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, 2002
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 file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X].
The aggregate market value of the voting stock held by non-affiliates of the Registrant (i.e., by
persons other than officers and directors of the Registrant), at the average sales price ($1.99), on
December 31, 2002, was as follows:
Class of Voting Stock
Market Value
5,224,238 shares; Common
Stock, $.01 par value
$ 10,396,234
On December 31, 2002 there was an aggregate of 7,141,098 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, 2002
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
Financial Statements
and Supplementary Data
Changes In and Dis-
agreements With
Accountants On Accounting
and Financial Disclosure
10. Risk Factors
Risk Factors
11. Directors and
Executive Officers
of the Registrant
Directors and Executive
Officers
- iii-
Form 10-K
Item No.
Headings in this Form
10-K for Year Ended
November 30, 2002
12. Executive Compensation
Executive Compensation
13. Security Ownership
of Certain Beneficial
Owners and Management
14. Certain Relationships
and Related Transactions
15. 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............ 15
8. Financial Statements and Supplementary Data....................................
15
9. Changes In and Disagreements with Accountants On Accounting
and Financial Disclosure....................................................................
10. Risk Factors………………………………………………………….
8
10
16
16
PART III
11. Directors and Executive Officers......................................................
12. Executive Compensation..................................................................
13. Security Ownership of Certain Beneficial Owners and Management.
14. Certain Relationships and Related Transactions.................................
18
20
28
29
PART IV
15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 30
- 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 and
cosmeceutical 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 principal brand and trademark
names include “Plus+White” (oral health-care products), “Sudden Change” (skin-care products),
“Nutra Nail” and “Power Gel” and “Nutra Nail 60" (nail treatments), “Bikini Zone” pre and after-
shave products, “Mega 14" Balanced Fiber and “Mega T” Green Tea (dietary products), “Hair Off”
(depilatories), “IPR” (foot-care products), “Solar Sense” and “Kid Sense” (sun-care products),
“Mood Magic” (lipsticks), “Cloud Dance” and “Cherry Vanilla” (perfumes), “Scar Zone,” a scar
diminishing cream.
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 internationally.
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 15, 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).
The Company replaced PPA - product revenue through promotion and sale of “Mega 14”
Balanced Fiber, an all natural-fiber diet product, “Mega T” Green Tea, and Mega G Grapefruit.
These three products accounted for $1,280,615 in net sales (2.8%) in the current fiscal year.
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, a minimum of
$150,000 per annum minimum royalties, for mark-associated product sales.) Sales of these products
were $2,004,372 (4% of sales) in the current fiscal year.
The Company's total net-sales in fiscal 2002 were approximately $45,241,000 generating
approximately $29,899,000 in gross profits. International sales accounted for approximately 3 %
of sales. The Company experienced a net profit of approximately $3,074,000 for the current fiscal
year. Its net worth is approximately $18,835,000. (See the Financial Statements and Notes.)
Including the principal members of management (see Directors and Executive Officers), the
Company, at November 30, 2002, had 152 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)i Marketing
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, 2002, the Company's largest customers were
Wal-Mart (approximately 31% of net sales), Walgreen (approximately 13%), Rite Aid, CVS,
Albertson and Eckerd (approximately 7%, 7%, 5%, and 3%, 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.
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.
(c)ii Advertising
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), which included principally "Plus+White",
"Sudden Change", "Bikini Zone", "Mood Magic", “Mega T”, and “Cloud Dance” and “Cherry
Vanilla,” and “Scar Zone.”
(e) All Products
Health and beauty, cosmetic and fragrance and over the counter products accounted for
approximately 74%, 22% and 4%, respectively, of the Company’s net-sales revenues during fiscal
2002.
3
(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, and “Nutra Nail Power
Gel.”
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, 2002, the Company had paid or accrued
Alleghany-Pharmacal License royalties in the sum of $8,732,641.
The products subject of the Alleghany-Pharmacal License accounted for approximately
$13,696,000 or 30 % of total net sales in the fiscal year ended November 30, 2002. “Nutra Nail”
and the “Hair-Off” depilatory were the leaders among all of the Company’s license-agreement
products, producing approximately 19% and 9%, respectively, of net sales.
ii. Solar Sense, Inc.
CCA commenced the marketing of its sun-care products line following a May 1998 License
Agreement with Solar Sense, Inc. (the “Solar Sense License”), pursuant to which it acquired the
exclusive right to use the trademark names "Solar Sense" and "Kids Sense” and 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 $1,494,000
in net sales of sun-care products in 2002, and paid or accrued Solar Sense the royalty of $74,698.
4
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 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 is required to pay a royalty
of 5% of net sales of all products sold under the license, by the Company. Net sales were
approximately $1,407,000 in 2002, and the Company paid or accrued the Nail Consultants a royalty
of $70,362.
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 paid the balance in February 2002. The total expense was recorded 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 is paying a royalty of 5% of net sales of all
products subject to the license. The license fees in 2002 were not material.
v. Other Licenses
The Company is not party to any other license agreement that is currently 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,
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.
5
(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 products, 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. Under a new net lease, the Company occupies approximately 75,550
square feet of space. Approximately 58,000 square feet in such premises is used for warehousing
and 17,500 square feet for offices. The annual rental is $327,684, with an annual CPI increase of
3% but not to exceed 15% cumulative 5 year increase. The lease expires on May 31, 2012 with a
renewal option for an additional five years..
The lease requires the Company to pay for additional expenses, Common Area Maintenance
(“CAM”), which includes real estate taxes, common area expense, utility expense, repair and
maintenance expense and insurance expense. For the year ended November 30, 2002, CAM was
$97,763.
Item 3. LEGAL PROCEEDINGS
The only material legal proceedings outstanding as of November 30, 2002 were related to
the Company’s diet suppressant products containing phenylpropanolamine (“PPA”). There are
approximately 10 suits presently pending. Reference is made to Forms 8K filed on May 22, 2002
and November 20, 2002 for the background and the insurance issues relative thereto.
There are approximately 5000 suits that have been brought against the numerous
pharmaceutical companies that have been engaged in distributing and/or manufacturing PPA
products. Almost all have been referred to the United States District Courts in the Western District
of Washington (MDL 1407). Outside counsel for the Company believes that the PPA cases against
the Company are defensible. However, there can be no assurance that the current PPA litigation will
not have a material adverse effect upon the Company’s operations.
6
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 11, 2002, 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.
(3) The Board's appointment of Sheft Kahn & Company LLP as the Company's independent
certified public accountants for the 2002 fiscal year was approved.
The Company has not submitted any matter to a vote of security holders since the 2002
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 was 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 2002,
2001 and 2000 fiscal years was as follows:
Quarter Ended 2002
$1.73 - $1.25 $ .93 - $ .37
February 29
$1.74 - $1.38
May 31
$2.00 - $1.55
August 31
November 30 $1.99 - $1.55
$1.09 - $ .62
$1.90 - $ .85
$1.56 - $ .82
2001
2000
$1.75 - $1.12
$1.50 - $ .87
$1.28 - $1.00
$1.06 - $0.59
The high and low prices for the Company’s Common Stock, on February 18, 2003, were
$3.50 and $3.16 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, 2002, there were approximately 220 holders of shares of the Company's
equity stock. (There are a substantial number of shares held of record in various street and
depository trust accounts, which represent approximately 1,000 additional shareholders.)
8
The dividend policy is at the discretion of the Board of Directors and will depend on
numerous factors, including earnings, financial requirements and general business conditions. On
January 8, 2003, the Board of Directors approved the payment of the company’s first cash dividend
in the amount of $0.12 per share, payable to the holders of the Company’s common stock, $0.06
payable on May 1, 2003 and December 1, 2003 to the shareholders of record on April 1, 2003 and
November 1, 2003, respectively.
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
2002
$45,241,493
439,547
45,680,974
2001
$41,364,648
338,883
41,703,531
Year Ended November 30,
2000
$36,990,170
186,284
1999
$37,898,563
285,469
37,176,454
38,184,032
1998
$41,083,974
318,296
41,402,270
40,645,418
38,522,778
36,658,875
37,370,017
38,570,096
5,035,556
3,180,753
517,579
-
-
( 1,500,000)
3,074,353
2,014,369
( 654,510)
3,074,353
2,014,369
( 654,510)
-
-
814,015
-
512,504
( 803,603)
( 291,099)
2,832,174
-
1,667,973
-
1,667,973
$
$
.43
.41
$ .29
$ . 27
($ .09)
($ .09)
($ .04)
($ .04)
$ .23
$ .21
6,893,232 7,153,013
7,174,203 7,243,956
Weighted Average Number
of Shares Outstanding 7,099,759
Weighted Average Number
of Shares and Common Stock
Equivalents Outstanding
Balance Sheet Data:
7,579,983
Working Capital
Total Assets
Total Liabilities
Total Stockholders’ Equity
(1)In January 2003, the Company declared a $.12 dividend payable to all holders of the Company’s common stock, $.06 payable to
shareholders of record on April 1, 2003 and November 1, 2003, respectively.
1999
$12,291,890
21,494,987
6,328,905
15,166,082
1998
$12,067,263
24,010,136
8,410,687
15,599,449
7,526,157
7,153,013
As At November 30,
2000
$12,361,305
$10,236,977
20,312,056
20,598,917
4,674,278 6,345,508
13,966,548
15,924,639
2001
7,174,203
8,075,169
2002
11,264,206
24,805,064
5,969,641
18,835,423
10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, this “Management's Discussion and
Analysis of Financial Condition and Results of Operations” contains forward-looking statements.
These statements involve known and unknown risks and uncertainties that may cause actual results
or outcomes to be materially different from any future results, performances or achievements
expressed or implied by such forward-looking statements. Statements which explicitly describe such
issues, investors are urged to consider any statement labeled with the terms “believes,” “expects,”
“intends’” or “anticipates” to be uncertain and forward looking.
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, 2002, the Company had paid or accrued $8,732,641 in royalty
payments. The Company expects to reach $9,000,000 in March or April of 2003.
Comparison of Results for Fiscal Years 2002 and 2001
The Company’s revenues increased from $41,703,531 in fiscal 2001 to $45,680,974 in the
current fiscal year. Gross profit margins were 66% this year as compared to 64% last year. Net
income was $3,074,353 as compared to $2,014,369 in fiscal 2001. In accordance with GAAP, the
Company reclassified certain advertising expenditures as a reduction of sales rather than report them
as advertising expenses. The reclassification is the adoption by the Company of the EITF 90-16
GAAP standard. The reclassification reflects a reduction in sales for the year ended November 30,
2002 by $1,169,755 and $1,154,879 respectively. The reclassification reduces the gross profit
margin but does not affect the net income.
For the current fiscal year, advertising, cooperative and promotional allowance expenditures
were $9,239,249 as compared to $8,776,470. Advertising expenditures were 20.4% of sales vs.
21.2% last year. SG&A expenses increased 11.4% to $15,389,528 (this includes $492,045 in legal
fees as settlement from two outstanding lawsuits during the year) from $13,812,890 in 2001. The
increase was due mainly to SG&A expenses, which vary in relation to additional sales volume (i.e.
payroll, freight-out, royalties, etc.). Sales returns and allowances decreased to 10.4% of gross sales
from 11.5% last year. Research and development expenses increased to $741,974 this year from
$687,731 last year.
On January 22, 2002, K-Mart filed for bankruptcy under Chapter XI. Sales to K-Mart for
11
the year ended November 30, 2001 were approximately $2,352,000. As at November 30, 2002, after
adjustments for charge-backs, there was $256,236 due and outstanding for pre-petition receivables
for which the Company has set up a reserve of $230,612 (90%). The Company’s sales to K-Mart,
as a debtor-in-possession, during 2002, were $989,558. As at February 18, 2003, there was
$147,647 due as administrative receivables from K-Mart as debtor -in-possession, all of which are
current.
Currently there is no indication as to what percentage of the payables owed by K-Mart will
be paid to suppliers for the indebtedness, prior to the filing of the Chapter XI petition, or is there the
absolute assurance that all administrative priorities (receivables owed) to suppliers under sales to
K-Mart as a debtor-in-possession, will be paid in full.
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
indication what percentage of the payables owed by K-Mart will be paid to its suppliers.
12
Liquidity and Capital Resources
As at November 30, 2002, the Company had working capital of $11,264,206 as compared
to $10,236,977 at November 30, 2001. The increase would have been higher had the Company not
allocated an additional $1,800,000 of their investments into longer term fixed income instruments.
All of the investments can be liquidated at any time. The ratio of total current assets to current
liabilities is 3.1 to 1 as compared to a ratio of 3.5 to 1 for the prior year. Stockholders’ equity
increased to $18,835,423 from $15,924,639 primarily due to the net income from operations.
The Company’s cash position and short-term triple A investments at year-end was
$5,065,191, up from $2,911,283 as at November 30, 2001.
Inventories were $3,743,131 vs. $4,783,530 and accounts receivable ($6,265,955 vs.
$4,464,991) increased $1,800,964 due to increased sales. Current liabilities are $5,462,799 vs.
$4,163,622 in the prior year, which increased by $1,299,177. At year-end, the Company had long
and short-term triple A investments and cash of $11,788,709 as compared to $7,891,041. As of
November 30, 2002, the Company was not utilizing any of the funds available under its $7,000,000
credit line. The Company has issued a security agreement, which would be used 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,
more particularly, unless the Company were able to pass along related cost increases to its
customers. There was no significant impact on operations as a result of inflation during the current
13
fiscal year.
Contractual Obligations
The following table sets forth the contractual obligations in total for each year of the next
five years as at November 30, 2002. Such obligations include the current lease for the Company’s
premises, written employment contracts and License Agreements.
2003 2004 2005 2006 2007
427,684
427,684
Lease on Premises (1)
Royalty Expense (2)
30,000
42,000
Employment Contracts (3) 1,430,000 1,430,000 1,430,000 1,430,000 1,430,000
1,887,684
Total Contractual Obligations 2,167,043
427,684
309,359
427,684
31,000
427,684
30,000
1,887,684
1,899,684
1,888,684
(1) The Lease is a net, net lease requiring a yearly rental of $327,684 plus Common Area
Maintenance “CAM”. See Section Part I, Item 2. The rental provided above is the base rental
and estimated CAM. CAM for 2002 was $97,763. The figures above do not include
adjustments for the CPI. The lease has an annual CPI adjustment of 3% not to exceed 15%
cumulative for five years.
(2) See Section Part I, Item 1(e). The Company is not required to pay any royalty in excess of
realized sales if the Company chooses not to continue under the license. The figures set forth
above refer to the minimum royalties the Company must pay to maintain its license to market
the licensed product.
(3) The Company has executed Employment Contracts with its President, David Edell and its
Chairman of the Board, Ira W. Berman. The contracts for both are exactly the same. The
contracts expire on December 31, 2010. The contracts provide for a base salary which
commenced in 1994 in the amount of $300,000, with a year-to-year CPI or 6%, plus 2.5% of the
Company’s pre-tax income less depreciation and amortization (EBTDA) (The “2.5% measure
in the bonus provision of the Edell/Berman contracts was amended so as to calculate it against
earnings before income taxes, less depreciation, amortization and expenditures for media and
cooperative advertising in excess of $8,000,000. On May 24, 2001, the contract was amended
increasing the base salary to $400,000. The figures above include the total salaries for fiscal
2002 and only the base salaries for the five years (plus 20% of the base salary), without
adjustment for CPI, and without estimating bonuses, as the bonus is contingent upon future
earnings. David Edell’s sons, Dunnan Edell and Drew Edell have 5-year employment contracts
in the amounts of $270,000 and $200,000 respectively, which expire on November 30,2007 (See
Item 11, Summary Comprehensive Table). Dunnan Edell is a director and the Vice President
of Sales and Marketing. Drew Edell is a director and the Vice President of Research and
Product Development and Product Manager of certain products.
14
Item 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
The Company’s financial statements (See Item 15) 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”. $952,000 of the Company’s $10,203,000
portfolio of investments (approximate, as at Nov. 30, 2002) is invested in the “Equity” category, and
approximately $759,000 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, thus the company does not believe that its
investment-market risk is material.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are listed under Item 15 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, 2002 and 2001:
Fiscal 2002
Feb. 28
May 31
Aug. 31
Nov. 30
Three Months Ended
Net Sales
Total Revenue
Cost of Products Sold
Net Income
Earnings Per Share:
Basic
Diluted
10,158,386
10,247,194
3,764,904
300,063
13,213,844
13,312,347
4,399,740
1,217,986
11,391,258
11,511,314
3,559,990
722,822
10,478,005
10,610,119
3,617,683
833,482
.04
.04
.17
.16
.10
.10
.12
.11
Fiscal 2001
Feb. 28
May 31
Aug. 31
Nov. 30
Three Months Ended
Net Sales
Total Revenue
Cost of Products Sold
Net Income
Earnings Per Share:
Basic
Diluted
$10,096,529
10,178,085
4,244,147
336,846
$12,787,878
12,864,483
4,372,263
1,137,779
$10,024,875
10,114,197
3,368,589
304,125
$8,455,366
8,546,766
2,892,422
$235,619
.17
.16
.04
.04
.03
.03
.05
.05
15
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.
Item 10. RISK FACTORS
Cautionary Statements Regarding Forward-Looking Statements
This annual report contains forward-looking statements based upon current expectations of
management that involve risks and uncertainty. Actual risks could differ materially from those
anticipated. Additional risks and uncertainties not presently known may possibly impair business
operations. If any of these risks actually occur, the business, financial conditions and operating
results could be materially adversely affected. The cautionary statements made in this Annual
Report on Form 10K should be read as being applicable to all forward-looking statements whenever
they appear in this Annual Report.
Concentration of Risk
The Company relies on mass merchandisers and major drug chains for the sales of its
products. The loss of any one of those accounts could have a substantive negative impact upon its
financial operations. {See Business - General, Item 1(c)i Marketing.}
The Company does not manufacture any of its products. All of the products are
manufactured for the Company by independent contract manufacturers. There can be no assurance
that the failure of a supplier to deliver the products ordered by the Company when requested will
not cause burdensome delays in the Company’s shipments to accounts. The Company does
constantly seek alternative suppliers should a major supplier fail to deliver as contracted. A failure
of the Company to ship as ordered by its accounts could cause penalties and/or cancellations.
There is No Assurance That Business Will Continue to Operate Profitably.
In the current year, net sales were $45,241,493. Almost all of the products were able to
maintain the projected gross profit margins. Net income is $3,074,353. There were no FDA policies
that affected the Company’s brands. In 2000, the FDA suggested the discontinuance of the
Company’s products containing PPA. As a result, revenues that year were reduced by $1,245,000
due to returns. In addition, the Company also wrote down $255,000 in inventory causing the
Company to incur a loss of $654,510 for the year.
The Pending Litigations in Connection with the Sale of the Company’s Products
Containing PPA May Entail Significant Uncertainty and Expense.
16
As described in “Legal Proceedings” and referenced 8Ks filed on May 23, 2002 and
November 20, 2002, this matter was fully discussed. As previously advised, it is independent
counsel opinion that the Company has a defensible position.
Competition in the Cosmetic, Health and Beauty Aid Industry is Highly Competitive.
Reference is made to “Business ‘ Sub-section’ of Competition.”
CLASS A Shareholders Retain Control of Board of Directors.
See “Voting” in the Proxy Statement dated May 24, 2002. Class A Shareholders, David
Edell, President and Ira W. Berman, Chairman of the Board of Directors, have the right to elect 4
members to the Board of Directors. Common stockholders have the right to elect 3 members to the
Board of Directors.
Future Success Depends on Management’s Ability.
The Company is not financially as strong to compete with the major companies against
whom it competes. The ability to successfully introduce new products and increase the growth and
profitability of its brand products relies upon the skills and creativity of the Edell family, David
Edell, President, Dunnan Edell, Vice-President of Sales and Marketing, and Drew Edell, Vice-
President of Research and Development of new products and the maintenance of the quality of the
current products being marketed. Ira W. Berman, Esq. is the director of legal and financial planning.
The loss of any of these executives could materially adversely affect the business and prospects of
the future of the Company.
17
PART III
Item 11. DIRECTORS AND EXECUTIVE OFFICERS
The Executive Officers and Directors of the Company are as follows:
NAME POSITION
COMPANY SERVICE
YEAR OF FIRST
David Edell
Ira W. Berman
President and Chief
Executive Officer,
Director
Chairman 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
Director
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. In 1954, David Edell
received a Bachelor of Arts degree from Syracuse University.
Ira W. Berman, age 71, is the Company's Executive Vice President and Corporate Secretary.
18
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
Law Degree (1955) from Cornell University, and is a member of the American Bar Association.
Dunnan Edell is the 47 year-old son of David Edell. He is a graduate of George Washington
University. He has been a director since 1994, and currently holds the position of 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 45 year-old son of David Edell, is a graduate of Pratt Institute, where he
received a Bachelor's degree in Industrial Design. He has been a director since 2000. He joined the
Company in 1983, and in 1985, he was appointed Vice President-Product Development and
Production.
John Bingman, age 51, 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 90, has been a private investment consultant and a banker since April 1982.
He is a certified Dutch Tax Consultant and a member of The Netherlands. He was knighted on his
80th birthday by Queen Beatrix of the Netherlands for his untiring efforts on behalf of the Anne
Frank Center USA for which he is still actively working as the “Chairman-Emeritus.”
Stanley Kreitman, age 71, 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 is 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, Bank Hapdalim USA (Signature Bank),
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 43, is the President, Chief Financial Officer and Chief Operating Officer
of the publicly-owned Jennifer Convertibles, Inc. 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. However, because Mr. Abada is the son-in-law of the Chairman of the Board of
Directors, as a result of the new regulations, he is not deemed “independent” and in order to comply
with the regulations, he will voluntarily resign as a director on April 1, 2003. At that time an
independent financial professional, Robert A. Lage, will join the Audit Committee and he will be
appointed as an interim director until the annual meeting of shareholders in July 2003.
19
Item 12. EXECUTIVE COMPENSATION
i. Summary Compensation Table
The following table summarizes compensation earned in the 2002, 2001 and 2000 fiscal
years by all of the executive officers whose fiscal 2002 compensation exceeded $100,000, including
the Chief Executive Officer (the "Named Officers").
Annual Compensation Long-Term Compensation
Name and
Principal
Position
David Edell,
President
and Chief
Executive
Officer
Year
2002
2001
2000
Ira. W. Berman, 2002
2001
Secretary and
Executive
2000
Vice President
Dunnan Edell,
Executive
Vice President
- Sales
Drew Edell
Vice President
Manufacturing
John Bingman
Treasurer
2002
2001
2000
2002
2001
2000
2002
2001
2000
-------------------------
All
Other
Annual
Compen-
sation(1)
Number
of Shares
Covered Other
by Stock Long-Term
Options Compen-
Granted(2) sation
Salary
Bonus
$584,155
514,399
425,372
$332,060
247,806
132,221
-
$38,176
35,985
-
12,552 -
$584,155
514,399
425,372
$332,060
247,806
132,221
$23,372
24,117
11,775
$253,172
232,595
218,076
$ 45,000
4,231
4,194
$ 1,626
2,914
2,723
$203,845
187,596
175,000
$ 99,843
101,354
98,662
$ 25,000
3,365
3,365
$ 20,000
1,862
-
$ 1,178
816
577
$ 948
821
855
-
-
-
-
-
-
-
-
-
-
-
-
20
0
0
0
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.
(2) Information in respect of stock option plans appears below in the sub-topic, Employment
Contracts/Executive Compensation Program.
ii. Fiscal 2002 Option Grants and Option Exercises,
Year-End Option Valuation, Option Repricing
No new options were issued to any of the Named Officers in fiscal 2002.
The next table identifies 2002 fiscal-year option exercises by Named Officers, and reports
a valuation of their options.
Fiscal 2002 Aggregated Option Exercises
and November 30, 2002 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, 2002 at November 30, 2002
David Edell
100,000
Ira W. Berman 100,000
Dunnan Edell
Drew Edell
-
-
$ 150,000
$ 150,000
-
-
157,500
202,000
75,000
75,000
$193,725
$248,460
$ 92,250
$ 92,250
---------------------
(1) Represents the difference between market price and the respective exercise prices of options at
November 30, 2002.
21
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)
Drew Edell (1)(2)
25,000
-------------------
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 outside director was paid $3,000 per meeting for attendance of board meetings in
fiscal 2002 (without additional compensation for committee meetings). No new options were
granted to any director in 2002.
The full Board of Directors met three times in fiscal 2002.
22
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 2002, 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.
Stanley Kreitman, former president of a national bank, qualifies as a “financial expert” as
defined by the SEC in Instruction 1 to proposed Item 309 of Regulation S-K, which is set forth in
the SEC Release No. 34 - 46701 dated October 22, 2002. Mr. Kreitman is an “independent” as that
term is used in Section 10A(m)(3) of the Exchange Act.
Jack Polak was knighted by the Dutch government in 1993. He is a certified Dutch tax
consultant and a member of the association of certified tax accountants. The Board has deemed that
he is both “independent” and qualifies as a “financial advisor.”
Rami Abada, President of Jennifer Convertibles, although the son-in-law of one of the
directors, had been deemed “independent” by the Board of Directors prior to the new regulations.
However, because Mr. Abada is the son-in-law of the Chairman of the Board of Directors, he will
voluntarily resign as a director on April 1, 2003. At that time an independent financial professional,
Robert A. Lage, will join the Audit Committee and he will be appointed as an interim director until
the annual meeting of shareholders in July 2003.
Robert A. Lage, age 66, a retired CPA., was a partner at PricewaterhouseCoopers
Management Consulting Service prior to his retirement in 1997. He has been engaged in the
practice of public accounting and management consulting since 1959. He received a BBA from
Bernard Baruch College of the City University of New York in 1958.
v. Employment Contracts/Compensation Program
23
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 of the Company. 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
2002 fiscal year.
The Company has executed Employment Contracts with its President, David Edell and its
Chairman of the Board, Ira W. Berman. The contracts for both are exactly the same. The contracts
expire on December 31, 2010. The contracts provide for a base salary which commenced in 1994
in the amount of $300,000, with a year-to-year CPI or 6% plus 2.5% of the Company’s pre-tax
income less depreciation and amortization (EBTDA), plus 20% of the base salary for the fiscal year.
(The “2.5% measure” in the bonus provision of the Edell/Berman contracts was amended so as to
calculate it against earnings before income taxes, less depreciation, amortization and expenditures
for media and cooperative advertising in excess of $8,000,000. On May 24, 2001, the contract was
amended increasing the base salary to $400,000. David Edell’s sons, Dunnan Edell and Drew Edell
have 5-year employment contracts in the amounts of $270,000 and $200,000 respectively, which
expire on November 30, 2007 (See Item 11, Summary Comprehensive Table). Dunnan Edell is a
director and the Vice President of Sales and Marketing. Drew Edell is a director and the Vice
President of Research and Product Development and Product Manager of certain products.
vi. Stock Option Plans
Long-term incentives are provided through the issuance of stock options.
(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 Company's 1994 Stock Option Plan covers 1,000,000 shares of its Common Stock.
The 1994 Option Plan provides (as had the 1984 and 1986 plans) for the granting of two (2)
types of options: "Incentive Stock Options" and "Nonqualified Stock Options". The Incentive Stock
Options (but not the Nonqualified Stock Options) are intended to qualify as "Incentive Stock
Options" as defined in Section 422(a) of The Internal Revenue Code. The Plans are not qualified
under Section 401(a) of the Code, nor subject to the provisions of the Employee Retirement Income
Security Act of 1974.
Options may be granted under the Options Plans to employees (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
24
be granted, the number of shares subject to each option, the time or times during the term of each
when options may be exercised, and other terms. The Board has the power to delegate
administration to a Committee of not less than two (2) Board members, each of whom must be
disinterested within the meaning of Rule 16b-3 under the Securities Exchange Act, and ineligible
to participate in the option plan or in any other stock purchase, option or appreciation right under
plan of the Company or any affiliate. Members of the Board receive no compensation for their
services in connection with the administration of option plans.
Option Plans permit the exercise of options for cash, other property acceptable to the Board
or pursuant to a deferred payment arrangement. The 1994 Plan specifically authorizes that payment
may be made for stock issuable upon exercise by tender of Common Stock of the Company; and the
Executive Committee is authorized to make loans to option exercisers to finance optionee
tax-consequences in respect of option exercise, but such loans must be personally guaranteed and
secured by the issued stock.
The maximum term of each option is ten (10) years. No option granted is transferable by
the optionee other than upon death.
Under the plans, options will terminate three (3) months after the optionee ceases to be
employed by the Company or a parent or subsidiary of the Company unless (i) the termination of
employment is due to such person's permanent and total disability, in which case the option may,
but need not, provide that it may be exercised at any time within one (1) year of such termination
(to the extent the option was vested at the time of such termination); or (ii) the optionee dies while
employed by the Company or a parent or subsidiary of the Company or within three (3) months after
termination of such employment, in which case the option may, but need not provide that it may be
exercised (to the extent the option was vested at the time of the optionee's death) within eighteen
(18) months of the optionee's death by the person or persons to whom the rights under such option
pass by will or by the laws of descent or distribution; or (iii) the option by its terms specifically
provides otherwise.
The exercise price of all nonqualified stock options must be at least equal to 85% of the fair
market value of the underlying 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, 2002, 584,500 stock options, yet exercisable, to purchase 584,500
25
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.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CCA INDUSTRIES, INC, THE DOW JONES US COSMETICS INDEX
AND THE DOW JONES US TOTAL MARKET INDEX
S
R
A
L
L
O
D
180
160
140
120
100
80
60
40
20
0
1997 1998 1999 2000 2001 2002
Cumulative Total Return*
CCA Industries, Inc.
Dow Jones US
Cosmetics Index
Dow Jones US Total
Market Index
12/97
100
CCA Industries, Inc.
DJ US Cosmetics Index
100
DJ US Total Market Index 100
---------------------
* $100 invested on December 31, 1997 in stock and indices, including reinvestment of
dividends.
12/98 12/99 12/00 12/01 12/02
57
104
125
59
80
122
91
77
95
26
88
139
51
92
153
26
Item 13. 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 November 30, 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)
444,685
484,615
157,500
13.0/14.9%
393,745
473,615
202,000
12.1/14.6%
27,700
-
25,000
.4/.7%
-
-
41,250
51,250
-
25,000
.0/.3%
25,000
.0/.3%
75,000
.6/1.6%
75,000
.7/1.7%
-
-
-
27
-
-
-
-
958,630
958,230
584,500
26.8%/34.2
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, Drew Edell and Ira Berman are officers and
directors. Mr. Bingman is an officer. Messrs. Abada, Kreitman and Polak are directors.
Item 14. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firm of Post, Polak, Goodsell, MacNeil & Strauchler represented the Company in
two lawsuits in the current year, both of which have been satisfied during litigation. Frederick B.
Polak, a partner in the firm, is the son of a director of the Company, Jack Polak. The law firm
received fees of $142,045 during the year. There is no litigation currently outstanding with the firm.
28
PART IV
Item 15. 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, 2002 and 2001 Consolidated Statements of Income (Loss) for the years ended
November 30, 2002, 2001 and 2000. Consolidated Statements of Comprehensive Income (Loss),
Consolidated Statements of Shareholders' Equity for the years ended November 30, 2002, 2001 and
2000, Consolidated Statements of Cash Flows for the years ended November 30, 2002, 2001 and
2000, Notes to Consolidated Financial Statements.
Financial Statement Schedules:
Schedule II: Valuation Accounts; Years Ended Nov. 30, 2002, 2001 and 2000.
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.
(a) 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.
(b) The February 1999 Amendments to the Amended and Restated Employment Agreements
of David Edell and Ira Berman (1994) are incorporated by reference to the 1998 10-K.
(Exhibit pages 00001-00002)
(c) The Forms 8K, filed on May 22, 2002 and November 20, 2002, are incorporated by
reference to this 2002 10K.
(d) The following contracts are annexed hereto.
29
(i) Amended and restored Employment Contract of David Edell - October 2002.
(ii) Amended and restored Employment Contract of Ira W. Berman - October 2002.
(iii) Employment Agreement with Dunnan Edell - October 2002.
(iv) Employment Agreement with Drew Edell - October 2002.
(11)
Statement re Per Share Earnings (included in Item 15, Financial Statements)
Two Forms 8-K were filed during the 2002 fiscal year.
Shareholders may obtain a copy of any exhibit not filed herewith by writing to CCA
Industries, Inc., 200 Murray Hill Parkway, East Rutherford, New Jersey 07073. Moreover, exhibits
may be inspected and copied at prescribed rates at the Commission’s public reference facilities at
Judiciary Plaza, 450 Fifth Street, 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).
30
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
February 28, 2003
February 28, 2003
s/ Dunnan Edell
DUNNAN EDELL
Vice President,
Director
February 28, 2003
s/ Drew Edell
DREW EDELL
Vice President,
Director
February 28, 2003
s/ Stanley Kreitman
STANLEY KREITMAN
Director
February 28, 2003
s/ Rami Abada
RAMI ABADA
s/ Jack Polak
JACK POLAK
s/John Bingman
JOHN BINGMAN
Director
February 28, 2003
Director
February 28, 2003
Treasurer
February 28, 2003
31
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002 AND 2001
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ........................................... 8-31
SUPPLEMENTARY INFORMATION
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, 2002 and 2001, 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, 2002. These consolidated financial statements are the responsi-
bility of the Company’s 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, 2002 and 2001, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended November 30, 2002, in conformity
with accounting principles generally accepted in the United States of America.
Our audits were made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The supplemental schedules listed in the index to Item 14
are presented for purposes of complying with the Securities and Exchange Commission’s rules
and are not a required part of the basic consolidated financial statements. The supplemental
schedules have been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, is fairly stated, in all material respects in
relation to the basic consolidated financial statements taken as a whole.
SHEFT KAHN & COMPANY LLP
CERTIFIED PUBLIC ACCOUNTANTS
February 3, 2003
Jericho, New York
-1-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
(Note 7)
November 30,
2002
2001
Current Assets
Cash and cash equivalents (Note 14)
Short-term investments and marketable
securities (Notes 2 and 6)
Accounts receivable, net of allowances of
$1,222,408 and $1,295,086, 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
Deferred income taxes (Note 8)
Other
$ 1,585,647
$ 2,555,938
3,479,544
355,345
6,265,955
3,743,131
363,457
1,703
1,287,568
4,464,991
4,783,530
401,403
221,989
1,617,403
16,727,005
14,400,599
720,739
482,261
577,414
618,933
6,723,518
-
-
56,388
4,979,758
20,598
40,105
56,663
Total Other Assets
Total Assets
6,779,906
5,097,124
$24,805,064
$20,598,917
See Notes to Consolidated Financial Statements.
-2-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued
liabilities (Note 10)
Income tax payable
November 30,
2001
2002
$ 5,284,109
178,690
$ 4,154,256
9,366
Total Current Liabilities
5,462,799
4,163,622
Subordinated Debentures (Note 7)
501,656
510,656
Deferred Income Taxes (Note 8)
5,186
-
Commitments and Contingencies (Note 12)
Shareholders' Equity
Preferred stock, $1.00 par; authorized
20,000,000 shares; none issued
Common stock, $.01 par; authorized
15,000,000 shares; issued and
outstanding 6,440,523 and
6,242,823 shares, respectively
Class A common stock, $.01 par; authorized
5,000,000 shares; issued and outstanding
973,230 and 1,020,930 shares,
respectively
Additional paid-in capital
Retained earnings
Unrealized (losses) on marketable securities
Less: Treasury Stock (271,155 and
218,196 shares at November 30,
2002 and 2001, respectively)
-
-
64,405
62,428
9,732
3,832,796
15,389,415
( 107,990)
19,188,358
10,209
3,834,296
12,315,062
( 50,151)
16,171,844
352,935
247,205
Total Shareholders' Equity
18,835,423
15,924,639
Total Liabilities and Shareholders' Equity
$24,805,064
$20,598,917
See Notes to Consolidated Financial Statements.
-3-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Years Ended November 30,
2002
2001
2000
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
$45,241,493
439,481
$41,364,648
338,883
$36,990,170
186,284
45,680,974
41,703,531
37,176,454
15,342,317
14,877,421
14,299,928
15,389,528
13,812,890
12,557,064
9,239,249
741,974
( 105,724)
38,074
8,776,470
687,731
299,254
69,012
8,837,665
555,462
249,279
159,477
40,645,418
38,522,778
36,658,875
Income before Special Charge
and Provision for
Income Taxes
5,035,556
3,180,753
517,579
Special Charge (Note 15)
-
-
( 1,500,000)
Income (Loss) before Provision
(Benefit) for Income Taxes
5,035,556
3,180,753
( 982,421)
Provision (Benefit) for Income Tax
1,961,203
1,166,384
( 327,911)
Net Income (Loss)
$ 3,074,353
$ 2,014,369
($ 654,510)
Weighted Average Shares
Outstanding
Basic
Diluted
Earnings (Loss) Per Common Share
(Note 2):
Basic
Diluted
7,099,759
7,579,983
6,893,232
7,526,157
7,153,013
7,153,013
$.43
$.41
$.29
$.27
($.09)
($.09)
See Notes to Consolidated Financial Statements.
-4-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended November 30,
2002
2001
2000
Net Income (Loss)
$3,074,353
$2,014,369
($ 654,510)
Other Comprehensive Income
(Loss)
Unrealized holding gain (loss)
on investments
( 57,839)
14,696
86,008
Provision (Benefit) for Income Taxes
( 22,527)
5,555
13,742
Other Comprehensive Income
(Loss) - Net
Comprehensive Income
(Loss)
Earnings (Loss) Per Share:
Basic
Diluted
( 35,312)
9,141
72,266
$3,039,041
$2,023,510
($ 582,244)
$.43
$.40
$.29
$.27
($.08)
($.08)
See Notes to Consolidated Financial Statements.
-5-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2002, 2001 AND 2000
Paid-In
Shares Amount Capital
Common Stock
Additional
Unrealized
Retained
Earnings Securities
Marketable Treasury
Stock
Gain (Loss) on
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
7,342,081
$73,420
$4,453,478
$10,955,203 ($150,855) ($165,166)
-
-
-
-
-
-
-
-
-
-
-
-
- ( 619,965)
- ( 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
Net income for the year
Unrealized gain on marketable
securities
Purchase of 110,700 shares of
treasury stock
Balance - November 30, 2001
Issuance of common stock
Net income for the year
Unrealized (loss) on marketable
Purchase of 52,959 shares of
securities
treasury stock
Balance - November 30, 2002
See Notes to Consolidated Financial Statements.
200,000
2,000
( 2,000)
-
-
-
-
-
-
-
2,014,369
-
-
-
14,696
-
-
-
-
-
7,263,753
150,000
72,637
1,500
-
-
-
-
-
-
7,413,753
$74,137
-6-
3,834,296
( 1,500)
- - - ( 70,973)
( 50,151) ( 247,205)
-
-
-
-
12,315,062
3,074,353
-
-
-
-
-
- - - ( 105,730)
($107,990) ($ 352,935)
( 57,839)
$15,389,415
$3,832,796
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
2002
2001
2000
$3,074,353
$2,014,369
($ 654,510)
Cash Flows from Operating Activities:
Net income (loss)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
(Gain) loss on sale of securities
Decrease (increase) in deferred income taxes
Loss on disposal of property and equipment
(Increase) decrease in accounts receivable
Decrease in inventory
Decrease (increase) in prepaid expenses and sundry receivables
Decrease (increase) in prepaid income
taxes and refunds due
Decrease (increase) in miscellaneous assets
Increase (decrease) in accounts payable and accrued liabilities
Increase in income taxes payable
Net Cash Provided by Operating Activities
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
Net Cash (Used in) Investing Activities
357,627
( 119)
375,126
27,629
( 1,800,964)
1,040,399
37,946
220,286
275
1,129,853
169,324
4,631,735
( 575,923)
( 6,292)
( 6,767,658)
1,839,729
20,598
( 5,489,546)
374,953
5,559
( 93,469)
1,864,764
951,897
( 76,423)
-
555,702
( 1,137)
( 134,596)
9,366
5,470,985
( 134,247)
( 24,700)
( 7,036,015)
5,068,493
887
( 2,125,582)
Cash Flows from Financing Activities:
Proceeds from borrowings
Payment on debt
Repurchase of outstanding debentures
Purchase of treasury stock
Net Cash (Used in) Provided by Financing Activities
Net (Decrease) Increase In Cash
Cash at Beginning of Year
Cash at End of Year
-
-
( 6,750)
( 105,730)
-
( 1,500,000)
( 23,000)
( 70,973)
( 112,480)
( 970,291)
2,555,938
$1,585,647
( 1,593,973)
1,751,430
804,508
$2,555,938
372,881
119,877
( 343,495)
1,041,777
499,843
497,836
-
( 62,856)
( 537)
( 640,053)
-
830,763
( 283,863)
( 496,734)
( 2,682,631)
2,567,555
36,433
( 859,240)
3,900,000
( 3,800,000)
-
( 74,375)
25,625
( 2,852)
807,360
$ 804,508
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest
Income taxes
See Notes to Consolidated Financial Statements.
$ 38,239
1,310,593
$ 69,958
801,950
$161,895
97,629
-7-
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 manu-
factured and distributed perfume products. In 1999, CCA adopted a formal plan to discontinue the operations of the sub-
sidiary. As of November 30, 2001, the CCA 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”). 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 un-
settled 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.
-8-
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 re-
tirement.
During fiscal 2001, two officers/shareholders exercised in the aggregate 400,000 options in exchange for 200,000 shares of previously
issued common stock. The common shares were put into treasury and were subsequently cancelled.
During fiscal 2002, two officers/shareholders exercised in the aggregate 200,000 options in exchange for 50,000 shares of previously
issued common stock.
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:
5-7 Years
3-10 Years
3 Years
5 Years
4-10 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.
-9-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes:
Income tax expense includes federal and state taxes currently payable and deferred taxes arising from temporary differences
between income for financial reporting and income tax purposes.
Tax Credits:
Tax credits, when present, are accounted for using the flow-through method as a reduction of income taxes in the years
utilized.
Earnings Per Common Share:
The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share” in 1998. Ba-
sic earnings per share is calculated using the average number of shares of common stock outstanding during the year. Di-
luted earnings per share is computed on the basis of the average number of common shares outstanding plus the effect of
outstanding stock options using the “treasury stock method” and convertible debentures using the “if-converted” method.
Common stock equivalents consist of stock options.
Revenue Recognition:
The Company recognizes sales 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, rec-
ords 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 Com-
pany decided to retain those product lines and purchased the trademarks owned by Shiara Holdings, Inc. Therefore, in ac-
cordance 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 2002 and 2001 presentation. Had EITF 00-14 not been adopted, sales for the years ended November 2002,
2001 and 2000 would have been $46,850,507, $42,527,229 and $38,451,980, respectively.
-10-
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, 2002, 2001 and 2000, included in selling, general and administrative expenses is shipping costs amounting to $2,120,645,
$2,296,585 and $2,047,656, respectively.
NOTE 3 -
INVENTORIES
At November 30, 2002 and 2001, inventories consist of the following:
Raw materials
Finished goods
2002
2001
$3,251,338
1,468,581
$4,719,919
$3,610,432
2,225,814
$5,836,246
At November 30, 2002 and 2001, the Company had a reserve for obsolete inventory of $976,788 and $1,052,716 respectively. In 2001,
the Company had $519,986 of old FCA inventory which it had completely written off but had not yet disposed of. In 2002, the Com-
pany disposed of the FCA inventory.
NOTE 4 -
PROPERTY AND EQUIPMENT
At November 30, 2002 and 2001, property and equipment consisted of the following:
Machinery and equipment
Office furniture and equipment
Transportation equipment
Tools, dies, and masters
Leasehold improvements
Less: Accumulated depreciation
and amortization
2002
$ 97,003
552,615
10,918
213,188
222,646
1,096,370
2001
$ 168,421
741,414
10,918
550,825
162,283
1,633,861
375,631
$ 720,739
1,151,600
$ 482,261
Property and Equipment - Net
Depreciation and amortization expense for the years ended November 30, 2002, 2001 and 2000 amounted to $309,816, $327,777 and
$347,801, respectively.
During the years ended November 30, 2002 and 2001, the Company wrote off and disposed of all of their obsolete property and equip-
ment.
-11-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -INTANGIBLE ASSETS
Intangible assets consist of the following at November 30, 2002 and 2001:
2002
2001
Patents and trademarks
Less: Accumulated amortization
Intangible Assets - Net
Amortization expense for the years ended November 30, 2002, 2001 and 2000 amounted to $47,811, $47,176 and $25,080, respectively.
$750,256
131,323
$618,933
$756,548
179,134
$577,414
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 invest-
ments 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, 2002 and November 30, 2001 were as follows:
November 30,
November 30,
2002 2001
Current:
Corporate obligations
Government obligations
(including mortgage
backed securities)
Mutual funds
Total
Non-Current:
Corporate obligations
Government obli-
gations
Preferred stock
Other equity
investments
Total
COST MARKET
$ 2,071,603
$ 2,066,040
COST MARKET
$ -
$ -
1,330,345
169,589
3,565,974
1,314,604
93,337
3,479,544
247,330
159,805
407,135
248,330
107,015
355,345
1,025,806
4,867,627
751,645
1,016,715
2,416,846
2,434,080
4,848,293
758,510
2,311,273
150,000
2,294,058
151,620
100,000
6,745,078
100,000
6,723,518
100,000
4,978,119
100,000
4,979,758
Total
$10,311,052
$10,203,062
$5,385,254
$5,335,103
-12-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
The market value at November 30, 2002 was $10,203,062 as compared to $5,335,103 at November 30, 2001. The gross
unrealized gains and losses were $58,411 and ($166,401) for November 30, 2002 and $35,542 and ($85,693) for November 30, 2001.
The cost and market values of the investments at November 30, 2002 were as follows:
COL. A
COL. B
COL. C
Name of Issuer and
Title of Each Issue
Maturity
Date
Interest
Rate
Number of
Units-Principal
Amount of
Bonds and
Cost of
Notes
Each Issue
COL.D
COL.E
Amount at Which
Each Portfolio
Market Of Equity Security
Issues and Each
Other Security
Issue Carried in
Balance Sheet
Value of
Each Issue
at Balance
Sheet Date
CORPORATE OBLIGATIONS:
GMAC Smartnotes
GMAC Smartnotes
GMAC Smartnotes
GMAC Smartnotes
GMAC Smartnotes
GMAC Smartnotes
GMAC Smartnotes
GMAC Smartnotes
GMAC Smartnotes
Household Finance Corp.
Internotes
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
5/15/04
5/15/05
4.600%
4.750
5.550
5.750
4.750
4.650
4.250
4.250
5.000
250,000
325,000
250,000
140,000
300,000
200,000
499,000
250,000
175,000
$ 250,000
325,000
250,000
140,000
300,000
200,000
499,000
250,000
175,000
$ 250,730
326,333
250,763
140,711
300,894
200,540
499,075
246,598
171,922
$ 250,730
326,333
250,763
140,711
300,894
200,540
499,075
246,598
171,922
5/15/04
4.250
250,000
250,000
248,615
248,615
9/22/03
12/1/03
3/20/04
5.370
5.270
6.125
100,000
100,000
245,000
102,040
100,860
249,946
102,557
102,912
246,668
102,557
102,912
246,668
3,091,846
3,088,318
3,088,318
-13-
NOTE 6 -
COL. A
SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
COL. B
COL. C
COL. D
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Name of Issuer and
Title of Each Issue
GOVERNMENT OBLIGATIONS:
FHLMC 1628-N
FHLB
FHLMC
FHLMC
US Treasury Note
US Treasury Note
FNMA
FNMA
FHLMC
FNMA
FHLMC
FNMA Global
FNMA
FNMA
FNMA
FNMA
FNMA
Federal Home Loan Bank
Tennessee Valley Authority
Power Bonds
Tobacco Settlement Fin
Corp. N
NJ EDA Trans Sublease RV
Lightrail 199A FSA
Port Authority NY & NJ
Cons 88th SR BE
Number of
Units-Principal
Amount of
Bonds and
Notes
255
255,000
200,000
200,000
200,000
250,000
250,000
500,000
225,000
250,000
250,000
200,000
200,000
250,000
200,000
200,000
250,000
250,000
Interest
Rate
6.500%
5.125
3.500
4.250
4.250
4.250
4.250
4.250
4.000
3.500
3.000
4.375
4.100
3.080
4.250
4.000
4.000
3.375
6.500
26,000
5.000
200,000
5.000
300,000
Maturity
Date
12/15/2023
9/15/2003
6/27/06
11/15/2017
11/15/2003
11/15/2003
11/6/2009
11/6/2009
2/27/12
9/15/04
10/15/09
10/15/06
2/24/05
4/28/06
11/15/05
5/16/06
8/15/12
8/8/2006
5/1/2029
6/1/2015
5/1/2004
10/1/2004
4.500
225,000
CLOSED END MUNICIPAL BONDS/MUTUAL FUNDS:
Muniyield New Jersey Insd Frd Inc.
Muniholdings New Jersey Insd FD Inc.
Nuveen New Jersey Invt Quality Municipal Fund
Nuveen New Jersey Prem Inc Municipal Fund
Van Kamp Amer Cap Inv Gr NJ
Blackrock New Jersey Municipal Inc.
Eaton Vance New Jersey Municipal Inc.
Nuveen New Jersey Dividend Advantage
5,200
5,500
5,900
79,507
5,200
4,800
5,000
4,600
4,700
Cost of
Each Issue
$ -
266,200
200,000
200,000
199,891
250,169
250,000
500,000
225,000
249,805
250,000
199,559
200,000
250,000
200,000
200,000
250,000
250,000
688,530
198,500
317,444
238,789
81,350
79,896
78,416
78,639
80,502
73,820
70,481
69,890
COL. E
Amount at Which
Each Portfolio
Of Equity Security
Issues and Each
Other Security
Issue Is Carried in
Market
Value of
Each Issue
at Balance
Sheet Date Balance Sheet
$ 255
262,214
202,126
196,770
203,136
258,537
246,978
493,955
229,289
255,860
243,908
207,938
201,188
250,000
201,986
202,062
248,125
250,783
676,000
190,966
314,169
235,935
78,650
79,001
78,416
78,104
79,920
67,500
66,240
62,886
$ 255
262,214
202,126
196,770
203,136
258,537
246,978
493,955
229,289
255,860
243,908
207,938
201,188
250,000
201,986
202,062
248,125
250,783
676,000
190,966
314,169
235,935
78,650
79,001
78,104
79,920
67,500
66,240
62,886
6,197,972
6,162,897
6,162,897
-14-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -
SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
COL. A
COL. B
COL. C
COL. D
Maturity
Date
Interest
Rate
Number of
Units-Principal
Amount of
Bonds and
Notes
Market
Value of
Each Issue
at Balance
Sheet Date
Cost of
Each Issue
COL. E
Amount at Which
Of Equity Security
Issues and Each
Other Security
Issue Carried in
Balance Sheet
Name of Issuer and
Title of Each Issue
EQUITY:
Preferred Stock:
Public Income NTS
General Electric Cap Corp.
Merrill Lynch Trust
Corporate Backed Trust
Certificates For AIG
Sun America
Corporate Backed Trust
Certificates For Bristol
Myers Squibb
Other Equity Investments:
Aberdeen Asia Pacific
Income Fund
Dreyfus Premier Limited
Term High Income CL B
11/15/32
9/30/08
5/17/07
5/23/07
6.10%
7.28
11,800
6,000
$ 301,645
150,000
$ 296,450
154,560
$ 296,450
154,560
6.70
6,000
150,000
154,500
154,500
6.80
6,000
150,000
153,000
751,645
758,510
153,000
758,510
100,000
100,000
100,000
14,862.540
169,589
93,337
269,589
193,337
$10,311,052
$10,203,062
93,337
193,337
$10,203,062
-15-
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, 2002, 2001 and 2000, available-for-sale securi-
ties were liquidated and proceeds amounting to $1,839,729, $5,068,493 and $2,567,555
were received, with resultant realized (losses) totaling ($2,131), ($28,559) and
($119,877) 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. The Company was not utilizing
their available credit line at November 30, 2002 and 2001.
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 re-
sulting in a gain of $23,000.
During the year 2002, the Company repurchased $9,000 of debentures for $6,750 re-
sulting in a gain of $2,250.
NOTE 8 -
INCOME TAXES
CCA and its subsidiaries file a consolidated federal income tax return. No returns have
been examined by the Internal Revenue Service.
At November 30, 2002 and 2001, respectively, the Company has temporary differences
arising from the following:
November 30, 2002
Type
Depreciation
Reserve for bad debts
Reserve for returns
Reserve for obsolete
inventory
Section 263A costs
Charitable contributions
Net deferred income
tax
Deferred
Tax
($ 5,186)
277,100
209,703
Classified As
Long-
Short-
Term
Term
Asset (Liability)
$ - ($5,186)
-
277,100
-
209,703
Amount
($ 13,024)
695,824
526,584
976,788
290,000
744,010
388,989
115,487
296,289
388,989
115,487
296,289
-
-
-
$1,282,382
$1,287,568
($5,186)
-16-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -
INCOME TAXES (Continued)
Type
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
November 30, 2001
Deferred
Amount
Tax
Classified As
Short-
Long-
Term Term
Asset (Liability)
$ 98,139
481,399
813,686
$ 40,105
196,729
332,521
$ - $40,105
-
196,729
-
332,521
1,052,716
370,741
430,203
151,507
430,203
151,507
519,986
719,293
212,497
293,946
212,497
293,946
-
-
-
$1,657,508
$1,617,403
$40,105
Income tax expense (benefit) is made up of the following components:
Current tax expense
Tax credits
Deferred tax expense
November 30, 2002
State &
Federal
Local
Total
$1,116,198
( 37,428)
341,365
$1,420,135
$507,307
-
33,761
$541,068
$1,623,505
( 37,428)
375,126
$1,961,203
-17-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -
INCOME TAXES (Continued)
November 30, 2001
Federal
State &
Local
Total
Current tax benefit
Tax credits
Deferred tax benefit
$976,295
( 35,000)
( 77,369)
$863,926
$170,755
131,703
$302,458
$1,147,050
- ( 35,000)
54,334
$1,166,384
November 30, 2000
State &
Federal Local Total
Current tax expense
Deferred tax expense
($229,509)
( 54,416)
($283,925)
($35,097)
( 8,889)
($43,986)
($264,606)
( 63,305)
($327,911)
Prepaid income taxes and refund due are made up of the following components:
State &
Federal Local Total
November 30, 2002 $ -
$ 1,703
$ 1,703
November 30, 2001
$ 88,210
$133,779
$221,989
Income taxes payable are made up of the following components:
Federal
State &
Local
Total
November 30, 2002
$ 35,873
$142,817
$178,690
November 30, 2001
$ 4,803
$ 4,563
$ 9,366
-18-
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, 2002 is as follows:
2002
Percent
Of Pretax
Percent
of Pretax
Income Amount Income
2001
Amount
Amount
2000
Percent
of Pretax
Income
Income tax expense (benefit)
at statutory rate
Increases (decreases) in taxes
resulting from:
State income taxes, net of federal
$1,712,089
34.00%
$1,081,456
34.00%
($334,023)
(34.00%)
income tax benefit
541,068
10.74
199,622
6.27
( 58,355)
( 5.94)
Non-deductible expenses and
other adjustments
( 254,526)
( 5.05 )
( 79,694)
( 2.50 )
64,467
6.56
Utilization of tax credits
( 37,428)
( 0.74 )
( 35,000) ( 1.10 ) - -
Income tax expense (benefit)
at effective rate
$1,961,203
38.95%
$1,166,384
36.67%
($327,911)
(33.38%)
-19-
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 op-
tions 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, 2002:
Number Per Share
Date Granted
January 1990 (1)(5)
June 1995 (2)(5)
August 1997 (5)
Of Option
Shares
Price Expiration
159,500
50,000
375,000
584,500
.50
.50(3)(5)
.50(4)(5)
2007
2007
2007
(1) These options were originally scheduled to expire January 2000 but were extended
for an additional five years.
(2) These options were originally scheduled to expire June 2000 but were extended for
an additional five years.
(3) These stock options were repriced from $4.50 to $1.50 in June of 2000 when they
were extended.
(4) These stock options were repriced from $2.50 on November 3, 1998.
(5) 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:
Balance - November 30,
2000
Granted
Repriced
Exercised
Expired
Cancelled
Balance - November 30,
2001
Granted
Repriced
Exercised
Expired
Cancelled
Balance - November 30,
2002
Number
Of
Shares
Per Share
Option
Price
Value
1,184,500
$.50 - $1.50
-
- ( .05) - ( 1.00)
-
400,000
-
-
( .50)
-
-
784,500
$.50
-
-
200,000
-
-
-
-
( .50)
-
-
$1,109,875
-
( 517,125)
( 200,000)
-
-
$ 392,250
-
-
( 100,000)
-
-
584,500
$.50
$ 292,250
-20-
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, “Ac-
counting 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, respec-
tively, for stock-based employee compensation awards. The pro forma compensation cost for stock-based employee com-
pensation awards was $1 million, $.5 million and $.8 million in 2002, 2001 and 2000, 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
2002
2001
2000
As Reported
$3,074,353
Pro Forma As Reported
$2,014,369
$2,063,168
Pro Forma As Reported Pro Forma
($1,447,726)
($654,510)
$1,470,083
Diluted earnings per share
$.41
$.27
$.27
$.20
($.09)
($.20)
The above pro forma amounts, for purposes of SFAS No. 123, reflect the portion of the estimated fair value of awards
earned in 2002, 2001 and 2000. 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.
-21-
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:
Average expected life (years)
5.10
2002
2001
5.67
2000
3.76
Stock Option Plan Shares
Expected volatility
Risk-free interest rate
Weighted average fair value
at grant - Exercise price
equal to market price
210.19%
2.88%
204.59%
4.25%
193.18%
6.3%
$1.73
$.69
$.66
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 assump-
tions, including the expected stock price volatility and option life. Because the Com-
pany’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.
-22-
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 ac-
counts payable and accrued liabilities as of:
Media advertising
Coop advertising
Accrued returns
Vacation accrual
Accrued bonuses
November 30,
2001
2002
(In Thousands)
$ *
804
878
320
467
$2,469
$ 424
392
301
254
510
$1,881
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
debentures
Realized (loss) on sale of
securities
Royalty income
Miscellaneous
2002
$383,569
11,780
November 30,
2001
2000
$265,240
16,057
$222,459
42,461
2,250
25,342
6,262
( 2,131)
41,820
2,193
$439,481
( 30,901)
57,385
5,760
$338,883
( 126,139)
37,500
3,741
$186,284
-23-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leased approximately 62,500 square feet of office and warehouse space
at an annual rental of $267,684 and an additional 51,000 square feet of warehouse
space in Paterson, NJ on a month to month basis. Under a new net lease starting June
1, 2002, the Company currently occupies approximately 75,550 square feet of space.
Approximately 58,000 square feet in such premises is used for warehousing and
17,500 square feet for offices. The annual rental is $327,684, with an annual CPI in-
crease of 3%, but not to exceed 15% cumulative five year increase. The lease requires
the Company to pay for additional expenses “Expense Rent” (Common Area Mainte-
nance “CAM”), which includes real estate taxes, common area expense, utility ex-
pense, repair and maintenance expense and insurance expense. The lease expires on
May 31, 2012 with a renewal option for an additional five years.
Rent expense for the years ended November 30, 2002, 2001 and 2000 was $433,983,
$531,062 and $498,227, respectively.
In addition, the Company has entered into various property and equipment operating
leases with expiration dates ranging through November 2006.
Future commitments under noncancellable operating lease agreements having a re-
maining term in excess of one year for each of the next five (5) years and in the aggre-
gate are as follows:
Year Ending
November 30,
2003
2004
2005
2006
2007
Royalty Agreements
$ 389,254
362,253
338,201
328,346
327,684
On March 3, 1986, the Company entered into a License Agreement (the "Agreement")
with Alleghany Pharmacal Corporation ("Allegheny"). 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 pe-
riod. An additional $525,000 non-refundable advance payment was paid to Alleghany
on July 5, 1987.
-24-
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,
2002, $8,732,641 of royalties have been paid or accrued and only $267,359 still re-
mains 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 pe-
riod, 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 Li-
cense Agreement with Solar Sense, Inc. is for the exclusive use of the trademark
names “Solar Sense” and “Kids Sense”, in connection with the commercial exploita-
tion of sun care products. The Company is required to pay a 5% royalty on net sales of
the licensed products until $1 million total royalties are paid and 1% thereafter; and
minimum per-annum royalties of $30,000. The Company realized $1,493,955 in net
sales of sun-care products in 2002, and paid or accrued Solar Sense the royalty of
$74,698.
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 compo-
sition in a new product kit packaged and marketed by CCA under its own name, “Nu-
tra Nail Power Gel”. The Company will pay a royalty of 5% of net sales of all li-
censed product sold by the Company. Net sales were $1,407,247 in 2002, and paid or
accrued The Nail Consultants, Ltd. the royalty of $70,362.
-25-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
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 Sep-
tember 2001 and paid the balance in February 2002. The total expense was recorded
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 Com-
pany will pay a 5% royalty of net sales of all such licensed product sold by the Com-
pany. The license fees in 2002 were not material.
The Company has entered into various other License Agreements, none of which ma-
terially 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 contracts for two offi-
cers/shareholders. Pursuant thereto, each was provided a base salary of $300,000 in
fiscal 1994, with yearly increases of the higher of CPI or 6%, and each is paid 2.5% 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, com-
mencing in fiscal 1999, to limit the amount of advertising expense charged against pre-
tax income for purposes of the 2.5% calculation to $8,000,000. In May 2001 an
amendment increased the base salary to $400,000. The contract expires on December
31, 2010.
The two sons of the President of the Company have five year contracts in the amounts
of $270,000 and $200,000 which expire on November 30, 2007.
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 den-
tal benefits and to contribute to the Local 734 Educational Fund $.01 per hour for each
hour the employees are paid. The agreement expired on November 30, 2001. A new
collective bargaining agreement with similar provisions is in effect for December 1,
2001 through November 30, 2004. This agreement pertains to 29% of the CCA labor
force.
Litigation
The Company has been named as a defendant in 10 lawsuits alleging that the plaintiffs
were injured as a result of their purchasing and ingesting our diet suppressant con-
taining phenylpropanolamine (PPA), which the Company utilized as its active ingredi-
ent in its products prior to November 2000. The lawsuits brought against the Com-
pany are for unspecified amount of compensatory and exemplary damages.
-26-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation (Continued)
The Company is insured for three of the 10 cases. CCA has not renewed the product
liability policy covering possible additional lawsuits that might commence against the
Company in connection with PPA. Outside counsel has advised CCA that as a general
matter the PPA cases are defensible, and the Company plans to vigorously defend its
positions. However, there can be no assurances the current PPA litigations will not
have a material adverse effect on the Company’s operations.
Dividends
CCA announced its first dividend of $0.12 per share payable to all holders of the
Company’s common stock, $0.06 payable to shareholders of record on April 1, 2003
and $0.06 payable to shareholders of record on November 1, 2003.
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 $11,000, and may make additional discretionary contributions.
NOTE 14 - RELATED PARTY TRANSACTION
During fiscal 2002, the Company retained legal services from a firm where a partner is
the son of a Director of the Company. Total legal fees amounted to approximately
$142,000.
-27-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - 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, 2002, 2001 and 2000, certain customers each
accounted for more than 5% of the Company's net sales, as follows:
2000
Customer
26%
A
Foreign Sales
2.50%
The loss of any one of these customers could have a material adverse affect on the
Company’s earnings and financial position.
2002
31%
2.40%
2001
28%
2.85%
During the years November 30, 2002, 2001 and 2000, certain products within the
Company’s product lines accounted for more than 10% of the Company’s net sales as
follows:
Product
Health and Beauty
Cosmetic and Fragrance
2002
75%
19
2001
69%
19
2000
65%
14
The Company maintains cash balances at several banks. Accounts at each institution
are insured by the Federal Deposit Insurance Corporation up to $100,000. In addition,
the Company maintains accounts with several brokerage firms. The accounts contain
cash and securities. Balances are insured up to $500,000 (with a limit of $100,000 for
cash) by the Securities Investor Protection Corporation.
-28-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - 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 phenylpro-
panolimine (“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).
-29-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - EARNINGS PER SHARE
Basic earnings per share is calculated using the average number of common shares outstanding. Diluted earnings per share
is computed on the basis of the average number of common shares outstanding plus the effect of outstanding stock options
using the “treasury stock method”.
Year Ended November 30,
2002
2001
2000
$3,074,353
$2,014,369
($654,510)
7,099,759
480,224
6,893,232
632,925
7,153,013
*
7,579,983
7,526,157
7,153,013
$.43
$.41
$.29
$.27
($.09)
($.09)
Net income (loss) available for common
shareholders, basic and diluted
Weighted average common stock
outstanding- Basic
Net effect of dilutive stock options
Weighted average common stock and
common stock equivalents - Diluted
Basic earnings per share
Diluted earnings per share
*Antidilutive
-30-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
YEARS ENDED NOVEMBER 30, 2002, 2001 AND 2000
COL. A
COL. B
COL. C
COL. D COL. E
Description
Year Ended November 30, 2002:
Allowance for doubtful accounts
Balance at
Beginning
Of Year
Additions
Charged To
Costs and
Expenses
Balance
At End
Deductions Of Year
$ 481,399
$ 283,954
$ 69,529
$ 695,824
Reserve for returns and allowances
$ 813,686
$4,094,332
$4,381,434
$ 526,584
Reserve of inventory
obsolescence
Year Ended November 30, 2001:
Allowance for doubtful accounts
$1,052,716
$ 397,643
$ 473,571
$ 976,788
$ 323,257
$ 299,254
$ 141,112
$ 481,399
Reserve for returns and allowances
$1,056,167
$2,833,405
$3,075,886
$ 813,686
Reserve for 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 and allowances
$ 855,657
$4,758,078
$4,557,568
$1,056,167
Reserve for inventory
obsolescence
$1,056,709
$ 839,702
$ 845,697
$1,050,714
-31-