SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
November 30, 2002 2-85538-B
CCA INDUSTRIES, INC.
(Exact Name of Registrant as specified in Charter)
DELAWARE 04-2795439
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Murray Hill Parkway, East Rutherford, New Jersey 07073
(Address of principal executive offices, including zip code)
(201) 330-1400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Class A Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
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.
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CROSS REFERENCE SHEET
Headings in this Form
Form 10-K 10-K for Year Ended
Item No. November 30, 2002
1. Business Business
2. Properties Property
3. Legal Proceedings Legal Proceedings
4. Submission of Matters Submission of Matters to a
to a Vote of Security Vote of Security Holders
Holders
5. Market for Registrant's Market for the Company's
Common Equity and Common Stock and Related
Related Stockholder Shareholder Matters
Matters
6. Selected Financial Data Selected Financial Data
7. Management's Discussion Management's Discussion and
and Analysis of Financial Analysis of Financial
Condition and Results Condition and Results of
of Operation Operations
7A. Quantitative and Qualitative Quantitative and Qualitative
Disclosures about Market Risk Disclosures about Market Risk
8. Financial Statements Financial Statements
and Supplementary Data and Supplementary Data
9. Changes In and Dis- Changes In and Dis-
agreements With agreements With
Accountants On Accounting Accountants On Accounting
and Financial Disclosure and Financial Disclosure
10. Risk Factors Risk Factors
11. Directors and Directors and Executive
Executive Officers Officers
of the Registrant
- iii-
Headings in this Form
Form 10-K 10-K for Year Ended
Item No. November 30, 2002
12. Executive Compensation Executive Compensation
13. Security Ownership Security Ownership
of Certain Beneficial of Certain Beneficial
Owners and Management Owners and Management
14. Certain Relationships Certain Relationships
and Related Transactions and Related Transactions
15. Exhibits, Financial Exhibits, Financial
Statement Schedules, Statement Schedules,
and Reports on Form and Reports on Form
8-K 8-K
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TABLE OF CONTENTS
Item
Page
PART I
1.Business...................................... 1
2.Property...................................... 6
3.Legal Proceedings............................. 6
4.Submission of Matters to a Vote of
Security Holders............................ 7
PART II
5. Market for the Company's Common Stock and
Related Shareholder Matters................. 8
6. Selected Financial Data....................... 10
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 11
7A.Quantitative And Qualitative Disclosure
About Market Risk........................... 15
8. Financial Statements and Supplementary Data... 15
9. Changes In and Disagreements with
Accountants On Accounting and Financial
Disclosure.................................. 16
10. Risk Factors.................................. 16
PART III
11. Directors and Executive Officers.............. 18
12. Executive Compensation........................ 20
13. Security Ownership of Certain Beneficial
Owners and Management....................... 28
14. Certain Relationships and Related
Transactions................................ 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
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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 Cafe'', "Vision", "Mandarin
Vanilla" and "Amber Musk." (Those trademarks had been licensed
by the Company since 1998; and, until their purchase, the Company
had been committed to paying 5% royalties, 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.
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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
4
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.
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
5
also have greater resources than the Company.
(h) Government Regulation
All of the products that the Company markets are subject or
potentially subject to particular regulation by government
agencies, such as the U.S. Food and Drug Administration, the
Federal Trade Commission, and various state and/or local
regulatory bodies. In the event that any future regulation were
to require new approval for any in-the-market 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 2001 2000
February 29 $1.73 - $1.25 $ .93 - $.37 $1.75 - $1.12
May 31 $1.74 - $1.38 $1.09 - $.62 $1.50 - $ .87
August 31 $2.00 - $1.55 $1.90 - $.85 $1.28 - $1.00
November 30 $1.99 - $1.55 $1.56 - $.82 $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
8
depository trust accounts, which represent approximately 1,000
additional shareholders.)
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.
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Item 6. SELECTED FINANCIAL DATA
Year Ended November 30,
2002 2001 2000 1999 1998
Statement of Income
Sales $45,241,493 $41,364,648 $36,990,170 $37,898,563 $41,083,974
Other income 439,547 338,883 186,284 285,469 318,296
45,680,974 41,703,531 37,176,454 38,184,032 41,402,270
Costs and Expenses
(excluding special
charge) 40,645,418 38,522,778 36,658,875 37,370,017 38,570,096
Income Before Special
Charge and Provision
for Income Taxes 5,035,556 3,180,753 517,579 814,015 2,832,174
Special Charge - - ( 1,500,000) - -
Net Income (Loss) from
Continuing Operations 3,074,353 2,014,369 ( 654,510) 512,504 1,667,973
(Loss) Income from
Discontinued
Operations - - - ( 803,603) -
Net Income (Loss) 3,074,353 2,014,369 ( 654,510) ( 291,099) 1,667,973
Earnings (Loss) Per
Share:
Basic $ .43 $ .29 ($ .09) ($ .04) $ .23
Diluted $ .41 $ . 27 ($ .09) ($ .04) $ .21
Weighted Average Number
of Shares Outstanding 7,099,759 6,893,232 7,153,013 7,174,203 7,243,956
Weighted Average Number
of Shares and Common
Stock Equivalents
Outstanding 7,579,983 7,526,157 7,153,013 7,174,203 8,075,169
Balance Sheet Data: As At November 30,
2002 2001 2000 1999 1998
Working Capital 11,264,206 $10,236,977 $12,361,305 $12,291,890 $12,067,263
Total Assets 24,805,064 20,598,917 20,312,056 21,494,987 24,010,136
Total Liabilities 5,969,641 4,674,278 6,345,508 6,328,905 8,410,687
Total Stockholders'
Equity 18,835,423 15,924,639 13,966,548 15,166,082 15,599,449
(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.
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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.
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On January 22, 2002, K-Mart filed for bankruptcy under
Chapter XI. Sales to K-Mart for 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 $989,5581. 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
13
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 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
Lease on Premises (1) 427,684 427,684 427,684 427,684 427,684
Royalty Expense (2) 309,359 42,000 31,000 30,000 30,000
Employment Contracts (3) 1,430,000 1,430,000 1,430,000 1,430,000 1,430,000
Total Contractual
Obligations 2,167,043 1,899,684 1,888,684 1,887,684 1,887,684
(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:
Three Months Ended
Fiscal 2002 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales 10,158,386 13,213,844 11,391,258 10,478,005
Total Revenue 10,247,194 13,312,347 11,511,314 10,610,119
Cost of Products Sold 3,764,904 4,399,740 3,559,990 3,617,683
Net Income 300,063 1,217,986 722,822 833,482
Earnings Per Share:
Basic .04 .17 .10 .12
Diluted .04 .16 .10 .11
Three Months Ended
Fiscal 2001 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales $10,096,529 $12,787,878 $10,024,875 $8,455,366
Total Revenue 10,178,085 12,864,483 10,114,197 8,546,766
Cost of Products Sold 4,244,147 4,372,263 3,368,589 2,892,422
Net Income 336,846 1,137,779 304,125 $235,619
Earnings Per Share:
Basic .05 .17 .04 .03
Diluted .05 .16 .04 .03
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.
16
The Pending Litigations in Connection with the Sale of the
Company's Products Containing PPA May Entail Significant
Uncertainty and Expense.
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:
YEAR OF FIRST
NAME POSITION COMPANY SERVICE
David Edell President and Chief
Executive Officer,
Director 1983
Ira W. Berman Chairman of the Board
of Directors, Secretary,
Executive Vice President 1983
Dunnan Edell Executive Vice Pres.-
Sales, Director 1984
Drew Edell Vice President-
Manufacturing and
New Product Development
Director 1983
John Bingman Treasurer 1986
Stanley Kreitman Director 1996
Jack Polak Director 1983
Rami G. Abada Director 1997
David Edell, age 70, is a director, and the Company's
President and Chief Executive Officer. Prior to his association
with the Company he was a marketing and financial consultant;
and, by 1983, he had extensive experience in the health and
beauty aids field as an executive director and/or officer of
Hazel Bishop, Lanolin Plus and Vitamin Corporation of America.
In 1954, David Edell received a Bachelor of Arts degree from
Syracuse University.
18
Ira W. Berman, age 71, is the Company's Executive Vice
President and Corporate Secretary. He is also Chairman of the
Board of Directors. Mr. Berman is an attorney who has been
engaged in the practice of law since 1955. He received a
Bachelor of Arts Degree (1953) and Bachelor of 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
Number
All of Shares
Other Covered Other
Name and Annual by Stock Long-Term
Principal Compen- Options Compen-
Position Year Salary Bonus sation(1) Granted(2) sation
David Edell, 2002 $584,155 $332,060 $38,176 - 0
President 2001 514,399 247,806 35,985 - 0
and Chief 2000 425,372 132,221 12,552 - 0
Executive
Officer
Ira. W. Berman, 2002 $584,155 $332,060 $23,372 - 0
Secretary and 2001 514,399 247,806 24,117 - 0
Executive 2000 425,372 132,221 11,775 - 0
Vice President
Dunnan Edell, 2002 $253,172 $ 45,000 $ 1,626 - 0
Executive 2001 232,595 4,231 2,914 - 0
Vice President 2000 218,076 4,194 2,723 - 0
- - Sales
Drew Edell 2002 $203,845 $ 25,000 $ 1,178 - 0
Vice President 2001 187,596 3,365 816 - 0
Manufacturing 2000 175,000 3,365 577 - 0
John Bingman 2002 $ 99,843 $ 20,000 $ 948 - 0
Treasurer 2001 101,354 1,862 821 - 0
2000 98,662 - 855 - 0
20
- -------------------------
(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 Number of Shares
Shares Covered by Un- Value of Unexercised
Acquired Value exercised Options In-the-Money Options
On Exercise Realized at November 30, 2002 at November 30, 2002
David Edell 100,000 $ 150,000 157,500 $193,725
Ira W. Berman 100,000 $ 150,000 202,000 $248,460
Dunnan Edell - - 75,000 $ 92,250
Drew Edell - - 75,000 $ 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
of Shares Date Price Repriced Price
David Edell (1) 100,000 Aug. 1, 1997 $2.50 May 24, 2001 .50
Ira W. Berman (1) 100,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Dunnan Edell (1) 50,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Stanley
Kreitman (1) 25,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Jack Polak (1) 25,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Rami Abada (1) 25,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Dunnan Edell (1)(2)25,000 Jun. 10, 1995 4.50 May 24, 2001 .50
Drew Edell (1)(2) 25,000 Jun. 10, 1995 4.50 May 24, 2001 .50
- -------------------
(1) On November 3, 1998, the full Board of Directors authorized
the repricing in consequence of a declining market valuation,
inconsistent with the Company's realizable value. The market
price of the Common Stock at the date of repricing was $1.00;
and, at that date, the original option terms (10 years from
August 1, 1997) had approximately 8 years and 10 months to run.
When the options were originally issued, on August 1, 1997, the
market price of the Company's Common Stock was $2.50. On May 24,
2001, the company repriced the options again when the market
price was $.50.
(2) On June 10, 2000, the full Board of Directors authorized the
repricing in consequence of a declining market valuation,
inconsistent with the Company's realizable value. The market
price of common stock at the date of repricing was $1.10; and at
that date the original terms (5 years from June 10, 1995) were
extended for an additional 5 years. When the options were
originally issued on June 10, 1995, the market price of the
Company's common stock was $3. On May 24, 2001, the Company
repriced the options again when the market price was $.50, and
changed the expiration date to August 1, 2007.
iii. Compensation of Directors
Each 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:
. Reward executives for long-term strategic management and the
enhancement of shareholder value.
. Integrate compensation programs with both the Company's
annual and long-term strategic planning.
. Support a performance-oriented environment that rewards
performance not only with respect to Company goals but also
Company performance as compared to industry performance
levels.
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.
23
v. Employment Contracts/Compensation Program
The total compensation program consists of both cash and
equity based compensation. The Audit and Compensation Committee
(the "Committee") determines the level of salary and bonuses, if
any, for key executive officers 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.
24
Option plans are administered and interpreted by the Board
of Directors. (Where issuance to a Board member is under
consideration, that member must abstain.) The Board has the
power, subject to plan provisions, to determine the persons to
whom and the dates on which options will be granted, the number
of shares subject to each option, the time or times during the
term of each when options may be exercised, and other terms. The
Board has the power to delegate administration to a Committee of
not less than two (2) Board members, each of whom must be
disinterested within the meaning of Rule 16b-3 under the
Securities Exchange Act, and ineligible to participate in the
option plan or in any other stock purchase, option or
appreciation right under plan of the Company or any affiliate.
Members of the Board receive no compensation for their services
in connection with the administration of option plans.
Option Plans permit the exercise of options for cash, other
property acceptable to the Board or pursuant to a deferred
payment arrangement. The 1994 Plan specifically authorizes that
payment may be made for stock issuable upon exercise by tender of
Common Stock of the Company; and the Executive Committee is
authorized to make loans to option exercisers to finance optionee
tax-consequences in respect of option exercise, but such loans
must be personally guaranteed and secured by the issued stock.
The maximum term of each option is ten (10) years. No
option granted is transferable by the optionee other than upon
death.
Under the plans, options will terminate three (3) months
after the optionee ceases to be employed by the Company or a
parent or subsidiary of the Company unless (i) the termination of
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.
25
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 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.
26
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
GRAPH
Cumulative Total Return*
12/97 12/98 12/99 12/00 12/01 12/02
CCA Industries, Inc. 100 57 51 26 59 91
DJ US Cosmetics Index 100 104 92 88 80 77
DJ US Total Market Index 100 125 153 139 122 95
- ---------------------
* $100 invested on December 31, 1997 in stock and indices,
including reinvestment of dividends.
27
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.
Ownership, As A
Percentage of
All Shares Out-
Number of "Option Standing/Assuming
Name and Address Shares Owned (1): Shares" (1)
Option Share Exercise (1)
Common
Stock Class A (2)
David Edell 444,685 484,615 157,500 13.0/14.9%
c/o CCA Industries, Inc.
200 Murray Hill Parkway
East Rutherford, NJ 07073
Ira W. Berman 393,745 473,615 202,000 12.1/14.6%
c/o CCA Industries, Inc.
Jack Polak 27,700 - 25,000 .4/.7%
90 Park Avenue
New York, NY 10016
Rami G. Abada - - 25,000 .0/.3%
c/o CCA Industries, Inc.
Stanley Kreitman - - 25,000 .0/.3%
c/o CCA Industries, Inc.
Dunnan Edell 41,250 - 75,000 .6/1.6%
c/o CCA Industries, Inc.
Drew Edell 51,250 - 75,000 .7/1.7%
c/o CCA Industries, Inc.
28
John Bingman - - - -
c/o CCA Industries, Inc.
Officers and Directors 958,630 958,230 584,500 26.8%/34.2
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.
29
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) The Company's Articles of Incorporation and Amendments
thereof, and its By-Laws, are incorporated by reference to
their filing with the Form 10-K A filed April 5, 1995.
(Exhibit pages 000001-23).
(4) The Indenture (and the Promissory note exhibited therewith)
defining the rights of former shareholders who tendered Common
Stock to the Company for its $2 per share, 5 year, 6% debenture,
is filed by reference to the filing of such documents with the
Schedule TO filed with the S.E.C., on June 5, 2001.
(10) (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.
30
(d) The following contracts are annexed hereto.
(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).
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(A) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Annual Report to be signed on its behalf by the undersigned
thereunto duly authorized.
CCA INDUSTRIES, INC.
By: s/ David Edell
DAVID EDELL, President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Annual Report has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
s/ David Edell President, Director,
DAVID EDELL Chief Executive Officer,
and Chief Financial
Officer February 28, 2003
s/ Ira W. Berman Chairman of the Board
IRA W. BERMAN of Directors, Executive
Vice President,
Secretary February 28, 2003
s/ Dunnan Edell Vice President, February 28, 2003
DUNNAN EDELL Director
s/ Drew Edell Vice President, February 28, 2002
DREW EDELL Director
s/ Stanley Kreitman Director February 28, 2003
STANLEY KREITMAN
s/ Rami Abada Director February 28, 2003
RAMI ABADA
s/ Jack Polak Director February 28, 2003
JACK POLAK
s/John Bingman Treasurer February 28, 2003
JOHN BINGMAN
32
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
responsibility 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) $ 1,585,647 $ 2,555,938
Short-term investments and marketable
securities (Notes 2 and 6) 3,479,544 355,345
Accounts receivable, net of allowances of
$1,222,408 and $1,295,086, respectively 6,265,955 4,464,991
Inventories (Notes 2 and 3) 3,743,131 4,783,530
Prepaid expenses and sundry receivables 363,457 401,403
Prepaid income taxes and refunds due 1,703 221,989
Deferred income taxes (Note 8) 1,287,568 1,617,403
Total Current Assets 16,727,005 14,400,599
Property and Equipment, net of accumulated
depreciation and amortization
(Notes 2 and 4) 720,739 482,261
Intangible Assets, net of accumulated
amortization (Notes 2 and 5) 577,414 618,933
Other Assets
Marketable securities (Notes 2 and 6) 6,723,518 4,979,758
Due from officers - 20,598
Deferred income taxes (Note 8) - 40,105
Other 56,388 56,663
Total Other Assets 6,779,906 5,097,124
Total Assets $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
November 30,
2002 2001
Current Liabilities
Accounts payable and accrued
liabilities (Note 10) $ 5,284,109 $ 4,154,256
Income tax payable 178,690 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 64,405 62,428
Class A common stock, $.01 par; authorized
5,000,000 shares; issued and outstanding
973,230 and 1,020,930 shares,
respectively 9,732 10,209
Additional paid-in capital 3,832,796 3,834,296
Retained earnings 15,389,415 12,315,062
Unrealized (losses) on marketable
securities ( 107,990) ( 50,151)
19,188,358 16,171,844
Less: Treasury Stock (271,155 and
218,196 shares at November 30,
2002 and 2001, respectively) 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 $45,241,493 $41,364,648 $36,990,170
Other income 439,481 338,883 186,284
45,680,974 41,703,531 37,176,454
Costs and Expenses
Cost of sales 15,342,317 14,877,421 14,299,928
Selling, general and
administrative expenses 15,389,528 13,812,890 12,557,064
Advertising, cooperative and
promotions 9,239,249 8,776,470 8,837,665
Research and development 741,974 687,731 555,462
Provision for doubtful accounts ( 105,724) 299,254 249,279
Interest expense 38,074 69,012 159,477
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 7,099,759 6,893,232 7,153,013
Diluted 7,579,983 7,526,157 7,153,013
Earnings (Loss) Per Common Share
(Note 2):
Basic $.43 $.29 ($.09)
Diluted $.41 $.27 ($.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 ( 35,312) 9,141 72,266
Comprehensive Income
(Loss) $3,039,041 $2,023,510 ($ 582,244)
Earnings (Loss) Per Share:
Basic $.43 $.29 ($.08)
Diluted $.40 $.27 ($.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
Unrealized
Additional Gain (Loss) on
Common Stock Paid-In Retained Marketable Treasury
Shares Amount Capital Earnings Securities Stock
Balance - November 30, 1999 7,342,081 $73,420 $4,453,478 $10,955,203 ($150,855) ($ 165,166)
Issuance of debentures for acquisition
of 278,328 shares of common stock - - - - - ( 619,965)
Purchase of 11,500 shares of
treasury stock - - - - - ( 11,066)
Net income for the year - - - ( 654,510) - -
Unrealized gain on marketable
securities - - - - 86,008 -
Retirement of treasury stock ( 278,328) ( 2,783) ( 617,182) - - ( 619,965)
Balance - November 30, 2000 7,063,753 70,637 3,836,296 10,300,693 ( 64,847) ( 176,232)
Issuance of common stock 200,000 2,000 ( 2,000) - - -
Net income for the year - - - 2,014,369 - -
Unrealized gain on marketable
securities - - - - 14,696 -
Purchase of 110,700 shares of
treasury stock - - - - - ( 70,973)
Balance - November 30, 2001 7,263,753 72,637 3,834,296 12,315,062 ( 50,151) ( 247,205)
Issuance of common stock 150,000 1,500 ( 1,500) - - -
Net income for the year - - - 3,074,353 - -
Unrealized (loss) on marketable
securities - - - - ( 57,839) -
Purchase of 52,959 shares of
treasury stock - - - - - ( 105,730)
Balance - November 30, 2002 7,413,753 $74,137 $3,832,796 $15,389,415 ($107,990) ($352,935)
See Notes to Consolidated Financial Statements.
-6-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
2002 2001 2000
Cash Flows from Operating Activities:
Net income (loss) $3,074,353 $2,014,369 ($ 654,510)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 357,627 374,953 372,881
(Gain) loss on sale of securities ( 119) 5,559 119,877
Decrease (increase) in deferred
income taxes 375,126 ( 93,469) ( 343,495)
Loss on disposal of property and
equipment 27,629 - -
(Increase) decrease in accounts
receivable (1,800,964) 1,864,764 1,041,777
Decrease in inventory 1,040,399 951,897 499,843
Decrease (increase) in prepaid
expenses and sundry receivables 37,946 ( 76,423) 497,836
Decrease (increase) in prepaid income
taxes and refunds due 220,286 555,702 ( 62,856)
Decrease (increase) in miscellaneous
assets 275 ( 1,137) ( 537)
Increase (decrease) in accounts payable
and accrued liabilities 1,129,853 ( 134,596) ( 640,053)
Increase in income taxes payable 169,324 9,366 -
Net Cash Provided by Operating
Activities 4,631,735 5,470,985 830,763
Cash Flows from Investing Activities:
Acquisition of property and equipment ( 575,923) ( 134,247) ( 283,863)
Acquisition of intangible assets ( 6,292) ( 24,700) ( 496,734)
Purchase of available for sale
securities (6,767,658) (7,036,015) (2,682,631)
Proceeds from sale of available for
sales securities 1,839,729 5,068,493 2,567,555
Proceeds of money due from officers 20,598 887 36,433
Net Cash (Used in) Investing
Activities (5,489,546) (2,125,582) ( 859,240)
Cash Flows from Financing Activities:
Proceeds from borrowings - - 3,900,000
Payment on debt - (1,500,000) (3,800,000)
Repurchase of outstanding debentures ( 6,750) ( 23,000) -
Purchase of treasury stock ( 105,730) ( 70,973) ( 74,375)
Net Cash (Used in) Provided by
Financing Activities ( 112,480) (1,593,973) 25,625
Net (Decrease) Increase In Cash ( 970,291) 1,751,430 ( 2,852)
Cash at Beginning of Year 2,555,938 804,508 807,360
Cash at End of Year $1,585,647 $2,555,938 $ 804,508
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest $ 38,239 $ 69,958 $161,895
Income taxes 1,310,593 801,950 97,629
See Notes to Consolidated Financial Statements.
-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 manufactured and
distributed perfume products. In 1999, CCA adopted a formal plan
to discontinue the operations of the subsidiary. 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 unsettled
transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from
estimated amounts.
Short-Term Investments and Marketable Securities:
Short-term investments and marketable securities consist of
corporate and government bonds and equity securities. The Company
has classified its investments as Available-for-Sale securities.
Accordingly, such investments are reported at fair market value,
with the resultant unrealized gains and losses reported as a
separate component of shareholders' equity.
Statements of Cash Flows Disclosure:
For purposes of the statement of cash flows, the Company considers
all highly liquid instruments purchased with an original maturity
of less than three months to be cash equivalents.
-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 retirement.
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 5-7 Years
Furniture and fixtures 3-10 Years
Tools, dies and masters 3 Years
Transportation equipment 5 Years
Leasehold improvements 4-10 Years or life
of lease, whichever is
shorter
Intangible Assets:
Intangible assets are stated at cost. Patents and trademarks are
amortized on the straight-line method over a period of 17 years.
Financial Instruments:
The carrying value of assets and liabilities considered financial
instruments approximate their respective fair value.
-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. Basic earnings per
share is calculated using the average number of shares of common
stock outstanding during the year. Diluted earnings per share is
computed on the basis of the average number of common shares
outstanding plus the effect of outstanding stock options using the
"treasury stock method" and convertible debentures using the "if-
converted" method. Common stock equivalents consist of stock
options.
Revenue Recognition:
The Company recognizes sales upon shipment of merchandise. Net
sales comprise gross revenues less expected returns, trade
discounts, customer allowances and various sales incentives.
Although no legal right of return exists between the customer and
the Company, it is an industry-wide practice to accept returns from
customers. The Company, therefore, records a reserve for returns
equal to its gross profit on its historical percentage of returns
on its last five months sales.
Reclassifications
In 1999, the Company formalized a plan to discontinue the
operations of FCA, terminated all FCA employees, closed its Chicago
facility, abandoned the majority of its inventory and discontinued
almost all of the marketing of its product line. However, in 2000,
after noting that there was still demand for the "Cherry Vanilla"
and "Cloud Dance" perfumes, the Company decided to retain those
product lines and purchased the trademarks owned by Shiara
Holdings, Inc. Therefore, in accordance with EITF 90-16, certain
prior year amounts have been reclassified to conform to the 2000
presentation.
In accordance with EITF 00-14, the Company has accounted for
certain sales incentives offered to customers by charging them
directly to sales as opposed to "advertising and promotional"
expense. Prior years' amounts have been reclassified to conform to
the 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:
2002 2001
Raw materials $3,251,338 $3,610,432
Finished goods 1,468,581 2,225,814
$4,719,919 $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
Company disposed of the FCA inventory.
NOTE 4 - PROPERTY AND EQUIPMENT
At November 30, 2002 and 2001, property and equipment consisted of
the following:
2002 2001
Machinery and equipment $ 97,003 $ 168,421
Office furniture and equipment 552,615 741,414
Transportation equipment 10,918 10,918
Tools, dies, and masters 213,188 550,825
Leasehold improvements 222,646 162,283
1,096,370 1,633,861
Less: Accumulated depreciation
and amortization 375,631 1,151,600
Property and Equipment - Net $ 720,739 $ 482,261
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
equipment.
-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 $756,548 $750,256
Less: Accumulated amortization 179,134 131,323
Intangible Assets - Net $577,414 $618,933
Amortization expense for the years ended November 30, 2002, 2001 and
2000 amounted to $47,811, $47,176 and $25,080, respectively.
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
Short-term investments and marketable securities, which consist of
stock and various corporate and government obligations, are stated at
market value. The Company has classified its investments as
Available-for-Sale securities and considers as current assets those
investments which will mature or are likely to be sold in the next
fiscal year. The remaining investments are considered non-current
assets. The cost and market values of the investments at November
30, 2002 and November 30, 2001 were as follows:
November 30, November 30,
2002 2001
Current: COST MARKET COST MARKET
Corporate obligations $ 2,066,040 $2,071,603 $ - $ -
Government obligations
(including mortgage
backed securities) 1,330,345 1,314,604 247,330 248,330
Mutual funds 169,589 93,337 159,805 107,015
Total 3,565,974 3,479,544 407,135 355,345
Non-Current:
Corporate obligations 1,025,806 1,016,715 2,416,846 2,434,080
Government obli-
gations 4,867,627 4,848,293 2,311,273 2,294,058
Preferred stock 751,645 758,510 150,000 151,620
Other equity
investments 100,000 100,000 100,000 100,000
Total 6,745,078 6,723,518 4,978,119 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 COL.D COL.E
Amount at Which
Each Portfolio
Number of Market Of Equity Security
Units-Principal Value of Issues and Each
Amount of Each Issue Other Security
Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in
Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet
CORPORATE OBLIGATIONS:
GMAC Smartnotes 10/15/03 4.600% 250,000 $ 250,000 $ 250,730 $ 250,730
GMAC Smartnotes 10/15/03 4.750 325,000 325,000 326,333 326,333
GMAC Smartnotes 1/15/03 5.550 250,000 250,000 250,763 250,763
GMAC Smartnotes 2/15/03 5.750 140,000 140,000 140,711 140,711
GMAC Smartnotes 6/15/03 4.750 300,000 300,000 300,894 300,894
GMAC Smartnotes 7/15/03 4.650 200,000 200,000 200,540 200,540
GMAC Smartnotes 8/15/03 4.250 499,000 499,000 499,075 499,075
GMAC Smartnotes 5/15/04 4.250 250,000 250,000 246,598 246,598
GMAC Smartnotes 5/15/05 5.000 175,000 175,000 171,922 171,922
Household Finance Corp.
Internotes 5/15/04 4.250 250,000 250,000 248,615 248,615
International Business
Machines 9/22/03 5.370 100,000 102,040 102,557 102,557
Colgate-Palmolive 12/1/03 5.270 100,000 100,860 102,912 102,912
Ford Motor Credit 3/20/04 6.125 245,000 249,946 246,668 246,668
3,091,846 3,088,318 3,088,318
-13-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
COL. A COL. B COL. C COL.D COL.E
Amount at Which
Each Portfolio
Number of Market Of Equity Security
Units-Principal Value of Issues and Each
Amount of Each Issue Other Security
Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in
Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet
GOVERNMENT OBLIGATIONS:
FHLMC 1628-N 12/15/2023 6.500% 255 $ - $ 255 $ 255
FHLB 9/15/2003 5.125 255,000 266,200 262,214 262,214
FHLMC 6/27/06 3.500 200,000 200,000 202,126 202,126
FHLMC 11/15/2017 4.250 200,000 200,000 196,770 196,770
US Treasury Note 11/15/2003 4.250 200,000 199,891 203,136 203,136
US Treasury Note 11/15/2003 4.250 250,000 250,169 258,537 258,537
FNMA 11/6/2009 4.250 250,000 250,000 246,978 246,978
FNMA 11/6/2009 4.250 500,000 500,000 493,955 493,955
FHLMC 2/27/12 4.000 225,000 225,000 229,289 229,289
FNMA 9/15/04 3.500 250,000 249,805 255,860 255,860
FHLMC 10/15/09 3.000 250,000 250,000 243,908 243,908
FNMA Global 10/15/06 4.375 200,000 199,559 207,938 207,938
FNMA 2/24/05 4.100 200,000 200,000 201,188 201,188
FNMA 4/28/06 3.080 250,000 250,000 250,000 250,000
FNMA 11/15/05 4.250 200,000 200,000 201,986 201,986
FNMA 5/16/06 4.000 200,000 200,000 202,062 202,062
FNMA 8/15/12 4.000 250,000 250,000 248,125 248,125
Federal Home Loan Bank 8/8/2006 3.375 250,000 250,000 250,783 250,783
Tennessee Valley Authority
Power Bonds 5/1/2029 6.500 26,000 688,530 676,000 676,000
Tobacco Settlement Fin
Corp. N 6/1/2015 5.000 200,000 198,500 190,966 190,966
NJ EDA Trans Sublease RV
Lightrail 199A FSA 5/1/2004 5.000 300,000 317,444 314,169 314,169
Port Authority NY & NJ
Cons 88th SR BE 10/1/2004 4.500 225,000 238,789 235,935 235,935
CLOSED END MUNICIPAL BONDS/MUTUAL FUNDS:
Muniyield New Jersey Insd Frd Inc. 5,500 81,350 78,650 78,650
Muniholdings New Jersey Insd FD Inc. 5,900 79,896 79,001 79,001
Nuveen New Jersey Invt Quality Municipal Fund 5,200 79,507 78,416 78,416
Nuveen New Jersey Prem Inc Municipal Fund 5,200 78,639 78,104 78,104
Van Kamp Amer Cap Inv Gr NJ 4,800 80,502 79,920 79,920
Blackrock New Jersey Municipal Inc. 5,000 73,820 67,500 67,500
Eaton Vance New Jersey Municipal Inc. 4,600 70,481 66,240 66,240
Nuveen New Jersey Dividend Advantage 4,700 69,890 62,886 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 COL.E
Amount at Which
Each Portfolio
Number of Market Of Equity Security
Units-Principal Value of Issues and Each
Amount of Each Issue Other Security
Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in
Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet
EQUITY:
Preferred Stock:
Public Income NTS
General Electric
Cap Corp. 11/15/32 6.10% 11,800 $ 301,645 $ 296,450 $ 296,450
Merrill Lynch Trust 9/30/08 7.28 6,000 150,000 154,560 154,560
Corporate Backed Trust
Certificates For AIG
Sun America 5/17/07 6.70 6,000 150,000 154,500 154,500
Corporate Backed Trust
Certificates For Bristol
Myers Squibb 5/23/07 6.80 6,000 150,000 153,000 153,000
751,645 758,510 758,510
Other Equity Investments:
Aberdeen Asia Pacific
Income Fund 100,000 100,000 100,000
Dreyfus Premier Limited
Term High Income CL B 14,862.540 169,589 93,337 93,337
269,589 193,337 193,337
$10,311,052 $10,203,062 $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 securities 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 resulting in a gain of $23,000.
During the year 2002, the Company repurchased $9,000 of debentures
for $6,750 resulting in a gain of $2,250.
NOTE 8 - INCOME TAXES
CCA and its subsidiaries file a consolidated federal income tax
return. No returns have been examined by the Internal Revenue
Service.
At November 30, 2002 and 2001, respectively, the Company has
temporary differences arising from the following:
November 30, 2002
Classified As
Deferred Short- Long-
Type Amount Tax Term Term
Asset (Liability)
Depreciation ($ 13,024) ($ 5,186) $ - ($5,186)
Reserve for bad debts 695,824 277,100 277,100 -
Reserve for returns 526,584 209,703 209,703 -
Reserve for obsolete
inventory 976,788 388,989 388,989 -
Section 263A costs 290,000 115,487 115,487 -
Charitable contributions 744,010 296,289 296,289 -
Net deferred income
tax $1,282,382 $1,287,568 ($5,186)
-16-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
November 30, 2001
Classified As
Deferred Short- Long-
Type Amount Tax Term Term
Asset (Liability)
Depreciation $ 98,139 $ 40,105 $ - $40,105
Reserve for bad debts 481,399 196,729 196,729 -
Reserve for returns 813,686 332,521 332,521 -
Reserve for obsolete
inventory 1,052,716 430,203 430,203 -
Section 263A costs 370,741 151,507 151,507 -
Deferred tax benefit from
discontinued operations 519,986 212,497 212,497 -
Charitable contributions 719,293 293,946 293,946 -
Net deferred income
tax $1,657,508 $1,617,403 $40,105
Income tax expense (benefit) is made up of the following components:
November 30, 2002
State &
Federal Local Total
Current tax expense $1,116,198 $507,307 $1,623,505
Tax credits ( 37,428) - ( 37,428)
Deferred tax expense 341,365 33,761 375,126
$1,420,135 $541,068 $1,961,203
-17-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
November 30, 2001
State &
Federal Local Total
Current tax benefit $976,295 $170,755 $1,147,050
Tax credits ( 35,000) - ( 35,000)
Deferred tax benefit ( 77,369) 131,703 54,334
$863,926 $302,458 $1,166,384
November 30, 2000
State &
Federal Local Total
Current tax expense ($229,509) ($35,097) ($264,606)
Deferred tax expense ( 54,416) ( 8,889) ( 63,305)
($283,925) ($43,986) ($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:
State &
Federal 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 2001 2000
Percent Percent Percent
Of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
Income tax expense (benefit)
at statutory rate $1,712,089 34.00% $1,081,456 34.00% ($334,023) (34.00%)
Increases (decreases) in taxes
resulting from:
State income taxes, net of federal
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 options as well as non-qualified options. The plan
was amended in 1986 and again in 1994. The following summarizes
the stock options outstanding under these plans as of November 30,
2002:
Number Per Share
Of Option
Date Granted Shares Price Expiration
January 1990 (1)(5) 159,500 .50 2007
June 1995 (2)(5) 50,000 .50(3)(5) 2007
August 1997 (5) 375,000 .50(4)(5) 2007
584,500
(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:
Number Per Share
Of Option
Shares Price Value
Balance - November 30,
2000 1,184,500 $.50 - $1.50 $1,109,875
Granted - - -
Repriced - ( .05) - ( 1.00) ( 517,125)
Exercised 400,000 ( .50) ( 200,000)
Expired - - -
Cancelled - - -
Balance - November 30,
2001 784,500 $.50 $ 392,250
Granted - - -
Repriced - - -
Exercised 200,000 ( .50) ( 100,000)
Expired - - -
Cancelled - - -
Balance - November 30,
2002 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, "Accounting for Stock Based Compensation", issued in October 1995.
Accordingly, compensation cost has been recorded based on the intrinsic value of the option only.
The Company recognized no compensation cost in 1999 and 1998, respectively, for stock-based
employee compensation awards. The pro forma compensation cost for stock-based employee
compensation awards was $1 million, $.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:
2002 2001 2000
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
Net income $3,074,353 $2,063,168 $2,014,369 $1,470,083 ($654,510) ($1,447,726)
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:
Stock Option Plan Shares
2002 2001 2000
Average expected life (years) 5.10 5.67 3.76
Expected volatility 210.19% 204.59% 193.18%
Risk-free interest rate 2.88% 4.25% 6.3%
Weighted average fair value
at grant - Exercise price
equal to market price $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 assumptions,
including the expected stock price volatility and option life.
Because the Company's stock options granted to employees have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's
opinion, existing models do not necessarily provide a reliable
measure of the fair value of its stock options granted to
employees. For purposes of this model, no dividends have been
assumed.
-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 accounts payable and accrued liabilities as of:
November 30,
2002 2001
(In Thousands)
Media advertising $ * $ 424
Coop advertising 804 392
Accrued returns 878 301
Vacation accrual 320 254
Accrued bonuses 467 510
$2,469 $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:
November 30,
2002 2001 2000
Interest income $383,569 $265,240 $222,459
Dividend income 11,780 16,057 42,461
Realized gain on sale of
debentures 2,250 25,342 6,262
Realized (loss) on sale of
securities ( 2,131) ( 30,901) (126,139)
Royalty income 41,820 57,385 37,500
Miscellaneous 2,193 5,760 3,741
$439,481 $338,883 $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 increase 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
Maintenance "CAM"), which includes real estate taxes, common area
expense, utility expense, 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 remaining term in excess of one year for each of the next
five (5) years and in the aggregate are as follows:
Year Ending
November 30,
2003 $ 389,254
2004 362,253
2005 338,201
2006 328,346
2007 327,684
Royalty Agreements
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 period. 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 remains until the
$9,000,000 level is reached.
In March 1998, the Company entered into a License Agreement with
Shiara Holdings, Inc., pursuant to which the Company acquired
exclusive license to use the trademark names used by Fragrance
Corporation of America, Ltd. (FCA). The Shiara-Holdings, Inc.
license requires the Company to pay royalties of 5% per annum on
net sales of all products sold under the "Cherry Vanilla",
"Mandarin Vanilla", and "Cloud Dance" trademarks until royalties
totaling $2,000,000 are paid, and royalties of one-half of 1%
thereafter. (No royalties are payable in respect of sales of
products under these Shiara license trademarks: "Vision", "Sunset
Cafe", and "Amber Musk".) A minimum of $100,000 was required to be
paid for the period from commencement (April 1998) through June
1999, and a minimum of $150,000 for each subsequent twelve-month
period, in order to retain the exclusive license-rights.
On October 26, 2000, the Company purchased the Trademarks of Shiara
Holding, Inc. for $450,000. Effectively, any future royalties
which would have been payable under the FCA License agreements
above were cancelled. See Note 5.
In May of 1998, the Company entered into a License Agreement with
Solar Sense, Inc. for the marketing of sun care products under
trademark names. The Company's License Agreement with Solar Sense,
Inc. is for the exclusive use of the trademark names "Solar Sense"
and "Kids Sense", in connection with the commercial exploitation of
sun care products. The Company 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 composition in a new product kit packaged and marketed by CCA
under its own name, "Nutra Nail Power Gel". The Company will pay a
royalty of 5% of net sales of all licensed product sold by the
Company. 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 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 will pay a 5% royalty of net sales of
all such licensed product sold by the Company. The license fees in
2002 were not material.
The Company has entered into various other License Agreements, none
of which materially affect the Company's sales, financial results,
financial condition, or should materially affect its future results
of operations.
Employment Contracts
During fiscal 1994, the Board of Directors approved contracts for
two officers/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, commencing 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 dental
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 containing phenylpropanolamine
(PPA), which the Company utilized as its active ingredient in its
products prior to November 2000. The lawsuits brought against the
Company 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:
Customer 2002 2001 2000
A 31% 28% 26%
B 13 12 13
C 7 7 6
D 7 5 6
E 5 4 6
F * 7 6
Foreign Sales 2.40% 2.85% 2.50%
The loss of any one of these customers could have a material
adverse affect on the Company's earnings and financial position.
During the years November 30, 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 2002 2001 2000
Health and Beauty 75% 69% 65%
Cosmetic and Fragrance 19 19 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 phenylpropanolimine ("PPA"), as a
result of a general FDA health-warning concerning PPA (a key
ingredient in numerous cold-remedies and appetite suppressants,
which had been "on the market" for some 50 years). The Company's
revenues from sales of those now discontinued products, in fiscal
2000, were approximately $2,500,000 (6.5% of sales).
In conjunction with the recall, the Company recorded $1,500,000 in
costs ($255,000 for inventory on hand and $1,245,000 for returns,
allowances, and other costs related to the recall).
-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
Net income (loss) available for common
shareholders, basic and diluted $3,074,353 $2,014,369 ($654,510)
Weighted average common stock
outstanding- Basic 7,099,759 6,893,232 7,153,013
Net effect of dilutive stock options 480,224 632,925 *
Weighted average common stock and
common stock equivalents - Diluted 7,579,983 7,526,157 7,153,013
Basic earnings per share $.43 $.29 ($.09)
Diluted earnings per share $.41 $.27 ($.09)
*Antidilutive
-30-
SCHEDULE II
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
Additions
Balance at Charged To Balance
Beginning Costs and At End
Description Of Year Expenses Deductions Of Year
Year Ended November 30, 2002:
Allowance for doubtful accounts $ 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 $1,052,716 $ 397,643 $ 473,571 $ 976,788
Year Ended November 30, 2001:
Allowance for doubtful accounts $ 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 $1,050,714 $ 548,815 $ 546,813 $1,052,716
Year ended November 30, 2000:
Allowance for doubtful accounts $ 327,919 $ 249,279 $ 253,941 $ 323,257
Reserve for returns 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-