Back to GetFilings.com
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, 2000 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 $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to filed such reports), and (2) has been
subject to such filing requirement for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.[ X ].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (i.e., by persons other than officers and directors of the
Registrant), at the average sales price ($.72), on February 22, 2001, was
as follows:
Class of Voting Stock Market Value
5,251,597 shares; Common
Stock, $.01 par value $3,781,150
On February 22, 2001 there were an aggregate of 6,894,157 shares of
Common Stock and Class A Common Stock of the Registrant outstanding.
- ii-
CROSS REFERENCE SHEET
Headings in this Form
Form 10-K 10-K for Year Ended
Item No. November 30, 2000
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
7A. Quantitative and Qualitative Quantitative and Qualitative
Disclosures about Market Risk Disclosures about Market Risk
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
- iii-
Headings in this Form
Form 10-K 10-K for Year Ended
Item No. November 30, 2000
11. Executive Compensation Executive Compensation
12. Security Ownership Security Ownership
of Certain Beneficial of Certain Beneficial
Owners and Management Owners and Management
13. Certain Relationships Certain Relationships
and Related Transactions and Related Transactions
14. Exhibits, Financial Exhibits, Financial
Statement Schedules, Statement Schedules,
and Reports on Form and Reports on Form
8-K 8-K
-iv-
TABLE OF CONTENTS
Item Page
PART I
1. Business 1
2. Property 6
3. Legal Proceedings 6
4. Submission of Matters to a Vote of Security Holders 6
PART II
5. Market for the Company's Common Stock and Related
Shareholder Matters 8
6. Selected Financial Data 10
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
7A. Quantitative And Qualitative Disclosure About
Market Risk 14
8. Financial Statements and Supplementary Data 14
9. Changes In and Disagreements with Accountants On
Accounting and Financial Disclosure 14
PART III
10. Directors and Executive Officers 15
11. Executive Compensation 16
12. Security Ownership of Certain Beneficial
Owners and Management 22
13. Certain Relationships and Related Transactions 23
PART IV
14. Exhibits, Financial Statement Schedules
, and Reports on Form 8-K 24
- v-
PART I
Item 1. BUSINESS
(a) General
CCA INDUSTRIES, INC. (hereinafter, CCA or the Company) was
incorporated 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 manufactured 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), Mega 14 Balanced
Fiber and Mega T Green Tea (dietary products), 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. In addition, certain of the
Company's products are sold to distributors throughout the world.
The Company recognizes sales at the time its products are shipped
to customers. However, while sales are not formally subject to any
contract contingency, the acceptance of returns is an industry-wide
practice. The Company thus estimates 'unit returns' based upon a review
of the market's recent-historical acceptance 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, Financial Statements, 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.
In or about November 2000, the Company contacted its accounts and
instructed them to return its Permathene and Mega 16 products, which
contain phenylpropanolimine (PPA), as a result of a general FDA health-
warning concerning PPA (a key ingredient in numerous cold-remedies and
appetite suppressants, which had been 'on the market' for some 50 years).
The Company's revenues from sales of those now discontinued products, in
fiscal 2000, were approximately $2,500,000 (approximately 6.5% of sales).
While there can be no assurance of success, the Company expects to
'replace' PPA - product revenue through promotion and sale of Mega 14
Balanced Fiber, an all natural-fiber diet product, and Mega T Green Tea.
In October 2000, the Company paid $450,000 to purchase, from Shiara
Holdings, Inc., the following trademarks: Cherry Vanilla, Cloud Dance,
Sunset Cafe, Vision, Mandarin Vanilla and Amber Musk. (Those trademarks
had been licensed by the Company since 1998; and, until their purchase,
the Company had been committed to paying 5% royalties, and $150,000 per
annum minimum royalties, for mark-associated product sales.)
The Company's total net-sales in fiscal 2000 were approximately
$38,450,000. Foreign sales accounted for approximately 2.5% of sales.
In fiscal 2000, the Company realized approximately $24,000,000 in gross
profits from operations, before 'taking' write offs and reserves totaling
approximately $1,500,000 in consequence of the aforereferenced FDA/PPA-
product circumstance. The Company experienced a total net loss in
fiscal 2000 of approximately $655,000; and, at fiscal year end, total
assets were approximately $20,312,000. (See the Financial Statements
and Notes)
Including the principal members of management (see Directors and
Executive Officers), the Company, at November 30, 2000, had 132 sales,
administrative, creative, accounting, receiving, and warehouse personnel
in its employ.
(c) Manufacturing and Shipping
The Company creates formulations, chooses colors and mixtures, and
arranges with independent contractors for the manufacture of its products
pursuant to Company specifications. Manufacturing and component-supply
arrangements are maintained with several manufacturers and suppliers.
Almost all orders and other product shipments are delivered from the
Company's own warehouse facilities, which results in more effective
inventory control, more efficient shipping procedures, and the
realization of related economies.
(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 wholesalers.
2
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, 2000, the Company's
largest customers were WalMart (approximately 26% of sales), Walgreen
(approximately 13%), CVS, K-Mart, Eckerd, and Rite Aid (each
approximately 6%). The loss of any of these principal customers, or
substantial reduction of sales revenues realized from their business,
could materially and negatively affect 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
advertisements to promote its leading brands. On occasion, print and
radio advertisements are engaged. In addition, and more-or-less
continuously, store-centered product promotions are co-operatively
undertaken with customers.
Each of the Company's brand-name products is intended to attract 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 product lines (i.e., products sold under trademark
names owned by the Company, and not subject to any other party's interest
or license), including Plus+White, Sudden Change, Bikini Zone,
Wash-n-Curl, Wash n Straight, Mood Magic, and (since the perfume-product
trademark purchase from Shiara Holdings in October 2000), Cloud Dance and
Cherry Vanilla.
Plus + White, Sudden Change and Bikini Zone, the three best
performers among wholly-owned products, accounted for approximately 36%,
19% and 10%, respectively, of the Company's net-sales revenues during
fiscal 2000.
3
Net sales of perfume products were approximately $2,100,000 in
fiscal 1999, and $1,400,000 in fiscal 2000. (Perfume products were
marketed by a subsidiary, Fragrance Corporation of America, Inc. -- FCA -
- in fiscal 1998 and 'most' of fiscal 1999. Near year-end fiscal 1999,
FCA's operations were discontinued, and CCA then assumed the marketing of
perfume products -- particularly, Cherry Vanilla and Cloud Dance.)
(f) License-Agreements Products
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 Pro-Perm hair-care products,
the PPA-based and now discontinued dietary-product Permathene, IPR foot-
care products, 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, 2000, the Company had paid or accrued
Alleghany-Pharmacal License royalties in the sum of $ 7,451,454.
The products subject of the Alleghany-Pharmacal License accounted
for approximately $10,900,000 and 28% of total sales in the fiscal year
ended November 30, 2000. Nutra Nail and the Hair-Off depilatory were
the leaders among all of the Company's license-agreement products,
producing approximately 14% and 7%, respectively, of net revenues.
4
ii. 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
products. The Solar Sense License requires the Company to pay a 5%
royalty on net sales of licensed products until $1 million total
royalties are paid and 1%, thereafter; and minimum per-annum royalties of
$30,000. CCA realized approximately $705,000 in net sales of sun-care
products, and paid Solar Sense the $30,000 minimum per annum royalty, in
fiscal 2000.
iii. Other Licenses
The Company is not party to any other license agreement that is
material to its operations.
(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 competition 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 require new approval for any in-the-market for
product, or should require approval 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.
5
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.
Item 2. PROPERTY
The principal executive offices of the Company are located at 200
Murray Hill Parkway, East Rutherford, New Jersey. There, under a net
lease, the Company occupies approximately 62,500 square feet of space.
Approximately 45,000 square feet in such premises is used for warehousing
and 17,500 for offices. The annual rental is $267,684. The lease
expires on March 31, 2005.
The Company leases 51,000 square feet of warehouse space in
Paterson, New Jersey. The Company pays $13,260 per month pursuant to a
lease expiring May 31, 2001, and will pay $14,805 per month for such
space, through May 31, 2002.
Item 3. LEGAL PROCEEDINGS
The Company is engaged in one potentially-material litigation,
pending in the United States District Court for the District of New
Jersey. The plaintiff claims to be due approximately $450,000 in total,
but paid CCA only (approximately) $170,000 for subject (Plus+White)
product purchases. Its essential claim is that the products 'liquefied,'
and were thus defective. The Company contends that the purchaser (which
purchased for delivery to a third party) made no product complaint until
one and one-half years after delivery, and that the third-party made
additional Plus+White purchases after the purchaser complained); that
these circumstances should prevent plaintiff's 'proof' of claim; that the
Company has other bases of meritorious defense; and that, in any event,
the Company believes the amount claimed by plaintiff as damages due is
greatly in excess of any damages it could prove even if its essential
claims were substantively provable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 12, 2000, the Company held its annual meeting of
shareholders. The actions taken, and the voting results thereupon, were
as follows:
6
(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.
(Sidney Dworkin died in October 2000.)
(3) The Board's appointment of Sheft Kahn & Company LLP as the
Company's independent certified public accountants for the 2000 fiscal
year was approved.
The Company has not submitted any matter to a vote of security
holders since the 2000 Annual Meeting.
7
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
In June 2000, the Company filed a Schedule TO (and an Amendment
No.1 thereto) with the Securities And Exchange Commission (S.E.C.); and,
contemporaneously thereafter, presented the tender offer subject of the
Schedule TO to its shareholders. Pursuant thereto, the Company offered
to purchase up to 2,500,000 shares of its own Common Stock (but not Class
A Common Stock), in exchange for a $2 subordinated debenture, maturing
August 1, 2005, with 6% interest, payable semi-annually. In response,
278, 328 shares were tendered and accepted for payment. The tender offer
closed, as provided in the Schedule TO and the Offer documents presented
to all Common Stock shareholders, on July 31, 2000. (A second and final
amendment to the Schedule TO, reporting the results of the tender offer,
was filed with the S.E.C. on August 1, 2000.)
The Company's Common Stock is traded on the NASDAQ National Market.
Because, for some time (a) the Common Stock has traded at less than $1.00
per share, and (b) the total market value of shares available for public
trading has been below $5,000,000, NASDAQ notified the Company that its
stock is to be de-listed. However, the Company requested a hearing and,
at least pending the hearing, and determination of the Company's appeal,
the Common Stock will continue 'on' NASDAQ. The range of high and low
sales prices of the Common Stock during each quarter of its 2000 and 1999
fiscal years was as follows:
Quarter Ended 2000 1999
February 29 1.75-1.12 2.125 - 1.125
May 31 1.50-0.87 1.5 - 1.063
August 31 1.28-1.00 1.781 - 1.156
November 30 1.06-0.59 2.031 - 1.25
The high and low prices for the Company's Common Stock, on
February 22, 2001 were $.81 and $.63 per share.
The Company's only 'sales' of unregistered securities were represented by
its issuance, in consequence of the above described tender offer and Schedule
TO, of the $2, 5-year promissory notes, 6% interest, subject of the offer's $2
subordinated debenture. (Those securities are unregistered pursuant to an
exemption from registration requirements. In any event, and in addition to
the form denominated by the S.E.C. as Schedule TO, with the Schedule TO
information, the following documents subject of the tender offer were filed
with the S.E.C., prior to commencement of the offering: A Trust Indenture, a
form of the eventually-issued Promissory Notes, and the Offering Document that
was thereafter transmitted to Common Stock shareholders.)
8
As at February 22, 2001, there were approximately 230 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 1,000 additional shareholders.)
The Company has never paid any dividend, and does not expect to pay any
dividend in the foreseeable future.
9
Item 6. SELECTED FINANCIAL DATA
Year Ended November 30,
2000 1999 1998 1997 1996
Statement of Income
Sales $38,451,980 $39,028,936 $41,083,974 $ 37,708,922 $39,469,098
Other income 186,284 285,469 318,296 293,953 235,925
38,638,264 39,314,405 41,402,270 38,002,875 39,705,023
Costs and Expenses
(excluding special charge) 38,120,685 38,500,390 38,570,096 34,730,052 37,790,397
Income Before Special Charge
and Provision for
Income Taxes 517,579 814,015 2,832,174 3,272,823 1,914,626
Special Charge ( 1,500,000) - - - -
Net (Loss) Income from
Continuing Operations ( 654,510) 512,504 1,667,973 2,031,494 1,051,434
(Loss) Income from
Discontinued Operations - ( 803,603) - - -
Net Income (Loss) ( 654,510)( 291,099) 1,667,973 2,031,494 1,051,334
Earnings Per Share:
Basic ($ .09)($ .04)$ .23 $ .28 $ .15
Diluted ($ .09)($ .04)$ .21 $ .25 $ .13
Weighted Average Number
of Shares Outstanding 7,153,013 7,174,203 7,243,956 7,205,904 7,120,099
Weighted Average Number
of Shares and Common Stock
Equivalents Outstanding 7,153,013 7,660,796 8,075,169 8,108,482 7,989,383
Balance Sheet Data:
As At November 30,
2000 1999 1998 1997 1996
Working Capital $12,249,375 $12,291,890 $12,067,263 $11,331,810 $ 9,367,639
Total Assets 20,312,056 21,494,987 24,010,136 19,224,291 17,038,752
Total Liabilities 6,345,508 6,328,905 8,410,687 5,139,769 4,983,870
Total Stockholders' Equity 13,966,548 15,166,082 15,599,449 14,084,522 12,054,882
10
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, 2000, the Company had paid or accrued $7,451,454 in
royalty payments.
Comparison of Results for Fiscal Years 2000 and 1999
The Company's revenues decreased from $39,314,405 in fiscal 1999 to
$38,638,264 in fiscal 2000, primarily due to the discontinuance of most of its
FCA subsidiary's product line.
Gross profit margins were 62.8% as compared to 61.3% in the prior year.
Operations were similar to prior years with the following exceptions.
The Federal Drug Administration issued a press release advising that a
PPA (phenylpropanolamine) ingredient could be harmful although it has been sold
in the market for 51 years in a variety of well known products for decongestion
and appetite suppression (Robitussin, Dimetapp, Dexatrim, Alka Seltzer
decongestant, etc.). The Company's Mega 16 diet products contained this
ingredient.
The Company has taken deductions for an aggregate of approximately
$1,500,000 in the fourth quarter for the costs associated with the PPA
receivables, future returns, and inventory destruction. The Company has
advised its accounts that it would accept returns. The FDA is being asked to
review its decision by the Non-Prescription Drug Manufacturers Association.
Revenues have been reduced by approximately $1,250,000 due to actual and
estimated returns with a corresponding reduction in receivables. Year-end
inventory was reduced by approximately $250,000 consisting of PPA finished
goods and componentry still on hand at November 30, 2000.
In addition, the Company has decided to increase its reserves against
receivables due to the pressure by our retail customers who have been seeking
more and more unauthorized deductions. Although we contest most of these
deductions, it might require, with certain of our important accounts, settling
some of our disputes in order to keep our relationship with them. We,
therefore, have decided to increase our accrual for allowances by $400,000.
The result of the items referred to above was an aggregate charge of
$1,900,000 against the Company's earnings from continuing operations, and
resulted in a net loss of $654,510 for fiscal 2000. In the prior year, the
Company took a charge of $803,603 from discontinued operations that resulted in
a loss of $291,099.
11
SG&A expenses decreased from $13,322,081 in fiscal 1999, to $12,557,064
in fiscal 2000, primarily due to the discontinuance of its FCA subsidiary.
Advertising costs increased from approximately 24% of net sales, to
approximately 27% of net sales, primarily due to the increase in the Company's
Coop advertising and an additional promotional allowances of $400,000 accrued
for deductions claimed by key customers. Research and development expenses were
substantially similar to the prior year ($555,462 vs. $581,340). Bad debt
expense ($249,279 vs. $115,569) would also have been similar to the prior year
if not for one large writeoff of $90,000 from a foreign account.
In 1999, 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 almost all of the marketing of its
product line. However, in 2000, after noting that there was still demand for
the Cherry Vanilla and Cloud Dance perfumes, the Company decided to retain
those product lines and purchased the trademarks owned by Shiara Holdings, Inc.
Therefore, in accordance with EITF 90-16, certain prior year amounts have been
reclassified to conform to the 2000 presentation.
Comparison of Results for Fiscal Years 1999 and 1998
The Company's revenues decreased from $41,083,974 in fiscal 1998 to
$39,028,936 in fiscal 1999 due primarily to the decrease in its sales of its
Nutra 60 line, which it has discontinued marketing, and a decrease in its sales
of perfume products of its discontinued FCA subsidiary. The Company adopted a
plan to discontinue operations of its 80% owned subsidiary, Fragrance
Corporation of America, Ltd. (FCA) and, accordingly, reflected a loss from the
discontinued operations of $803,603.
Gross profit margins were 61.3% as compared to prior year's gross profit
margins of 62.7%. Income before taxes decreased from $2,832,174 to $814,015.
The decrease was attributable to the decrease in approximately $2,000,000 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
advertising and cooperative promotions of approximately $400,000.
Research and development expenses were substantially similar to the prior
year ($581,360 vs $562,708); Bad debt expense decreased to $115,569 from
$201,630 due to the fact that the Company had the expense of setting up an
initial reserve on the receivables of its FCA subsidiary in 1998..
Net income from continuing operations was $512,504 as compared to
$1,667,973. A loss of $803,603 from discontinuing operations caused a net
loss of $291,099 in fiscal 1999 as compared to a net profit of $1,667,973 in
fiscal 1998.
12
Liquidity and Capital Resources
As at November 30, 2000, the Company had working capital of $12,249,375
as compared to $12,291,890 at November 30, 1999. The ratio of total current
assets to current liabilities was 3.1 to 1 as compared to a ratio of 2.9 to 1
for the prior year. Stockholders' equity decreased to $13,966,548 from
$15,166,082 due to the loss sustained for the year as well as the repurchase of
approximately 300,000 shares of the Company's stock through the issuance of a
debenture and to a lesser degree cash purchases.
The Company's cash position at year end decreased to $804,508 from
$807,360 as at November 30, 1999. The minor decrease was mostly a net result
of the reduction in inventory ($.5 million) and accounts receivable ($1
million) offset by the Company utilizing approximately $.3 million in the
acquisition of property and equipment, $.5 million for intangible assets, $.5
million to reduce payables.
Inventories ($5,735,427 vs. $6,235,270) were down $499,843 and accounts
receivable ($6,329,755 vs. $7,371,532) decreased $1,041,777. Current
liabilities ($5,788,852 vs. $6,328,905) decreased by $540,053.
As of November 30, 2000, the Company was utilizing $1,500,000 of the
funds available under its $7,000,000 credit line. The Company has issued a
security agreement in connection with the bank financing.
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
indications 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.
13
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 $3.4 million portfolio of investments
(approximate, as at Nov. 30, 2000) 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 transactions 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, 2000 and 1999:
Three Months Ended
Fiscal 2000 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales $8,581,108 $11,955,894 $9,876,439 $8,038,539
Total Revenue 8,643,309 12,026,517 9,962,647 8,005,791
Cost of Products Sold 3,704,031 4,191,877 3,499,660 2,904,360
Net Income(Loss) ( 206,122) 750,806 59,034 ( 1,258,228)
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Earnings Per Share:
Continuing Operations (.03) (.03) .10 .10 .02 .02 (.18) (.18)
Discontinued Operations - - - - (.01)(.01) - -
Net (.03) (.03) .10 .10 .01 .01 (.19) (.19)
Three Months Ended
Fiscal 1999 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales $9,745,760 $11,320,784 $8,577,549 $9,384,843
Total Revenue 9,786,738 11,363,885 8,680,172 9,483,610
Cost of Products Sold 4,015,751 4,471,932 3,542,260 3,066,028
Income from Continuing
Operations 71,661 246,015 ( 353,564) 548,392
Income (Loss) from
Discontinued
Operations - - ( 803,603) -
Net Income 71,661 246,015 ( 1,157,167) 548,392
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Earnings Per Share:
Continuing Operations .01 .01 .03 .03 .05 .05 .08 .07
Discontinued Operations - - - - (.11) (.11) - -
Net .01 .01 .03 .03 (.16) (.16) .08 .07
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company did not change its accountants within the twenty-four months
prior to the date of the most recent financial statements (nor since), and had
no reported disagreement with its accountants on any matter of accounting
principles or practices.
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
John Bingman Treasurer 1986
Stanley Kreitman Director 1996
Jack Polak Director 1983
Rami G. Abada Director 1997
David Edell, age 69, 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 69, is the Company's Executive Vice President and
Corporate Secretary. He is also Chairman of the Board of Directors. Mr.
Berman is an attorney who has been engaged in the practice of law since 1955.
He received a Bachelor of Arts Degree (1953) and Bachelor of Laws Degree (1955)
from Cornell University, and is a member of the American Bar Association.
Dunnan Edell is the 45 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.
15
Drew Edell, the 43 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 49, received a Bachelor of Science degree from Farleigh
Dickenson University in 1973. He is a certified public accountant who
practiced with the New Jersey accounting firm of Zarrow, Zarrow & Klein from
1976 to 1986.
Jack Polak, age 88, has been a private investment consultant since April
1982, and holds a tax consultant certification in The Netherlands. He was a
director and member of the Audit and Compensation Committee of K.T.I.
Industries, Inc., from February 1995 until 1999, when K.T.I., a waste-to-energy
business, was 'taken over' by Casella Industries. Since March 2000, he has
been a director of Oakhurst Industries, a public company that owns an
automotive accessories distributor, a waste-to-energy tire facility, and a road
construction company.
Stanley Kreitman, age 69, 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.
Rami G. Abada, age 41, 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.
(Sidney Dworkin, who had been a director since 1985, passed away in
October, 2000.)
Item 11. EXECUTIVE COMPENSATION
i. Summary Compensation Table
The following table summarizes compensation earned in the 2000, 1999
and 1998 fiscal years by all of the executive officers whose fiscal 2000
compensation exceeded $100,000, including the Chief Executive Officer (the
Named Officers).
16
Annual Compensation Long-Term Compensation
Number
All of Shares
Other Covered Other
Name and Annual by Stock Long-Term
Principal Compen- Options Compen-
Position Year Salary Bonus sation(1) Granted(2) sation
David Edell, 2000 $425,372 $132,221 $12,552 - 0
President 1999 401,468 111,546 17,088 - 0
and Chief 1998 378,743 151,604 19,429 - 0
Executive
Officer
Ira. W. Berman,2000 $ 425,372(3) $132,221 $11,775 - 0
Secretary 1999 401,468(3) 111,546 16,666 - 0
and Executive 1998 378,743(3) 151,604 16,403 - 0
Vice President
Dunnan Edell, 2000 $218,076 $ 4,194 $ 2,723 - 0
Executive 1999 200,000 15,000 7,614 - 0
Vice President 1998 200,000 - 9,787 - 0
- - Sales
Drew Edell 2000 $175,000 $ 3,365 $ 577 - 0
Vice President 1999 150,000 12,000 1,468 - 0
Manufacturing 1998 150,000 - 2,508 - 0
- -------------------------
(1) Includes the personal-use value of Company-leased automobiles, the value of
Company-provided life insurance, and health insurance that is made available to
all employees, plus directors fees paid to Messrs. David Edell, Ira Berman and
Dunnan Edell.
(2) Information in respect of stock option plans appears below in the
sub-topic, Employment Contracts/Executive Compensation Program.
(3) Includes $99,396 paid to Ira W. Berman & Associates, P.C.
ii. Fiscal 2000 Option Grants and Option Exercises,
Year-End Option Valuation, Option Repricing
17
No new options were issued to any of the Named Officers in fiscal 2000.
The next table identifies 2000 fiscal-year option exercises by Named
Officers, and reports a valuation of their options.
Fiscal 2000 Aggregated Option Exercises
and November 30, 2000 Option Values
No options were exercised by any of the Named Officers in fiscal 2000.
Number of Number of Shares
Shares Covered by Un- Value of Unexercised
Acquired Value exercised Options In-the-Money Options
Exercise Realized at November 30, 2000 at November 30,2000(1)
David Edell - - 457,500 149,125
Ira W. Berman - - 502,000 172,750
Dunnan Edell - - 75,000 -
Drew Edell - - 75,000 -
---------------------
(1) Represents the difference between market price and the respective exercise
prices of options at November 30, 2000.
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 (1) 100,000 Aug. 1, 1997 $2.50 Nov. 3, 1998 1.50
Ira W. Berman (1) 100,000 Aug. 1, 1997 2.50 Nov. 3, 1998 1.50
Dunnan Edell (1) 50,000 Aug. 1, 1997 2.50 Nov. 3, 1998 1.50
Drew Edell (1) 50,000 Aug. 1, 1997 2.50 Nov. 3, 1998 1.50
Stanley Kreitman (1) 25,000 Aug. 1, 1997 2.50 Nov. 3, 1998 1.50
Sidney Dworkin (1) 25,000 Aug. 1, 1997 2.50 Nov. 3, 1998 1.50
Rami Abada (1) 25,000 Aug. 1, 1997 2.50 Nov. 3, 1998 1.50
Dunnan Edell (2) 25,000 Jun. 10, 1995 4.50 Jun. 10, 2000 1.50
Drew Edell (2) 25,000 Jun. 10, 1995 4.50 Jun. 10, 2000 1.50
- -------------------
18
(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.
(2) 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 common stock at the date of repricing was $1.10; and at
that date the original terms (5 years from June 10, 1995) were extended for an
additional 5 years. When the options were originally issued on June 10, 1995,
the market price of the Company's common stock was $3.
iii. Compensation of Directors
Each director was paid $2,000 per meeting for attendance of board
meetings in fiscal 2000 (without additional compensation for committee
meetings). No options were granted to any director.
The full Board of Directors met five times in fiscal 2000.
iv. Executive Compensation Principles;
Audit and Compensation Committee
The Company's Executive Compensation Program is based on guiding
principles designed to align executive compensation with Company values and
objectives, business strategy, management initiatives, and financial
performance. In applying these principles the Audit and Compensation Committee
of the Board of Directors, comprised of Ira W. Berman, Stanley Kreitman, Jack
Polak and Rami Abada, which met five times in fiscal 2000, has established a
program to:
Reward executives for long-term strategic management and the enhancement
of shareholder value.
Integrate compensation programs with both the Company's annual and
Long-term strategic planning.
Support a performance-oriented environment that rewards performance not
only with respect to Company goals but also Company performance as
compared to industry performance levels.
v. Employment Contracts/Compensation Program
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 performance, and
bonuses were awarded by the Committee in consideration of the Company's
performance during the 2000 fiscal year.
19
On March 17, 1994, the Board of Directors approved 10-year employment
contracts for David Edell and Ira Berman (with Mr. Edell and Mr. Berman
abstaining). Pursuant thereto, each 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.)
The 1994 Option Plan provides (as had the 1984 and 1986 plans) for the
granting of two (2) types of options: Incentive Stock Options and Nonqualified
Stock Options. The Incentive Stock Options (but not the Nonqualified Stock
Options) are intended to qualify as Incentive Stock Options as defined in
Section 422(a) of The Internal Revenue Code. The Plans are not qualified under
Section 401(a) of the Code, nor subject to the provisions of the Employee
Retirement Income Security Act of 1974.
Options may be granted under the Options Plans to employees (including
officers and directors who are also employees) and consultants of the Company,
provided, however, that Incentive Stock Options may not be granted to any
non-employee director or consultant.
Option plans are administered and interpreted by the Board of Directors.
(Where issuance to a Board member is under consideration, that member must
abstain.) The Board has the power, subject to plan provisions, to determine
the persons to whom and the dates on which options will be granted, the number
of shares subject to each option, the time or times during the term of each
when options may be exercised, and other terms. The Board has the power to
delegate administration to a Committee of not less than two (2) Board members,
each of whom must be disinterested within the meaning of Rule 16b-3 under the
Securities Exchange Act, and ineligible to participate in the option plan or in
any other stock purchase, option or appreciation right under plan of the
Company or any affiliate. Members of the Board receive no compensation for
their services in connection with the administration of option plans.
Option Plans permit the exercise of options for cash, other property
acceptable to the Board or pursuant to a deferred payment arrangement. The
1994 Plan specifically authorizes that payment may be made for stock issuable
upon exercise by tender of Common Stock of the Company; and the Executive
Committee is authorized to make loans to option exercisers to finance optionee
tax-consequences in respect of option exercise, but such loans must be
personally guaranteed and secured by the issued stock.
20
The maximum term of each option is ten (10) years. No option granted is
transferable by the optionee other than upon death.
Under the plans, options will terminate three (3) months after the
optionee ceases to be employed by the Company or a parent or subsidiary of the
Company unless (i) the termination of employment is due to such person's
permanent and total disability, in which case the option may, but need not,
provide that it may be exercised at any time within one (1) year of such
termination (to the extent the option was vested at the time of such
termination); or (ii) the optionee dies while employed by the Company or a
parent or subsidiary of the Company or within three (3) months after
termination of such employment, in which case the option may, but need not
provide that it may be exercised (to the extent the option was vested at the
time of the optionee's death) within eighteen (18) months of the optionee's
death by the person or persons to whom the rights under such option pass by
will or by the laws of descent or distribution; or (iii) the option by its
terms specifically provides otherwise.
The exercise price of all nonqualified stock options must be at least
equal to 85% of the fair market value of the underlying stock on the date of
grant. The exercise price of all Incentive Stock Options must be at least
equal to the fair market value of the underlying stock on the date of grant.
The aggregate fair market value of stock of the Company (determined at the
date of the option grant) for which any employee may be granted Incentive Stock
Options in any calendar year may not exceed $100,000, plus certain carryover
allowances. The exercise price of an Incentive Stock Option granted to any
participant who owns stock possessing more than ten (10%) of the voting rights
of the Company's outstanding capital stock must be at least 110% of the fair
market value on the date of grant and the maximum term may not exceed five (5)
years.
Consequences to the Company: There are no federal income tax consequences
to the Company by reason of the grant or exercise of an Incentive Stock Option.
As at November 30, 2000, 1,184,500 stock options, yet exercisable, to
purchase 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.
GRAPH
21
Cumulative Total Return*
11/95 11/96 11/97 11/98 11/99 11/00
CCA Industries, Inc. 100 161 165 96 98 50
DJ Equity Market 100 126 160 192 234 223
DJ Cosmetics/Personal 100 129 153 162 148 135
Care
- ---------------------
* $100 invested on November 30, 1995 in stock and indices, including
reinvestment of dividends.
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, 2001 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
All Shares Out-
Number of Option Standing/Assuming
Name and Address Shares Owned (1): Shares (1) Option Share Exercise (1)
Common
Stock Class A (2)
David Edell 269,535 484,615 457,500 10.84/16.48
c/o CCA Industries, Inc.
200 Murray Hill Parkway
East Rutherford, NJ 07073
Ira W. Berman 234,595 473,615 502,000 10.18/16.36
c/o CCA Industries, Inc.
Jack Polak 25,000 47,700 25,000 1.05/1.41
90 Park Avenue
New York, NY 10016
Rami G. Abada - - 25,000 -/.36
c/o CCA Industries, Inc.
Stanley Kreitman - - 25,000 -/.36
c/o CCA Industries, Inc.
Dunnan Edell 41,250 - 75,000 .59/1.67
c/o CCA Industries, Inc.
Drew Edell 51,250 - 75,000 .74/1.81
c/o CCA Industries, Inc.
John Bingman - - - -
c/o CCA Industries, Inc.
Officers and
Directors 621,630 1,005,930 - 23.46/34.81
as a group (8 persons)
22
_______________________
(1) The number of Option Shares represents the number of shares that could be
purchased by and upon exercise of unexercised options exercisable within 60
days and --the percentage ownership figure denominated Assuming Option Share
Exercise assumes, per person, that unexercised options have been exercised and,
thus, that subject shares have been purchased and are actually owned. In turn,
the assumed percentage ownership figure is measured, for each owner, as if each
had exercised such options, and purchased subject 'option shares,' and thus
increased total shares actually outstanding, but that no other option owner had
'exercised and purchased.'
(2) 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 and Polak are directors.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dunnan Edell (a director and officer), is indebted to the Company,
pursuant to its loan, in the principal sum of $21,495. The loan is secured by
a second mortgage upon real property, and carries interest at 1% over prime,
payable semi-annually.
23
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, 2000 and 1999, Consolidated Statements of Income for
the years ended November 30, 2000, 1999 and 1998, Consolidated Statements of
Shareholders' Equity for the years ended November 30, 2000, 1999 and 1998,
Consolidated Statements of Cash Flows for the years ended November 30, 2000,
1999 and 1998, Notes to Consolidated Financial Statements.
Financial Statement Schedules:
Schedule II: Valuation Accounts; Years Ended Nov. 30, 2000, 1999 and
1998
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).
(4) The Indenture (and the Promissory note exhibited therewith) defining the
rights of former shareholders who tendered Common Stock to the Company
for its $2 per share, 5 year, 6% debenture, is filed by reference to the
filing of such documents with the Schedule To filed with the S.E.C., on
June 5, 2001.
(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 (included in Item 14, Financial
Statements)
No Form 8-K was filed during the 2000 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. Moreover, exhibits may be inspected and copied at prescribed
rates at the Commission's public reference facilities at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549; Jacob K. Javits Federal Building,
26 Federal Plaza, New York, New York 10278; and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials may also be obtained by mail at prescribed rates from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and one is available at the Commission's Internet website
(http://www.sec.gov).
24
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 27, 2001
s/ Ira W. Berman Chairman of the Board
IRA W. BERMAN of Directors, Executive
Vice President,
Secretary February 27, 2001
s/ Dunnan Edell Vice President, February 27, 2001
DUNNAN EDELL Director
s/ Stanley Kreitman Director February 27, 2001
STANLEY KREITMAN
s/ Rami Abada Director February 27, 2001
RAMI ABADA
s/ Jack Polak Director February 27, 2001
JACK POLAK
25
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000 AND 1999
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. . . . . . . . . . . . . 9-31
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, 2000 and 1999, 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,
2000. These consolidated financial statements are the responsibility of
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 as-
sessing 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, 2000 and 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended November 30, 2000, in conformity with
accounting principles generally accepted in the United States of America.
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 a required part of the
basic consolidated financial statements. The supplemental schedules have been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, is fairly stated, in all
material respects in relation to the basic consolidated financial statements
taken as a whole.
SHEFT KAHN & COMPANY LLP
CERTIFIED PUBLIC ACCOUNTANTS
February 13, 2001
Jericho, New York
-1-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
(Note 7)
November 30,
2000 1999
Current Assets
Cash and cash equivalents (Note 15) $ 804,508 $ 807,360
Short-term investments and marketable
securities (Notes 2 and 6) 2,536,344 1,490,469
Accounts receivable, net of allowances of
$1,379,424 and $1,183,576, respectively 6,329,755 7,371,532
Inventories (Notes 2 and 3) 5,735,427 6,235,270
Prepaid expenses and sundry receivables 324,980 822,816
Prepaid income taxes and refunds due 777,691 714,835
Deferred income taxes (Note 8) 1,529,522 1,178,513
Total Current Assets 18,038,227 18,620,795
Property and Equipment, net of accumulated
depreciation and amortization
(Notes 2 and 4) 675,790 739,728
Intangible Assets, net of accumulated
amortization (Notes 2 and 5) 641,410 169,756
Other Assets
Marketable securities (Notes 2 and 6) 845,101 1,809,770
Due from officers - Non-current (Note 14) 21,485 57,918
Deferred income taxes (Note 8) 34,517 42,031
Other 55,526 54,989
Total Other Assets 956,629 1,964,708
Total Assets $20,312,056 $21,494,987
See Notes to Consolidated Financial Statements.
-2-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
November 30,
2000 1999
Current Liabilities
Notes payable (Note 7) $ 1,500,000 $ 1,400,000
Accounts payable and accrued
liabilities (Note 10) 4,288,852 4,928,905
Total Current Liabilities 5,788,852 6,328,905
Subordinated Debentures (Due August 1,
2005) (Note 7) 556,656 -
Commitments and Contingencies
(Note 12)
Shareholders' Equity
Common stock, $.01 par; authorized
15,000,000 shares; issued and
outstanding 6,042,823 and 6,321,151
shares, respectively 60,428 63,212
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 3,836,296 4,453,478
Retained earnings 10,300,693 10,955,203
Accumulated other comprehensive income
(Note 6) ( 64,846) ( 150,854)
14,142,780 15,331,248
Less: Treasury Stock (107,496 and
95,996 shares at November 30,
2000 and November 30, 1999,
respectively) 176,232 165,166
Total Shareholders' Equity 13,966,548 15,166,082
Total Liabilities and Shareholders' Equity $20,312,056 $21,494,987
See Notes to Consolidated Financial Statements.
-3-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Years Ended November 30,
2000 1999 1998
Revenues
Sales of health and beauty
aid products, net $38,451,980 $39,028,936 $41,083,974
Other income 186,284 285,469 318,296
38,638,264 39,314,405 41,402,270
Costs and Expenses
Cost of sales 14,299,928 15,095,971 15,321,576
Selling, general and
administrative expenses 12,557,064 13,322,081 13,579,182
Advertising, cooperative and
promotions 10,299,475 9,242,767 8,882,106
Research and development 555,462 581,340 562,708
Provision for doubtful accounts 249,279 115,569 201,630
Interest expense 159,477 142,662 22,894
38,120,685 38,500,390 38,570,096
Income before Special Charge
and Provision for
Income Taxes 517,579 814,015 2,832,174
Special Charge (Note 16) ( 1,500,000) - -
(Loss) Income before Provision
for Income Taxes ( 982,421) 814,015 2,832,174
Provision (Benefit) for Income Tax( 327,911) 301,511 1,164,201
Net (Loss) Income from
Continuing Operations ( 654,510) 512,504 1,667,973
Discontinued Operations:
(Loss) on abandonment of
intangibles (net of income
taxes (benefit) of
($514,978) in 1999) - ( 803,603) -
(Loss) Income from Discontinued
Operations - ( 803,603) -
Net (Loss) Income ($ 654,510) ($ 291,099) $ 1,667,973
Weighted Average Shares
Outstanding
Basic 7,153,013 7,174,203 7,243,956
Diluted 7,153,013 7,660,796 8,075,169
Earnings Per Common Share
(Note 2): Basic Diluted Basic Diluted Basic Diluted
Continuing Operations ($.09) ($.09) $ .07 $ .07 $ .23 $ .21
Discontinued Operations $ - ($ - )($ .11) ($ .11) $ - $ -
(Loss) on Abandoned
Intangibles $ - $ - ($ .04) ($ .04) $ - $ -
Net ($.09) ($.09)($ .04) ($ .04) $ .23 $ .21
See Notes to Consolidated Financial Statements.
-4-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended November 30,
2000 1999 1998
Net (Loss) Income ($ 654,510)($ 291,099) $ 1,667,973
Other Comprehensive Income
Unrealized holding gain (loss)
on investments 86,008 ( 132,511) ( 15,606)
Provision (Benefit) for Taxes 13,742 ( 50,166) ( 6,559)
Other Comprehensive Income
(Loss) - Net 72,266 ( 82,345) ( 9,047)
Comprehensive (Loss)
Income ($ 582,244)($ 373,444) $1,658,926
Earnings (Loss) Per Share:
Basic ($.08) ($.05) $.23
Diluted ($.08) ($.05) $.20
See Notes to Consolidated Financial Statements.
-5-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998
Unrealized
Additional Gain (Loss)on
Common Stock Paid-In Retained Marketable Treasury
Shares Amount Capital Earnings Securities Stock
Balance - December 1, 1997 7,213,551 $72,136 $4,454,763 $ 9,578,329 ($ 2,737) ($ 17,969)
Issuance of common stock 53,530 535 ( 535) - - -
Net income for the year - - - 1,667,973 - -
Unrealized (loss) on marketable
securities - - - - ( 15,606) -
Purchase of 82,019 shares of
treasury stock - - - - - ( 137,640)
Balance - November 30, 1998 7,267,081 72,671 4,454,228 11,246,302 ( 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)
Issuance of debentures for acquisition
of 278,328 shares of common stock - - - - - ( 619,965)
Purchase of 11,500 shares of
treasury stock - - - - - ( 11,066)
Net income for the year - - - ( 654,510) - -
Unrealized (loss) on marketable
securities - - - - 86,008 -
Retirement of treasury stock ( 278,328) ( 2,783) ( 617,182) - - ( 619,965)
Balance - November 30, 2000 7,063,753 $70,638 $3,836,296 $10,300,693 ($ 64,846) ($176,232)
See Notes to Consolidated Financial Statements.
-6-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
2000 1999 1998
Cash Flows from Operating Activities:
Net (loss) income ($ 654,510)($ 291,099) $1,667,974
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 372,881 344,198 342,131
Amortization of bond discount - 1,884 1,884
(Gain) loss on sale of securities 119,877 ( 10,914) 7,635
(Increase) decrease in deferred
income taxes ( 343,495)( 118,366)( 291,878)
Loss on abandonment of intangibles - 418,612 -
Decrease (increase) decrease in
accounts receivable 1,041,777 506,468 ( 3,946,727)
Decrease (increase) in inventory 499,843 2,137,022 ( 3,044,784)
(Increase) decrease in prepaid
expenses and sundry receivables 497,836 ( 505,698)( 141,278)
(Increase) in prepaid income taxes
and refunds due ( 62,856)( 642,322) -
(Decrease) increase in accounts
payable and accrued liabilities ( 640,053) ( 1,331,062) 1,206,302
(Decrease) increase in income taxes
payable - ( 600,720) 514,616
(Increase) decrease in miscellaneous
assets ( 537)( 100)( 2,277)
Decrease in net assets from
discontinued operations - 752,729 -
Net Cash Provided by (Used in)
Operating Activities 830,763 660,632 ( 3,686,402)
Cash Flows from Investing Activities:
Acquisition of property and
equipment ( 283,863)( 157,047)( 699,349)
Acquisition of intangible assets ( 496,734)( 468,274)( 105,652)
Purchase of available for sale
securities (2,682,631) ( 1,744,204)( 2,298,993)
Proceeds from sale of available for
sales securities 2,567,555 2,126,189 2,268,851
Proceeds of money due from
officers 36,433 7,332 1,500
Purchase of treasury stock ( 74,375)( 9,557)( 137,640)
Net Cash (Used in) Investing
Activities ( 933,615)( 245,561)( 971,283)
Cash Flows from Financing Activities:
Proceeds from borrowings 3,900,000 4,050,000 1,950,000
Payment on debt (3,800,000) ( 4,200,000)( 400,000)
Proceeds from issuance of stock - - 200
Net Cash Provided by (Used in)
Financing Activities 100,000 ( 150,000) 1,550,200
Net (Decrease) Increase In Cash ( 2,852) 265,071 ( 3,107,485)
Cash at Beginning of Year 807,360 542,289 3,649,774
Cash at End of Year $ 804,508 $ 807,360 $ 542,289
See Notes to Consolidated Financial Statements.
-7-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
2000 1999 1998
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest $161,895 $ 119,664 $ 14,589
Income taxes 97,629 1,152,883 1,013,975
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. As of the third quarter of 2000,
virtually all residual costs of discontinuing the operations had been
recognized.
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 the discontinued consolidated subsidiary is no
longer 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 1998 and 1999, two officers/shareholders exercised in the
aggregate 70,000 and 100,000 options, respectively, in exchange for
previously issued common stock of 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)
Statements of Cash Flows Disclosure (Continued):
During fiscal 2000, the Company repurchased 278,328 shares of common
stock in exchange for the issuance of subordinated debentures totaling
$556,656. The total cost of the acquisition (including associated costs
incurred of $63,309) was charged to capital upon its retirement.
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.
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.
Revenue Recognition:
The Company recognizes sales at the time of shipment. 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
In 1999, 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 almost all of
the marketing of its product line. However, in 2000, after noting that
there was still demand for the "Cherry Vanilla" and "Cloud Dance"
perfumes, the Company decided to retain those product lines and
purchased the trademarks owned by Shiara Holdings, Inc. Therefore, in
accordance with EITF 90-16, certain prior year amounts have been
reclassified to conform to the 2000 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, 2000 and 1999, inventories consist of the following:
2000 1999
Raw materials $3,667,757 $3,509,103
Finished goods 2,067,670 2,726,167
$5,735,427 $6,235,270
At November 30, 2000 and 1999, the Company had a reserve for obsolete
inventory of $1,050,714 and $1,056,789 respectively.
NOTE 4 - PROPERTY AND EQUIPMENT
At November 30, 2000 and 1999, property and equipment consisted of the
following:
2000 1999
Machinery and equipment $ 323,233 $ 299,528
Furniture and equipment 922,386 742,547
Transportation equipment 10,918 10,918
Tools, dies, and masters 1,972,830 1,914,684
Leasehold improvements 169,820 147,647
3,399,187 3,115,324
Less: Accumulated depreciation
and amortization 2,723,397 2,375,596
Property and Equipment - Net $ 675,790 $ 739,728
Depreciation and amortization expense for the years ended November 30,
2000, 1999 and 1998 amounted to $347,801, $283,982 and $318,715,
respectively.
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following at November 30, 2000 and
1999:
2000 1999
Patents and trademarks $738,330 $241,596
Less: Accumulated amortization 96,920 71,840
Intangible Assets - Net $641,410 $169,756
Amortization expense for the years ended November 30, 2000, 1999 and
1998 amounted to $25,080, $60,216 ($49,662 from discontinued operations)
and $23,417 ($10,087 from discontinued operations), respectively.
On October 26, 2000, the Company acquired certain trademarks. See Note
12.
-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, 2000 and 1999 were as follows:
2000 1999
Current: COST MARKET COST MARKET
Corporate obligations $ 536,000 $ 534,590 $ 745,044 $ 748,894
Government obligations
(including mortgage
backed securities) 1,998,756 2,001,754 743,777 741,575
Total 2,534,756 2,536,344 1,488,821 1,490,469
Non-Current:
Corporate obligations - - 536,000 532,891
Government obli-
gations 150,510 146,723 399,534 390,517
Preferred stock 612,561 586,448 612,561 571,535
Other equity
investments 148,465 111,930 414,177 314,827
Total 911,536 845,101 1,962,272 1,809,770
Total $3,446,292 $3,381,445 $3,451,093 $3,300,239
The market value at November 30, 2000 was $3,381,445 as compared to
$3,300,239 at November 30, 1999. The gross unrealized gains and losses as
at November 30, 2000 and 1999 were $1,588 and ($66,435) for 2000 and $1,648
and ($152,502) for 1999, respectively. The cost and market values of the
investments at November 30, 2000 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
Title of Each Issue Date Rate Notes Each Issue Sheet Date In Balance Sheet
CORPORATE OBLIGATIONS:
GMAC Smartnotes 10/15/01 5.950% 536,000 $536,000 $534,590 $534,590
-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
Title of Each Issue Date Rate Notes Each Issue Sheet Date in Balance Sheet
GOVERNMENT OBLIGATIONS:
FHLMC 1628-N 12/15/2023 6.500% 50,000 $ 32,498 $ 32,119 $ 32,119
FNMA 93-224-D 11/25/2023 6.500 104,000 91,182 87,436 87,436
FNMA 92-2-N 1/25/2024 6.500 52,000 26,830 27,168 27,168
US Treasury Note 1/31/01 4.500 250,000 247,891 249,220 249,220
US Treasury Note 5/15/01 5.625 200,000 202,075 199,500 199,500
US Treasury Note 5/31/01 5.250 250,000 251,615 248,828 248,828
US Treasury Note 9/30/01 5.625 250,000 249,767 248,907 248,907
US Treasury Bill 12/21/00 5.940 189,000 186,323 188,301 188,301
US Treasury Bill 2/1/01 6.140 104,000 102,461 102,902 102,902
US Treasury Bill 2/8/01 6.150 274,000 269,979 270,811 270,811
US Treasury Bill 1/4/01 6.075 250,000 246,220 248,535 248,535
US Treasury Bill 4/5/01 6.040 250,000 242,425 244,750 244,750
2,149,266 2,148,477 2,148,477
-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
Title of Each Issue Date Rate Shares Stock Sheet Date in 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 3/31/01 8.00% 13,600 362,561 347,698 347,698
Merrill Lynch Trust 9/30/08 7.28% 6,000 150,000 138,750 138,750
Other Equity Investments:
Dreyfus Premier Limited
Term High Income CL B 148,465 111,930 111,930
761,026 698,378 698,378
$3,446,292 $3,381,445 $3,381,445
-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, 2000, 1999 and 1998, available-for-
sale securities were liquidated and proceeds amounting to $2,567,555,
2,129,957 and $2,268,851 were received, with resultant realized gains
(losses) totaling ($119,877), $10,914 and $7,635, respectively. Cost of
available-for-sale securities includes unamortized premium or discount.
NOTE 7 - NOTES PAYABLE AND SUBORDINATED DEBENTURES
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, 2000 and 1999, the Company was utilizing
$1,500,000 and $1,400,000, respectively, of its available line. The
interest rate charged at November 30, 2000 was 8 1/2%.
On August 1, 2000, the Company repurchased (pursuant to a tender offer)
278,328 shares of its outstanding common stock by issuing subordinated
debentures equal to $2 per share, which accrue interest at 6% and are due
to mature on August 1, 2005. The interest is payable semi-annually.
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, 2000 and 1999, respectively, the Company has temporary
differences arising from the following:
November 30, 2000
Classified As
Deferred Short- Long-
Type Amount Tax Term Term
Asset (Liability)
Depreciation $ 86,741 $ 34,517 $ - $34,517
Reserve for bad debts 323,257 128,634 128,634 -
Reserve for returns 1,056,167 420,280 420,280 -
Reserve for obsolete
inventory 1,050,714 418,110 418,110 -
Section 263A costs 235,609 93,756 93,756 -
Charitable contributions 254,492 101,270 101,270 -
Deferred tax benefit
from discontinued
operations 1,204,950 367,472 367,472 -
Net deferred income
tax $1,564,039 $1,529,522 $34,517
-17-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
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
Income tax expense (benefit) is made up of the following components:
November 30, 2000
State &
Federal Local Total
Current tax benefit ($229,509) ($35,097) ($264,606)
Deferred tax benefit ( 54,416) ( 8,889) ( 63,305)
($283,925) ($43,986) ($327,911)
-18-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
November 30, 1999
State &
Federal Local Total
Current tax expense $438,605 $131,664 $570,269
Deferred tax expense ( 237,345) ( 31,413) ( 268,758)
$201,260 $100,251 $301,511
November 30, 1998
State &
Federal Local Total
Current tax expense $1,136,235 $348,574 $1,484,809
Tax credits ( 28,730) - ( 28,730)
Deferred tax expense ( 228,328) ( 63,550) ( 291,878)
$ 879,177 $285,024 $1,164,201
Prepaid income taxes and refund due are made up of the following
components:
State &
Federal Local Total
November 30, 2000 $599,564 $178,127 $777,691
November 30, 1999 $666,524 $ 48,311 $714,835
-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, 2000 is as follows:
2000 1999 1998
Percent Percent Percent
Of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
Income tax expense at
statutory rate ($334,023) (34.00%) $276,765 34.00% $ 962,939 34.00%
Increases (decreases) in taxes
resulting from:
State income taxes, net of federal
income tax benefit ( 58,355) ( 5.94) 51,333 6.31 179,068 6.32
Non-deductible expenses and
other adjustments 64,467 6.56 ( 26,587) ( 3.27 ) 50,924 1.79
Utilization of tax credits - - - - ( 28,730) ( 1.00 )
Income tax expense at
effective rate ($327,911) (33.38%) $301,511 37.04% $1,164,201 41.11%
-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, 2000:
Number Per Share
Of Option
Date Granted Shares Price Expiration
December 1987 17,000 .50 2002
January 1988 342,500 .55 2002
March 1989 (1) 200,000 .75 2004
January 1990 (2) 200,000 .63 2005
June 1995 (3) 50,000 1.50(4) 2005
August 1997 375,000 1.50(5) 2007
1,184,500
(1) These options were originally scheduled to expire March 1999 but
were extended for an additional five years.
(2) These options were originally scheduled to expire January 2000 but
were extended for an additional five years.
(3) These options were originally scheduled to expire June 2000 but were
extended for an additional five years.
(4) These stock options were repriced from $4.50 to $1.50 in June 0f
2000 when they were extended.
(5) These stock options were repriced from $2.50 on November 3, 1998.
The following summarizes the activity of shares under option for the two
years ended November 30, 2000:
Number Per Share
Of Option
Shares Price Value
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
Granted - - -
Repriced - ( 3.00) ( 150,000)
Exercised - - -
Expired - - -
Cancelled - - -
Balance - November 30,
2000 1,184,500 $.50 - $1.50 $1,109,371
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 $.8 million, $1.3 million
and $1.2 million in 2000, 1999 and 1998, 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:
2000 1999 1998
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
Net income ($654,510) ($1,447,726) ($291,099) ($1,606,582) $1,660,375 $471,352
Diluted earnings per share ($.09) ($.20) ($.04) ($.22) $.21 $.06
The above pro forma amounts, for purposes of SFAS No. 123, reflect the portion of the estimated fair
value of awards earned in 2000, 1999 and 1998. 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.
-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
2000 1999 1998
Average expected life (years) 3.76 3.78 4.64
Expected volatility 193.18% 213.55% 214.39%
Risk-free interest rate 6.3% 5.6% 5.6%
Weighted average fair value
at grant - Exercise price
equal to market price $.66 $1.20 $1.29
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,
2000 1999
(In Thousands)
Media advertising $ * $ 560
Coop advertising 242 *
Accrued returns 983 630
$1,225 $1,190
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,
2000 1999 1998
Interest income $222,459 $213,335 $286,805
Dividend income 42,461 50,657 16,963
Realized gain on sale of
available-for-sale
securities 6,262 11,211 7,635
Realized (loss) on sale of
available-for-sale
securities ( 126,139) ( 297) -
Royalty income 37,500 - -
Miscellaneous 3,741 10,563 6,893
$186,284 $285,469 $318,296
-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 $267,684 plus CAM charges. This
lease on the Company's premises expires March 31, 2005, but has a
renewal option for an additional five years. The Company leases an
additional 51,000 square feet of warehouse space in Paterson, NJ on a
net lease basis at a rental of approximately $13,000 per month, which
matures May 31, 2001. The Company extended the lease through May 31,
2002 at a monthly cost of approximately $15,000.
The Company has entered into various operating leases with expiration
dates ranging through October 2003.
Rent expense for the years ended November 30, 2000, 1999 and 1998 was
$498,227, $449,051 and $588,083, 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,
2001 $ 411,964
2002 299,191
2003 278,272
2004 267,684
2005 90,428
Total $1,347,539
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, 2000, $7,451,454 of royalties have been paid or accrued and only
$1,548,546 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. (FCA). 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 was 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.
On October 26, 2000, the Company purchased the Trademarks of Shiara
Holding, Inc. for $450,000. Effectively, any future royalties which
would have been payable under the FCA License agreements above were
cancelled. See Note 5.
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 until a total of $1 million of royalties have been paid and
1%, thereafter. If minimum royalties of $30,000 do not result, the
license may be terminated unless the Company chooses to pay the
"difference" between realized royalties and $30,000.
-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.
The Company is a defendant in an action pending in the United States
District Court for the District of New Jersey. The suit claims damages
of $450,000 for the alleged sale of defective merchandise for which the
Company was paid approximately $170,000. Outside counsel has advised
that at this stage in the proceedings they cannot offer an opinion as
to the probable outcome. The Company believes the suit is without merit
and intends to vigorously defend its position.
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 $10,500 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.
-27-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $21,485 from its Vice President in
charge of Sales; which was made to aid him in obtaining a first mortgage
on his home. The loan is secured by a second mortgage and carries an
interest rate at 1% over prime. Interest is payable semi-annually. The
Vice President is the son of Mr. David Edell, the President of the
Company.
NOTE 15 - CONCENTRATION OF RISK
All of the Company's products are sold to major drug and food chains
merchandisers, and wholesale beauty-aids distributors throughout the
United States and Canada.
During the years ended November 30, 2000, 1999 and 1998, certain
customers each accounted for more than 5% of the Company's net sales,
as follows:
Customer 2000 1999 1998
A 26% 27% 29%
B 13 11 9
C 6 5 7
D 6 6 6
E 6 5 5
F 6 8 7
Foreign Sales 2.50% 4.50% 5.00%
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, 2000, 1999 and 1998, certain products
accounted for more than 10% of the Company's net sales as follows:
Product 2000 1999 1998
Plus+White 36% 36% 22%
Sudden Change 19 20 17
Hair-Off * 10 *
NutraNail 14 10 *
Bikini Zone 10 * *
* under 10%
-28-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - CONCENTRATION OF RISK
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.
NOTE 16 - SPECIAL CHARGE
During the fourth quarter of 2000, the Company contacted its accounts
and instructed them to return its "Permathene" and "Mega 16" products,
which contain phenylpropanolimine ("PPA"), as a result of a general FDA
health-warning concerning PPA (a key ingredient in numerous cold-
remedies and appetite suppressants, which had been "on the market" for
some 50 years). The Company's revenues from sales of those now
discontinued products, in fiscal 2000, were approximately $2,500,000
(6.5% of sales).
In conjunction with the recall, the Company expects to incur $1,500,000
in costs ($255,000 for inventory on hand and $1,245,000 for returns,
allowances, and other costs related to the recall. As of November 30,
2000, there had been approximately $150,000 in returns and the Company
provided for approximately another $1,100,000 of anticipated costs.
-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. 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.
However, in 2000, after noting that there was still a demand for the
"Cherry Vanilla and "Cloud Dance" perfumes the Company decided to retain
those product lines and purchased the trademarks owned by Shiara
Holdings, Inc. Therefore, in accordance with EITF 90-16, the only items
presented as a "Loss from Discontinued Operations" are those assets
which were abandoned or deemed worthless. (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.)
-30-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - 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,
2000 1999 1998
Net (loss) income available for common
shareholders, basic and diluted ($654,510) ($291,099) $1,660,375
Weighted average common stock
outstanding- Basic 7,153,013 7,174,203 7,243,956
Net effect of dilutive stock options * 486,593 831,213
Weighted average common stock and
common stock equivalents - Diluted 7,153,013 7,660,796 8,075,169
Basic earnings per share ($.09) ($.04) $ .23
Diluted earnings per share ($.09) ($.04) $ .21
*Antidilutive
-31-
SCHEDULE II
CCA INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998
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, 2000:
Allowance for doubtful accounts $ 327,919 $ 249,279 $ 253,941 $ 323,257
Reserve for returns $ 855,657 $4,758,078 $4,557,568 $1,056,167
Reserve for inventory
obsolescence $1,056,709 $ 839,702 $ 845,777 $1,050,714
Year ended November 30, 1999:
Allowance for doubtful accounts $ 273,982 $ 115,569 $ 61,632 $ 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