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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, 1999 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 high and low sales prices, at February 8, 2000,
was as follows:
Class of Voting Stock Market Value
5,558,525 shares; Common
Stock, $.01 par value $6,948,156
At February 8, 2000 there were an aggregate of 7,246,085 shares of Common
Stock and Class A Common Stock of the Registrant outstanding.
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CROSS REFERENCE SHEET
Headings in this Form
Form 10-K 10-K for Year Ended
Item No. November 30, 1999
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
- iii-
Headings in this Form
Form 10-K 10-K for Year Ended
Item No. November 30, 1999
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
14. Exhibits, Financial Exhibits, Financial
Statement Schedules, Statement Schedules,
and Reports on Form and Reports on Form
8-K 8-K
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TABLE OF CONTENTS
Item Page
PART I
1. Business................................................. 1
2. Property................................................. 6
3. Legal Proceedings........................................ 7
4. Submission of Matters to a Vote of Security Holders 7
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 13
8. Financial Statements and Supplementary Data............... 13
9. Changes In and Disagreements with Accountants On Accounting
and Financial Disclosure................................. 14
PART III
10. Directors and Executive Officers......................... 15
11. Executive Compensation................................... 17
12. Security Ownership of Certain Beneficial Owners and
Management............................................... 23
13. Certain Relationships and Related Transactions........... 24
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K................................................. 25
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PART I
Item 1. BUSINESS
(a) General
CCA INDUSTRIES, INC. (hereinafter, "CCA" or "the Company") was in-
corporated in Delaware in 1983.
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 aids categories. All Company products are manu-
factured by contract manufacturers, pursuant to the Company's specifications
and formulations.
The Company owns registered trademarks, or exclusive licenses to use
registered trademarks, that identify its products by brand-name. Under most of
the brand names, the Company markets several different but categorically-
related products. The brand and trademark names include "Plus+White" (oral
health-care products), "Sudden Change" (skin-care products), "Bikini Zone"
(after-shave analgesic products for women), "Wash n Curl," "Wash n Straight"
and "Pro Perm" (hair-care products), "Permathene" and "Mega 16" (dietary pro-
ducts), "Nutra Nail" and "Nutra Nail 60" (nail treatments), "Hair Off"
(depilatories), "IPR" (foot-care products), "Solar Sense" and "Kid Sense"
(sun-care products), "Mood Magic" (lipsticks), "Cloud Dance" and "Cherry
Vanilla" (perfumes).
All Company products are marketed and sold to major drug and food chains,
mass merchandisers, and wholesale beauty-aids distributors throughout the
United States and Canada.
The Company recognizes sales at the time its products are delivered to
customers. However, while sales are not subject to any contract contingency,
the acceptance of returns is an industry-wide practice. The Company thus esti-
mates 'unit returns' based upon a review of the market's recent-historical ac-
ceptance of subject products as well as current market-expectations, and
equates its reserves for estimated returns in the sum of the gross profits, in
the five preceding months, realized upon an equivalent number of subject-
product sales. (See Item 14, Note 2). Of course, there can be no precise
going-forward assurance in respect of return rates and gross margins, and in
the event of a significant increase in the rate of returns, the circumstance
could have a materially adverse affect upon the Company's operations.
The Company's total net-sales revenues in fiscal 1999 (which does not
include Fragrance Corporation of America Ltd. revenues -- see Discontinued
Operations") were $36,926,287. Foreign sales accounted for approximately 4.5%
of sales. In fiscal 1999, the Company realized (a) $23,015,886 in gross
profits from continued operations. The Company incurred a loss of ($1,142,682)
from discontinued operations, resulting in a total net loss of ($291,099). At
fiscal year end, total assets were $21,494,987. (See the Financial State-
ments and Notes, at Item 14).
Including the principal members of management (see Directors and Executive
Officers), the Company, at November 30, 1999, had 133 sales, administrative,
creative, accounting, receiving, and warehouse personnel in its employ.
(b) Discontinued Operations
In 1998, CCA (a) purchased certain perfume-product inventory and obtained
exclusive license to use certain associated trademarks (see below, License
Agreements - Shiara), (b) caused the incorporation of Fragrance Corporation of
America Ltd. (hereinbelow "FCA"), (c) advanced approximately $3,000,000 to FCA.
for perfume-product inventory, other assets and working capital, and (d)
entered into a Shareholders Agreement, as the 80% shareholder of FCA, pursuant
to which the 20% shareholders (three persons) were engaged to market the per-
fume product line and to devote their full business-time to FCA. (The minority
shareholders, whose employment by FCA has been terminated, had no prior affili-
ation with the Company, were never directors or officers of CCA, and were never
involved in CCA management or policy making.)
Net sales of perfume products were approximately $3,700,000 during fiscal
1998, but decreased to $2,100,000 in fiscal 1999. In February of 1999,
employment agreements with FCA's minority shareholders (included in the 1998
Shareholders Agreement) were replaced by short-term consulting agreements,
which were terminated in October of 1999. Contemporaneously, the Company for-
malized a plan to discontinue the operations of FCA, terminated all FCA em-
ployees, closed its Chicago facility, abandoned the majority of its inventory,
and discontinued the marketing of all of its products except "Cherry Vanilla"
and "Cloud Dance." (See "License Agreement-Shiara") The marketing of those
perfumes has been assumed by CCA.
In 1999, the Company credited FCA with the tax benefit to be received from
the loss incurred by it. This resulted in reducing the intercompany advances
from approximately $3 million to approximately $2.15 million. Since the net
realizable value of FCA's assets at November 30, 1999 was estimated to be
approximately $1 million, a resultant loss from the discontinued operations of
approximately $1.15 million is reflected accordingly in the statement of
income. (See Item 7, Management's Discussion And Analysis of Financial Condi-
tion And Results of Operations, and the Financial Statements and Notes included
in Item 14.)
(c) Manufacturing and Shipping
The Company creates formulations, chooses colors and mixtures, and
arranges with independent contractors for the manufacture of its products pur-
suant to Company specifications. Manufacturing and component-supply arrange-
ments are maintained with several manufacturers and suppliers. Almost all
orders and other product shipments are delivered from the Company's own ware-
house facilities, which results in more effective inventory control, more ef-
ficient shipping procedures, and the realization of related economies.
-2-
(d) Marketing and Advertising
The Company markets its products through an in-house sales force of
employees, and independent sales representatives throughout the United States,
to major drug, food and mass-merchandise retail chains, and leading whole-
salers.
The Company sells its products to approximately 600 accounts, most of
which have numerous outlets. Approximately 40,000 stores carry at least one
Company product.
During the fiscal year ended November 30, 1999, the Company's two largest
customers were WalMart (approximately 27% of sales) and Walgreen (approximately
11%). The loss of either of these principal customers, or substantial reduc-
tion of sales revenues realized from their business, could materially and nega-
tively effect the Company's earnings.
Most of the Company's products are not particularly susceptible to
seasonal-sales fluctuation. However, sales of depilatory, sun-care and diet-
aids products customarily peak in the Spring and Summer months, while
fragrance-product sales customarily peak in the Fall and Winter months.
The Company has an in-house advertising department. The advertising staff
designs point-of-purchase displays, including 'blister cards', sales brochures
and packaging layouts. The production of displays, brochures, layouts and the
like is accomplished through contract suppliers.
The Company primarily utilizes local and national television advertise-
ments to promote its leading brands. On occasion, print and radio advertise-
ments 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.
(e) "Wholly-Owned" Products
The majority of the Company's sales revenues are from sales of the
Company's "wholly-owned" products lines (i.e. , Company products sold under
trademark names owned by the Company, and not subject to any other party's
interest or license), including "Plus+White" toothpaste, "Sudden Change",
"Bikini Zone", "Wash-n-Curl", "Wash n Straight," and "Mood Magic".
"Plus + White" accounted for approximately 38.1% of the Company's net
sales during fiscal 1999, "Sudden Change" accounted for approximately 20.5%,
-3-
"Hair-Off" (a licensed product -- see License Agreements), accounted for ap-
proximately 10.9%, and "NutraNail" (another licensed product) accounted for
approximately 11.1%. (No other Company product accounted for as much as 10%.)
(f) License Agreements
i. Alleghany Pharmacal
In 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 and market certain products, and to use their
associated trademarks, including "Nutra Nail," "Nutra Nail 60," "Pro Perm,"
"Hair Off," "Permathene", and "IPR ."
The Alleghany Pharmacal license requires the Company (a) to pay royalties
of 6% per annum on net sales of hair-care products ("Pro-Perm"), dietary pro-
ducts ("Permathene") and foot-care products ("IPR"), "Nutra-Nail" nail-enamel
products, and "Hair-Off" depilatories; and (b) to pay 1% royalties on net sales
of a "Hair-Off" mitten that is a depilatory-product accessory, and "Nutra Nail
60," a fast acting nail enamel.
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 royalties payable in respect of realized sales if sales did
not yield 'minimum royalties' and the Company chose in such circumstance to
concede the 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%. Through November
30, 1999, the Company had paid or accrued Alleghany-Pharmacal license royalties
in the sum of $6,824,511.
The products subject to the Alleghany-Pharmacal License accounted for
approximately $10,772,000 and 29% of net sales in the fiscal year ended
November 30, 1999.
ii. Shiara
The Company's perfume-product line, marketed from commencement in the
Spring of 1998 by the FCA subsidiary (see above Discontinued Operations),
resulted (a) upon CCA's purchase in 1998, from a bank creditor of Shiara,
Inc., of inventory and other assets, including perfume formulas, previously
owned by Shiara, Inc., for the sum of $1,141,711 and (b) a contemporaneous
License Agreement with Shiara Holdings, Inc., pursuant to which CCA acquired ex-
clusive license to use certain trademark names, including "Cloud Dance,"
"Cherry Vanilla" and "Mandarin Vanilla" (the "Shiara License").
-4-
The Shiara License requires the Company to pay royalties of 5% per annum
on net sales of all products sold under the "Cloud Dance," "Cherry Vanilla" and
"Mandarin Vanilla" trademarks until royalties totaling $2,000,000 are paid, and
royalties of one-half of 1% thereafter. (The Company has discontinued its
marketing of "Mandarin Vanilla.")
The Shiara License provides minimum royalties of $150,000 per year (from
June 1, 1999), but the Company is negotiating for an amendment to reduce the
minimum-royalties requirement. In any event, the Company would not be required
to pay any sum in excess of royalties payable in respect of realized sales if
sales did not yield minimum royalties and the Company chose in such circum-
stance to concede the license rights.
iii. Solar Sense, Inc.
CCA commenced the marketing of its sun-care products line following a May
1998 License Agreement with Solar Sense, Inc. (the "Solar Sense License"),
pursuant to which it acquired the exclusive right to use the trademark names
"Solar Sense" and "Kids Sense" (and several other names that it has not
marketed), and the exclusive right to market mark-associated sun-care products.
The Solar Sense License requires the Company to pay a 5% royalty on net sales
of License Agreement products, the marketing of which commenced in November
1998, and produced $729,392 in net sales during fiscal 1999.
If minimum royalties of $40,000 do not result, CCA's license rights will
be terminated unless it chooses to pay the 'difference' between sales-realized
royalties and $40,000.
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.
(g) Trademarks
The Company's own trademarks and licensed-use trademarks serve to identify
its products and proprietary interests and the Company considers these marks to
be valuable assets. However, there can be no assurance, as a practical matter,
that trademark registration results in marketplace advantages, or that the
presumptive rights acquired by registration will necessarily and precisely
protect the presumed exclusivity and asset value of the marks.
(h) Competition
The market for cosmetics and perfumes, and health-and-beauty aids products
in general, including patent medicines, is characterized by vigorous competi-
-5-
tion among producers, many of which have substantially greater financial,
technological and marketing resources than the Company. Major competitors such
as Revlon, L'Oreal, Colgate, Del Laboratories, Unilever, and Procter & Gamble
have Fortune 500 status, and the broadest-based public recognition of their
products. Moreover, a substantial number of other health-and-beauty aids
manufacturers and distributors may also have greater resources than the
Company.
(i) Government Regulation
All of the products that the Company markets 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 re-
quire new approval for any in-the-market for product, or should require ap-
proval for any planned product, the Company would attempt to obtain the
necessary approval and/or license, assuming reasonable and sufficient market
expectations for the subject product. However, there can be no assurance, in
the absence of particular circumstances, that Company efforts in respect of any
future regulatory requirements would result in approvals and issuance of
licenses. Moreover, if such license-requirement circumstances should arise,
delays inherent in any application-and-approval process, as well as any refusal
to approve, could have a material adverse affect upon existing operations
(i.e., concerning in-the-market products) or planned operations.
(j) Y2K
The Company expended approximately $500,000 in fiscal 1999 for 'Y2K
preparation.' It has not experienced any significant problems, nor incurred
significant additional costs in respect of Y2K matters. Moreover, the Company
has submitted an application with the State of New Jersey pursuant to its
statewide program for a grant to compensate the Company for the "Y2K retrain-
ing" of its staff. The results of the application have not been determined.
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 Com-
pany 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 $13,088 per month. That lease
expires on May 31, 2000.
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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 22, 1999, the Company held its annual meeting of shareholders.
The actions taken, and the voting results thereupon, 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.)
(2) As proposed by Management, Sidney Dworkin, Dunnan Edell and Rami Abada
were elected as directors by the holders of the Common Stock.
(3) The Board's appointment of Sheft Kahn & Company LLP as the Company's
independent certified public accountants for the 1999 fiscal year was approved.
The Company has not submitted any matter to a vote of security holders
since the 1999 Annual Meeting.
-7-
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
In August of 1999, the Company's Management received, by letter, an
unsolicited proposal pursuant to which the communicant, who presented to be the
sole owner of a company unknown to Management, and who did not present any
particular or formal financial information concerning his or his company's
'ability to purchase,' proposed an offer of $3 per share for all Company
shares. Management rejected the proposal in consequence of their unanimous
opinion, among other things, that as against the Company's actual value, the
sum was insufficient. No formal offer followed, and no further communication
was received from the proposing party.
The Company's Common Stock is traded on the NASDAQ National Market. The
range of high and low sales prices during each quarter of the 1999 and 1998
fiscal years is as follows:
Quarter Ended 1999 1998
February 28 2.125 - 1.125 2 11/16 - 2 1/16
May 31 1.5 - 1.063 3 5/16 - 2 3/8
August 31 1.781 - 1.156 2 3/4 - 1 5/8
November 30 2.031 - 1.25 1 7/8 - 1 1/16
The published high and low sales prices on February 8, 2000 were 1 9/32
and 1 7/32.
The Company issued a total of 75,000 unregistered shares of its Common
Stock, and no other unregistered securities, during the 1999 fiscal year. The
issuance of unregistered shares resulted upon exercises of Stock Options is-
sued pursuant to the Company's Stock Option Plans (See "Executive Compensa-
tion") as follows: 45,000 shares upon David Edell's November 1999 exercise of
60,000 options, paid for with 15,000 shares of the Company's stock; 30,000
shares upon Ira Berman's November 1999 exercise of 40,000 options, paid for
with 10,000 shares of the Company's stock. (David Edell is the Company's
President and Chief Executive Officer, and Ira Berman is its Corporate
Secretary and Executive Vice President. See, "Directors and Executive
Officers.")
As at February 8, 2000, there were approximately 350 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 dividend, and does not expect to pay and
dividend in the foreseeable future.
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Item 6. SELECTED FINANCIAL DATA
Year Ended November 30,
1999 1998 1997 1996 1995
Statement of Income
Sales $36,926,287 $37,402,678$ 37,708,922 $39,469,098 $36,849,803
Other income 285,469 318,296 293,953 235,925 316,928
37,211,756 37,720,974 38,002,875 39,705,023 37,166,731
Costs and Expenses 35,841,367 35,001,894 34,730,052 37,790,397 39,397,255
Income (Loss) Before
Provision for Income
Taxes 1,370,389 2,719,080 3,272,823 1,914,626 ( 2,230,524)
(Loss) Income from
Discontinued Operations ( 1,142,682) 61,570 - - -
Net Income (Loss) ( 291,099) 1,667,974 2,031,494 1,051,334 ( 1,354,584)
Earnings Per Share:
Basic ($ .04) $ .23 $ .28 $ .15 ($ .20)
Diluted ($ .04) $ .21 $ .25 $ .13 ($ .20)
Weighted Average Number
of Shares Outstanding 7,264,750 7,243,956 7,205,904 7,120,099 6,794,368
Weighted Average Number
of Shares and Common Stock
Equivalents Outstanding 7,893,362 8,075,169 8,108,482 7,989,383 6,794,368
Balance Sheet Data:
As At November 30,
1999 1998 1997 1996 1995
Working Capital $12,291,890 $12,067,263 $11,331,810 $ 9,367,639 $ 8,191,830
Total Assets 21,494,987 24,010,136 19,224,291 17,038,752 18,138,359
Total Liabilities 6,328,905 8,410,687 5,139,769 4,983,870 7,287,570
Total Stockholders' Equity 15,166,082 15,599,449 14,084,522 12,054,882 10,850,789
-9-
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On March 3, 1986, the Company entered into a Licence Agreement with
Alleghany Pharmacal Corporation under the terms of which the Company was
granted the exclusive right to use the licensed products & trademarks for the
manufacture and distribution of the products subject to the License Agreement.
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, 1999, the Company had paid or accrued $6,824,511 in
royalty payments.
Comparison of Results for Fiscal Years 1999 and 1998
The Company's revenues decreased from $37,720,884 in fiscal 1998 (ex-
cluding sales from discontinued operations of $3,681,296) to $37,211,756 in
fiscal 1999 (excluding sales from discontinued operations of $2,102,649) due
primarily to the decrease in its sales of its "Nutra 60" line, which it has
discontinued marketing. The Company also adopted a plan to discontinue opera-
tions of its 80% owned subsidiary, Fragrance Corporation of America, Ltd. (FCA)
and, accordingly, reflected a loss from the discontinued operations of
$1,142,682.
Gross profit margins were 37.7% as compared to prior year's gross profit
margins of 38.1%. Income before taxes decreased from $2,719,080 to $1,370,389.
The decrease was attributable to the decrease in approximately $500,000 of
revenues, approximately $500,000 of costs of converting to the MegaSys Software
Systems for Y2K readiness and E.D.I. integration, and an increase in adver-
tising and cooperative promotions of approximately $500,000.
Research and development expenses and bad debt expenses were substantially
similar to the prior year, respectively, $581,360 to $562,708 (research);
$135,949 to $132,831 (bad debt).
Net income from continuing operations was $851,583 as compared to
$1,576,239. A loss of $1,142,682 from discontinuing operations resulted in a
net loss of $291,099 in fiscal 1999 as compared to a net profit of $1,667,974
in fiscal 1998.
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 perfume-product
sales by the then newly formed Fragrance Corp. subsidiary. CCA's 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.
-10-
Gross margins for the year were 63% in 1998, up from 62% in fiscal 1997.
This was due primarily to the gross margins realized upon Fragrance Corp.
sales.
Management kept its advertising, cooperative and promotional budget in
line with is sales projections for fiscal 1998 by keeping its expenses to
$8,882,106 and to 22% of net sales, which expenses and rate were substantially
equivalent to 1997's experience ($8,450,461 and 22% of net sales).
Research and development expenses for fiscal 1998 were lower than in
fiscal 1997 by approximately $120,000 due to the economies realized from uti-
lizing increased in-house-staff services, and fewer outside consultants.
Bad debt expense increased significantly in fiscal 1998 [$201,630, vs.
$17,779 in fiscal 1997] due to necessary reserves on increased accounts
receivable. Actual write-offs were approximately $50,000 in 1998 and
$6,000 in 1997.
The Company's interest expense also increased in fiscal 1998, due to its
use of a bank credit line to fund approximately one-half of the advances of
approximately $3,000,000 made to Fragrance Corp., for working capital and the
initial purchase of perfume-product inventory.
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 1997] was associated
with the start-up of Fragrance Corp. and the increased overheard of its new
operations as well as the increase in royalties and commissions paid in respect
of CCA's own products due to fluctuations in the mix of product sales. Thus,
the Company realized a slightly lower pre-tax profit of $2,832,175, down from
$3,272,823, despite the increase in sales and the realization of marginally
better gross margins.
Liquidity and Capital Resources
As at November 30, 1999, the Company had working capital of $12,291,890 as
compared to $12,067,263 at November 30, 1998. The ratio of total current
assets to current liabilities was 2.9 to 1 as compared to a ratio of 2.4 to 1
for the prior year. Stockholders' equity decreased to $15,166,082 from
$15,599,449.
The Company's cash position at year end increased to $807,360 from
$542,289 as at November 30, 1998. The increase was due mostly to the re-
duction in inventory ($2.8 million), accounts receivable ($.5 million), and
securities ($375,000). The Company utilized approximately $157,000 in the
acquisition of property and equipment, $468,000 for intangible assets, $150,000
to reduce debt, $1.3 million to reduce payables and $1.15 million to pay
income taxes.
Inventories ($6,235,270 vs. $9,059,456) were down $2,824,186 and accounts
receivable ($7,371,532 vs. $7,878,000) decreased $506,468. Current liabilities
($6,328,905 vs. $8,410,687) decreased by $2,081,782.
-11-
As of November 30, 1999, the Company was utilizing $1,400,000 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
The Company expended approximately $500,000 for Y2K preparations and
address of potential Y2K problems. However, it is anticipated that a grant
from the state of New Jersey, for 'Y2K retraining' of the Company's staff, will
offset some of the Company's Y2K expenses, which did not have a material
adverse effect on the Company's cash flow or financial position, but did
decrease the Company's earnings.
The Company did not suffer any material Y2K problems, nor any material
delay or expense as the result of any customer's (or other third-party's)
Y2K experience.
Inventory, Seasonality, Inflation and General Economic Factors
The Company attempts to keep its inventory for every product at levels
that will enable shipment against orders within a three week period. However,
certain components must be inventoried well in advance of actual orders because
of time-to-acquire circumstances. For the most part, purchases are based upon
projected quarterly requirements, which are projected based upon sales indica-
tions received by the sales and marketing departments, and general business
factors. All of the Company's contract-manufacture products and components are
purchased from non-affiliated entities. Warehousing is provided at Company
facilities, and all products are shipped from the Company's warehouse
facilities.
None of the Company's products are particularly seasonal, but sales of its
sun-care, depilatory and diet-aid products usually peak during the Spring and
Summer seasons, and perfume sales usually peak in Fall and Winter. The Company
does not have a product that can be identified as a 'Christmas item.'
Because its products are sold to retail stores (throughout the United
States and, in small part, abroad), sales are particularly affected by general
economic conditions. Accordingly, any adverse change in the economic climate
can have an adverse impact on the Company's sales and financial condition. The
Company does not believe that inflation or other general economic circumstance
that would negatively affect operations can be predicted at present, but if
such circumstances should occur, they could have material and negative impact
on the Company's net sales and revenues; and, more particularly, unless the
Company were able to pass along related cost increases to its customers, upon
gross margins.
-12-
Item 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
The Company's financial statements (See Item 14) record the Company's
investments under the equity method (i.e., at date-of-statement market value).
The investments are, categorically, in "Government Obligations" and "Corporate
Obligations" (which, primarily, are intended to be held to maturity) and
"Equity." Less than $1 million of the Company's $3.3 million portfolio of
investments (approximate, as at Nov. 30, 1999) is invested in the "Equity"
category, and all investments in that category are Preferred Stock or Mutual
Fund holdings. Whereas the Company does not take positions or engage in trans-
actions in risk-sensitive market instruments in any substantial degree, nor as
defined by SEC rules and instructions, it does not believe that its investment-
market risk is material.
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, 1999 and 1998:
Three Months Ended
Fiscal 1999 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales $8,657,183 $11,109,844 $8,631,951 $8,527,309
Total Revenue 8,698,161 11,152,945 8,734,574 8,626,076
Cost of Products Sold 3,539,119 4,052,904 3,481,368 2,837,010
Income from Continuing
Operations 9,929 506,488 95,601 239,565
Income (Loss) from Dis-
continued Operations 61,732 ( 260,473) ( 1,252,768) 308,827
Net Income 71,661 246,015 ( 1,157,167) 548,392
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Earnings Per Share:
Continuing Operations .00 .00 .07 .06 .01 .01 .03 .03
Discontinued Operations .01 .01 (.04) (.04) (.17)(.17) .04 .04
Net .01 .01 .03 .03 (.16)(.16) .08 .07
-13-
Three Months Ended
Fiscal 1998 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales $9,352,431 $10,322,467 $9,774,723 $7,953,057
Total Revenue 9,438,685 10,419,739 9,846,141 8,016,409
Cost of Products Sold 3,587,114 3,973,404 3,384,348 3,307,018
Income from Continuing
Operations 375,955 865,690 360,066 4,693
Income (Loss) from Dis-
continued Operations - ( 60,846) 80,289 42,127
Net Income 375,955 804,844 440,355 46,820
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Earnings Per Share:
Continuing Operations .05 .05 .12 .11 .05 .04 .00 .00
Discontinued Operations.00 .00 (.01) (.01) .01 .01 .01 .01
Net .05 .05 .11 .10 .06 .05 .01 .01
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 prin-
ciples or practices.
-14-
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
Jack Polak Director 1983
Sidney Dworkin Director 1985
Rami G. Abada Director 1997
David Edell, age 68, 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 68, 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 Associa-
tion.
Dunnan Edell is the 44 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 42 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 48, received a Bachelor of Science degree from Farleigh
Dickenson University in 1973. He is a certified public accountant who prac-
ticed with the New Jersey accounting firm of Zarrow, Zarrow & Klein from 1976
to 1986.
Jack Polak, age 87, 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. From
February 1995 (upon a merger involving Convergent Solutions) until December
1999, he was a director and member of the Audit and Compensation Committee of
K.T.I. Industries, Inc. a public company based in Guttenberg, NJ and engaged
in the waste - to - energy business.
Stanley Kreitman, age 68, 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. Since February 1999 and June
1999, respectively, he has been a member of the Board of Directors of K.S.W.
Corp. and P.M.C.C. Mortgage Corp. 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 79, has been a director since 1985. He was one of the
founders, and, was the President and Chairman of the Board of Revco D.S., Inc.,
from 1966 until 1987, when it one of the largest drug store chains in the
United States. 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. and Viragen Inc., and is Chairman
of Comtrex Systems, Inc., MarbleEdge Group, Inc., Nova Pet, Inc. and Paragon
Mortgage, 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.
-16-
Rami G. Abada, age 40, 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 the 1999, 1998 and
1997 fiscal years by all of the executive officers whose fiscal 1999
compensation exceeded $100,000, including the Chief Executive Officer
(the "Named Officers").
Annual Compensation Long-Term Compensation
Number
All of Shares
Other Covered
Name and Annual by Stock Other
Principal Compen- Options Long-Term
Position Year Salary Bonus sation(1) Granted(2) Compensation
David Edell, 1999 $401,468 111,546 17,088 - 0
President 1998 378,743 151,604 19,429 - 0
and Chief 1997 357,305 171,254 24,812 100,000 0
Executive
Officer
Ira W. Berman, 1999 $401,468(3)111,546 16,666 - 0
Secretary 1998 378,743(3)151,604 16,403 - 0
and Executive 1997 357,305(3)171,254 22,345 100,000 0
Vice President
Dunnan Edell, 1999 $200,000 - 7,614 - 0
Executive 1998 200,000 - 9,787 - 0
Vice President 1997 200,000 25,000 14,898 50,000 0
- - Sales
-17-
Drew Edell, 1999 $150,000 12,000 1,468 - 0
Vice Presi- 1998 150,000 - 2,508 - 0
dent-Manu- 1997 131,800 15,000 2,283 50,000 0
facturing
- -------------------------
(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
(3) Includes $99,396 paid to Ira W. Berman & Associates, P.C.
ii. 1999 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 1999.
The next table identifies 1999 fiscal-year option exercises by Named
Officers, and reports a valuation of their options.
Fiscal 1999 Aggregated Option Exercises
and November 30, 1999 Option Values
Number of Number of Shares
Shares Covered by Un- Value of Unexercised
Acquired Value exercised Options In-the-Money Options
On Exercise Realized at November 30, 1999 at November 30, 1999(1)
David Edell 60,000 96,125 457,500 278,592
Ira W. Berman 40,000 65,000 502,000 317,542
- ---------------------
(1) Represents the difference between market price and the respective exercise
prices of options at November 30, 1999.
-18-
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
- -------------------
(1) The full Board of Directors authorized the repricing in consequence of a
declining market valuation, inconsistent with the Company's realizable value.
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 1999 (without additional compensation for committee meetings). No
options were granted to any director. (Options issued to each of them in
fiscal 1997 were re-priced in 1998. The number of re-priced options, old and
new prices, issuance dates and at-issuance market prices in respect thereof are
reported above.)
The full Board of Directors met four times in 1999.
iv. Executive Compensation Principles;
Audit and Compensation Committee
The Company's Executive Compensation Program is based on guiding prin-
ciples designed to align executive compensation with Company values and ob-
jectives, business strategy, management initiatives, and financial performance.
-19-
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 1999, 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 com-
pared to industry performance levels.
v. Employment Contracts/Compensation Program
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 (whose compensation rights are
provided by contract). The Committee determines the salary or salary range
based upon competitive norms. Actual salary changes are based upon per-
formance, and bonuses were awarded by the Committee in consideration of the
Company's performance during 1999.
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 ab-
staining). Pursuant thereto, each is entitled to a base salary of $300,000,
plus a CPI or 6% increment each year ("base salary"), and an additional sum
measured as 2.5% of the Company's pre-tax income, less depreciation and
amortization, plus 20% of the base salary.
In February of 1999, the additional sum measurement in the David Edell
and Ira Berman employment contracts was amended to provide as follows: 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 1994 Stock Option Plan covers 1,000,000 shares of its Common
Stock.
(The 1984 Stock Option Plan covered 1,500,000 shares of its Common Stock,
and the 1986 Stock Option Plan covered 1,500,000 shares of its Common Stock.)
-20-
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 "Nonquali-
fied 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 (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 ab-
stain.) 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 termi-
nation (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 subsi-
diary 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 stock on the date of
grant. The exercise price of all Incentive Stock Options must be at least
-21-
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, 1999, 1,184,500 stock options, yet exercisable, to pur-
chase 1,184,500 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.
Cumulative Total Return*
11/94 11/95 11/96 11/97 11/98 11/99
CCA Industries, Inc. 100 38 62 63 37 37
DJ Equity Market 100 138 176 226 278 335
DJ Cosmetics/Personal 100 135 181 220 230 201
Care
- ---------------------
* $100 invested on November 30, 1994 in stock and indices, including
reinvestment of dividends.
-22-
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 8,
2000 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) each officer and director; and (iii) 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 279,535 484,615 10.55
c/o CCA Industries, Inc.
200 Murray Hill Parkway
East Rutherford, NJ 07073
Ira W. Berman 234,595 473,615 9.77
c/o CCA Industries, Inc.
Jack Polak 25,000 47,700 1.00
90 Park Avenue
New York, NY 10016
Rami G. Abada - - -
c/o CCA Industries, Inc.
Stanley Kreitman - - -
c/o CCA Industries, Inc.
Dunnan Edell 41,250 - .57
c/o CCA Industries, Inc.
Drew Edell 51,250 - .71
c/o CCA Industries, Inc.
-23-
Sidney Dworkin 50,000 - .69
1550 No. Powerline Road
Pompano, FL 33069
John Bingman - - -
c/o CCA Industries, Inc.
Officers and Directors 681,630 1,005,930 21.59
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, 1999, Company loans to Drew Edell (an officer) and
Dunnan Edell (a director and officer), in the principal sums of $34,483 and
$23,438, respectively, were outstanding. The loans, secured by second
mortgages upon real properties, carry interest at 1% over prime, payable
semi-annually.
-24-
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, 1999 and 1998, Consolidated Statements of Income for
the years ended November 30, 1999, 1998 and 1997, Consolidated Statements of
Shareholders' Equity for the years ended November 30, 1999, 1998 and 1997,
Consolidated Statements of Cash Flows for the years ended November 30, 1999,
1998 and 1997, Notes to Consolidated Financial Statements.
Financial Statement Schedules:
Schedule II: Valuation Accounts; Years Ended Nov. 30, 1999, 1998 and 1997
Exhibits:
(3) 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).
(10) The Following Material Contracts 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.
The February 1999 Amendments to the Amended and Restated Employment
Agreements of David Edell and Ira Berman (1994) are incorporated by
reference to their with the 1998 10-K. (Exhibit pages 00001-00002)
(11) Statement re Per Share Earnings
No Form 8-K was filed during the 1999 fiscal year.
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.
-25-
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 , 2000
s/ Ira W. Berman Chairman of the Board
IRA W. BERMAN of Directors, Executive
Vice President,
Secretary February , 2000
s/ Dunnan Edell Vice President, February , 2000
DUNNAN EDELL Director
s/ Stanley Kreitman Director February , 2000
STANLEY KREITMAN
s/ Rami Abada Director February , 2000
RAMI ABADA
s/ Jack Polak Director February , 2000
JACK POLAK
s/ Sidney Dworkin Director February , 2000
SIDNEY DWORKIN
-26-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
C O N T E N T S
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS . . . . . . . . . .1
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . .2-3
CONSOLIDATED STATEMENTS OF INCOME (LOSS). . . . . . . . . . . . . . . .4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME. . . . . . . . . . . .5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY . . . . . . . . . . . .6
CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . .7-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . 9-30
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, 1999 and 1998, and the related consoli-
dated statements of income (loss), comprehensive income, shareholders'
equity and cash flows for each of the three years in the period ended
November 30, 1999. 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 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, 1999 and 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended November 30, 1999, 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 11, 2000
Jericho, New York
-1-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
November 30,
1999 1998
Current Assets
Cash and cash equivalents $ 807,360 $ 542,289
Short-term investments and marketable
securities (Notes 2 and 6) 1,490,469 1,633,452
Accounts receivable, net of allowances of
$1,183,576 and $1,318,185, respectively
(Note 7) 7,371,532 7,878,000
Inventories (Notes 2, 3 and 7) 6,235,270 8,372,292
Prepaid expenses and sundry receivables 822,816 317,118
Prepaid income taxes and refunds due 714,835 72,513
Deferred income taxes (Note 8) 1,178,513 974,922
Net assets from discontinued operations - 752,729
Total Current Assets 18,620,795 20,543,315
Property and Equipment, net of accumulated
depreciation and amortization
(Notes 2 and 4) 739,728 866,663
Intangible Assets, net of accumulated
amortization (Notes 2 and 5) 169,756 180,310
Other Assets
Marketable securities (Notes 2 and 6) 1,809,770 2,172,253
Due from officers - Non-current (Note 14) 57,918 65,250
Deferred income taxes (Note 8) 42,031 127,256
Other 54,989 54,889
Total Other Assets 1,964,708 2,419,648
Total Assets $21,494,987 $24,009,936
See Notes to Consolidated Financial Statements.
-2-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
November 30,
1999 1998
Current Liabilities
Notes payable (Note 7) $ 1,400,000 $ 1,550,000
Accounts payable and accrued
liabilities (Note 10) 4,928,905 6,259,967
Income taxes payable (Note 8) - 600,720
Total Current Liabilities 6,328,905 8,410,687
Commitments and Contingencies
(Note 12)
Shareholders' Equity
Common stock, $.01 par; authorized
15,000,000 shares; issued and
outstanding 6,321,151 and 6,246,151
shares, respectively 63,212 62,462
Class A common stock, $.01 par; authorized
5,000,000 shares; issued and outstanding
and 1,020,930 shares, respectively 10,209 10,209
Additional paid-in capital 4,453,478 4,454,228
Retained earnings 10,955,203 11,246,302
Accumulated other comprehensive income
(Note 6) ( 150,854) ( 18,343)
15,331,248 15,754,858
Less: Treasury Stock (95,996 and
89,519 shares at November 30,
1999 and November 30, 1998,
respectively) 165,166 155,609
Total Shareholders' Equity 15,166,082 15,599,249
Total Liabilities and Shareholders' Equity $21,494,987 $24,009,936
See Notes to Consolidated Financial Statements.
-3-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Years Ended November 30,
1999 1998 1997
Revenues
Sales of health and beauty
aid products, net $36,926,287 $37,402,678 $37,708,922
Other income 285,469 318,296 293,953
37,211,756 37,720,974 38,002,875
Costs and Expenses
Cost of sales 13,910,401 14,251,884 14,460,364
Selling, general and
administrative expenses 12,302,919 11,621,706 11,146,894
Advertising, cooperative and
promotions 8,910,758 8,432,765 8,450,461
Research and development 581,340 562,708 684,224
Provision for doubtful accounts 135,949 132,831 ( 17,779)
Interest expense - - 5,888
35,841,367 35,001,894 34,730,052
Income before Provision
for Income Taxes 1,370,389 2,719,080 3,272,823
Provision for Income Tax 518,806 1,112,676 1,241,329
Net Income from
Continuing Operations 851,583 1,606,404 2,031,494
Discontinued Operations:
Income (loss) from operations of
Fragrance Corp. of America
(net of income taxes (benefit)
of ($549,205) in 1999 and
$51,524 in 1998) ( 841,573) 61,570 -
(Loss) on abandonment of
intangibles (net of income
taxes (benefit) of
($183,068) in 1999) ( 301,109) - -
(Loss) Income from Discontinued
Operations ( 1,142,682) 61,570 -
Net (Loss) Income ($ 291,099) $ 1,667,974 $ 2,031,494
Weighted Average Shares
Outstanding
Basic 7,174,203 7,243,956 7,205,904
Diluted 7,660,796 8,075,169 8,108,482
Earnings Per Common Share
(Note 2): Basic Diluted Basic Diluted Basic Diluted
Continuing Operations $ .12 $ .11 $ .22 $ .20 $ .28 $ .25
Discontinued Operations ($ .12) ($ .12) $ .01 $ .01 $ - $ -
(Loss) on Abandoned
Intangibles ($ .04) ($ .04) $ - $ - $ - $ -
Net ($ .04) ($ .04) $ .23 $ .21 $ .28 $ .25
See Notes to Consolidated Financial Statements.
-4-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended November 30,
1999 1998 1997
Net (Loss) Income ($ 291,099) $ 1,667,974 $ 2,031,494
Other Comprehensive Income
Unrealized holding (loss)
gain on investments ( 132,511) ( 15,606) 3,616
(Benefit) Provision for Taxes ( 50,166) ( 6,559) 1,371
Other Comprehensive (Loss)
Income - Net ( 82,345) ( 9,047) 2,245
Comprehensive (Loss)
Income ($ 373,444) $1,658,927 $2,033,739
Earnings Per Share:
Basic ($.05) $.23 $.28
Diluted ($.05) $.20 $.25
See Notes to Consolidated Financial Statements.
-5-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
Unrealized
Additional Gain (Loss) on
Common Stock Paid-In Retained Marketable Treasury
Shares Amount Capital Earnings Securities Stock
Balance - December 1, 1996 7,167,551 $71,676 $4,455,223 $7,546,834 ($ 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 9,578,328 ( 2,737) ( 17,969)
Issuance of common stock 53,530 535 ( 535) - - -
Net income for the year - - - 1,667,974 - -
Unrealized (loss) on marketable
securities - - - - ( 15,606) -
Purchase of 82,019 shares of
treasury stock - - - - - ( 137,640)
Balance - December 1, 1998 7,267,081 72,671 4,454,228 11,246,302 ( 18,343) ( 155,609)
Issuance of common stock 75,000 750 ( 750) - - -
Net (loss) for the year - - - ( 291,099) - -
Unrealized (loss) on marketable
securities - - - - ( 132,511) -
Purchase of 6,477 shares of
treasury stock - - - - - ( 9,557)
Balance - November 30, 1999 7,342,081 $73,421 $4,453,478 $10,955,203 ($150,854) ($ 165,166)
See Notes to Consolidated Financial Statements.
-6-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
1999 1998 1997
Cash Flows from Operating Activities:
Net (loss) income ($ 291,099) $1,667,974 $2,031,494
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 344,198 342,131 376,381
Amortization of bond discount 1,884 1,884 1,948
(Gain) loss on sale of securities ( 10,914) 7,635 -
(Increase) decrease in deferred
income taxes ( 118,366) ( 291,878) 71,932
Loss on abandonment of intangibles 418,612 - 1,009
Decrease (increase) decrease in
accounts receivable 506,468 ( 3,946,727) 86,227
Decrease (increase) in inventory 2,137,022 ( 3,044,784) ( 138,930)
(Increase) decrease in prepaid
expenses and sundry receivables ( 505,698) ( 141,278) 355,399
(Increase) in prepaid income taxes
and refunds due ( 642,322) - -
(Decrease) increase in accounts
payable and accrued liabilities ( 1,331,062) 1,206,302 258,800
(Decrease) increase in income taxes
payable ( 600,720) 514,616 148,150
(Increase) decrease in miscellaneous
assets ( 100) ( 2,277) 1,605
Decrease in net assets from
discontinued operations 752,729 - -
Net Cash Provided by (Used in)
Operating Activities 660,632 (3,686,402) 3,194,015
Cash Flows from Investing Activities:
Acquisition of property and
equipment ( 157,047)( 699,349) ( 168,520)
Proceeds from sale of property - - 40,960
Acquisition of intangible assets ( 468,274)( 105,652) ( 20,448)
Purchase of available for sale
securities ( 1,744,204)( 2,298,993) (3,269,674)
Proceeds from sale of available for
sales securities 2,126,189 2,268,851 2,657,227
Proceeds of money due from
officers 7,332 1,500 2,400
Loan to officers - - ( 40,000)
Net Cash (Used in) Provided by
Investing Activities ( 236,004) ( 833,643) ( 798,055)
Cash Flows from Financing Activities:
Proceeds from borrowings 4,050,000 1,950,000 -
Payment on debt ( 4,200,000) ( 400,000) ( 163,500)
Purchase of treasury stock ( 9,557) ( 137,640) ( 5,469)
Proceeds from issuance of stock - 200 -
Net Cash (Used in) Provided by
Financing Activities ( 159,557) 1,412,560 ( 168,969)
Net Increase (Decrease) In Cash 265,071 ( 3,107,485) 2,226,991
Cash at Beginning of Year 542,289 3,649,774 1,422,783
Cash at End of Year $ 807,360 $ 542,289 $3,649,774
See Notes to Consolidated Financial Statements
-7-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
1999 1998 1997
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest $ 119,664 $ 14,589 $ 7,025
Income taxes 1,152,883 1,013,975 1,052,850
See Notes to Consolidated Financial Statements.
-8-
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., Nutra Care Corporation, and CCA Online
Industries, Inc.), all of which are currently inactive.
In March of 1998 CCA acquired 80% of the newly organized Fragrance
Corporation of America, Ltd. which manufactures and distributes perfume
products. In 1999, the Company adopted a formal plan to discontinue the
operations of the subsidiary.
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 statements. 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 statements. Accordingly, upon settlement,
actual results may differ from estimated amounts.
Short-Term Investments and Marketable Securities:
Short-term investments and marketable securities consist of corporate
and government bonds and equity securities. The Company has classified
its investments as Available-for-Sale securities. Accordingly, such
investments are reported at fair market value, with the resultant
unrealized gains and losses reported as a separate component of
shareholders' equity.
Statements of Cash Flows Disclosure:
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an original maturity of less
than three months to be cash equivalents.
During fiscal 1997,1998 and 1999, two officers/shareholders exercised in
the aggregate 60,000, 70,000 and 100,000 options, respectively, in
exchange for previously issued common stock of 14,000, 16,470 and
25,000, respectively. The common shares were put into treasury and were
subsequently cancelled.
-9-
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 obsolescence 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
instruments approximate their respective fair value.
Income Taxes:
Income tax expense includes federal and state taxes currently payable
and deferred taxes arising from temporary differences between income for
financial reporting and income tax purposes.
Tax Credits:
Tax credits, when present, are accounted for using the flow-through
method as a reduction of income taxes in the years utilized.
-10-
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
calculated using the average number of shares of common stock
outstanding during the year. Diluted earnings per share is computed on
the basis of the average number of common shares outstanding plus the
effect of outstanding stock options using the "treasury stock method"
and convertible debentures using the "if-converted" method. Common
stock equivalents consist of stock options.
Recently Issued Accounting Standards:
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 derivative 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.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
Advertising Costs:
The Company's policy for fiscal financial reporting is to charge
advertising cost to operations as incurred.
-11-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVENTORIES
At November 30, 1999 and 1998, inventories consist of the following:
1999 1998
Raw materials $3,509,103 $5,265,248
Finished goods 2,726,167 3,107,044
$6,235,270 $8,372,292
At November 30, 1999 and 1998, the Company had a reserve for obsolete
inventory of $1,056,789 and $748,866, respectively.
NOTE 4 - PROPERTY AND EQUIPMENT
At November 30, 1999 and 1998, property and equipment consisted of the
following:
1999 1998
Machinery and equipment $ 299,528 $ 297,615
Furniture and equipment 742,547 721,296
Transportation equipment 10,918 10,918
Tools, dies, and masters 1,914,684 1,819,974
Leasehold improvements 147,647 108,474
3,115,324 2,958,277
Less: Accumulated depreciation
and amortization 2,375,596 2,091,614
Property and Equipment - Net $ 739,728 $ 866,663
Depreciation and amortization expense for the years ended November 30,
1999, 1998 and 1997 amounted to $283,982, $318,715 and $364,536,
respectively.
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following at November 30, 1999 and
1998:
1999 1998
Patents and trademarks $241,596 $241,596
Less: Accumulated amortization 71,840 61,286
Intangible Assets - Net $169,756 $180,310
Amortization expense for the years ended November 30, 1999, 1998 and
1997 amounted to $60,216 ($49,662 from discontinued operations), $23,417
($10,087 from discontinued operations) and $11,845, respectively.
-12-
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, 1999 and 1998 were as follows:
1999 1998
Current: COST MARKET COST MARKET
Corporate obligations $ 745,044 $ 748,894 $ 780,776 $ 786,233
Government obligations
(including mortgage
backed securities) 743,777 741,575 841,067 847,219
Total 1,488,821 1,490,469 1,621,843 1,633,452
Non-Current:
Corporate obligations 536,000 532,891 1,030,044 1,038,450
Government obli-
gations 399,534 390,517 298,600 298,931
Preferred stock 612,561 571,535 512,561 511,500
Other equity
investments 414,177 314,827 361,000 323,372
Total 1,962,272 1,809,770 2,202,205 2,172,253
Total $3,451,093 $3,300,239 $3,824,048 $3,805,705
The market value at November 30, 1999 was $3,300,239 as compared to
$3,805,705 at November 30, 1998. The gross unrealized gains and losses as
at November 30, 1999 and 1998 were $7,779 and ($158,633) for 1999 and
$25,844 and ($44,187) for 1998, respectively. The cost and market values
of the investments at November 30, 1999 were as follows:
-13-
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
CORPORATE OBLIGATIONS:
GMAC 2/22/00 5.450 $200,000 $ 199,226 $ 199,852 $ 199,852
GTE Southwest Deb 12/01/99 5.820% 100,000 99,851 100,000 100,000
Florida Power & Light 4/01/00 5.375% 200,000 199,850 199,464 199,464
Virginia Electric & Power 4/01/00 5.875% 250,000 246,117 249,578 249,578
GMAC Smartnotes 10/15/01 5.950% 536,000 536,000 532,891 532,891
1,281,044 1,281,785 1,281,785
-14-
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
CORPORATE OBLIGATIONS:
GOVERNMENT OBLIGATIONS:
FHLMC 1628-N 12/15/2023 6.500 50,000 $ 32,498 $ 31,334 $ 31,334
FNMA 93-224-D 11/25/2023 6.500 104,000 91,182 85,168 85,168
FNMA 92-2-N 1/25/2024 6.500 52,000 27,963 28,000 28,000
US Treasury Note 11/30/00 4.625 100,000 100,190 98,781 98,781
US Treasury Note 1/31/01 4.500 250,000 247,891 246,015 246,015
US Treasury Note 9/30/00 5.183 300,000 300,924 296,625 296,625
US Treasury Note 3/16/00 5.183 250,000 243,835 246,195 246,195
US Treasury Bill 12/2/99 4.875 100,000 98,828 99,974 99,974
1,143,311 1,132,092 1,132,092
-15-
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:
First Australia Prime Series I Auct. Variable 100,000 $100,000 $ 100,000 $ 100,000
Tennessee Valley Authority
(QIDS) Qtrly Income Debt
Secs - Matures 3/31/2045 3/31/00 8.00% 13,600 362,561 339,157 339,157
Merrill Lynch Trust 9/30/08 7.28% 6,000 150,000 132,378 132,378
Other Equity Investments:
Dreyfus Premier Limited
Term High Income CL B 136,227 114,877 114,877
Dreyfus High Yield
Strategies Fund 277,950 199,950 199,950
1,026,738 886,362 886,362
$3,451,093 $3,300,239 $3,300,239
-16-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (Continued)
During the years ended November 30, 1999, 1998 and 1997, available-for-
sale securities were liquidated and proceeds amounting to $2,129,957,
$2,268,851 and $2,657,227 were received, with resultant realized gains
(losses) totaling $10,914, 7,635 and ($1,009), respectively. Cost of
available-for-sale securities includes unamortized premium or discount.
NOTE 7 - NOTES PAYABLE
The Company has an available line of credit of $7,000,000. Interest is
calculated on the outstanding balance at prime minus 1% or Libor plus 150
basis points. The line of credit is collateralized by all the Company's
assets. As of November 30, 1999, the Company was utilizing $1,400,000
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, 1999 and 1998, respectively, the Company has temporary
differences arising from the following:
November 30, 1999
Classified As
Deferred Short- Long-
Type Amount Tax Term Term
Asset (Liability)
Depreciation $ 105,625 $ 42,031 $ - $42,031
Reserve for bad debts 327,920 128,802 128,802 -
Reserve for returns 855,846 333,481 333,481 -
Reserve for obsolete
inventory 972,537 387,001 387,001 -
Section 263A costs 252,609 100,405 100,405 -
Deferred tax benefit
from discontinued
operations 1,167,883 105,109 105,109 -
Charitable contributions 310,895 123,715 123,715 -
Net deferred income
tax $1,220,544 $1,178,513 $42,031
-17-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
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 $1,102,178 $974,922 $127,256
Income tax expense (benefit) is made up of the following components:
November 30, 1999
State &
Federal Local Total
Current tax expense $605,755 $181,809 $787,564
Deferred tax expense ( 237,345) ( 31,413) ( 268,758)
$368,410 $150,396 $518,806
-18-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
November 30, 1998
State &
Federal Local Total
Current tax expense $1,100,101 $333,183 $1,433,284
Tax credits ( 28,730) - ( 28,730)
Deferred tax expense ( 228,328) ( 63,550) ( 291,878)
$ 843,043 $269,633 $1,112,676
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
Income taxes payable are made up of the following components:
State &
Federal Local Total
November 30, 1999 $ - $ - $ -
November 30, 1998 $532,272 $68,448 $600,720
-19-
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, 1999 is as follows:
1999 1998 1997
Percent Percent Percent
Of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
Income tax expense at
statutory rate $465,932 34.00% $ 924,487 34.00% $1,112,760 34.00%
Increases (decreases) in taxes
resulting from:
State income taxes, net of federal
income tax benefit 79,461 5.80 165,995 6.11 155,378 4.75
Non-deductible expenses and
other adjustments ( 26,587) ( 1.94 ) 50,924 1.87 15,666 .48
Utilization of tax credits - - ( 28,730) (1.06 ) ( 42,475) ( 1.30 )
Income tax expense at
effective rate $518,806 37.86% $1,112,676 40.92% $1,241,329 37.93%
-20-
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, 1999:
Number Per Share
Of Option
Date Granted Shares Price Expiration
December 1987 17,000 .50 2002
January 1988 342,500 .55 2002
January 1990 200,000 .63 2000
June 1995 50,000 4.50 2000
August 1997 375,000 *1.50 2007
March 1999** 200,000 .75 2004
1,184,500
*These stock options were repriced from $2.50 on November 3, 1998.
**These options were originally scheduled to expire March 1999 but were
extended for an additional five years.
The following summarizes the activity of shares under option for the two
years ended November 30, 1999:
Number Per Share
Of Option
Shares Price Value
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
Granted - - -
Repriced - - -
Exercised ( 100,000) .50 - 4.50 ( 51,375)
Expired - - -
Cancelled - - -
Balance - November 30,
1999 1,184,500 $.50 - $4.50 $1,259,375
In 1998 and 1999, two shareholders/officers exercised 70,000 and 100,000
stock options to purchase an equal number of shares of stock,
respectively. The exercise of the options were paid for by the return
of 16,470 and 25,000 shares of the Company's stock, respectively.
-21-
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 1999 and 1998, respectively, for stock-based employee compensation awards. The
pro forma compensation cost for stock-based employee compensation awards was $1 million, $1.2 million,
and $1.2 million in 1999, 1998 and 1997, 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:
1999 1998 1997
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
Net income ($291,099) ($1,332,650) $1,660,375 $471,352 $2,031,494 $832,424
Diluted earnings
per share ($.04) ($.19) $.21 $.06 $.25 $.10
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. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized over the options' vesting period (for stock options). 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.
-22-
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
1999 1998 1997
Average expected life (years) 3.78 4.64 5.40
Expected volatility 216.51% 214.39% 213.78%
Risk-free interest rate
(zero coupon U.S. Treasury
note) 5.6% 5.6% 6.2%
Weighted average fair value
at grant - Exercise price
equal to market price $1.20 $1.29 $2.19
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 volatility 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.
-23-
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,
1999 1998
(In Thousands)
Media advertising $ 560 $ 820
Coop advertising * 494
Accrued returns 630 1,107
$1,190 $2,421
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,
1999 1998 1997
Interest income $213,335 $286,805 $272,677
Dividend income 50,657 16,963 15,131
Realized gain on sale of
available-for-sale securities 11,211 7,635 5,692
Realized (loss) on sale of
available-for-sale
securities ( 297) - -
Realized (loss) on
disposal of assets - - ( 6,701)
Miscellaneous 10,563 6,893 7,154
$285,469 $318,296 $293,953
-24-
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 $13,088 per month. This lease expires on May 31, 2000.
The Company has entered into various operating leases with expiration
dates ranging through December 2001.
Rent expense for the years ended November 30, 1999, 1998 and 1997 was
$449,051, $588,083 and $458,706, 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,
2000 $382,261
2001 111,508
2002 -
2003 -
2004 -
Total $493,769
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.
-25-
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, 1999, $6,824,511 of royalties have been paid or accrued and only
$2,175,489 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.
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 net sales revenue for the years ended November 30,
1999 and 1998 were approximately $37 million each. Foreign sales
accounted for approximately 5% of sales in each year.
-26-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
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
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. 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.
Collective Bargaining Agreement
On December 1, 1998, the Company signed a collective bargaining
agreement with Local 734, L.I.U. of N.A., AFL-CIO. Other than standard
wage, holiday, vacation and sick day provisions, the agreement calls for
CCA to provide certain medical and dental benefits and to contribute
to the Local 734 Educational Fund $.01 per hour for each hour the
employees are paid. The agreement expires on November 30, 2001.
Litigation
There are various matters in litigation that arose out of the normal
operations of the Company which, in the opinion of management, will not
have a material adverse effect on the financial condition of the
Company.
NOTE 13 - PENSION PLANS
The Company has adopted a 401(K) Profit Sharing Plan that covers most
of their non-union employees with over one year of service and attained
Age 21. Employees may make salary reduction contributions up to twenty-
five percent of compensation not to exceed $10,000 and may make
additional discretionary contributions. The Plan provides for partial
vesting after two years and full vesting after six years of service for
all earnings and losses. The Company is not obligated to, nor has it
matched any of the employees' contributions.
NOTE 14 - 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 $23,438 and $34,483 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.
-27-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - CONCENTRATION OF RISK
During the years ended November 30, 1999, 1998 and 1997, certain
customers each accounted for more than 5% of the Company's net sales,
as follows:
Customer 1999 1998 1997
A 27% 29% 24%
B 11 9 12
C 8 7 6
D 6 6 7
E 5 5 7
F 5 7 6
G 5 5 *
Foreign Sales 4.50% 5.00% 5.34%
* Under 5%
The loss of any one of these customers could have a material adverse
affect on the Company's earnings and financial position.
During the years November 30, 1999, 1998 and 1997, certain products
accounted for more than 10% of the Company's net sales as follows:
Product 1999 1998 1997
Plus+White 38% 24% 32%
Sudden Change 21 19 21
Hair-Off 11 10 *
NutraNail 11 * *
* under 10%
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.
-28-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - 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,
1999 1998 1997
Net (loss) income available for common
shareholders, basic and diluted ($291,099) $1,660,375 $2,031,494
Weighted average common stock
outstanding- Basic 7,174,203 7,243,956 7,205,904
Net effect of dilutive stock options 486,593 831,213 902,578
Weighted average common stock and
common stock equivalents - Diluted 7,660,796 8,075,169 8,108,482
Basic earnings per share ($.04) $ .23 $ .28
Diluted earnings per share ($.04) $ .21 $ .25
-29-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - DISCONTINUED OPERATIONS
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 obligations 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.
Net sales of perfume products were approximately $3,700,000 during
fiscal 1998, but decreased to $2,100,000 in fiscal 1999. In February
of 1999, employment agreements with FCA's minority shareholders
(included in the 1998 Shareholders Agreement) were replaced by short-
term consulting agreements, which were terminated in October of 1999.
Contemporaneously, the Company formalized a plan to discontinue the
operations of FCA, terminated all FCA employees, closed its Chicago
facility, abandoned the majority of its inventory, and discontinued the
marketing of all of its products except "Cherry Vanilla" and "Cloud
Dance." (See "License Agreement-Shiara") The marketing of those
perfumes has been assumed by CCA.
In 1999, the Company credited FCA with the tax benefit to be received
from the loss incurred by it. This resulted in reducing the
intercompany advances from approximately $3 million to approximately
$2.15 million. Since the net realizable value of FCA's assets at
November 30, 1999 was estimated to be approximately $1 million, a
resultant loss from the discontinued operations of approximately $1.15
million is reflected accordingly in the statement of income. (See
Item 7, Management's Discussion And Analysis of Financial Condition And
Results of Operations, and the Financial Statements and Notes included
in Item 14.)
The 1998 balance sheet has been reclassified to reflect the "net assets
from discontinued operations".
-30-
SCHEDULE II
CCA INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
COL. A COL. B COL. C COL. D COL. E
Additions
Balance at Charged To Balance
Beginning Costs and At End
Description Of Year Expenses Deductions Of Year
Year ended November 30, 1999:
Allowance for doubtful accounts$ 273,982 $ 135,949 $ 82,012 $ 327,919
Reserve for returns $1,044,203 $4,866,293 $5,054,839 $ 855,657
Reserve for inventory
obsolescence $ 836,805 $ 380,454 $ 160,470 $ 1,056,789
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 $ 61,113 $ 172,664 $ 748,866
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