity and Capital Resources
As at November 30, 1998, the Company had working capital of
$12,067,263 as compared to $11,331,810 at November 30, 1997. The
ratio of total current assets to current liabilities was 2.4 to 1
as compared to a ratio of 3.2 to 1 for the prior year. This was due
to the borrowing of $1,550,000 under the Company's $5,000,000 line
of credit to help finance the significant increase in the Company's
accounts receivable and inventory. Stockholders' equity increased
to $15,591,651 from $14,084,522.
The Company's cash position at year end decreased to $542,289
from $3,649,774 as at November 30, 1997. The decrease was due
11
mostly to the cash used in operations (approximately $3.7 million)
largely due to the acquisition of inventory for its new subsidiary
(Fragrance Corp.)of approximately $1.6 million. The Company
utilized approximately $699,000 in the acquisition of property and
equipment, $106,000 for intangible assets,$138,000 to buy back
treasury stock and $30,000 to increase its marketable security
portfolio. The Company accessed $1,550,000 of its $5,000,000
available credit line to help offset these cash needs.
Inventories [$9,059,456 vs. $6,014,672] were up $3,044,784,
and accounts receivable [$7,878,000 vs. $3,931,273] increased
$3,946,727. Both increases were largely due to the new receivables
and inventory acquired by Fragrance Corp. Current liabilities
[$8,410,687 vs. $5,139,769] increased by $3,270,918.
As at November 30, 1998, the Company was utilizing $1,550,000
of the funds available under its $5,000,000 credit line. The
Company has issued a security agreement in connection with the bank
financing.
Year 2000 Issue
Like many other companies, the Year 2000 computer issue
creates risks for the Company. If internal systems do not correctly
recognize and process date information beyond the year 1999, the
Company's operations could be adversely impacted as the result of
the system failures and business process interruption.
The Company has been addressing the Year 2000 computer issue
since early 1997. To coordinate its Year 2000 program, the Company
has focused its efforts in three areas.
1) Its own in house information technology, including computer
hardware, third-party and internally developed software and
databases, electronic interfaces and end user extracts, and
operating systems.
2) External relationships including suppliers and customers.
3) Manufacturing, warehousing, and distribution equipment.
The Company has put its EDP department in charge of overseeing
the identification, testing, and remediation of all the Year 2000
issues in the various departments of the Company. The EDP
department is also responsible for the execution of contingency
plans, if need be, in case the implementation of corrective actions
and verification of successful implementation is not completed in
a timely manner.
As of November 30, 1998, the identification steps were
essentially complete for all three areas of focus. The testing of
12
the in house functions was also substantially completed due mostly
in part to its decision to upgrade almost all of its accounting
software and most of the Company's hardware to completely new, Year
2000 compliant, systems. The Company is currently working with
suppliers of products and services to determine and monitor their
level of compliance and Compliance Testing. The Company feels that
the effect of any non-compliant embedded technology in the
Company's manufacturing, warehousing, and distribution equipment
would be immaterial to the Company's operations. Year 2000
readiness of significant customers is also being assessed. The
Company's evaluation of Year 2000 compliance as it relates to the
Company's external relationships is expected to be completed by
mid-1999.
The cost of addressing the Company's Year 2000 issues is
expected to be approximately $400,000 to $500,000. However,
approximately $140,000 of these costs should be offset by a grant
obtained 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 possibly, 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.
With respect to remediation, the Company has a contingency
plan in place in case its new Y2K compliant hardware and software
fail, which would consist of replacing the Company's existing non-
compliant servers and Novell software with new Year 2000 compliant
ones and updating the existing databases beginning with the
accounts receivable, accounts payable, and order entry systems. The
Company believes that with a concentrated effort, these systems can
be converted in a relatively short period. Externally, the
Company's Year 2000 plan includes identification of alternative
sources for providers of goods and services. The Company expects it
contingency plans to be complete by mid-1999.
13
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company invests its excess cash in interest-bearing
investment-grade securities. The Company holds all such securities
for the remaining term of the security. Therefore, the Company
believes that it is not subject to material interest rate risks on
such investments, other than the credit worthiness of the issuer of
such securities. In addition, the Company does not utilize risk-
sensitive market instruments, positions or transactions in any
material fashion and does not believe it is subject to any material
exposure to market-risk sensitivities.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are listed under Item 14 in this Form
10-K. The following financial data is a summary of the quarterly
results of operations (unaudited) during and for the years ended
November 30, 1998 and 1997:
Three Months Ended
Fiscal 1998 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales $9,352,431 $10,770,270 $11,147,343 $9,813,930
Total Revenue 9,438,685 10,867,542 11,218,761 9,877,282
Cost of Pro-
ducts Sold 3,587,114 4,127,413 4,006,010 3,601,039
Net Income 375,955 804,844 440,355 39,221
Earnings per
common share
Basic .05 .11 .06 .01
Diluted .05 .11 .05 .01
Three Months Ended
Fiscal 1997 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales $8,617,289 $10,552,412 $10,227,594 $8,311,627
Total Revenue 8,698,517 10,625,347 10,309,203 8,369,808
14
Cost of Pro-
ducts Sold 3,076,627 3,940,006 3,850,509 3,593,222
Net Income 310,001 706,712 726,253 288,528
Earnings per
common share
Basic .04 .10 .10 .04
Diluted .04 .09 .09 .03
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company did not change its accountants within the twenty-
four months prior to the date of the most recent financial
statements (nor since), and had no reported disagreement with its
accountants on any matter of accounting principles or practices.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The Executive Officers and Directors of the Company are as
follows:
YEAR OF FIRST
NAME POSITION COMPANY SERVICE
David Edell President and Chief
Executive Officer,
Director 1983
Ira W. Berman Chairman of the Board
of Directors, Secretary,
Executive Vice President 1983
Dunnan Edell Executive Vice Pres.-
Sales, Director 1984
Drew Edell Vice President-
Manufacturing and
New Product Development 1983
Stanley Kreitman Director 1996
John Bingman Treasurer 1986
15
Jack Polak Director 1983
Sidney Dworkin Director 1985
Rami G. Abada Director 1997
David Edell, age 67, is a director, and the Company's
President and Chief Executive Officer. Prior to his association
with the Company he was a marketing and financial consultant; and,
by 1983, he had extensive experience in the health and beauty aids
field as an executive director and/or officer of Hazel Bishop,
Lanolin Plus and Vitamin Corporation of America.
Ira W. Berman, age 67, is the Company's Executive Vice
President and Corporate Secretary. He is also Chairman of the
Board of Directors. Mr. Berman is an attorney who has been engaged
in the practice of law since 1955. He received a Bachelor of Arts
Degree (1953) and Bachelor of Laws Degree (1955) from Cornell
University, and is a member of the American Bar Association.
Dunnan Edell is the 43 year-old son of David Edell. He has
been a director since 1994. A Senior Vice President-Sales, he
joined the Company in 1984 and was appointed Divisional Vice-
President in 1986. He was employed by Alleghany Pharmacal
Corporation from 1982 to 1984, and by Hazel Bishop from 1977 to
1981.
Drew Edell, the 41 year-old son of David Edell, is a graduate
of Pratt Institute, where he received a Bachelor's degree in
Industrial Design. He joined the Company in 1983, and in 1985 he
was appointed Vice President-Product Development and Production.
John Bingman, age 47, received a Bachelor of Science degree
from Fairleigh Dickenson University in 1973. He is a certified
public accountant who practiced with the New Jersey accounting firm
of Zarrow, Zarrow & Klein from 1976 to 1986.
Jack Polak, age 86, has been a private investment consultant
since April 1982, and holds a tax consultant certification in The
Netherlands. From 1977 until 1995, he was a director of
Petrominerals Corporation, a public company engaged in oil and gas
production, located in Tustin, California. From August 1993 until
February 1995, he was a director of Convergent Solutions, Inc.
Since February 1995 (upon a merger involving Convergent Solutions),
he has been a director of K.T.I. Industries, Inc. of Guttenberg,
NJ, and a member of its Board's Audit and Compensation Committee.
K.T.I. is a public company engaged in the waste - to - energy
business.
16
Stanley Kreitman, age 67, has been Vice Chairman of the Board
of Manhattan Associates, an equity - investment firm, since 1994.
He is also a director of Medallion Financial Corp., an SBIC. Mr.
Kreitman has been Chairman of the Board of Trustees of the New York
Institute of Technology since 1989, and of Crime-Stoppers Nassau
County (NY), since 1994. He is also a director and/or executive
committee member of the following organizations: The New York City
Board of Corrections, The New York City Police Foundation, St.
Barnabas Hospital, The New York College of Osteopathic Medicine,
and the Police Athletic League. From 1975 until 1993, he was
President of United States Banknote Corporation, a securities
printer.
Sidney Dworkin, age 78, has been a director since 1985. He
was one of the founders, and from 1966 until 1987, was the
President and Chairman of the Board of Revco D.S., Inc., one of the
largest drug store chains in the United States. (He terminated his
association with Revco in September 1987.) Mr. Dworkin is a
certified public accountant and a graduate of Wayne State
University. He is also a director of Northern Technologies
International, Inc., Crager Industries, Inc., Entile Company, Inc.,
Q.E.P. Company, Inc. and Viragen Inc., and is Chairman of the
boards of Comtrex Systems, Inc., MarbleEdge Group, Inc., and
Interactive Technologies, Inc. He was a director of Neutrogena
Corp. until its acquisition by Johnson & Johnson, and is a former
Chairman of the National Association of Chain Drug Stores.
Rami G. Abada, age 39, is the President and Chief Operating
Officer of the publicly-owned Jennifer Convertibles, Inc. He has
been its Chief Operating Officer since April of 1994. From 1982 to
1994, he was a Vice President of Operations in the Jennifer
Convertibles organization. Mr. Abada, who is Ira Berman's son-in-
law, earned a B.B.A. in 1981 upon his graduation from Bernard
Baruch College of The City University of New York.
Item 11. EXECUTIVE COMPENSATION
i. Summary Compensation Table
The following table summarizes compensation earned in fiscal
years 1998, 1997 and 1996 by all of the executive officers whose
fiscal 1998 compensation exceeded $100,000, including the Chief
Executive Officer (the "named officers").
17
Annual Compensation Long-Term Compensation
Number
of Other
Shares Long-
All Covered Term
Other by com-
Name and Annual Stock pen-
Principal Compen- Options sa-
Position Year Salary Bonus sation(1) Granted(2) tion
David Edell, 1998 $378,743 151,604 19,429 - 0
President 1997 357,305 171,254 24,812 100,000 0
and Chief 1996 337,080 131,896 21,560 - 0
Executive
Officer
Ira W. Berman, 1998 $378,743(3) 151,604 16,403 - 0
Secretary 1997 357,305(3) 171,254 22,345 100,000 0
and Executive 1996 337,080(4) 131,896 22,876 - 0
Vice President
Dunnan Edell, 1998 $200,000 - 9,787 - 0
Executive 1997 200,000 25,000 14,898 50,000 0
Vice President 1996 185,096 25,000 15,659 - 0
- - Sales
Drew Edell, 1998 $150,000 - 2,508 - 0
Vice Presi- 1997 131,800 15,000 2,283 50,000 0
dent-Manufact- 1996 112,100 15,000 12,063 - 0
uring
- -------------------------
(1) Includes the personal-use value of Company-leased automobiles,
the value of Company-provided life insurance, and health insurance
that is made available to all employees, plus directors fees paid
to Messrs. David Edell, Ira Berman and Dunnan Edell.
(2) Information in respect of stock option plans appears below in
the sub-topic, Employment Contracts/Executive Compensation Program.
(3) Includes $99,396 paid to Ira W. Berman & Associates, P.C.
(4) Includes $110,046 paid to Ira W. Berman & Associates, P.C.
18
ii. 1998 Option Grants, Fiscal Year Option Exercises,
Year-End Option Valuation, Option Repricing
No new options were issued to any of the Named Officers in
fiscal 1998.
The next table identifies 1998 fiscal-year option exercises by
named officers, and reports a valuation of their options.
Fiscal 1998 Aggregated Option Exercises
and November 30, 1998 Option Values
Number of Value of
Shares Unexer-
Number of Covered by cised
Shares Unexercised In-the-Money
Acquired Value Options at Options at
On Exercise Realized November November
30, 1998 30, 1998(1)
David Edell 50,000 81,250 517,500 1,484,563
Ira W. Berman 50,000 32,500 542,000 1,555,000
- ---------------------
(1) Represents the difference between market price and the
respective exercise prices of options at November 30, 1998.
Repriced Options
The following table identifies the stock options held by the
named officers and all other officers and directors, the exercise
prices of which have been reduced during the past 10 years.
Original
Number Grant Original Date New
of Shares Date Price Repriced Price
David Edell 100,000 Aug. 1, 1997 $2.50 Nov. 3, 1998 1.50
Ira W. Berman 100,000 Aug. 1, 1997 2.50 Nov. 3, 1998 1.50
Dunnan Edell 50,000 Aug. 1, 1997 2.50 Nov. 3, 1998 1.50
Drew Edell 50,000 Aug. 1, 1997 2.50 Nov. 3, 1998 1.50
Stanley Kreitman 25,000 Aug. 1, 1997 2.50 Nov. 3, 1998 1.50
Jack Polak 25,000 Aug. 1, 1997 2.50 Nov. 3, 1998 1.50
Sidney Dworkin 25,000 Aug. 1, 1997 2.50 Nov. 3, 1998 1.50
Rami Abada 25,000 Aug. 1, 1997 2.50 Nov. 3, 1998 1.50
- ---------------------
19
(1) The full Board of Directors authorized the repricing in
consequence a declining market valuation, inconsistent with the
Company's realizable value. (See "Compensation of Directors") The
market price of the Common Stock at the date of repricing was
$1.50; and, at that date, the original option terms (10 years from
August 1, 1997) had approximately 8 years and 10 months to run.
When the options were originally issued, on August 1, 1997, the
market price of the Company's Common Stock was $2.50.
iii. Compensation of Directors
Each director was paid $2,000 per meeting for attendance of
board meetings in fiscal 1998 (without additional compensation for
committee meetings). No options were granted to any director, but
options issued to each of them in fiscal 1997 were re-priced in
1998. The old and new prices, issuance dates and at-issuance
market prices are as reported above in respect of the four
Directors who are named officers. The same information and terms
apply to the re-priced options of there Directors, each of whom
(Messrs. Kreitman, Abada and Polak) had 25,000 options re-priced.
The full Board of Directors met three times in 1998.
iv. Executive Compensation Principles;
Audit and Compensation Committee
The Company's Executive Compensation Program is based on
guiding principles designed to align executive compensation with
Company values and objectives, business strategy, management
initiatives, and financial performance. In applying these
principles the Audit and Compensation Committee of the Board of
Directors, comprised of David Edell, Ira W. Berman, Stanley
Kreitman, Jack Polak and Rami Abada, which met three times in 1998,
has established a program to:
* Reward executives for long-term strategic management and the
enhancement of shareholder value.
* Integrate compensation programs with both the Company's annual
and long-term strategic planning.
* Support a performance-oriented environment that rewards
performance not only with respect to Company goals but also
Company performance as compared to industry performance
levels.
v. Employment Contracts/Compensation Program
20
The total compensation program consists of both cash and
equity based compensation. The Audit and Compensation Committee
(the "Committee") determines the level of salary and bonuses, if
any, for key executive officers other than Messrs. David Edell and
Ira Berman. The Committee determines the salary or salary range
based upon competitive norms. Actual salary changes are based upon
performance.
Bonuses (see the Summary Compensation Tables), for David Edell
and Ira Berman are determined by contracts (next referenced), Other
bonuses were awarded by the Committee, in consideration of the
Company's performance during 1998.
On March 17, 1994, the Board of Directors approved 10-year
employment contracts for David Edell and Ira Berman (with Mr. Edell
and Mr. Berman abstaining). Pursuant thereto, each was provided a
base salary of $300,000 in fiscal 1994, with a year-to-year CPI or
6% increment, and each is paid 2-1/2% of the Company's pre-tax
income, less depreciation and amortization, plus 20% of the base
salary, as bonus.
In February of 1999, the David Edell and Ira Berman employment
contracts were amended to provide that their respective (and
equivalent) bonuses shall be 2.5% of the Company's earnings before
income taxes, depreciation, amortization, and all expenditures for
media and cooperative advertising and promotion in excess of
$8,000,000, plus 20% of the base salary.
Long-term incentives are provided through the issuance of
stock options.
vi. Stock Option Plans
The Company's 1984 Stock Option Plan covered 1,500,000 shares
of its Common Stock.
The Company's 1986 Stock Option Plan covered 1,500,000 shares
of its Common Stock.
The Company's 1994 Stock Option Plan covers 1,000,000 shares
of its Common Stock.
The 1994 Option Plan provides (as had the 1984 and 1986 plans)
for the granting of two (2) types of options: "Incentive Stock
Options" and "Nonqualified Stock Options". The Incentive Stock
Options (but not the Nonqualified Stock Options) are intended to
qualify as "Incentive Stock Options" as defined in Section 422(a)
of The Internal Revenue Code. The Plans are not qualified under
Section 401(a) of the Code, nor subject to the provisions of the
Employee Retirement Income Security Act of 1974.
Options may be granted under the Options Plans to employees
21
(including officers and directors who are also employees) and
consultants of the Company, provided, however, that Incentive Stock
Options may not be granted to any non-employee director or
consultant.
Option plans are administered and interpreted by the Board of
Directors. (Where issuance to a Board member is under
consideration, that member must abstain.) The Board has the power,
subject to plan provisions, to determine the persons to whom and
the dates on which options will be granted, the number of shares
subject to each option, the time or times during the term of each
when options may be exercised, and other terms. The Board has the
power to delegate administration to a Committee of not less than
two (2) Board members, each of whom must be disinterested within
the meaning of Rule 16b-3 under the Securities Exchange Act, and
ineligible to participate in the option plan or in any other stock
purchase, option or appreciation right under plan of the Company or
any affiliate. Members of the Board receive no compensation for
their services in connection with the administration of option
plans.
Option Plans permit the exercise of options for cash, other
property acceptable to the Board or pursuant to a deferred payment
arrangement. The 1994 Plan specifically authorizes that payment
may be made for stock issuable upon exercise by tender of Common
Stock of the Company; and the Executive Committee is authorized to
make loans to option exercisers to finance optionee tax-
consequences in respect of option exercise, but such loans must be
personally guaranteed and secured by the issued stock.
The maximum term of each option is ten (10) years. No option
granted is transferable by the optionee other than upon death.
Under the plans, options will terminate three (3) months after
the optionee ceases to be employed by the Company or a parent or
subsidiary of the Company unless (i) the termination of employment
is due to such person's permanent and total disability, in which
case the option may, but need not, provide that it may be exercised
at any time within one (1) year of such termination (to the extent
the option was vested at the time of such termination); or (ii) the
optionee dies while employed by the Company or a parent or
subsidiary of the Company or within three (3) months after
termination of such employment, in which case the option may, but
need not provide that it may be exercised (to the extent the option
was vested at the time of the optionee's death) within eighteen
(18) months of the optionee's death by the person or persons to
whom the rights under such option pass by will or by the laws of
descent or distribution; or (iii) the option by its terms
specifically provides otherwise.
The exercise price of all nonqualified stock options must be
at least equal to 85% of the fair market value of the underlying
22
stock on the date of grant. The exercise price of all Incentive
Stock Options must be at least equal to the fair market value of
the underlying stock on the date of grant. The aggregate fair
market value of stock of the Company (determined at the date of
the option grant) for which any employee may be granted Incentive
Stock Options in any calendar year may not exceed $100,000, plus
certain carryover allowances. The exercise price of an Incentive
Stock Option granted to any participant who owns stock possessing
more than ten (10%) of the voting rights of the Company's
outstanding capital stock must be at least 110% of the fair market
value on the date of grant and the maximum term may not exceed five
(5) years.
Consequences to the Company: There are no Federal income tax
consequences to the Company by reason of the grant or exercise of
an Incentive Stock Option.
As at November 30, 1998, 1,284,500 stock options, yet
exercisable, to purchase 1,284,500 shares of the Company's Common
Stock, were outstanding.
vii. Performance Graph
Set forth below is a line graph comparing cumulative total
shareholder return on the Company's Common Stock, with the
cumulative total return of companies in the NASDAQ Stock Market
(U.S.) and the cumulative total return of Dow Jones's
Cosmetics/Personal Care Index.
23
Cumulative Total Return
11/93 11/94 11/95 11/96 11/97 11/98
CCA Industries, Inc. 100 57 22 35 36 21
DJ Equity Market 100 101 139 178 228 280
DJ Cosmetics/Personal 100 121 164 220 267 279
Care
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
the ownership of the Company's Common Stock and/or Class A Common
Stock as of February 6, 1999 by (i) all those known by the Company
to be owners of more than five percent of the outstanding shares of
Common Stock or Class A Common Stock, (ii) the "named officers,"
including the Chief Executive Officer (see Executive Compensation-
Summary Compensation Table); (iii) each officer and director; and
(iv) all officers and directors as a group. Unless otherwise
indicated, each of the shareholders has sole voting and investment
power with respect to the shares owned (subject to community
property laws, where applicable), and is beneficial owner of them.
Ownership, As A
Percentage of
Number of All Shares
Name and Address Shares Owned: Outstanding
Common
Stock Class A
David Edell 166,450 484,615 9.07
c/o CCA Industries, Inc.
200 Murray Hill Parkway
East Rutherford, NJ 07073
Ira W. Berman 159,745 473,615 8.82
c/o CCA Industries, Inc.
Jack Polak 25,000 47,700 1.01
90 Park Avenue
New York, NY 10016
24
Rami G. Abada - - -
c/o CCA Industries, Inc.
Stanley Kreitman - - -
c/o CCA Industries, Inc.
Dunnan Edell 51,250 - .71
c/o CCA Industries, Inc.
Drew Edell 51,250 - .71
c/o CCA Industries, Inc.
Sidney Dworkin 50,000 - .70
1550 No. Powerline Road
Pompano, FL 33069
John Bingman - - -
c/o CCA Industries, Inc.
Officers and Directors 503,695 21.02
as a group (9 persons)
_______________________
(1) David Edell, Ira Berman and Jack Polak own over 98% of the
outstanding shares of Class A Common Stock. Messrs. David Edell,
Dunnan Edell and Ira Berman are officers and directors. Messrs.
Bingman and Drew Edell are officers. Messrs. Abada, Kreitman,
Polak, and Dworkin are directors.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As at November 30, 1998, Company loans, to Drew Edell, an
officer, and Dunnan Edell, a director and officer, in the principal
sums of $40,000 and $25,250, respectively, were outstanding. The
loans, secured by second mortgages upon real properties, carry
interest at 1% over prime, payable semi-annually.
25
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS,
SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements:
Table of Contents, Independent Auditors' Report, Consolidated
Balance Sheets as of November 30, 1998 and 1997, Consolidated
Statements of Income for the years ended November 30, 1998, 1997
and 1996, Consolidated Statements of Shareholders' Equity for the
periods November 30, 1998, 1997 and 1996, Consolidated Statements
of Cash Flows for the years ended November 30, 1998, 1997 and 1996,
Notes to Consolidated Financial Statements.
Financial Statement Schedules:
Schedule II Valuation Accounts; Years Ended Nov. 30, 1998,
1997 and 1996
Exhibits:
(a) The Company's Articles of Incorporation and Amendments
thereof, and its By-Laws, are incorporated by reference
to their filing with the Form 10-K A filed April 5, 1995.
(Exhibit pages 000001-23).
(b) The February 1999 Amendments to the Amended and Restated
Employment Agreements of David Edell and Ira Berman
(1994) are incorporated by reference to the filing of
those Amendments, as an Exhibit, with this 10-K for the
1998 fiscal year. (Exhibit pages 00001-00002)
The Following Material Contracts and Amendments are
incorporated by reference to their filing with the Form 10-KA
filed April 5, 1995: Amended and Restated Employment
Agreements of 1994, with David Edell and Ira Berman; License
Agreement made February 12, 1986 with Alleghany Pharmacal
Corporation.
(c) The Company's 1994 Stock Option Plan is incorporated by
reference to its filing as an exhibit printed in the 1994
Proxy Statement, filed on or about May 15, 1994.
No Form 8-K was filed during the last quarter of 1998.
26
Shareholders may obtain a copy of any exhibit not filed
herewith by writing to CCA Industries, Inc., 200 Murray Hill
Parkway, East Rutherford, New Jersey 07073.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(A) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Annual Report to be signed on its behalf by the undersigned
thereunto duly authorized.
CCA INDUSTRIES, INC.
By: s/ David Edell
DAVID EDELL, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
s/ David Edell President, Director,
DAVID EDELL Chief Executive Officer,
and Chief Financial
Officer February 25, 1999
s/ Ira W. Berman Chairman of the Board
IRA W. BERMAN of Directors, Executive
Vice President,
Secretary February 25, 1999
s/ Dunnan Edell Vice President, February 25, 1999
DUNNAN EDELL Director
s/ Stanley Kreitman Director February 25, 1999
STANLEY KREITMAN
s/ Rami Abada Director February 25, 1999
RAMI ABADA
s/ Jack Polak Director February 25, 1999
JACK POLAK
s/ Sidney Dworkin Director February 25, 1999
SIDNEY DWORKIN
28
AMENDMENT TO AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
Agreement effective as of December 31, 1998, between CCA
Industries, Inc., and Ira W. Berman.
FIRST: Section 3 (b) is amended as follows:
3. Employment Term Compensation; Base Salary and Annual
Bonus.
(b) For each year of the Employment Term and as
additional consideration for his Employment Term services, the
Company shall pay the Executive, on or before the fifteenth (15th)
day after the Company's year-end audited financial statements are
available, and annual bonus (the "Bonus") equal to 2.5% for the
Company's earnings before income taxes, depreciation and
amortization, (all expenditures for advertising, promotion and co-
op in excess of $8,000,000.00 shall not be deducted as expenses in
computing the earnings for the purposes of this Section), plus 20%
of the Executive's Base Salary for the year then 'in progress.'
IN WITNESS WHEREOF, the parties have set their hands this
day of February 1999.
CCA INDUSTRIES, INC.
By:
David Edell, President
By:
APPROVED: Ira W. Berman
Dunnan Edell, Director
Jack Polak, Director
Sidney Dworkin, Director
Stanley Kreitman, Director
Rami Abada, Director
29
-00001-
AMENDMENT TO AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
Agreement effective as of December 31, 1998, between CCA
Industries, Inc., and David Edell.
FIRST: Section 3 (b) is amended as follows:
3. Employment Term Compensation; Base Salary and Annual
Bonus.
(b) For each year of the Employment Term and as
additional consideration for his Employment Term services, the
Company shall pay the Executive, on or before the fifteenth (15th)
day after the Company's year-end audited financial statements are
available, and annual bonus (the "Bonus") equal to 2.5% for the
Company's earnings before income taxes, depreciation and
amortization, (all expenditures for advertising, promotion and co-
op in excess of $8,000,000.00 shall not be deducted as expenses in
computing the earnings for the purposes of this Section), plus 20%
of the Executive's Base Salary for the year then 'in progress.'
IN WITNESS WHEREOF, the parties have set their hands this
day of February 1999.
CCA INDUSTRIES, INC.
By:
David Edell, President
By:
APPROVED: Ira W. Berman
Dunnan Edell, Director
Jack Polak, Director
Sidney Dworkin, Director
Stanley Kreitman, Director
Rami Abada, Director
-00002-
30
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
C O N T E N T S
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS . . . . . . . . . 1A
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . 2-3A
CONSOLIDATED STATEMENTS OF INCOME (LOSS). . . . . . . . . . . . . . . 4A
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY . . . . . . . . . . . 5A
CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . 6A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . .7-29A
INDEPENDENT AUDITORS' REPORT
Board of Directors
CCA Industries, Inc.
East Rutherford, New Jersey
We have audited the consolidated balance sheets of CCA Industries, Inc. and
Subsidiaries as of November 30, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended November 30, 1998. These consolidated financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these consolidated financial statements and related
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain a reasonable assurance about whether the financial statements and
related schedules are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements and related schedules. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of CCA Industries, Inc. and Subsidiaries as of November 30, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended November 30, 1998, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental schedules
listed in the index to Item 14 are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. The supplemental schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, present fairly, in all material
respects, in relation to the basic consolidated financial statements.
SHEFT KAHN & COMPANY LLP
CERTIFIED PUBLIC ACCOUNTANTS
February 8, 1999
Jericho, New York
-1A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
November 30,
1998 1997
Current Assets
Cash and cash equivalents $ 542,289 $ 3,649,774
Short-term investments and marketable
securities (Notes 2 and 6) 1,633,452 1,926,513
Accounts receivable, net of allowances of
$1,318,185 and $664,325, respectively
(Note 7) 7,878,000 3,931,273
Inventories (Notes 2, 3 and 7) 9,059,456 6,014,672
Prepaid expenses and sundry receivables 317,318 248,553
Due from officers - Current - 1,500
Prepaid income taxes and refunds due 72,513 -
Deferred income taxes (Note 8) 974,922 699,294
Total Current Assets 20,477,950 16,471,579
Property and Equipment, net of accumulated
depreciation and amortization
(Notes 2 and 4) 866,663 486,029
Intangible Assets, net of accumulated
amortization (Notes 2 and 5) 245,875 163,640
Other Assets
Marketable securities (Notes 2 and 6) 2,172,253 1,874,175
Due from officers - Non-current (Note 13) 65,250 65,250
Deferred income taxes (Note 8) 127,256 111,006
Other 54,889 52,612
Total Other Assets 2,419,648 2,103,043
Total Assets $24,010,136 $19,224,291
See Notes to Consolidated Financial Statements.
-2A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
November 30,
1998 1997
Current Liabilities
Notes payable - Current portion (Note 7) $ 1,550,000 $ -
Accounts payable and accrued
liabilities (Note 10) 6,259,967 5,053,665
Income taxes payable (Note 8) 600,720 86,104
Total Current Liabilities 8,410,687 5,139,769
Minority Interest in Consolidated Subsidiary 7,798 -
Commitments and Contingencies
(Note 12)
Shareholders' Equity
Common stock, $.01 par; authorized
15,000,000 shares; issued and
outstanding 6,246,151 and 6,192,621
shares, respectively 62,462 61,927
Class A common stock, $.01 par; authorized
5,000,000 shares; issued and outstanding
1,020,930 and 1,020,930 shares,
respectively 10,209 10,209
Additional paid-in capital 4,454,228 4,454,763
Retained earnings 11,238,704 9,578,329
Unrealized gains (losses) on marketable
securities (Note 6) ( 18,343) ( 2,737)
15,747,260 14,102,491
Less: Treasury Stock (89,519 and
7,500 shares at November 30,
1998 and November 30, 1997,
respectively) 155,609 17,969
Total Shareholders' Equity 15,591,651 14,084,522
Total Liabilities and Shareholders' Equity $24,010,136 $19,224,291
See Notes to Consolidated Financial Statements.
-3A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended November 30,
1998 1997 1996
Revenues
Sales of health and beauty
aid products, net $41,083,974 $37,708,922 $39,469,098
Other income 318,296 293,953 235,925
41,402,270 38,002,875 39,705,023
Costs and Expenses
Cost of sales 15,321,576 14,460,364 15,171,055
Selling, general and
administrative expenses 13,579,182 11,146,894 11,408,154
Advertising, cooperative and
promotions 8,882,106 8,450,461 10,655,495
Research and development 562,708 684,224 459,082
Provision for doubtful accounts 201,630 ( 17,779) 45,855
Interest expense 22,894 5,888 50,756
38,570,096 34,730,052 37,790,397
Income before Provision
for Income Taxes 2,832,174 3,272,823 1,914,626
Provision for Income Tax 1,164,201 1,241,329 863,292
Net Income Including Minority
Interest of Consolidated
Subsidiary 1,667,973 2,031,494 1,051,334
Minority Interest in Net Income
of Consolidated Subsidiary 7,598 - -
Net Income $ 1,660,375 $ 2,031,494 $ 1,051,334
Weighted Average Shares
Outstanding
Basic 7,243,956 7,205,904 7,120,099
Diluted 8,075,169 8,108,482 7,989,383
Earnings Per Common Share
(Note 2):
Basic $ .23 $ .28 $ .15
Diluted $ .21 $ .25 $ .13
See Notes to Consolidated Financial Statements.
-4A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
Unrealized
Additional Gain (Loss) on
Common Stock Paid-In Retained Marketable Treasury
Shares Amount Capital Earnings Securities Stock
Balance - December 1, 1995 6,795,151 $67,952 $4,282,007 $ 6,495,501 $ 5,328 $ -
Issuance of common stock 372,400 3,724 173,216 - - -
Net income for the year - - - 1,051,334 - -
Unrealized (loss) on marketable
securities - - - - ( 11,681) -
Purchase of 5,000 shares of
treasury stock - - - - - ( 12,500)
Balance - December 1, 1996 7,167,551 71,676 4,455,223 7,546,835 ( 6,353) ( 12,500)
Issuance of common stock 46,000 460 ( 460) - - -
Net income for the year - - - 2,031,494 - -
Unrealized gain on marketable
securities - - - - 3,616 -
Purchase of 2,500 shares of
treasury stock - - - - - ( 5,469)
Balance - December 1, 1997 7,213,551 72,136 4,454,763 9,578,329 ( 2,737) ( 17,969)
Issuance of common stock 53,530 535 ( 535) - - -
Net income for the year - - - 1,660,375 - -
Unrealized (loss) on marketable
securities - - - - ( 15,606) -
Purchase of 82,019 shares of
treasury stock - - - - - ( 137,640)
Balance - November 30, 1998 7,267,081 $72,671 $4,454,228 $11,238,704 ($18,343) ($155,609)
See Notes to Consolidated Financial Statements.
-5A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
1998 1997 1996
Cash Flows from Operating Activities:
Net income $1,660,375 $2,031,494 $1,051,334
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities:
Minority interest in consolidated
subsidiary 7,598 - -
Depreciation and amortization 342,132 376,381 400,790
Amortization of bond discount 1,884 1,948 2,041
Loss on sale of securities 7,635 - -
Decrease (increase) in deferred
income taxes ( 291,878) 71,932 244,263
Loss (gain) on disposal of assets - 1,009 ( 18,237)
(Increase) decrease in accounts
receivable (3,946,727) 86,227 26,920
(Increase) decrease in inventory (3,044,784) ( 138,930) 538,355
(Increase) decrease in prepaid
expenses and sundry receivables ( 141,278) 355,399 288,741
Increase (decrease) in accounts
payable and accrued liabilities 1,206,302 258,800 (2,083,560)
Increase in income taxes payable 514,616 148,150 25,505
(Increase) decrease in security
deposits ( 2,277) 1,605 8,447
Net Cash (Used in) Provided by
Operating Activities (3,686,402) 3,194,015 484,599
Cash Flows from Investing Activities:
Acquisition of property and
equipment ( 699,349) ( 168,520) ( 407,206)
Proceeds from sale of property - 40,960 -
Acquisition of intangible assets ( 105,652) ( 20,448) ( 36,664)
Purchase of available for sale
securities (2,298,993) (3,269,674) (1,102,669)
Proceeds from sale of available for
sales securities 2,268,851 2,657,227 2,253,778
Proceeds of money due from
officers 1,500 2,400 -
Loan to officers - ( 40,000) -
Net Cash (Used in) Provided by
Investing Activities ( 833,643) ( 798,055) 707,239
Cash Flows from Financing Activities:
Proceeds from borrowings 1,950,000 - 1,769,152
Payment on debt ( 400,000) ( 163,500) (2,014,797)
Proceeds from exercise of
stock options - - 176,940
Purchase of treasury stock ( 137,640) ( 5,469) ( 12,500)
Proceeds from issuance of stock 200 - -
Net Cash Provided by (Used In)
Financing Activities 1,412,560 ( 168,969) ( 81,205)
Net (Decrease) Increase In Cash (3,107,485) 2,226,991 1,110,633
Cash at Beginning of Year 3,649,774 1,422,783 312,150
Cash at End of Year $ 542,289 $3,649,774 $1,422,783
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest $ 14,589 $ 7,025 $ 54,487
Income taxes 1,013,975 1,052,850 26,245
See Notes to Consolidated Financial Statements
-6A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - 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., and Nutra Care Corporation), all of which are currently
inactive.
In March of 1998 CCA acquired 80% of the newly organized Fragrance
Corporation of America, Ltd. which manufactures and distributes perfume
products.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of CCA and its
majority-owned subsidiaries (collectively the "Company"). The minority
interest in consolidated subsidiaries is reflected in the financial state-
ments. All significant inter-company 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 state-
ments. 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 1997 and 1998, two officers/shareholders exercised in the
aggregate 60,000 and 70,000 options, respectively, in exchange for
previously issued common stock. The common shares were put into treasury
and were subsequently cancelled.
-7A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 ob-
solescence is determined.
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. The Company charges to expense
repairs and maintenance items, while major improvements and betterments
are capitalized. When the Company sells or otherwise disposes of property
and equipment items, the cost and related accumulated depreciation are
removed from the respective accounts and any gain or loss is included in
earnings.
Depreciation and amortization are provided on the straight-line method over
the following estimated useful lives or lease terms of the assets:
Machinery and equipment 7-10 Years
Furniture and fixtures 5-7 Years
Tools, dies and masters 2-7 Years
Transportation equipment 7 Years
Leasehold improvements 7-10 Years or life
of lease, whichever is
shorter
Intangible Assets:
Intangible assets are stated at cost. Patents and trademarks are amortized
on the straight-line method over a period of 17 years. Goodwill represents
the excess of the cost over the fair value of the net assets acquired and is
amortized over 60 months.
Financial Instruments:
The carrying value of assets and liabilities considered financial instru-
ments 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.
Tax Credits:
Tax credits, when present, are accounted for using the flow-through method
as a reduction of income taxes in the years utilized.
-8A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - 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 calcu-
lated 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.
Recently Issued Accounting Standards:
In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes standards for the reporting of comprehensive income and its
components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. The adoption of SFAS No. 130 is
effective for the Company in 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 requires publicly-
held companies to report financial and other information about key revenue-
producing segments of the entity for which such information is available and
is utilized by the chief operation decision maker. Specific information to
be reported for individual segments includes profit or loss, certain revenue
and expense items and total assets. A reconciliation of segment financial
information to amounts reported in the financial statements is also to be
provided. SFAS No. 131 is effective for the Company in 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain deriv-
ative instruments embedded in other contracts and for hedging activities.
The statement requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 is effective for the Company
in 1999. Implementation of SFAS No. 133 is required for the Company by the
first quarter of 2000.
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.
-9A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising Costs:
The Company's policy for fiscal financial reporting is to charge advertising
cost to operations as incurred.
NOTE 3 - INVENTORIES
At November 30, 1998 and 1997, inventories consist of the following:
1998 1997
Raw materials $5,828,257 $4,017,838
Finished goods 3,231,199 1,996,834
$9,059,456 $6,014,672
At November 30, 1998 and 1997, the Company had a reserve for obsolete
inventory of $836,805 and $860,417, respectively.
NOTE 4 - PROPERTY AND EQUIPMENT
At November 30, 1998 and 1997, property and equipment consisted of the
following:
1998 1997
Machinery and equipment $ 297,615 $ 236,582
Furniture and equipment 721,296 329,526
Transportation equipment 10,918 -
Tools, dies, and masters 1,819,974 1,584,346
Leasehold improvements 108,474 108,474
2,958,277 2,258,928
Less: Accumulated depreciation
and amortization 2,091,614 1,772,899
Property and Equipment - Net $ 866,663 $ 486,029
Depreciation and amortization expense for the years ended November 30,
1998, 1997 and 1996 amounted to $318,715, $364,536 and $390,625,
respectively.
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following at November 30, 1998 and 1997:
1998 1997
Patents and trademarks $241,596 $211,596
Goodwill 75,652 -
317,248 211,596
Less: Accumulated amortization 71,373 47,956
Intangible Assets - Net $245,875 $163,640
Amortization expense for the years ended November 30, 1998, 1997 and
1996 amounted to $23,417, $11,845 and $10,165, respectively.
-10A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - 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 November 30, 1998 and 1997 were as follows:
1998 1997
Current: COST MARKET COST MARKET
Corporate obligations $ 780,776 $ 786,233 $ 99,006 $ 99,448
Government obligations
(including mortgage
backed securities) 841,067 847,219 1,827,503 1,827,065
Total 1,621,843 1,633,452 1,926,509 1,926,513
Non-Current:
Corporate obligations 1,030,044 1,038,450 741,893 744,921
Government obli-
gations 298,600 298,931 1,135,023 1,129,254
Preferred stock 512,561 511,500 - -
Other equity
investments 361,000 323,372 - -
Total 2,202,205 2,172,253 1,876,916 1,874,175
Total $3,824,048 $3,805,705 $3,803,425 $3,800,688
The market value at November 30, 1998 was $3,805,705 as compared to
$3,800,688 at November 30, 1997. The cost and market values of the
investments at November 30, 1998 were as follows:
-11A-
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 MaturityInterest Bonds and Cost of at Balance Issue Is 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 $ 199,886 $ 199,886
GTE Southwest Deb 12/01/99 5.820% 100,000 99,851 100,617 100,617
Florida Power & Light 7/01/99 5.500% 300,000 295,776 300,585 300,585
Virginia Electric & Power 4/01/00 5.875% 250,000 246,117 252,315 252,315
GMAC Smartnotes 10/15/99 5.950% 200,000 200,000 200,648 200,648
Florida Power & Light 4/01/00 5.375% 200,000 199,850 200,632 200,632
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
First Federal of California 4/21/99 4.800% 95,000 95,000 95,000 95,000
Flagstar Bank 10/21/99 4.900% 95,000 95,000 95,000 95,000
Progress Fed Svgs Bank 10/25/99 4.800% 95,000 95,000 95,000 95,000
1,810,820 1,824,683 1,824,683
-12A-
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 Is Carried in
Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet
GOVERNMENT OBLIGATIONS:
US Treasury Note 2/28/99 5.875 250,000 $ 249,953 $ 250,703 $ 250,703
US Treasury Note 11/15/99 5.875 250,000 249,141 252,658 252,658
US Treasury Zero Coupon 8/15/99 5.920 148,000 142,221 143,310 143,310
US Treasury Note 2/15/99 5.000 100,000 99,869 100,031 100,031
Federal Nat. Mtg. Note 7/30/99 5.860 100,000 99,883 100,517 100,517
FHLMC 1628-N 12/15/2023 6.500 50,000 46,366 46,942 46,942
EE Bonds - 7.180 90,000 101,772 101,772 101,772
FNMA 93-G-26-B 8/25/2022 7.000 10,000 420 465 465
FNMA 93-224-D 11/25/2023 6.500 104,000 101,873 100,876 100,876
FNMA 92-2-N 1/25/2024 6.500 52,000 47,424 48,132 48,132
FHLMC 1702-U 3/24/2024 7.000 4,000 745 744 744
1,139,667 1,146,150 1,146,150
-13A-
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
Market Of Equity Security
Value of Issues and Each
Next Stock Other Security
Name of Issuer and Call Dividend Number of Cost of at Balance Issue Is Carried in
Title of Each Issue Date Rate Shares Stock 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 $ 357,000 $ 357,000
Merrill Lynch Trust 9/30/08 7.28% 6,000 150,000 154,500 154,500
Other Equity Investments:
Dreyfus Premier Limited
Term High Income CL B 121,000 113,294 113,294
Dreyfus High Yield
Strategies Fund 240,000 210,078 210,078
873,561 834,872 834,872
$3,824,048 $3,805,705 $3,805,705
-14A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (Continued)
During the year ended November 30, 1998 available-for-sale securities were
liquidated and proceeds amounting to $2,268,851 were received, with
resultant realized losses totaling $7,635. Cost of available-for-sale
securities includes unamortized premium or discount.
NOTE 7 - NOTES PAYABLE
In May 1996 the Company refinanced $327,000 (representing the balance on
its term note) at prime. The note was due in installments of $27,250 plus
interest through May 1997.
The Company has an available line of credit of $5,000,000. Interest is
calculated on the outstanding balance at prime minus 1% or Libor plus 150
basis points. The line of credit is collateralized by the Company's accounts
receivable and inventory. As of November 30, 1998, the Company was
utilizing $1,550,000 of its available line.
NOTE 8 - INCOME TAXES
CCA and its subsidiaries file a consolidated federal income tax return. No
returns have been examined by the Internal Revenue Service.
At November 30, 1998 and 1997, respectively, the Company has temporary
differences arising from the following:
November 30, 1998
Classified As
Deferred Short- Long-
Type Amount Tax Term Term
Asset (Liability)
Depreciation $ 318,619 $127,256 $ - $127,256
Reserve for bad debts 273,982 109,429 109,429 -
Reserve for returns 1,044,203 417,054 417,054 -
Reserve for obsolete
inventory 836,805 334,220 334,220 -
Section 263A costs 285,977 114,219 114,219 -
Net deferred income
tax $2,759,586 $1,102,17 $974,922 $127,256
-15A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
November 30, 1997
Classified As
Deferred Short- Long-
Type Amount Tax Term Term
Asset (Liability)
Depreciation $ 276,221 $111,006 $ - $111,006
Reserve for bad debts 120,131 48,278 48,278 -
Reserve for returns 544,194 218,698 218,698 -
Reserve for obsolete
inventory 860,417 345,780 345,780 -
Section 263A costs 215,335 86,538 86,538 -
$2,016,298 $810,300 $699,294 $111,006
Income tax expense (benefit) is made up of the following components:
November 30, 1998
State &
Federal Local Total
Current tax expense $1,136,235 $348,574 $1,484,809
Tax credits ( 28,730) - ( 28,730)
Deferred tax expense ( 228,328) ( 63,550) ( 291,878)
$ 879,177 $285,024 $1,164,201
-16A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
November 30, 1997
State &
Federal Local Total
Current tax expense $967,319 $244,553 $1,211,872
Tax credits ( 42,475) - ( 42,475)
Deferred tax benefit 56,827 15,105 71,932
$981,671 $259,658 $1,241,329
November 30, 1996
State &
Federal Local Total
Current tax expense $ 32,821 $ 27,695 $ 60,516
Deferred tax benefit 629,581 173,195 802,776
$662,402 $200,890 $863,292
The current tax expense for the year ended 1996 includes a utilization of
net operating loss carryforward for federal and state of approximately
$492,000 and $50,000, respectively.
Income taxes payable are made up of the following components:
State &
Federal Local Total
November 30, 1998 $532,272 $68,448 $600,720
November 30, 1997 $ 44,453 $41,651 $ 86,104
-17A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
A reconciliation of income tax expense computed at the statutory rate to income tax expense at the effective
rate for each of the three years ended November 30, 1998 is as follows:
1998 1997 1996
Percent Percent Percent
Of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
Income tax expense at
statutory rate $ 962,939 34.00% $1,112,760 34.00% $650,973 34.00%
Increases (decreases) in taxes
resulting from:
State income taxes, net of
federal income tax benefit 179,068 6.32 155,378 4.75 167,667 8.76
Non-deductible expenses and
other adjustments 50,924 1.79 15,666 .48 44,652 2.33
Utilization of tax credits ( 28,730) ( 1.00 ) ( 42,475) ( 1.30 ) - -
Income tax expense at
effective rate $1,164,201 41.11% $1,241,329 37.93% $863,292 45.09%
-18A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTIONS
On November 15, 1984, the Company authorized the granting of incentive
stock options as well as non-qualified options. The plan was amended in
1986 and again in 1994. The following summarizes the stock options
outstanding under these plans as of November 30, 1998:
Number Per Share
Of Option
Date Granted Shares Price Expiration
December 1987 89,500 .50 2002
January 1988 370,000 .55 2002
March 1989 200,000 .75 1999
January 1990 200,000 .63 1999
June 1995 50,000 4.50 2000
August 1997 375,000 *1.50 2007
1,284,500
* These stock options were repriced from $2.50 on November 3, 1998.
The following summarizes the activity of shares under option for the two
years ended November 30, 1998:
Number Per Share
Of Option
Shares Price Value
Balance - November 30,
1996 1,242,000 $ .50 - $4.50 $1,014,500
Granted 375,000 2.50 937,500
Exercised ( 60,000) .50 ( 30,000)
Expired ( 27,500) .50 ( 13,750)
Balance - November 30,
1997 1,529,500 .50 - 4.50 1,908,250
Granted - - -
Repriced - - ( 375,000)
Exercised ( 70,000) .50 ( 35,000)
Expired ( 75,000) .50 ( 37,500)
Cancelled ( 100,000) 1.50 ( 150,000)
Balance - November 30,
1998 1,284,500 .50 - $4.50 $1,310,750
-19A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTIONS (Continued)
Pro Forma Disclosure
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation", issued in October 1995. Accordingly, compensation cost
has been recorded based on the intrinsic value of the option only. The Company recognized no compensation
cost in 1998 and 1997, respectively, for stock-based employee compensation awards. The pro forma
compensation cost for stock-based employee compensation awards was $1.2 million, $1.2 million, and $.2
million in 1998, 1997 and 1996, respectively. If the Company had elected to recognize compensation cost
based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, net income and
earnings per share would have been changed to the pro forma amounts indicated in the table below:
1998 1997 1996
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
Net income $1,660,375 $471,352 $2,031,494 $832,424 $1,051,334 $841,334
Diluted earnings per share $.21 $.06 $.25 $.10 $.13 $.11
The above pro forma amounts, for purposes of SFAS No. 123, reflect the portion of the estimated fair value
of awards earned in 1998 and 1997. The purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period (for stock options) and over the offering period for stock
purchases under the Employee Stock Purchase Plans. The effects on pro forma disclosures of applying SFAS
123 are not likely to be representative of the effects on pro forma disclosures of future years. Because SFAS
123 is applicable only to options granted subsequent to August 31, 1995, the effect will not be fully reflected
until 2000.
-20A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTIONS
The Company used the Black-Scholes model to value stock options for pro
forma presentation. The assumptions used to estimate the value of the
options included in the pro forma amounts and the weighted average
estimated fair value of options granted are as follows:
Stock Option Plan Shares
1998 1997 1996
Average expected life (years) 4.64 5.40 4.08
Expected volatility 214.39% 213.78% 217.58%
Risk-free interest rate
(zero coupon U.S. Treasury
note) 5.6% 6.2% 5.9%
Weighted average fair value
at grant - Exercise price
equal to market price $1.29 $2.19 $2.10
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, the Black-Scholes model requires the input
of highly subjective assumptions, including the expected stock price vola
tility and option life. Because the Company's stock options granted to
employees have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, existing
models do not necessarily provide a reliable measure of the fair value of
its stock options granted to employees. For purposes of this model, no
dividends have been assumed.
-21A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE
The following items which exceeded 5% of total current liabilities are
included in accounts payable and accrued liabilities as of:
November 30,
1998 1997
(In Thousands)
Media advertising $ 820 $ 401
Coop advertising 494 375
Accrued returns 1,107 712
Royalty payable * 269
Bonus * 286
$2,421 $ 2,043
All other liabilities were for trade payables or individually did not
exceed 5% of total current liabilities.
* Under 5%
NOTE 11 - OTHER INCOME
Other income was comprised of the following:
November 30,
1998 1997 1996
Interest income $286,805 $272,677 $195,234
Dividend income 16,963 15,131 16,511
Realized gain (loss) on
disposal of assets 7,635 ( 1,009) 18,237
Miscellaneous 6,893 7,154 5,943
$318,296 $293,953 $235,925
-22A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases approximately 62,500 square feet of office and
warehouse space at an annual rental of $259,284. This lease on the
Company's premises expires March 31, 2001, but has a renewal option for
an additional five years. The Company leases an additional 45,000 square
feet of warehouse space in Paterson, NJ on a net lease basis at a rental of
$9,999 per month. This lease expires on November 30, 1999.
The Company has entered into various operating leases with expiration dates
ranging through December 2001.
Rent expense for the years ended November 30, 1998, 1997 and 1996 was
$588,083, $458,706 and $426,621, respectively.
Future commitments under noncancellable operating lease agreements for
each of the next five (5) years and in the aggregate are as follows:
Year Ending
November 30,
1999 $ 478,381
2000 321,301
2001 110,098
2002 -
2003 -
Total $909,780
Royalty Agreements
On March 3, 1986, the Company entered into a License Agreement (the
"Agreement") with Alleghany Pharmacal Corporation ("Alleghany") under the
terms of which the Company was granted the exclusive right to use the
licensed products and trademarks for the manufacture and distribution of the
products subject to the license. Under the terms of the Agreement, on July
5, 1986, the Company paid to Alleghany a non-refundable advance payment
of $1,015,000. The license runs for an indeterminate period. An additional
$525,000 non-refundable advance payment was paid to Alleghany on July
5, 1987.
-23A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
From the period March 3, 1986 to June 3, 1986, the Company was required
to pay a 7% royalty on all net sales. Thereafter, it is required to pay a
6% royalty on net sales but no less than $360,000 per annum to maintain its
license. After the sum of $9,000,000 in royalties has been paid to
Alleghany, the royalty is reduced to 1% of net sales. The Company has
expanded the lines licensed from Alleghany and pays only 1% royalty on
various new products created by the Company. As of November 30, 1998,
$6,263,831 of royalties have been paid or accrued and only $2,736,169 still
remains until the $9,000,000 level is reached.
In March 1998, the Company entered into a License Agreement with Shiara
Holdings, Inc., pursuant to which the Company acquired exclusive license to
use the trademark names used by Fragrance Corporation of America, Ltd.
The Shiara-Holdings, Inc. license requires the Company to pay royalties of
5% per annum on net sales of all products sold under the "Cherry Vanilla",
"Mandarin Vanilla", and "Cloud Dance" trademarks until royalties totaling
$2,000,000 are paid, and royalties of one-half of 1% thereafter. (No
royalties are payable in respect of sales of products under these Shiara
license trademarks: "Vision", Sunset Cafe", and "Amber Musk".) A minimum of
$100,000 is required to be paid for the period from commencement (April
1998) through June 1999, and a minimum of $150,000 for each subsequent
twelve-month period, in order to retain the exclusive license-rights.
"Cloud Dance" accounted for approximately one-half of the sales revenues
from products subject to the Shiara license, and Fragrance Corporation of
America, Ltd. operations. Total sales of Fragrance Corporation of America,
Ltd. products accounted for approximately 9% of the Company's sales.
In May of 1998, the Company entered into a License Agreement with Solar
Sense, Inc. for the marketing of sun care products under trademark names.
The Company's License Agreement with Solar Sense, Inc. is for the exclusive
use of the trademark names "Solar Sense" and "Kids Sense", in connection
with the commercial exploitation of sun care products that the Company only
recently commenced marketing. The Company will pay a 5% royalty. If
minimum royalties of $100,000 do not result, the license may be terminated
unless the Company chooses to pay the "difference" between realized
royalties and $100,000. The Company only commenced the marketing of
such products in November of 1998.
-24A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
All of the products sold under licensed names, including Fragrance
Corporation of America, Ltd.'s perfumes, and all of the Company's "wholly-
owned" products, are sold to major drug and food chains, mass
merchandisers, and wholesale beauty-aids distributors throughout the United
States and Canada.
The Company's total sales revenue in fiscal 1998 were approximately $41
million. Foreign sales accounted for approximately 5% of sales.
The Company has entered into various other License Agreements, none of
which materially affect the Company's sales, financial results, financial
condition, or should materially affect its future results of operations.
Employment Contracts
During fiscal 1994, the Board of Directors approved 10-year employment
contracts for two officers/shareholders. Pursuant thereto, each was pro-
vided a base salary of $300,000 in fiscal 1994, with a year-to-year CPI or
6% increment, and each is paid 2 1/2% of the Company's pre-tax income, less
depreciation and amortization, plus 20% of the base salary, as bonus.
During 1998 the contracts were amended, commencing in fiscal 1999, to
limit the amount of advertising expense charged against pre-tax income for
purposes of the 2 1/2% calculation to $8,000,000.
In conjunction with the acquisition of certain assets of Shiara Inc.,
Fragrance Corporation of America, Ltd. entered into employment contracts
with its three minority shareholders for a period of three years at an
aggregate cost of $504,000 per year.
Litigation
There are various matters in litigation that arose out of the normal opera-
tions of the Company which, in the opinion of management, will not have a
material adverse effect on the financial condition of the Company.
-25A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - RELATED PARTY TRANSACTIONS
The Company has retained the law firm of Berman & Murray as its general
counsel. Ira W. Berman, a former member of the firm, is the Secretary,
Chairman of the Board and a principal shareholder of the Company.
The Company has outstanding loans of $25,250 and $40,000 from its Vice
President in charge of Sales and Vice President in charge of Manufacturing,
respectively; which were made to aid them in obtaining a first mortgage on
their homes. The loans are secured by a second mortgage and carry an
interest rate at 1% over prime. Interest is payable semi-annually. Both
Vice Presidents are the sons of Mr. David Edell, the President of the
Company.
NOTE 14 - CONCENTRATION OF RISK
During the years ended November 30, 1998, 1997 and 1996, certain
customers each accounted for more than 5% of the Company's net sales, as
follows:
Customer 1998 1997 1996
A 29% 24% 22%
B 9 12 9
C 8 6 *
D 7 7 *
E 6 6 7
F * 7 6
Foreign Sales 5.00% 5.34% 7.57%
* Under 5%
The Company maintains cash balances at several banks. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. In addition, the Company maintains accounts with several
brokerage firms. The accounts contain cash and securities. Balances are
insured up to $500,000 (with a limit of $100,000 for cash) by the Securities
Investor Protection Corporation.
-26A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - EARNINGS PER SHARE
Basic earnings per share is calculated using the average number of common shares outstanding. 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".
Year Ended November 30,
1998 1997 1996
Net income available for common
shareholders, basic and diluted $1,660,375 $2,031,494 $1,051,334
Weighted average common stock
outstanding- Basic 7,243,956 7,205,904 7,120,099
Net effect of dilutive stock options 831,213 902,578 869,284
Weighted average common stock and
common stock equivalents - Diluted 8,075,169 8,108,482 7,989,383
Basic earnings per share $ .23 $ .28 $ .16
Diluted earnings per share $ .21 $ .25 $ .14
-27A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - FORMATION OF SUBSIDIARY
On March 19, 1998, the Company formed a majority-owned subsidiary,
Fragrance Corporation of America, Ltd. (FCA). FCA is primarily engaged in
the manufacture and distribution of perfume products. The results of
operations of FCA is included in the accompanying financial statements since
the date of inception.
CCA advanced FCA approximately $3,000,000 during fiscal 1998 for
working capital and the initial purchase of the existing inventory of
Shiara, Inc. in the amount of $1,141,711. In conjunction with the purchase
of inventory, FCA entered into a license agreement with Shiara Holdings,
Inc. for the right to sell the products acquired. Former accounts of Shiara
have attempted to offset obligations due to FCA as a result of Shiara's ob-
ligations which FCA did not assume. FCA is attempting to collect these off-
sets. An agreement was entered into in February 1999 between Shiara
Holdings, Inc. and FCA whereby all royalties due as of February 1, 1999 were
deemed off-set by these contingent holdbacks. The amount of $75,652 was
recorded on the books of CCA for the costs associated with the acquisition
and is being amortized over 60 months.
NOTE 17 - IMPACT OF YEAR 2000
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,
including, among other things, a temporary inability to process trans-
actions, send invoices, or engage in similar normal business activities.
Based on a recent assessment, the Company determined that it has 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 thereafter. The Company presently believes that with these modi-
fications 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.
-28A-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - IMPACT OF YEAR 2000 (Continued)
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, approximately $130,000
of these costs should be offset by a grant obtained 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 possibly, 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.
-29A-
SCHEDULE II
CCA INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
COL. A COL. B COL. C COL. D COL. E
Additions
Balance at Charged To Balance
Beginning Costs and At End
Description Of Year Expenses Deductions Of Year
Year ended November 30, 1998:
Allowance for doubtful
accounts $ 120,131 $ 201,630 $ 47,779 $ 273,982
Reserve for returns $ 544,194 $3,455,118 $2,955,109 $1,044,203
Reserve for inventory
obsolescence $ 860,417 $ 149,052 $ 172,664 $ 836,805
Year ended November 30, 1997:
Allowance for doubtful
accounts $ 143,647 ($ 17,779) $ 5,739 $ 120,131
Reserve for returns $ 922,902 $3,465,866 $3,844,574 $ 544,194
Reserve for inventory
obsolescence $ 679,675 $ 486,742 $ 300,000 $ 860,417
Year ended November 30, 1996:
Allowance for doubtful
accounts $ 157,204 $ 45,855 $ 59,412 $ 143,647
Reserve for returns $ 747,749 $4,555,422 $4,380,269 $ 922,902
Reserve for inventory
obsolescence $ 1,147,627 $ 57,068 $ 525,020 $ 679,675
-30A-