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
November 30, 2001
Commission File Number
2-85538-B
CCA INDUSTRIES, INC.
(Exact Name of Registrant as specified in Charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
04-2795439
(I.R.S. Employer
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-
Form 10-K
Item No.
1. Business
2. Properties
CROSS REFERENCE SHEET
Headings in this Form
10-K for Year Ended
November 30, 2001
Business
Property
3. Legal Proceedings
Legal Proceedings
4. Submission of Matters
to a Vote of Security
Holders
5. Market for Registrant's
Common Equity and
Related Stockholder
Matters
Submission of Matters to a
Vote of Security Holders
Market for the Company's
Common Stock and Related
Shareholder Matters
6. Selected Financial Data
Selected Financial Data
7. Management's Discussion
and Analysis of Financial
Condition and Results
of Operation
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
7A. Quantitative and Qualitative
Disclosures about Market Risk
Quantitative and Qualitative
Disclosures about Market Risk
8. Financial Statements
and Supplementary Data
9. Changes In and Dis-
agreements With
Accountants On Accounting
and Financial Disclosure
10. Directors and
Executive Officers
of the Registrant
Financial Statements
and Supplementary Data
Changes In and Dis-
agreements With
Accountants On Accounting
and Financial Disclosure
Directors and Executive
Officers
- iii-
Form 10-K
Item No.
Headings in this Form
10-K for Year Ended
November 30, 2001
11. Executive Compensation
Executive Compensation
12. Security Ownership
of Certain Beneficial
Owners and Management
13. Certain Relationships
and Related Transactions
14. Exhibits, Financial
Statement Schedules,
and Reports on Form
8-K
Security Ownership
of Certain Beneficial
Owners and Management
Certain Relationships
and Related Transactions
Exhibits, Financial
Statement Schedules,
and Reports on Form
8-K
- iv-
Item
PART I
TABLE OF CONTENTS
Page
1. Business.............................................................................................
2. Property.............................................................................................
3. Legal Proceedings..............................................................................
4. Submission of Matters to a Vote of Security Holders..........................
1
6
6
7
PART II
5. Market for the Company's Common Stock and Related
Shareholder Matters...........................................................................
6. Selected Financial Data......................................................................
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....................................................................
8
10
15
PART III
10. Directors and Executive Officers......................................................
11. Executive Compensation..................................................................
12. Security Ownership of Certain Beneficial Owners and Management.
13. Certain Relationships and Related Transactions.................................
16
18
25
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). 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 Café’’, “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 May 1998 License
4
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 products in general,
5
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 purchases
6
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
February 29
May 31
August 31
November 30
.93 - .37
1.09 - .62
1.90 - .85
1.56 - .82
2000
1.75-1.12
1.50-0.87
1.28-1.00
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.)
As at November 30, 2001, there were approximately 220 holders of shares of the Company's
8
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
Statement of Income
Sales
Other income
Costs and Expenses
(excluding special charge)
Income Before Special Charge
and Provision for
Income Taxes
Special Charge
Net Income (Loss) from
Continuing Operations
(Loss) Income from
Discontinued Operations
Net Income (Loss)
Earnings (Loss) Per Share:
Basic
Diluted
2001
2000
Year Ended November 30,
1999
1998
1997
$41,364,648
338,883
$36,990,170
186,284
$37,898,563
285,469
$41,083,974
318,296
$37,708,922
293,953
41,703,531
37,176,454
38,184,032
41,402,270
38,002,875
38,522,778
36,658,875
37,370,017
38,570,096
34,730,052
3,180,753
517,579
814,015
2,832,174
3,272,823
-
3,180,753
( 1,500,000)
( 654,510)
-
512,504
-
-
1,667,973
2,031,494
-
-
( 803,603)
-
-
2,014,369
( 654,510)
( 291,099)
1,667,973
2,031,494
$ .29
$ .27
($ .09)
($ .09)
($ .04)
($ .04)
$ .23
$ .21
$ .28
$ .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
Balance Sheet Data:
Working Capital
Total Assets
Total Liabilities
7,526,157
7,153,013
7,660,796
8,075,169
8,108,482
As At November 30,
2001
$10,236,977
20,598,917
2000
1999
1998
1997
$12,361,305
$12,291,890
$12,067,263
$11,331,810
20,312,056
21,494,987
24,010,136
19,224,291
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
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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%). Currently, we have no
11
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 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,
13
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:
Fiscal 2001
Feb. 28
May 31
Aug. 31
Nov. 30
Three Months Ended
Net Sales
Total Revenue
Cost of Products Sold
Net Income
$10,068,419
10,149,975
4,244,147
336,846
$12,826,521
12,903,126
4,372,263
1,137,779
$10,090,486
10,179,808
3,368,589
304,125
$8,379,222
8,470,622
2,892,422
$235,619
Earnings Per Share
Continuing Operations
Discontinued Operations
Net
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
.05
-
.05
.05
-
.05
.17
-
.17
.16
-
.16
.04
-
.04
.04
-
.04
.03
-
.03
.03
-
.03
Fiscal 2000
Net Sales
Total Revenue
Cost of Products Sold
Feb. 28
Three Months Ended
Aug. 31
May 31
Nov. 30
$8,434,836 $11,641,239
11,711,862
4,191,877
8,497,037
3,704,031
$9,620,165
9,709,373
3,499,660
$7,293,930
7,261,182
2,904,360
14
Net Income (Loss)
( 206,122)
750,806
59,034
( 1,258,228)
Earnings Per Share:
Continuing Operations
Discontinued Operations
Net
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
(.03)
-
(.03)
(.03)
-
(.03)
.10
-
.10
.10
-
.10
.02
-
.02
.02
-
.02
(.18)
-
(.18)
(.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:
NAME POSITION
COMPANY SERVICE
YEAR OF FIRST
David Edell
President and Chief
Executive Officer,
Director
Ira W. BermanChairman of the Board
of Directors, Secretary,
Executive Vice President
Dunnan Edell
Executive Vice Pres.-
Sales, Director
Drew Edell
Vice President-
Manufacturing and
New Product Development
John Bingman
Treasurer
Stanley Kreitman
Director
Jack Polak
Director
Rami G. Abada
Director
1983
1983
1984
1983
1986
1996
1983
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
16
Laws 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
All
Other
Annual
Compen-
sation(1)
Number
of Shares
Covered Other
by Stock Long-Term
Options Compen-
Granted(2) sation
-
$35,985
12,552 -
17,088
-
Name and
Principal
Position
David Edell,
President
and Chief
Executive
Officer
Year
2001
2000
1999
Salary
Bonus
$514,399
425,372
401,468
$247,806
132,221
111,546
Ira. W. Berman, 2001
2000
Secretary
and Executive
1999
Vice President
Dunnan Edell,
Executive
Vice President
- Sales
2001
2000
1999
$514,399(3)
425,372(3)
401,468(3)
$247,806
132,221
111,546
$24,117
11,775
16,666
$232,595
218,076
200,000
$ 4,231
4,194
15,000
$ 2,914
2,723
7,614
Drew Edell
Vice President
Manufacturing
2001
2000
1999
$187,596
175,000
150,000
$ 3,365
3,365
12,000
$ 816
577
1,468
-
-
-
-
-
-
-
-
-
0
0
0
0
0
0
0
0
0
0
0
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
18
to Messrs. David Edell, Ira Berman and Dunnan Edell.
(2) Information in respect of stock option plans appears below in the sub-topic, Employment
Contracts/Executive Compensation Program.
(3) Includes $99,396 paid to Ira W. Berman & Associates, P.C.
ii. Fiscal 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
Shares
Acquired Value
On Exercise Realized
Number of Shares
Value of Unexercised
Covered by Un-
exercised Options In-the-Money Options
at November 30, 2001 at November 30, 2001(1)
200,000
David Edell
Ira W. Berman 200,000
Dunnan Edell
Drew Edell
-
-
$100,000
$100,000
-
-
257,500
302,000
75,000
75,000
$218,875
$256,700
$ 63,750
$ 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
Price
of Shares Date Price Repriced
100,000 Aug. 1, 1997 $2.50 May 24, 2001
David Edell (1)
100,000
Ira W. Berman (1)
Dunnan Edell (1)
50,000
Stanley Kreitman (1) 25,000
25,000
Jack Polak (1)
25,000
Rami Abada (1)
25,000
Dunnan Edell (1)(2)
25,000
Drew Edell (1)(2)
-------------------
Aug. 1, 1997 2.50 May 24, 2001
Aug. 1, 1997 2.50 May 24, 2001
Aug. 1, 1997 2.50 May 24, 2001
Aug. 1, 1997 2.50 May 24, 2001
Aug. 1, 1997 2.50 May 24, 2001
Jun. 10, 1995 4.50 May 24, 2001
Jun. 10, 1995 4.50 May 24, 2001
.50
.50
.50
.50
.50
.50
.50
.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:
(cid:31) Reward executives for long-term strategic management and the enhancement of
shareholder value.
(cid:31) Integrate compensation programs with both the Company's annual and long-term
strategic planning.
(cid:31) 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, and all expenditures for media and cooperative
advertising and promotion in excess of $8,000,000, plus 20% of the base salary.
21
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.
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
22
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
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CCA INDUSTRIES, INC., THE DOW JONES TOTAL MARKET INDEX
AND THE DOW JONES COSMETICS INDEX
D
O
L
L
A
R
S
250
200
150
100
50
0
12/96
CCA INDUSTRIES, INC.
12/97
12/98
12/99
DOW JONES COSMETICS
* $100 Invested on 12/31/96 in stock or index-
including reinvestment of dividends.
Fiscal year ending December 31.
DOW JONES TOTAL MARKET
12/00
12/01
Cumulative Total Return*
12/96
12/97 12/98 12/99 12/00 12/01
CCA Industries, Inc.
DJ Equity Market
DJ Cosmetics/Personal
Care
100
100
95
132
54
165
49
202
24
183
56
161
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.
Name and Address
Shares Owned (1):
Shares” (1) Option Share Exercise (1)
Number of “Option Standing/Assuming
Ownership, As A
Percentage of
All Shares Out-
David Edell
c/o CCA Industries, Inc.
200 Murray Hill Parkway
East Rutherford, NJ 07073
Ira W. Berman
c/o CCA Industries, Inc.
Jack Polak
90 Park Avenue
New York, NY 10016
Rami G. Abada
c/o CCA Industries, Inc.
Stanley Kreitman
c/o CCA Industries, Inc.
Dunnan Edell
c/o CCA Industries, Inc.
Drew Edell
c/o CCA Industries, Inc.
Common
Stock Class A (2)
369,685
484,615
257,500
12.13/15.22%
334,745
473,615
302,000
11.47/15.11%
25,000
2,700
25,000
.39/.75%
-
-
41,250
51,250
-
25,000
-/.35%
25,000
-/.35%
75,000
.59/1.63%
75,000
.73/1.77%
-
-
-
25
-
-
-
-
821,930
960,930
784,500
25.30/32.79%
John Bingman
c/o CCA Industries, Inc.
Officers and Directors
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)
(4)
(10)
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).
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.
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
DAVID EDELL
s/ Ira W. Berman
IRA W. BERMAN
President, Director,
Chief Executive Officer,
and Chief Financial
Officer
Chairman of the Board
of Directors, Executive
Vice President,
Secretary
s/ Dunnan Edell
DUNNAN EDELL
Vice President,
Director
February 20, 2002
February 20, 2002
February 20, 2002
s/ Drew Edell
DREW EDELL
Vice President,
Director
February 20, 2002
s/ Stanley Kreitman
STANLEY KREITMAN
s/ Rami Abada
RAMI ABADA
s/ Jack Polak
JACK POLAK
Director
February 20, 2002
Director
February 20, 2002
Director
February 20, 2002
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 standards generally accepted
in the United States of America. Those standards require that we plan and perform the
audit to obtain a reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and related schedules. An audit
also includes 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 consolidated 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 consoli-
dated 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)
Short-term investments and marketable
securities (Notes 2 and 6)
Accounts receivable, net of allowances of
$1,295,086 and $1,379,424, respectively
Inventories (Notes 2 and 3)
Prepaid expenses and sundry receivables
Prepaid income taxes and refunds due
Deferred income taxes (Note 8)
Total Current Assets
Property and Equipment, net of accumulated
depreciation and amortization
(Notes 2 and 4)
Intangible Assets, net of accumulated
amortization (Notes 2 and 5)
Other Assets
Marketable securities (Notes 2 and 6)
Due from officers - Non-current (Note 14)
Deferred income taxes (Note 8)
Other
Total Other Assets
Total Assets
See Notes to Consolidated Financial Statements.
$ 2,555,938
$ 804,508
355,345
2,648,274
4,464,991
4,783,530
401,403
221,989
1,617,403
6,329,755
5,735,427
324,980
777,691
1,529,522
14,400,599
18,150,157
482,261
675,790
618,933
641,410
4,979,758
20,598
40,105
56,663
733,171
21,485
34,517
55,526
5,097,124
844,699
$20,598,917
$20,312,056
-2-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable (Note 7)
Accounts payable and accrued
liabilities (Note 10)
Income tax payable
November 30,
2000
2001
$ -
$ 1,500,000
4,154,256
9,366
4,288,852
-
Total Current Liabilities
4,163,622
5,788,852
Subordinated Debentures (Due August 1,
2005) (Note 7)
Commitments and Contingencies
(Note 12)
510,656
556,656
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
Class A common stock, $.01 par; authorized
5,000,000 shares; issued and outstanding
and 1,020,930 shares, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
(Note 6)
Less: Treasury Stock (218,196 and
107,496 shares at November 30,
2001 and November 30, 2000,
respectively)
-
-
62,428
60,428
10,209
3,834,296
12,315,062
10,209
3,836,296
10,300,693
( 50,151)
16,171,844
( 64,846)
14,142,780
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
Other income
Costs and Expenses
Cost of sales
Selling, general and
administrative expenses
Advertising, cooperative and
promotions
Research and development
Provision for doubtful accounts
Interest expense
Income before Special Charge
and Provision for
Income Taxes
$41,364,648
338,883
$36,990,170
186,284
$37,898,563
285,469
41,703,531
37,176,454
38,184,032
14,877,421
14,299,928
15,095,971
13,812,890
12,557,064
13,322,081
8,776,470
687,731
299,254
69,012
8,837,665
555,462
249,279
159,477
8,112,394
581,340
115,569
142,662
38,522,778
36,658,875
37,370,017
3,180,753
517,579
814,015
Special Charge (Note 16)
Income (Loss) before Provision
(Benefit) for Income Taxes
-
( 1,500,000)
-
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
Discontinued Operations:
(Loss) on abandonment of
intangibles (net of income
taxes (benefit) of
($514,978) in 1999)
2,014,369
( 654,510)
512,504
-
-
( 803,603)
Net Income (Loss)
$ 2,014,369
($ 654,510)
($ 291,099)
Weighted Average Shares
Outstanding
Basic
Diluted
Earnings Per Common Share
(Note 2):
Continuing Operations
Discontinued Operations
(Loss) on Abandoned
Intangibles
6,893,232
7,526,157
7,153,013
7,153,013
7,174,203
7,660,796
Basic Diluted
$.29 $.27
$ - $ -
Basic Diluted
($.09) ($.09)
$ - ($ - )
Basic Diluted
$ .07 $ .07
($ .11) ($ .11)
$ - $ -
$ - $ -
($ .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
Comprehensive Income
(Loss)
Earnings (Loss) Per Share:
Basic
Diluted
9,141
72,266
( 82,345)
$2,023,510
($ 582,244)
($ 373,444)
$.29
$.27
($.08)
($.08)
($.05)
($.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
Shares
Additional
Common Stock Paid-In
Capital
Amount
Unrealized
Gain (Loss) on
Retained Marketable Treasury
Stock
Earnings
Securities
Balance - December 1, 1998
($155,609)
Issuance of common stock
Net (loss) for the year
Unrealized (loss) on marketable
securities
Purchase of 6,477 shares of
treasury stock
Balance - November 30, 1999
Issuance of debentures for acquisition
of 278,328 shares of common stock
Purchase of 11,500 shares of
treasury stock
Net income for the year
Unrealized gain on marketable
securities
7,267,081
$72,670
$4,454,228
$11,246,302
($ 18,343)
75,000
-
-
750
-
-
( 750)
-
-
( 291,099)
-
-
-
-
( 132,512)
-
-
-
-
7,342,081
-
73,420
-
- ( 9,557)
4,453,478 10,955,203 ( 150,855) ( 165,166)
-
-
19,965)
-
-
-
-
-
-
-
-
-
- - (
-
- ( 11,066)
-
( 654,510)
-
-
-
-
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
Unrealized gain on marketable
securities
Purchase of 110,700 shares of
treasury stock
-
-
-
-
-
-
2,014,369
-
14,696
-
-
-
-
- - ( 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,
Cash Flows from Operating Activities:
Net income (loss)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization
Amortization of bond discount
Loss (gain) on sale of securities
(Increase) in deferred
income taxes
Loss on abandonment of intangibles
Decrease in accounts receivable
Decrease in inventory
(Increase) decrease in prepaid
expenses and sundry receivables
Decrease (increase) in prepaid income
taxes and refunds due
(Increase) in miscellaneous assets
(Decrease) in accounts payable and
accrued liabilities
Increase (decrease) in income taxes
payable
Decrease in net assets from
discontinued operations
2001
2000
1999
$2,014,369
($ 654,510)
($ 291,099)
374,953
-
5,559
( 93,469)
-
1,864,764
951,897
( 76,423)
555,702
( 1,137)
372,881
-
119,877
344,198
1,884
( 10,914)
( 343,495)
-
1,041,777
499,843
( 118,366)
418,612
506,468
2,137,022
497,836
( 505,698)
( 62,856)
( 537)
( 642,322)
( 100)
( 134,596)
( 640,053)
( 1,331,062)
9,366
-
( 600,720)
-
-
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
Acquisition of intangible assets
Purchase of available for sale securities
Proceeds from sale of available for
sales securities
Proceeds of money due from
officers
( 134,247)
( 24,700)
( 7,036,015)
( 283,863)
( 496,734)
( 2,682,631)
( 157,047)
( 468,274)
( 1,744,204)
5,068,493
2,567,555
2,126,189
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
Payment on debt
Proceeds from issuance of stock
Purchase of treasury stock
Net Cash (Used in) Provided by
Financing Activities
-
( 1,500,000)
( 23,000)
( 70,973)
3,900,000
( 3,800,000)
-
( 74,375)
4,050,000
( 4,200,000)
-
( 9,557)
( 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,
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest
Income taxes
2001
2000
1999
$ 69,958
801,950
$161,895
97,629
$ 119,664
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 accounts and transactions have been
eliminated.
Use of Estimates:
The consolidated financial statements include the use of estimates, which
management believes are reasonable. The process of preparing financial
statements in conformity with generally accepted accounting principles requires
the use of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled transactions
and events as of the date of the financial statements. Accordingly, upon
settlement, actual results may differ from estimated amounts.
Short-Term Investments and Marketable Securities:
Short-term investments and marketable securities consist of corporate and
government bonds and equity securities. The Company has classified its
investments as Available-for-Sale securities. Accordingly, such investments are
reported at fair market value, with the resultant unrealized gains and losses
reported as a separate component of shareholders' equity.
Statements of Cash Flows Disclosure:
For purposes of the statement of cash flows, the Company considers all highly
liquid instruments purchased with an original maturity of less than three months
to be cash equivalents.
During fiscal 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
Furniture and fixtures
Tools, dies and masters
Transportation equipment
Leasehold improvements
Intangible Assets:
7-10 Years
5-7 Years
2-7 Years
7 Years
7-10 Years or life
of lease, whichever is
shorter
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, 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:
Raw materials
Finished goods
2001
2000
$2,225,814
3,610,432
$5,836,246
$4,262,298
2,523,843
$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:
Machinery and equipment
Furniture and equipment
Transportation equipment
Tools, dies, and masters
Leasehold improvements
Less: Accumulated depreciation
and amortization
Property and Equipment - Net
2001
$ 168,421
741,414
10,918
550,825
162,283
1,633,861
1,151,600
$ 482,261
2000
$ 323,233
922,386
10,918
1,972,830
169,820
3,399,187
2,723,397
$ 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
Patents and trademarks
Less: Accumulated amortization
Intangible Assets - Net
2000
$750,256
131,323
$618,933
$738,330
96,920
$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:
Current:
Corporate obligations
Mutual Funds
Government obligations
(including mortgage
backed securities)
2001 2000
COST
MARKET
COST MARKET
$ -
159,805
$ -
107,015
$ 536,000 $ 534,590
111,930
148,465
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
Government obli-
gations
Preferred stock
Total
Total
2,416,846
2,434,080
-
-
2,311,273
250,000
2,294,058
251,620
150,510
146,723
612,561 586,448
4,978,119
4,979,758
763,071 733,171
$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
Name of Issuer and
Title of Each Issue
Maturity
Date
Interest
Rate
CORPORATE OBLIGATIONS:
Number of
Units-Principal
Amount of
Bonds and
Notes
GMAC Smartnotes
GMAC Smartnotes
GMAC Smartnotes
GMAC Smartnotes
GMAC Smartnotes
GMAC Smartnotes
GMAC Smartnotes
International Business
Machines
Colgate-Palmolive
Ford Motor Credit
10/15/03
10/15/03
1/15/03
2/15/03
6/15/03
7/15/03
8/15/03
9/22/03
12/1/03
3/20/04
4.600%
4.750
5.550
5.750
4.750
4.650
4.250
5.370
5.270
6.125
-14-
250,000
325,000
250,000
140,000
300,000
200,000
499,000
100,000
100,000
245,000
Market
Value of
Each Issue
at Balance
Sheet Date
$ 251,578
323,606
254,445
142,876
302,520
201,354
498,965
103,450
103,506
251,780
2,434,080
Cost of
Each Issue
$ 250,000
325,000
250,000
140,000
300,000
200,000
499,000
102,040
100,860
249,946
2,416,846
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
Name of Issuer and
Title of Each Issue
Maturity
Date
Interest
Rate
GOVERNMENT OBLIGATIONS:
Number of
Units-Principal
Amount of
Bonds and
Notes
FHLMC 1628-N
FNMA 93-224-D
FNMA 92-2-N
FHLB
FHLB
US Treasury Note
US Treasury Note
US Treasury Bill
FNMA
FNMA
12/15/2023
11/25/2023
1/25/2024
9/15/2003
11/15/2005
11/15/2003
11/15/2003
4/18/2002
11/6/2009
11/6/2009
6.500%
6.500
6.500
5.125
4.250
4.250
4.250
2.160
4.250
4.250
26,605
59,350
7,184
255,000
750,000
200,000
250,000
250,000
250,000
500,000
Cost of
Each Issue
$ 26,043
59,807
6,159
266,200
753,004
199,891
250,169
247,330
250,000
500,000
COL. D
COL. E
Amount at Which
Each Portfolio
Market Of Equity Security
Issues and Each
Value of
Each Issue
Other Security
at Balance Issue Is Carried in
Sheet Date Balance Sheet
$ 27,112
59,776
7,175
264,603
747,075
205,437
256,797
248,330
242,028
484,055
$ 27,112
59,776
7,175
264,603
747,075
205,437
256,797
248,330
242,028
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)
COL. A
COL. B
COL. C
Name of Issuer and
Title of Each Issue
EQUITY:
Preferred Stock:
Next
Call
Date
Dividend
Rate
Number of
Shares
Cost of
Stock
COL. D
COL. E
Amount at Which
Each Portfolio
Market Of Equity Security
Issues and Each
Value of
Stock
Other Security
Issue Is Carried in
at Balance
Sheet Date Balance Sheet
Merrill Lynch Trust
9/30/08
7.28%
6,000
$ 150,000
$ 151,620
$ 151,620
Other Equity Investments:
Aberdeen Asia Pacific
Income Fund
Dreyfus Premier Limited
Term High Income CL B
100,000
100,000
100,000
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 November 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
Type
Amount
Depreciation
Reserve for bad debts
Reserve for returns
Reserve for obsolete
inventory
Section 263A costs
Deferred tax benefit from
discontinued operations
Charitable contributions
Net deferred income
tax
Classified As
Short-
Deferred
Term
Tax
Long-
Term
$ 98,139 $ 40,105
196,729
332,521
481,399
813,686
Asset (Liability)
$ -
196,729
332,521
$40,105
-
-
1,052,716
370,741
430,203
151,507
430,203
151,507
-
-
519,986
212,497
719,293 293,946
212,497
293,946
-
$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
Type
Amount
Deferred
Tax
Short-
Term
Asset (Liability)
Long-
Term
Depreciation
Reserve for bad debts
Reserve for returns
Reserve for obsolete
inventory
Section 263A costs
Charitable contributions
Deferred tax benefit
from discontinued
operations
$ 86,741
323,257
1,056,167
$ 34,517
128,634
420,280
$ -
128,634
420,280
$34,517
-
-
1,050,714
235,609
254,492
418,110
93,756
101,270
418,110
93,756
101,270
-
-
-
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
Tax credits
Deferred tax expense
$976,295
( 35,000)
( 77,369)
$863,926
$170,755
-
131,703
$302,458
$1,147,050
( 35,000)
54,334
$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
Deferred tax benefit
($283,925)
($229,509)
( 54,416)
($43,986)
($35,097)
( 8,889)
($327,911)
($264,606)
( 63,305)
November 30, 1999
State &
Federal Local Total
Current tax expense
Deferred tax expense
$201,260
$438,605
( 237,345)
$100,251
$131,664
( 31,413)
$301,511
$570,269
( 268,758)
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
Percent
Of Pretax
Income
Amount
2000
Percent
of Pretax
Amount IncomeAmount
1999
Percent
of Pretax
Income
Income tax expense (benefit)
at statutory rate
Increases (decreases) in taxes
resulting from:
State income taxes, net of federal
$1,081,456
34.00%
($334,023)
(34.00%)
$276,765
34.00%
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
Date Granted Shares Price Expiration
Of
Option
January 1988 (6)
March 1989 (1)(6)
January 1990 (2)(6)
June 1995 (3)(6)
August 1997 (6)
2,000
157,500
200,000
50,000
375,000
784,500
.50
.50
.50
2007
2007
2007
.50(4)(6) 2007
.50(5)(6) 2007
(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
Granted
Repriced
Exercised
Expired
Cancelled
Balance - November 30,
2000
Granted
Repriced
Exercised
Expired
Cancelled
Balance - November 30,
2001
$.50 - $4.50
1,184,500
-
-
- ( 3.00)
-
-
-
-
-
-
1,184,500
-
- ( .05) - ( 1.00)
$.50 - $1.50
-
400,000
-
-
( .50)
-
-
$1,259,875
-
( 150,000)
-
-
-
$1,109,875
-
( 517,125)
( 200,000)
-
-
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:
Net income
2001
2000
1999
As Reported
$2,014,369
Pro Forma As Reported
($654,510)
$1,470,083
Pro Forma As Reported
($291,099)
($1,447,726)
Pro Forma
($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
Weighted average fair value
at grant - Exercise price
equal to market price
4.25%
6.3%
5.6%
$.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:
Media advertising
Coop advertising
Accrued returns
Vacation accrual
Accrued bonuses
November 30,
2000
2001
(In Thousands)
$ 424
392
301
254
510
$1,881
$ *
242
983
*
*
$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:
Interest income
Dividend income
Realized gain on sale of
securities and debentures
Realized (loss) on sale of
securities
Royalty income
Miscellaneous
November 30,
2001
$265,240
16,057
2000
$222,459
42,461
1999
$213,335
50,657
25,342
6,262
11,211
( 30,901)
57,385
5,760
( 126,139)
37,500
3,741
( 297)
-
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
2003
2004
2005
2006
Total
Royalty Agreements
$ 423,175
318,142
289,503
89,228
-
$1,120,048
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
A
B
C
D
E
F
2001
28%
12
7
5
4
7
2000
1999
26%
13
6
6
6
6
27%
11
5
6
5
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
Plus+White
Sudden Change
Hair-Off
NutraNail
Bikini Zone
* under 10%
2001
40%
19
*
19
10
2000
36%
19
*
14
10
1999
36%
20
10
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”.
November 30,
Net income (loss) available for common
shareholders, basic and diluted
Weighted average common stock
outstanding- Basic
Year Ended
2001
2000
$2,014,369
($654,510)
6,893,232
7,153,013
Net effect of dilutive stock options
632,925
*
Weighted average common stock and
common stock equivalents - Diluted
Basic earnings per share
Diluted earnings per share
*Antidilutive
-31-
7,526,157
$.29
$.27
7,153,013
($.09)
($.09)
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
Description
Year Ended November 30, 2001:
Allowance for doubtful accounts
Additions
Balance at Charged To
Beginning
Of Year
Costs and
Expenses
Balance
At End
Deductions Of Year
$ 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
Year Ended November 30, 2000:
Allowance for doubtful accounts
$1,050,714
$ 548,815
$ 546,813 $1,052,716
$ 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
Year ended November 30, 1999:
Allowance for doubtful accounts
$1,056,709
$ 839,702
$ 845,697 $1,050,714
$ 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