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, 2001 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. [ ].
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 ($1.63), on February
12, 2002, was as follows:
Class of Voting Stock Market Value
5,202,697 shares; Common
Stock, $.01 par value 8,480,396
On February 12, 2002 there were an aggregate of 7,045,557 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, 2001
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 Operations of 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, 2001
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
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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.... 7
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............... 15
PART III
10. Directors and Executive Officers...................... 16
11. Executive Compensation............................... 18
12. Security Ownership of Certain Beneficial
Owners and Management. 25
13. Certain Relationships and Related Transactions........ 26
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K................................. 27
- 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 phenylpropanolamine ("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).
1
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 2001 were approximately
$41,365,000, generating approximately $26,487,000 in gross profits.
Foreign sales accounted for approximately 2.85% of sales. The Company
experienced a net profit of $2,014,369 for the current fiscal year. Its
net worth is $15,924,639. (See the Financial Statements and Notes.)
Including the principal members of management (see Directors and
Executive Officers), the Company, at November 30, 2001, had 134 sales,
administrative, creative, accounting, receiving, and warehouse personnel in
its employ.
(b) 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.
(c) Marketing and Advertising
The Company markets its products to major drug, food and
mass-merchandise retail chains, and leading wholesalers, through an
in-house sales force of employees and independent sales representatives
throughout the United States.
The Company sells its products to approximately 450 accounts, most of
which have numerous outlets. Approximately 40,000 stores carry at least one
Company product.
2
During the fiscal year ended November 30, 2001, the Company's largest
customers were WalMart (approximately 28% of net sales), Walgreen
(approximately 12%), CVS, Rite Aid, K-Mart, and Eckerd (approximately 7%,
7%, 6%, and 4%, respectively). 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.
On January 22, 2002, K-Mart filed for bankruptcy under Chapter 11.
Sales to K-Mart for the year ended November 30, 2001 were approximately
$2.5 million. Accounts receivable from K-Mart at November 30, 2001 were
approximately $502,000. A reserve of approximately $300,000 was set up
against the receivable, anticipating a possible Chapter 11 filing by K-
Mart. From December 1, 2001 through January 22, 2002, we collected
$173,000 of the $502,000 balance and invoiced $95,000. As at January 30,
2002, there was $424,000 outstanding against which we maintained a reserve
of approximately $300,000 (70 %). Currently, we have no indication what
percentage of the payables owed by K-Mart will be paid to its suppliers.
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.
(d) "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", "Mega T", and (since the
perfume-product trademark purchase from Shiara Holdings in October 2000),
"Cloud Dance" and "Cherry Vanilla."
3
"Plus + White", "Sudden Change" and "Bikini Zone", the three best
performers among wholly-owned products, accounted for approximately 40 %,
19 % and 10%, respectively, of the Company's net-sales revenues during
fiscal 2001.
Net sales of perfume products were approximately $1,900,000 in fiscal
2001.
(e) 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 the 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, 2001, the Company had paid or accrued
Alleghany-Pharmacal License royalties in the sum of $8,047,405.
The products subject of the Alleghany-Pharmacal License accounted for
approximately $11,300,000 or 27% of total sales in the fiscal year ended
November 30, 2001. "Nutra Nail" and the "Hair-Off" depilatory were the
leaders among all of the Company's license-agreement products, producing
approximately 19% and 8%, respectively, of net sales.
ii. Solar Sense, Inc.
CCA commenced the marketing of its sun-care products line following a
4
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 been 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 said licensed products until $1 million total
royalties are paid and 1%, thereafter; and minimum per-annum royalties of
$30,000. CCA realized approximately $1,163,970 in net sales of sun-care
products, and paid Solar Sense the royalty of $58,199.
iii. The Nail Consultants Ltd.
In October of 1999, the Company entered into a License Agreement with
The Nail Consultants, Ltd. for the use of an activator invented in
connection with a method for applying a protective covering to fingernails.
The Company's License Agreement with The Nail Consultants, Ltd. is for the
exclusive use of the method and its composition in a new product kit
packaged and marketed by CCA under its own name, "Nutra Nail Power Gel".
The Company will pay a royalty of 5% of net sales of all products sold
under the license, by the Company. The first month of product sales was
September 2001. The delay in shipping since October 1999 was due to
product packaging concerns.
iv. Alpha Hydroxy
The Company settled a patent infringement claim for the use of Alpha
Hydroxy in its Sudden Change exfoliation products for $323,927. The
Company paid half in September 2001 and will pay the balance in February
2002. The total expense was expensed in the fiscal year ended November 30,
2001. The Company entered into a license agreement for the future use of
Alpha Hydroxy in its beauty aid products. The Company will pay a royalty
of 5% of net sales of all products subject to the license.
v. Other Licenses
The Company is not party to any other license agreement that is
material to its operations.
(f) 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.
(g) Competition
The market for cosmetics and perfumes, and health-and-beauty aids
5
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.
(h) 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.
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 with a renewal option for an additional five years..
The Company leases 51,000 square feet of warehouse space in Paterson,
New Jersey. The Company paid $13,260 per month pursuant to a lease which
expired May 31, 2001, and extended the lease at $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
6
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.
The Company was sued by a former employee in the Superior Court of New
Jersey, Bergen County for her termination pursuant to the New Jersey
Conscientious Employee Protect Act. The employee alleged that her
employment was terminated because she made a complaint to OSHA. The
Company denies the allegations. The Company's position is that her
termination was based solely on an undeniably justified business decision.
The case is pending. Upon advise of counsel, the Company believes it has a
meritorious defense.
The Company settled a patent infringement claim for the use of Alpha
Hydroxy in its Sudden Change exfoliation products for $323,927. The
Company paid half in September 2001 and will pay the balance in February
2002. The total expense was expensed in the fiscal year ended November 30,
2001. The Company entered into a license agreement for the future use of
Alpha Hydroxy in its beauty aid products.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 11, 2001, the Company held its annual meeting of shareholders.
The actions taken, and the voting results thereupon, were as follows:
(1) David Edell, Ira W. Berman, Jack Polak, and Stanley Kreitman were
elected as directors by the holders of Class A Common Stock. (No proxy was
solicited therefor, whereas Messrs. Berman, Polak and David Edell own more
than 98% of the Class A Common Stock, and they proposed themselves and Mr.
Kreitman.)
(2) As proposed by Management, Drew Edell, 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 2001 fiscal year
was approved.
The Company has not submitted any matter to a vote of security holders
since the 2001 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 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 had traded at less than $1.00
per share, and (b) the total market value of shares available for public
trading had been below $5,000,000, NASDAQ notified the Company that its
stock was de-listed. The stock is currently trading on the National Market
Bulletin Board. The range of high and low sales prices of the Common Stock
during each quarter of its 2001 and 2000 fiscal years was as follows:
Quarter Ended 2001 2000
February 29 .93 - .37 1.75-1.12
May 31 1.09 - .62 1.50-0.87
August 31 1.90 - .85 1.28-1.00
November 30 1.56 - .82 1.06-0.59
The high and low prices for the Company's Common Stock, on February
12, 2002 were $1.64 and $1.62 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 November 30, 2001, there were approximately 220 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,
2001 2000 1999 1998 1997
Statement of Income
Sales $41,364,648 $36,990,170 $37,898,563 $41,083,974 $37,708,922
Other income 338,883 186,284 285,469 318,296 293,953
41,703,531 37,176,454 38,184,032 41,402,270 38,002,875
Costs and Expenses
(excluding special charge) 38,522,778 36,658,875 37,370,017 38,570,096 34,730,052
Income Before Special Charge
and Provision for
Income Taxes 3,180,753 517,579 814,015 2,832,174 3,272,823
Special Charge - (1,500,000) - - -
Net Income (Loss) from 3,180,753 ( 654,510) 512,504 1,667,973 2,031,494
Continuing Operations
(Loss) Income from
Discontinued Operations - - ( 803,603) - -
Net Income (Loss) 2,014,369 ( 654,510) ( 291,099) 1,667,973 2,031,494
Earnings (Loss) Per Share:
Basic $ .29 ($ .09) ($ .04) $ .23 $ .28
Diluted $ .27 ($ .09) ($ .04) $ .21 $ .25
Weighted Average Number
of Shares Outstanding 6,893,232 7,153,013 7,174,203 7,243,956 7,205,904
Weighted Average Number
of Shares and Common Stock
Equivalents Outstanding 7,526,157 7,153,013 7,660,796 8,075,169 8,108,482
Balance Sheet Data:
As At November 30,
2001 2000 1999 1998 1997
Working Capital $10,236,977 $12,361,305 $12,291,890 $12,067,263 $11,331,810
Total Assets 20,598,917 20,312,056 21,494,987 24,010,136 19,224,291
Total Liabilities 4,674,278 6,345,508 6,328,905 8,410,687 5,139,769
Total stockholders equity 15,924,639 13,966,548 15,166,082 15,599,449 14,084,522
10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On March 3, 1986, the Company entered into a License 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, 2001, the Company had paid or accrued $8,047,405 in
royalty payments.
Comparison of Results for Fiscal Years 2001 and 2000
The Company's revenues increased from $37,176,454 in fiscal 2000 to
$41,703,531 in the current fiscal year. Gross profit margins were 64% this
year as compared to 61.3% last year. Net income was $2,014,369 as
compared to a loss of $654,510. Operations on an ongoing basis were
similar to last year. Last year the Company incurred a loss of $1,500,000
as a result of the FDA's position with regard to the use of
phenylpropanolamine as an appetite suppressant. The Company's Mega 16 diet
products contained this ingredient (See "Comparison of 2000 and 1999").
For the current fiscal year, advertising, cooperative and promotional
allowance expenditures were $8,776,470 as compared to $8,837,665.
Advertising expenditures were 21.2% of sales vs. 23.9% last year. SG&A
expenses increased 10% to $13,812,890 from $12,557,064 in 2000, but
actually decreased slightly as a percentage of current sales. The increase
was due mainly to SG&A expenses which vary in relation to additional sales
volume (i.e. payroll, freight-out, royalties, etc.). Research and
development expenses were increased from $555,462 last year to $687,731
this year. This was due to the additional costs of formulating its "Mega
T" brand product as well as a larger budget for their research department.
Bad debt expense increased from $249,279 to $299,254 due to the large
reserve set up for the K-Mart receivable; but offset by the reduction in
its typical reserve due to the overall decrease in the amount of total
receivables. Interest expense decreased from $159,477 to $69,012 due to the
reduction in the Company's borrowing.
On January 22, 2002, one of our customers, K-Mart, filed for
bankruptcy under Chapter 11. Sales to K-Mart for the year ended November
30, 2001 were approximately $2.5 million. Accounts receivable from K-Mart
at November 30, 2001 were approximately $502,000. A reserve of
approximately $300,000 was set up against the receivable, anticipating a
possible Chapter 11 filing by K-Mart. From December 1, 2001 through
January 22, 2002, we collected $173,000 of the $502,000 balance and
invoiced $95,000. As at January 30, 2002, there was $424,000 outstanding
against which we maintained a reserve of approximately $300,000 (70%).
11
Currently, we have no indication what percentage of the payables owed by K-
Mart will be paid to its suppliers.
Comparison of Results for Fiscal Years 2000 and 1999
The Company's revenues decreased from $38,184,032 in fiscal 1999 to
$37,176,454 in fiscal 2000, primarily due to the discontinuance of most of
its FCA subsidiary's product line.
Gross profit margins were 61.3%. as compared to 60.2% 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 recorded 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
advised its accounts that it would accept returns. The FDA was asked to
review its decision by the Non-Prescription Drug Manufacturers Association.
Revenues were 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 decided to increase its reserves against
receivables due to the pressure by our retail customers who had been
seeking more and more unauthorized deductions. Although we contested most
of these deductions, we thought it might require, with certain of our
important accounts, settling some of our disputes in order to keep our
relationship with them. We, therefore, 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.
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 21.4% of net
sales, to approximately 23.9% of net sales, primarily due to the increase
in the Company's Coop advertising and 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 write-off of $90,000
from a foreign account.
12
Liquidity and Capital Resources
As at November 30, 2001, the Company had working capital of
$10,236,977 as compared to $12,361,305 at November 30, 2000. The decrease
was due to a reallocation of the Company's investments into longer term
fixed income instruments. Of course all of the investments can be
liquidated at any time. The ratio of total current assets to current
liabilities was 3.5 to 1 as compared to a ratio of 3.1 to 1 for the prior
year. Stockholders' equity increased to $15,924,639 from $13,966,548
primarily due to the profit from operations.
The Company's cash position and triple A investments at year-end
increased to $2,555,938 from $804,508 as at November 30, 2000.
Inventories ($4,783,530 vs. $5,735,427) were down $ 951,897 and
accounts receivable ($4,464,991 vs. $6,329,755) decreased $ 1,864,764.
Current liabilities ($4,163,622 vs. $5,788,852) decreased by $1,625,230.
As of November 30, 2001, the Company was not utilizing any of the
funds available under its $7,000,000 credit line. The Company has issued a
security agreement in connection with any 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
13
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.
Item 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
The Company's financial statements (See Item 14) record the Company's
investments under the "mark to market" method (i.e., at date-of-statement
market value). The investments are, categorically listed, in "Government
Obligations" and "Corporate Obligations" (which, primarily, are intended to
be held to maturity) and "Equity". $100,000 of the Company's $5.335
million portfolio of investments (approximate, as at Nov. 30, 2001) is
invested in the "Equity" category, and all investments in that category are
Preferred Stock 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, 2001 and
2000:
Three Months Ended
Fiscal 2001 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales $10,068,419 $12,826,521 $10,090,486 $8,379,222
Total Revenue 10,149,975 12,903,126 10,179,808 8,470,622
Cost of Products Sold 4,244,147 4,372,263 3,368,589 2,892,422
Net Income 336,846 1,137,779 304,125 235,619
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Earnings Per Share
Continuing Operations .05 .05 .17 .16 .04 .04 .03 .03
Discontinued Operations- - - - - - - -
Net .05 .05 .17 .16 .04 .04 .03 .03
14
Three Months Ended
Fiscal 2000 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales $8,434,836 $11,641,239 $9,620,165 $7,293,930
Total Revenue 8,497,037 11,711,862 9,709,373 7,261,182
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 - - - - - - - -
Net (.03) (.03) .10 .10 .02 .02 (.18) (.18)
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.
15
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 70, 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 70, 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
16
Degree (1955) from Cornell University, and is a member of the American Bar
Association.
Dunnan Edell is the 46 year-old son of David Edell. He has been a
director since 1994. A Senior Vice President-Sales, he joined the Company
in 1984 and was appointed Divisional Vice-President in 1986. He was
employed by Alleghany Pharmacal Corporation from 1982 to 1984, and by Hazel
Bishop from 1977 to 1981.
Drew Edell, the 44 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 50, 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 89, 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 70, 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 42 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.
17
Item 11. EXECUTIVE COMPENSATION
i. Summary Compensation Table
The following table summarizes compensation earned in the 2001, 2000
and 1999 fiscal years by all of the executive officers whose fiscal 2001
compensation exceeded $100,000, including the Chief Executive Officer (the
"Named Officers").
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, 2001 $514,399 $247,806 $35,985 - 0
President 2000 425,372 132,221 12,552 - 0
and Chief 1999 401,468 111,546 17,088 - 0
Executive
Officer
Ira. W. Berman, 2001 $514,399(3) $247,806 $24,117 - 0
Secretary 2000 425,372(3) 132,221 11,775 - 0
and Executive 1999 401,468(3) 111,546 16,666 - 0
Vice President
Dunnan Edell, 2001 $232,595 $ 4,231 $ 2,914 - 0
Executive 2000 218,076 4,194 2,723 - 0
Vice President 1999 200,000 15,000 7,614 - 0
- - Sales
Drew Edell 2001 $187,596 $ 3,365 $ 816 - 0
Vice President 2000 175,000 3,365 577 - 0
Manufacturing 1999 150,000 12,000 1,468 - 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.
18
(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 2001 Option Grants and Option Exercises,
Year-End Option Valuation, Option Repricing
No new options were issued to any of the Named Officers in fiscal
2001.
The next table identifies 2001 fiscal-year option exercises by Named
Officers, and reports a valuation of their options.
Fiscal 2001 Aggregated Option Exercises
and November 30, 2001 Option Values
Number of Number of Shares
Shares Covered by Un- Value of Unexercised
Acquired Value exercised Options In-the-Money Options
On Exercise Realized at November 30, 2001 at November 30,2001 (1)
David Edell 200,000 $100,000 257,500 $218,875
Ira W. Berman 200,000 $100,000 302,000 $256,700
Dunnan Edell - - 75,000 $ 63,750
Drew Edell - - 75,000 $ 63,750
- ---------------------
(1) Represents the difference between market price and the respective
exercise prices of options at November 30, 2001.
19
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 May 24, 2001 .50
Ira W. Berman (1) 100,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Dunnan Edell (1) 50,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Stanley Kreitman (1) 25,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Jack Polak (1) 25,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Rami Abada (1) 25,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Dunnan Edell (1)(2) 25,000 Jun. 10, 1995 4.50 May 24, 2001 .50
Drew Edell (1)(2) 25,000 Jun. 10, 1995 4.50 May 24, 2001 .50
- -------------------
(1) On November 3, 1998, 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 $1.00; 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. On May 24, 2001,
the company repriced the options again when the market price was $.50.
(2) On June 10, 2000, 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. On May 24, 2001, the Company repriced the options
again when the market price was $.50, and changed the expiration date to
August 1, 2007.
iii. Compensation of Directors
Each director was paid $2,000 per meeting for attendance of board
meetings in fiscal 2001 (without additional compensation for committee
meetings). No options were granted to any director.
20
The full Board of Directors met three times in fiscal 2001.
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 three times in fiscal 2001,
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 2001 fiscal year.
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, with 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,
21
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.
The maximum term of each option is ten (10) years. No option granted
is transferable by the optionee other than upon death.
22
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, 2001, 784,500 stock options, yet exercisable, to
purchase 784,500 shares of the Company's Common Stock, were outstanding.
vii. Performance Graph
Set forth below is a line graph comparing cumulative total shareholder
return on the Company's Common Stock, with the cumulative total return of
companies in the NASDAQ Stock Market (U.S.) and the cumulative total return
of Dow Jones's Cosmetics/Personal Care Index.
23
GRAPH
Cumulative Total Return*
12/96 12/97 12/98 12/99 12/00 12/01
CCA Industries, Inc. 100 95 54 49 24 56
DJ Equity Market 100 132 165 202 183 161
DJ Cosmetics/Personal
Care 100 123 128 114 109 100
- ---------------------
* $100 invested on November 30, 1996 in stock and indices, including
reinvestment of dividends.
24
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 12, 2002 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 369,685 484,615 257,500 12.13/15.22%
c/o CCA Industries, Inc
200 Murray Hill Parkway
East Rutherford, NJ 07073
Ira W. Berman 334,745 473,615 302,000 11.47/15.11%
c/o CCA Industries, Inc.
Jack Polak 25,000 2,700 25,000 .39/.75%
90 Park Avenue
New York, NY 10016
Rami G. Abada - - 25,000 -/.35%
c/o CCA Industries, Inc.
Stanley Kreitman - - 25,000 -/.35%
c/o CCA Industries, Inc.
Dunnan Edell 41,250 - 75,000 .59/1.63%
c/o CCA Industries, Inc.
Drew Edell 51,250 - 75,000 .73/1.77%
c/o CCA Industries, Inc.
25
John Bingman - - - -
A Industries, Inc.
Officers and Directors 821,930 960,930 784,500 25.30/32.79%
as a group (8 persons)
_______________________
(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 $20,598. The loan is secured
by a second mortgage upon real property, and carries interest at 1% over
prime, payable semi-annually.
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.
26
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, 2001 and 2000, Consolidated Statements of Income
(Loss) for the years ended November 30, 2001, 2000 and 1999, Consolidated
Statements of Comprehensive Income (Loss), Consolidated Statements of
Shareholders' Equity for the years ended November 30, 2001, 2000 and 1999,
Consolidated Statements of Cash Flows for the years ended November 30,
2001, 2000 and 1999, Notes to Consolidated Financial Statements.
Financial Statement Schedules:
Schedule II: Valuation Accounts; Years Ended Nov. 30, 2001, 2000 and
1999
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 2001 fiscal year.
27
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, NW, 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).
28
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 20, 2002
s/ Ira W. Berman Chairman of the Board
IRA W. BERMAN of Directors, Executive
Vice President,
Secretary February 20, 2002
s/ Dunnan Edell Vice President, February 20, 2002
DUNNAN EDELL Director
s/ Drew Edell Vice President, February 20, 2002
DREW EDELL Director
s/ Stanley Kreitman Director February 20, 2002
STANLEY KREITMAN
s/ Rami Abada Director February 20, 2002
RAMI ABADA
s/ Jack Polak Director February 20, 2002
JACK POLAK
29
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2001 AND 2000
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 (LOSS) . . . . . . . .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, 2001 and
2000, and the related consolidated statements of income (loss),
comprehensive income (loss), shareholders' equity and cash flows
for each of the three years in the period ended November 30,
2001. 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 stan-
dards 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 assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of CCA Industries, Inc. and
Subsidiaries as of November 30, 2001 and 2000, and the consoli-
dated results of their operations and their cash flows for each
of the three years in the period ended November 30, 2001, 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 1, 2002
Jericho, New York
-1-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
(Note 7)
November 30,
2001 2000
Current Assets
Cash and cash equivalents (Note 15) $ 2,555,938 $ 804,508
Short-term investments and marketable
securities (Notes 2 and 6) 355,345 2,648,274
Accounts receivable, net of allowances of
$1,295,086 and $1,379,424, respectively 4,464,991 6,329,755
Inventories (Notes 2 and 3) 4,783,530 5,735,427
Prepaid expenses and sundry receivables 401,403 324,980
Prepaid income taxes and refunds due 221,989 777,691
Deferred income taxes (Note 8) 1,617,403 1,529,522
Total Current Assets 14,400,599 18,150,157
Property and Equipment, net of accumulated
depreciation and amortization
(Notes 2 and 4) 482,261 675,790
Intangible Assets, net of accumulated
amortization (Notes 2 and 5) 618,933 641,410
Other Assets
Marketable securities (Notes 2 and 6) 4,979,758 733,171
Due from officers - Non-current (Note 14) 20,598 21,485
Deferred income taxes (Note 8) 40,105 34,517
Other 56,663 55,526
Total Other Assets 5,097,124 844,699
Total Assets $20,598,917 $20,312,056
See Notes to Consolidated Financial Statements.
-2-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
November 30,
2001 2000
Current Liabilities
Notes payable (Note 7) $ - $ 1,500,000
Accounts payable and accrued
liabilities (Note 10) 4,154,256 4,288,852
Income tax payable 9,366 -
Total Current Liabilities 4,163,622 5,788,852
Subordinated Debentures (Due August 1,
2005) (Note 7) 510,656 556,656
Commitments and Contingencies
(Note 12)
Shareholders' Equity
Preferred stock, $1.00 par; authorized
20,000,000 shares; none issued - -
Common stock, $.01 par; authorized
15,000,000 shares; issued and
outstanding 6,242,823 and
6,042,823 shares, respectively 62,428 60,428
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 3,834,296 3,836,296
Retained earnings 12,315,062 10,300,693
Accumulated other comprehensive income
(Note 6) ( 50,151) ( 64,846)
16,171,844 14,142,780
Less: Treasury Stock (218,196 and
107,496 shares at November 30,
2001 and November 30, 2000,
respectively) 247,205 176,232
Total Shareholders' Equity 15,924,639 13,966,548
Total Liabilities and Shareholders'
Equity $20,598,917 $20,312,056
See Notes to Consolidated Financial Statements.
-3-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Years Ended November 30,
2001 2000 1999
Revenues
Sales of health and beauty
aid products, net $41,364,648 $36,990,170 $37,898,563
Other income 338,883 186,284 285,469
41,703,531 37,176,454 38,184,032
Costs and Expenses
Cost of sales 14,877,421 14,299,928 15,095,971
Selling, general and
administrative expenses 13,812,890 12,557,064 13,322,081
Advertising, cooperative and
promotions 8,776,470 8,837,665 8,112,394
Research and development 687,731 555,462 581,340
Provision for doubtful
accounts 299,254 249,279 115,569
Interest expense 69,012 159,477 142,662
38,522,778 36,658,875 37,370,017
Income before Special Charge
and Provision for
Income Taxes 3,180,753 517,579 814,015
Special Charge (Note 16) - ( 1,500,000) -
Income (Loss) before Provision
(Benefit) for Income
Taxes 3,180,753 ( 982,421) 814,015
Provision (Benefit) for
Income Tax 1,166,384 ( 327,911) 301,511
Net Income (Loss) from
Continuing Operations 2,014,369 ( 654,510) 512,504
Discontinued Operations:
(Loss) on abandonment of
intangibles (net of income
taxes (benefit) of
($514,978) in 1999) - - ( 803,603)
Net Income (Loss) $ 2,014,369 ($ 654,510) ($ 291,099)
Weighted Average Shares
Outstanding
Basic 6,893,232 7,153,013 7,174,203
Diluted 7,526,157 7,153,013 7,660,796
Earnings Per Common Share
(Note 2): Basic Diluted Basic Diluted Basic Diluted
Continuing Operations $.29 $.27 ($.09) ($.09) $ .07 $ .07
Discontinued Operations $ - $- $ - ($- )($ .11) ($ .11)
(Loss) on Abandoned
Intangibles $ - $ - $ - $ - ($ .04) ($ .04)
Net $.29 $.27 ($.09) $.09)($ .04) ($ .04)
See Notes to Consolidated Financial Statements.
-4-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended November 30,
2001 2000 1999
Net Income (Loss) $2,014,369 ($ 654,510)($ 291,099)
Other Comprehensive Income
(Loss)
Unrealized holding gain (loss)
on investments 14,696 86,008 ( 132,511)
Provision (Benefit) for Taxes 5,555 13,742 ( 50,166)
Other Comprehensive Income
(Loss) - Net 9,141 72,266 ( 82,345)
Comprehensive Income
(Loss) $2,023,510 ($ 582,244)($ 373,444)
Earnings (Loss) Per Share:
Basic $.29 ($.08) ($.05)
Diluted $.27 ($.08) ($.05)
See Notes to Consolidated Financial Statements.
-5-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2001, 2000 AND 1999
Unrealized
Additional Gain (Loss) on
Common Stock Paid-In Retained Marketable Treasury
Shares Amount Capital Earnings Securities Stock
Balance - December 1, 1998 7,267,081 $72,670 $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 - - - - ( 132,512) -
Purchase of 6,477 shares of
treasury stock - - - - - ( 9,557)
Balance - November 30, 1999 7,342,081 73,420 4,453,478 10,955,203 ( 150,855) ( 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 gain on marketable
securities - - - - 86,008 -
Retirement of treasury stock ( 278,328) ( 2,783) ( 617,182) - - ( 619,965)
Balance - November 30, 2000 7,063,753 70,637 3,836,296 10,300,693 ( 64,847) ( 176,232)
Issuance of common stock 200,000 2,000 ( 2,000) - - -
Net income for the year - - - 2,014,369 - -
Unrealized gain on marketable
securities - - - - 14,696 -
Purchase of 110,700 shares of
treasury stock - - - - - ( 70,973)
Balance - November 30, 2001 7,263,753 $72,637 $3,834,296 $12,315,062 ($50,151) ($247,205)
See Notes to Consolidated Financial Statements.
-6-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
2001 2000 1999
Cash Flows from Operating Activities:
Net income (loss) $2,014,369 ($ 654,510) ($ 291,099)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 374,953 372,881 344,198
Amortization of bond discount - - 1,884
Loss (gain) on sale of securities 5,559 119,877 ( 10,914)
(Increase) in deferred
income taxes ( 93,469) ( 343,495) ( 118,366)
Loss on abandonment of intangibles - - 418,612
Decrease in accounts receivable 1,864,764 1,041,777 506,468
Decrease in inventory 951,897 499,843 2,137,022
(Increase) decrease in prepaid
expenses and sundry receivables ( 76,423) 497,836 ( 505,698)
Decrease (increase) in prepaid income
taxes and refunds due 555,702 ( 62,856) ( 642,322)
(Increase) in miscellaneous assets ( ,137) ( 537) ( 100)
(Decrease) in accounts payable and
accrued liabilities ( 134,596) ( 640,053) (1,331,062)
Increase (decrease) in income taxes
payable 9,366 - ( 600,720)
Decrease in net assets from
discontinued operations - - 752,729
Net Cash Provided by Operating
Activities 5,470,985 830,763 660,632
Cash Flows from Investing Activities:
Acquisition of property and
equipment ( 134,247) ( 283,863) ( 157,047)
Acquisition of intangible assets ( 24,700) ( 496,734) ( 468,274)
Purchase of available for sale
securities (7,036,015) (2,682,631) (1,744,204)
Proceeds from sale of available for
sales securities 5,068,493 2,567,555 2,126,189
Proceeds of money due from
officers 887 36,433 7,332
Net Cash (Used in) Investing
Activities ( 2,125,582) ( 859,240) ( 236,004)
Cash Flows from Financing Activities:
Proceeds from borrowings - 3,900,000 4,050,000
Payment on debt ( 1,500,000)( 3,800,000) (4,200,000)
Proceeds from issuance of stock ( 23,000) - -
Purchase of treasury stock ( 70,973)( 74,375) ( 9,557)
Net Cash (Used in) Provided by
Financing Activities ( 1,593,973) 25,625 ( 159,557)
Net Increase (Decrease) In Cash 1,751,430 ( 2,852) 265,071
Cash at Beginning of Year 804,508 807,360 542,289
Cash at End of Year $2,555,938 $ 804,508 $ 807,360
See Notes to Consolidated Financial Statements.
-7-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
2001 2000 1999
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest $ 69,958 $161,895 $ 119,664
Income taxes 801,950 97,629 1,152,883
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. (FCA) which
manufactured and distributed perfume products. In 1999,
the Company adopted a formal plan to discontinue the
operations of the subsidiary. As of November 30, 2001,
the Company had completed its plan of dissolution.
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 ac-
counts 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 1999, two officers/shareholders exercised in
the aggregate 100,000 options in exchange for previously
issued common stock of 25,000. 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.
During fiscal 2001, two officers/shareholders exercised in
the aggregate 400,000 options in exchange for previously
issued common stock of 200,000. The common shares were
put into treasury and were subsequently cancelled.
Inventories:
Inventories are stated at the lower of cost (first-in,
first-out) or market.
Product returns are recorded in inventory when they are
received at the lower of their original cost or market, as
appropriate. Obsolete inventory is written off and its
value is removed from inventory at the time its
obsolescence is determined.
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.
-10-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Tax Credits:
Tax credits, when present, are accounted for using the
flow-through method as a reduction of income taxes in the
years utilized.
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 net sales upon shipment of
merchandise. Net sales comprise gross revenues less
expected returns, trade discounts, customer allowances and
various sales incentives. 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.
In accordance with EITF 00-14, the Company has accounted
for certain sales incentives offered to customers by
charging them directly to sales as opposed to "advertising
and promotional" expense. Prior years' amounts have been
reclassified to conform to the 2001 presentation. Had
EITF 00-14 not been adopted, sales for the years ended
November 2001, 2000 and 1999 would have been $42,527,229,
$38,451,980 and $39,028,936, respectively.
-11-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising Costs:
The Company's policy for fiscal financial reporting is to
charge advertising cost to operations as incurred.
Shipping Costs:
The Company's policy for fiscal financial reporting is to
charge shipping cost to operations as incurred. For the
years ended November 30, 2001, 2000 and 1999, included in
selling, general and administrative expenses is shipping
costs amounting to $2,296,585, $2,047,656 and $1,721,218,
respectively.
NOTE 3 - INVENTORIES
At November 30, 2001 and 2000, inventories consist of the
following:
2001 2000
Raw materials $2,225,814 $4,262,298
Finished goods 3,610,432 2,523,843
$5,836,246 $6,786,141
At November 30, 2001 and 2000, the Company had a reserve
for obsolete inventory of $1,052,716 and $1,050,714
respectively. In addition, the Company had $519,986 and
$748,331, respectively, of old FCA inventory which it had
completely written off but had not yet disposed of.
NOTE 4 - PROPERTY AND EQUIPMENT
At November 30, 2001 and 2000, property and equipment
consisted of the following:
2001 2000
Machinery and equipment $ 168,421 $ 323,233
Furniture and equipment 741,414 922,386
Transportation equipment 10,918 10,918
Tools, dies, and masters 550,825 1,972,830
Leasehold improvements 162,283 169,820
1,633,861 3,399,187
Less: Accumulated depreciation
and amortization 1,151,600 2,723,397
Property and Equipment - Net $ 482,261 $ 675,790
Depreciation and amortization expense for the years ended
November 30, 2001, 2000 and 1999 amounted to $327,777,
347,801 and $283,982, respectively.
During the year ended November 30, 2001, the Company wrote
off and disposed of all of their obsolete and fully
depreciated property and equipment.
-12-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following at November 30,
2001 and 2000:
2001 2000
Patents and trademarks $750,256 $738,330
Less: Accumulated amortization 131,323 96,920
Intangible Assets - Net $618,933 $641,410
Amortization expense for the years ended November 30,
2001, 2000 and 1999 amounted to $47,176, $25,080 and
$60,216 ($49,662 from discontinued operations),
respectively.
On October 26, 2000, the Company acquired certain
trademarks. See Note 12.
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, 2001 and 2000 were as
follows:
2001 2000
Current: COST MARKET COST MARKET
Corporate
obligations $ - $ - $ 536,000 $ 534,590
Mutual Funds 159,805 107,015 148,465 111,930
Government
obligations
(including mortgage
backed securities) 247,330 248,330 1,998,756 2,001,754
Total 407,135 355,345 2,683,221 2,648,274
Non-Current:
Corporate
obligations 2,416,846 2,434,080 - -
Government obli-
gations 2,311,273 2,294,058 150,510 146,723
Preferred stock 250,000 251,620 612,561 586,448
Total 4,978,119 4,979,758 763,071 733,171
Total $5,385,254 $5,335,103 $3,446,292 $3,381,445
The market value at November 30, 2001 was $5,335,103 as
compared to $3,381,445 at November 30, 2000. The gross
unrealized gains and losses as at November 30, 2001 and 2000
were $35,542 and ($85,693) for 2001 and $1,588 and ($66,435)
for 2000, respectively. The cost and market values of the
investments at November 30, 2001 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 10/15/03 4.600% 250,000 $ 250,000 $ 251,578 $ 251,578
GMAC Smartnotes 10/15/03 4.750 325,000 325,000 323,606 323,606
GMAC Smartnotes 1/15/03 5.550 250,000 250,000 254,445 254,445
GMAC Smartnotes 2/15/03 5.750 140,000 140,000 142,876 142,876
GMAC Smartnotes 6/15/03 4.750 300,000 300,000 302,520 302,520
GMAC Smartnotes 7/15/03 4.650 200,000 200,000 201,354 201,354
GMAC Smartnotes 8/15/03 4.250 499,000 499,000 498,965 498,965
International Business
Machines 9/22/03 5.370 100,000 102,040 103,450 103,450
Colgate-Palmolive 12/1/03 5.270 100,000 100,860 103,506 103,506
Ford Motor Credit 3/20/04 6.125 245,000 249,946 251,780 251,780
2,416,846 2,434,080 2,434,080
-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% 26,605 $ 26,043 $ 27,112 $ 27,112
FNMA 93-224-D 11/25/2023 6.500 59,350 59,807 59,776 59,776
FNMA 92-2-N 1/25/2024 6.500 7,184 6,159 7,175 7,175
FHLB 9/15/2003 5.125 255,000 266,200 264,603 264,603
FHLB 11/15/2005 4.250 750,000 753,004 747,075 747,075
US Treasury Note 11/15/2003 4.250 200,000 199,891 205,437 205,437
US Treasury Note 11/15/2003 4.250 250,000 250,169 256,797 256,797
US Treasury Bill 4/18/2002 2.160 250,000 247,330 248,330 248,330
FNMA 11/6/2009 4.250 250,000 250,000 242,028 242,028
FNMA 11/6/2009 4.250 500,000 500,000 484,055 484,055
2,558,603 2,542,388 2,542,388
-15-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
EQUITY:
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
Preferred Stock:
Merrill Lynch Trust 9/30/08 7.28% 6,000 $ 150,000 $ 151,620 $ 151,620
Other Equity Investments:
Aberdeen Asia Pacific
Income Fund 100,000 100,000 100,000
Dreyfus Premier Limited
Term High Income CL B 3.8* 13,495 159,805 107,015 107,015
409,805 358,635 358,635
$5,385,254 $5,335,103 $5,335,103
*Estimated
-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, 2001, 2000 and 1999,
available-for-sale securities were liquidated and proceeds
amounting to $ 5,068,493, $2,567,555 and $2,126,189 were
received, with resultant realized gains (losses) totaling
($28,559), ($119,877) and $10,914, 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 Novem-
ber 30, 2001 and 2000, the Company was utilizing $ 0 and
$1,500,000, respectively, of its available line. The
interest rate charged at November 30, 2000 was 8.5%.
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.
During the year 2001, the Company repurchased $46,000 of
debentures for $23,000 resulting in a gain of $23,000.
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, 2001 and 2000, respectively, the Company has
temporary differences arising from the following:
November 30, 2001
Classified As
Deferred Short- Long-
Type Amount Tax Term Term
Asset (Liability)
Depreciation $ 98,139 $ 40,105 $ - $40,105
Reserve for bad debts 481,399 196,729 196,729 -
Reserve for returns 813,686 332,521 332,521 -
Reserve for obsolete
inventory 1,052,716 430,203 430,203 -
Section 263A costs 370,741 151,507 151,507 -
Deferred tax benefit from
discontinued
operations 519,986 212,497 212,497 -
Charitable
contributions 719,293 293,946 293,946 -
Net deferred income
tax $1,657,508 $1,617,403 $40,105
-17-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
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
Income tax expense (benefit) is made up of the following
components:
November 30, 2001
State &
Federal Local Total
Current tax expense $976,295 $170,755 $1,147,050
Tax credits ( 35,000) - ( 35,000)
Deferred tax expense ( 77,369) 131,703 54,334
$863,926 $302,458 $1,166,384
-18-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
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)
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
Prepaid income taxes and refund due are made up of the
following components:
State &
Federal Local Total
November 30, 2001 $ 88,210 $133,779 $221,989
November 30, 2000 $599,564 $178,127 $777,691
Income taxes payable are made up of the following components:
State &
Federal Local Total
November 30, 2001 $ 4,803 $4,563 $ 9,366
November 30, 2000 $ - $ - $ -
-19-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
A reconciliation of income tax expense (benefit) 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:
2001 2000 1999
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
Income tax expense
(benefit)
at statutory rate $1,081,456 34.00% ($334,023) (34.00%) $276,765 34.00%
Increases (decreases)
in taxes
resulting from:
State income taxes,
net of federal
income tax benefit 199,622 6.27 ( 58,355) ( 5.94) 51,333 6.31
Non-deductible
expenses and
other
adjustments ( 79,694) ( 2.50) 64,467 6.56 ( 26,587) ( 3.27 )
Utilization of
tax credits ( 35,000) ( 1.10) - - - -
Income tax expense (benefit)
at effective rate $1,166,384 36.67% ($327,911) (33.38%) $301,511 37.04%
-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, 2001:
Number Per Share
Of Option
Date Granted Shares Price Expiration
January 1988 (6) 2,000 .50 2007
March 1989 (1)(6) 157,500 .50 2007
January 1990 (2)(6) 200,000 .50 2007
June 1995 (3)(6) 50,000 .50(4)(6) 2007
August 1997 (6) 375,000 .50(5)(6) 2007
784,500
(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 of 2000 when they were extended.
(5) These stock options were repriced from $2.50 on November
3, 1998.
(6) On May 24, 2001, the Board of Directors repriced all the
outstanding options to $.50 and changed their expiration
date to August 1, 2007.
The following summarizes the activity of shares under option
for the two years ended November 30, 2001:
Number Per Share
Of Option
Shares Price Value
Balance - November 30,
1999 1,184,500 $.50- $4.50 $1,259,875
Granted - - -
Repriced - ( 3.00) ( 150,000)
Exercised - - -
Expired - - -
Cancelled - - -
Balance - November 30,
2000 1,184,500 $.50- $1.50 $1,109,875
Granted - - -
Repriced - (.05)-(1.00) ( 517,125)
Exercised 400,000 ( .50) ( 200,000)
Expired - - -
Cancelled - - -
Balance - November 30,
2001 784,500 $.50 $ 392,250
-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 $.5 million, $.8 million and
$1.3 million in 2001, 2000 and 1999, 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:
2001 2000 1999
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
Net income $2,014,369 $1,470,083 ($654,510)($1,447,726) ($291,099) ($1,606,582)
Diluted earnings
per share $.27 $.20 ($.09) ($.20) ($.04) ($.22)
The above pro forma amounts, for purposes of SFAS No. 123, reflect the
portion of the estimated fair value of awards earned in 2001, 2000 and 1999.
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
2001 2000 1999
Average expected life (years) 5.67 3.76 3.78
Expected volatility 204.59% 193.18% 213.55%
Risk-free interest rate 4.25% 6.3% 5.6%
Weighted average fair value
at grant - Exercise price
equal to market price $.69 $.66 $1.20
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,
2001 2000
(In Thousands)
Media advertising $ 424 $ *
Coop advertising 392 242
Accrued returns 301 983
Vacation accrual 254 *
Accrued bonuses 510 *
$1,881 $1,225
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,
2001 2000 1999
Interest income $265,240 $222,459 $213,335
Dividend income 16,057 42,461 50,657
Realized gain on sale of
securities and
debentures 25,342 6,262 11,211
Realized (loss) on sale
of securities ( 30,901) ( 126,139) ( 297)
Royalty income 57,385 37,500 -
Miscellaneous 5,760 3,741 10,563
$338,883 $186,284 $285,469
-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 matured 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 July 2004.
Rent expense for the years ended November 30, 2001, 2000 and
1999 was $531,062, $498,227 and $449,051, 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,
2002 $ 423,175
2003 318,142
2004 289,503
2005 89,228
2006 -
Total $1,120,048
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, 2001, $8,047,405 of royalties
have been paid or accrued and only $952,595 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. The Company will pay a 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.
In October of 1999, the Company entered into a License
Agreement with The Nail Consultants, Ltd. for the use of an
activator invented in connection with a method for applying
a protective covering to fingernails. The Company's License
Agreement with The Nail Consultants, Ltd. is for the
exclusive use of the method and its composition in a new
product kit packaged and marketed by CCA under its own name,
"Nutra Nail Power Gel". The Company will pay a royalty of
5% of net sales of all licensed product sold by the Company.
The first month of product sales was September 2001. The
delay in shipping since October 1999 was due to product
packaging concerns.
The Company settled a patent infringement claim for the use
of Alpha Hydroxy in its Sudden Change exfoliation products
for $323,927. The Company paid half in September 2001 and
will pay the balance in February 2002. The total expense
was expensed in the fiscal year ended November 30, 2001.
The Company entered into a license agreement for the future
use of Alpha Hydroxy in its beauty aid products. The
Company will pay a 5% royalty of net sales of all such
licensed product sold by the Company.
-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
adjusted base salary, as a 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. A new collective bargaining agreement with similar
provisions is in effect for December 1, 2001 through
November 30, 2004.
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 (increasing to $11,000 in
2002) 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 $20,598 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, 2001, 2000 and 1999,
certain customers each accounted for more than 5% of the
Company's net sales, as follows:
Customer 2001 2000 1999
A 28% 26% 27%
B 12 13 11
C 7 6 5
D 5 6 6
E 4 6 5
F 7 6 8
Foreign Sales 2.85% 2.50% 4.50%
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, 2001, 2000 and 1999, certain
products accounted for more than 10% of the Company's net
sales as follows:
Product 2001 2000 1999
Plus+White 40% 36% 36%
Sudden Change 19 19 20
Hair-Off * * 10
NutraNail 19 14 10
Bikini Zone 10 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 recorded
$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).
NOTE 17 -DISCONTINUED OPERATIONS
On March 19, 1998, the Company formed a majority-owned
subsidiary, Fragrance Corporation of America, Ltd. (FCA).
FCA was primarily engaged in the manufacture and
distribution of perfume products. The results of operations
of FCA are included in the accompanying financial
statements.
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.
-29-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 -DISCONTINUED OPERATIONS (CONTINUED)
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.
-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,
2001 2000 1999
Net income (loss) available for common
shareholders, basic and diluted $2,014,369 ($654,510) ($291,099)
Weighted average common stock
outstanding- Basic 6,893,232 7,153,013 7,174,203
Net effect of dilutive stock option 632,925 * 486,593
Weighted average common stock and
common stock equivalents - Diluted 7,526,157 7,153,013 7,660,796
Basic earnings per share $.29 ($.09) ($.04)
Diluted earnings per share $.27 ($.09) ($.04)
*Antidilutive
-31-
SCHEDULE II
CCA INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
YEARS ENDED NOVEMBER 30, 2001, 2000 AND 1999
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, 2001:
Allowance for doubtful
accounts $ 323,257 $ 299,254 $ 141,112 $ 481,399
Reserve for returns $1,056,167 $2,833,405 $3,075,886 $ 813,686
Reserve of inventory
obsolescence $1,050,714 $ 548,815 $ 546,813 $1,052,716
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 $ 845,697 $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