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, 2003 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].
Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2) Yes No [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 closing sales
price ($5.30), on May 30, 2003, was as follows:
Class of Voting Stock Market Value
5,212,338 shares; Common
Stock, $.01 par value $27,625,391
On November 30, 2003 there was an aggregate of 7,276,844
shares of Common Stock and Class A Common Stock of the Registrant
outstanding.
- ii-
CROSS REFERENCE SHEET
Headings in this Form
Form 10-K 10-K for Year Ended
Item No. November 30, 2003
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 Operations 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
9A. Control and Procedures Control and Procedures
10. Directors and Directors and Executive
Executive Officers Officers
of the Registrant
- iii-
Headings in this Form
Form 10-K 10-K for Year Ended
Item No. November 30, 2003
11. Executive Compensation Executive Compensation
12. Security Ownership Security Ownership
of Certain Beneficial of Certain Beneficial
Owners and Management Owners and Management
13. Certain Relationships Certain Relationships
and Related Transactions and Related Transactions
14. Principal Accountant Fees Principal Accountant Fees
and Services and Services
15. Exhibits, Financial Exhibits, Financial
Statement Schedules, Statement Schedules,
and Reports on Form and Reports on Form
8-K 8-K
- iv-
TABLE OF CONTENTS
Item
Page
PART I
1. Business 1
2. Property 6
3. Legal Proceedings 6
4. Submission of Matters to a Vote of Security Holders 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 17
8. Financial Statements and Supplementary Data 17
9. Changes In and Disagreements with Accountants On
Accounting and Financial Disclosure 18
9A.Controls and Procedures 18
PART III
10.Directors and Executive Officers 19
11.Executive Compensation 21
12.Security Ownership of Certain Beneficial Owners
and Management 28
13.Certain Relationships and Related Transactions 29
14.Principal Accountant Fees and Services 29
PART IV
15.Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 31
- 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. Virtually 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"
which includes "Booster" (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 T" Green Tea and "SweetEnders" (dietary
products), "Hair Off" (depilatories), "IPR" (foot-care products),
"Solar Sense" (sun-care products), "Wash 'N Curl" (shampoos),
"Cherry Vanilla" (perfumes), and "Scar Zone" (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 to return
rates and gross margins, and in the event of a significant
increase in the rate of returns, the circumstance could have a
materially adverse affect upon the Company's operations.
In or about November 2000, the Company contacted its
accounts and instructed them to return its "Permathene" and "Mega
16" products, which contain phenylpropanolamine ("PPA"), as a
result of a general FDA health-warning concerning PPA (a key
ingredient in numerous cold-remedies and appetite suppressants,
which had been `on the market' for some 50 years). The Company's
revenues from sales of those now discontinued products, in fiscal
2000, were approximately $2,500,000 (approximately 6.5% of
sales).
1
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 $5,707,304 in net sales, approximately 11%
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.)
Net sales of these products were $1,682,806 (3% of sales) in the
current fiscal year.
The Company's total net-sales in fiscal 2003 were
approximately $54,145,000 generating approximately $35,977,000 in
gross profits. International sales accounted for approximately 2
% of sales. The Company experienced a net profit of
approximately $5,212,000 for the current fiscal year. Its net
worth is $23,344,540. (See the Financial Statements and Notes.)
Including the principal members of management (see Directors
and Executive Officers), the Company, at November 30, 2003, had
150 sales, administrative, creative, accounting, receiving, and
warehouse personnel in its employ.
(b) Manufacturing and Shipping
The Company creates formulations, chooses colors and
mixtures, and arranges with independent contractors for the
manufacture of its products pursuant to Company specifications.
Manufacturing and component-supply arrangements are maintained
with several manufacturers and suppliers. Almost all orders and
other product shipments are delivered from the Company's own
warehouse facilities, which results in more effective inventory
control, more efficient shipping procedures, and the realization
of related economies.
(c)i Marketing
The Company markets its products to major drug, food and
mass-merchandise retail chains, and leading wholesalers, through
an in-house sales force of employees and independent sales
representatives throughout the United States.
The Company sells its products to approximately 450
accounts, most of which have numerous outlets. Approximately
40,000 stores carry at least one Company product.
2
During the fiscal year ended November 30, 2003, the
Company's largest customers were Wal-Mart (approximately 34% of
net sales), Walgreen (approximately 13%), Rite Aid, CVS, Eckerd
and Albertson (approximately 8%, 7%, 6%, and 4%, respectively).
The loss of any of these principal customers, or substantial
reduction of sales revenues realized from their business, could
materially and negatively affect the Company's earnings.
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", "Cherry Vanilla", and "Scar Zone".
(e) All Products
Health and beauty, cosmetic and fragrance and over the
counter products accounted for approximately 70%, 18% and 11%,
respectively, of the Company's net-sales revenues during fiscal
2003.
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%. The Company paid an aggregate of
$9,000,000 in royalties to Allegheny in April 2003. Commencing
May 1, 2003, the license royalty was reduced to 1%.
The products subject to the Alleghany-Pharmacal License
accounted for approximately $14,777,460 or 27 % of total net
sales in the fiscal year ended November 30, 2003. "Nutra Nail"
and the "Hair-Off" depilatory were the leaders among all of the
Company's license-agreement products, producing approximately 16%
and 9%, respectively, of net sales.
ii. Solar Sense, Inc.
CCA commenced the marketing of its sun-care products line
following a May 1998 License Agreement with Solar Sense, Inc.
(the "Solar Sense License"), pursuant to which it acquired the
exclusive right to use the trademark names "Solar Sense" and
"Kids Sense" and the exclusive right to market mark-associated
products. The Solar Sense License requires the Company to pay a
5% royalty on net sales of said licensed products until $1
million total royalties are paid and 1%, thereafter; and minimum
per-annum royalties of $30,000. CCA realized approximately
$1,040,661 in net sales of sun-care products in 2003, and paid or
accrued Solar Sense the royalty of $52,033.
4
iii. The Nail Consultants Ltd.
In October of 1999, the Company entered into a License
Agreement with The Nail Consultants, Ltd. for the use of an
activator invented in connection with a method for applying a
protective covering to fingernails. The Company's License
Agreement with The Nail Consultants, Ltd. is for the use of the
method and its composition in a new product kit packaged and
marketed by CCA under its own name, "Nutra Nail Power Gel". The
Company is required to pay a royalty of 5% of net sales of all
products sold under the license, by the Company. Net sales were
approximately $2,872,313 in 2003, and the Company paid or accrued
the Nail Consultants a royalty of $143,616.
iv. Hugger Corporation
In October 2002, the Company entered into a License
Agreement with Hugger Corporation for use of its patented oral
hygiene system to be used in conjunction with regular toothpaste.
The Company's License Agreement is for the use of the product
designated and referred to in the patent owned by Hugger
Corporation. The Company designed, marketed and distributed the
patented product called "Booster" under its Plus+White brand.
The Company is required to pay a 5% royalty of net sales
payable quarterly. During the first 18-month contract period
ending June 30, 2004, the minimum royalty the Company is required
to pay is $100,000 to maintain its exclusive rights under the
License Agreement. Thereafter, the Company is required to pay a
minimum royalty of $50,000 annually. The royalty will continue
until the Patent expires or an aggregate of $3,500,000 is paid to
Licensor. Until that time, Licensee has no liability to meet
minimum royalty requirements except to maintain its rights under
the License Agreement. In fiscal 2003, the net sales were
$815,634, and the Company paid or accrued royalties of $40,781.
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. 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.
5
(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
whom have substantially greater financial, technological and
marketing resources than the Company. Major competitors such as
Revlon, L'Oreal, Colgate, Del Laboratories, Unilever, and Procter
& Gamble have Fortune 500 status, and the broadest-based public
recognition of their products. Moreover, a substantial number of
other health-and-beauty aids manufacturers and distributors may
also have greater resources than the Company.
(h) Government Regulation
All of the products that the Company markets are subject or
potentially subject to particular regulation by government
agencies, such as the U.S. Food and Drug Administration, the
Federal Trade Commission, and various state and/or local
regulatory bodies. In the event that any future regulations 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 60,600 square
feet of space. Approximately 43,600 square feet in such premises
is used for warehousing and 17,000 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, 2003, CAM was $220,829.
6
Item 3. LEGAL PROCEEDINGS
The only material legal proceedings outstanding as of
November 30, 2003 were related to the Company's diet suppressant
products containing phenylpropanolamine ("PPA"). There were
approximately eleven suits pending in 2002. Reference is made
to Forms 8K filed on May 22, 2002 and November 20, 2002 for the
background and the insurance issues relative thereto. Three
additional 8Ks have been filed: one on October 29, 2003, one on
November 24, 2003 and one on December 11, 2003. Seven of the
suits have been dismissed with prejudice. An additional suit is
in the process of being dismissed.
There are approximately 5,000 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 three PPA cases still
pending against the Company are defensible. Of the Company's
three pending suits, one is insured by the Company's liability
carrier. However, there can be no assurance that the current PPA
litigation will not have a material adverse effect upon the
Company's operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 9, 2003, 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 therefore, 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
Robert Lage were elected as directors by the holders of the
Common Stock.
(3) Shareholders approved the authorization proposed by the
Board of Directors for the 2003 Stock Option Plan, which
authorized the issuance of options to issue up to 1,000,000
shares of common stock.
(4) The Board's appointment of Sheft Kahn & Company LLP as
the Company's independent certified public accountants for the
2003 fiscal year was approved.
The Company has not submitted any matter to a vote of
security holders since the 2003 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 was then traded on the National Market Bulletin Board and
continued trading on the BB through the first quarter of fiscal
2003. On March 18, 2003 the stock was listed and began trading
on the American Stock Exchange under the symbol "CAW."
The range of high and low sales prices of the Common Stock
during each quarter of its 2003, 2002 and 2001 fiscal years was
as follows:
Quarter Ended 2003 2002 2001
February 29 $3.80 - $1.70 $1.73 - $1.25 $ .93 - $ .37
May 31 $5.43 - $3.05 $1.74 - $1.38 $1.09 - $ .62
August 31 $8.69 - $5.10 $2.00 - $1.55 $1.90 - $ .85
November 30 $8.50 - $6.60 $1.99 - $1.55 $1.56 - $ .82
The high and low prices for the Company's Common Stock, on
February 5, 2004 were $8.55 to $7.55 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, five-year
promissory notes, 6% interest, subject of the offer's $2
subordinated debenture. (Those securities are unregistered
pursuant to an exemption from registration requirements. In any
event, and in addition to the form denominated by the S.E.C. as
"Schedule TO", with the Schedule TO information, the following
documents subject of the tender offer were filed with the S.E.C.,
prior to commencement of the offering: A Trust Indenture, a form
of the eventually-issued Promissory Notes, and the Offering
Document that was thereafter transmitted to Common Stock
shareholders.)
8
As at November 30, 2003, there were approximately 199
individual shareholders of record of the Company's common stock.
(There are a substantial number of shares held of record in
various street and depository trust accounts, which represent
approximately 1,000 additional shareholders.)
The 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.
On December 13, 2003, the Board of Directors declared a
$0.14 per share dividend for fiscal 2004, $0.07 payable to all
shareholders of record May 1, 2004 payable on June 1, 2004 and
$0.07 payable to all shareholders of record November 1, 2004
payable on November 30, 2004.
9
Item 6. SELECTED FINANCIAL DATA
Year Ended November 30,
2003 2002 2001 2000 1999
Statement of Income
Sales $54,145,480 $45,241,493 $41,364,648 $36,990,170 $37,898,563
Other income 591,271 439,481 338,883 186,284 285,469
54,736,751 45,680,974 41,703,531 37,176,454 38,184,032
Costs and Expenses
(excluding special
charge) 46,239,853 40,645,418 38,522,778 36,658,875 37,370,017
Income Before Special
Charge and Provision
for Income Taxes 8,496,898 5,035,556 3,180,753 517,579 814,015
Special Charge - - - ( 1,500,000) -
Net Income (Loss) from
Continuing Operations 5,252,131 3,074,353 2,014,369 ( 654,510) 512,504
(Loss) Income from
Discontinued Operations - - - - ( 803,603)
Net Income (Loss) 5,252,131 3,074,353 2,014,369 ( 654,510) ( 291,099)
Earnings (Loss) Per Share:
Basic $ .73 $ .43 $ .29 ($ .09) ($ .04)
Diluted $ .69 $ .41 $ . 27 ($ .09) ($ .04)
Weighted Average Number
of Shares Outstanding 7,227,678 7,099,759 6,893,232 7,153,013 7,174,203
Weighted Average Number
of Shares and Common
Stock Equivalents
Outstanding 7,616,040 7,579,983 7,526,157 7,153,013 7,174,203
Balance Sheet Data: As At November 30,
2003 2002 2001 2000 1999
Working Capital 11,565,685 $11,264,206 $10,236,977 $12,361,305 $12,291,890
Total Assets 29,839,216 24,805,064 20,598,917 20,312,056 21,494,987
Total Liabilities 6,494,676 5,969,641 4,674,278 6,345,508 6,328,905
Total Stockholders'
Equity 23,344,540 18,835,423 15,924,639 13,966,548 15,166,082
(1)In December 2003, the Company declared a $.14 dividend payable to all holders
of the Company's common stock, $.07 payable payable to shareholders of record
on May 1, 2004 and November 1, 2004, respectively.
10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, this
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward-looking statements.
These statements involve known and unknown risks and
uncertainties that may cause actual results or outcomes to be
materially different from any future results, performances or
achievements expressed or implied by such forward-looking
statements, and 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 and 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 previously 'charged' at 6%
will be reduced to 1% now that the sum of $9,000,000 in royalties
has been paid thereunder. In April 2003, the Company concluded
payment of an aggregate of $9,000,000. Therefore, all royalty
payments were reduced to 1% on all future orders.
Comparison of Results for Fiscal Years 2003 and 2002
The Company's revenues increased from $45,680,974 in fiscal
2002 to $54,736,751 in the current fiscal year. Gross profit
margins remained at 66% this year as they were last year. Net
income was $5,252,131 as compared to $3,074,353 in fiscal 2002.
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 years
ended November 30, 2003 and 2002 by $1,760,308 and $1,169,775,
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 $10,328,695 as compared
to $9,239,249 in fiscal 2002. Advertising expenditures were
19.1% of sales vs. 20.4% last year. SG&A expenses increased 8.8%
to $16,753,269 from $15,389,528 in 2002. 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 8.5% of gross sales from
10.4% last year. Research and development expenses increased to
$884,425 this year from $741,974 last year.
On January 22, 2002, K-Mart filed for bankruptcy under
Chapter XI. As at November 30, 2002, after adjustments for
charge-backs, there was approximately $256,236 due and
outstanding for pre-petition receivables for which the Company
had set up a reserve of $230,612 (90%). The Company's sales to K-
Mart during 2003, all post-petition, were $1,222,8421. As at
11
November 30, 2003, after K-Mart emerged from bankruptcy, all
receivables from K-Mart as debtor-in-possession were current.
In fiscal 2003, the Company wrote off the $230,000 pre-petition
receivables and reduced the reserve accordingly.
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.
Subsequent to the write off of the reserve, there have been
offers for 15% of the estimated pay out of the Company's
undisputed non-contingent unsecured claims.
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 fiscal year 2002. Gross profit
margins were 66% 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 and 2001 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 fiscal year 2002, advertising, cooperative and
promotional allowance expenditures were $9,239,249 as compared to
$8,776,470 for fiscal 2001. Advertising expenditures were 20.4%
of sales vs. 21.2% in 2001. 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% in 2001. Research
and development expenses increased to $741,974 in fiscal 2002
from $687,731 in 2001.
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 $989,5582. 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
if there is 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.
12
Liquidity and Capital Resources
As at November 30, 2003, the Company had working capital of
$11,565,685 as compared to $11,264,206 at November 30, 2002. The
increase would have been higher had the Company not allocated
$10,991,411 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
2.9 as compared to a ratio of 3.1 to 1 for the prior year.
Stockholders' equity increased to $23,344,540 from $18,835,423
primarily due to the income from operations.
The Company's cash position and short-term investments at
year-end was $3,839,235, down from $5,065,191 as at November 30,
2002. The decrease is due to allocating more investments in long-
term securities. In December 2003, the Company declared a $.14
dividend for shareholders of record in May and November 2004
which will reduce the Company's cash position by approximately
$880,000.
Inventories were $5,312,699 vs. $3,743,131, and accounts
receivable were $6,604,982 vs. $6,265,955. Current liabilities
are $5,982,267 vs. $5,462,799 in the prior year. At year-end,
the Company had long and short-term triple A investments and cash
of $14,830,646 as compared to $11,788,709. As of November 30,
2003, the Company was not utilizing any of the funds available
under its $10,000,000 unsecured credit line.
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
was 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,
2003. Such obligations include the current lease for the
Company's premises, written employment contracts and License
Agreements.
2004 2005 2006 2007 2008
Lease on Premises (1) 548,513 548,513 548,513 548,513 548,513
Royalty Expense (2) 640,000 640,000 640,000 640,000 640,000
Employment Contracts (3) 2,098,257 2,192,771 2,292,957 2,399,154 1,988,724
Total Contractual Obligations 2,776,770 2,821,284 2,921,470 3,027,667 2,617,237
(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 2003 was $220,829. 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 reflect estimates of the royalty expense anticipated under
the various contracts for the licensed products based on fiscal
2003 sales. Royalty expense includes Alleghany Pharmacal, Solar
Sense, Hugger Corporation, Nail Consultants, Sweet Enders, Pop Up
Nails and Lobe Wonder.
(3) The Company has executed Employment Contracts with its CEO,
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 (plus a bonus of 20%
of the base salary), with a year-to-year CPI or 6%, plus 2.5% of
the Company's pre-tax income less depreciation and amortization
(EBITDA). (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 2003 and only the base
salaries for the five years (plus 20% of the base salary), and
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 five-year employment contracts in the
amounts of $270,000 and $200,000 respectively, which expire on
November 30, 2007 (See Item 11, Summary Compensation Table). In
July 2003, Dunnan Edell's salary was increased to $300,000 and in
January 2004, Drew Edell's salary was increased to $225,000.
14
Dunnan Edell is a director and during fiscal 2003 was appointed
President of the Company. Drew Edell is a director and the Vice
President of Operations and Research, and Product Development.
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 $54,145,480. Almost all
of the products were able to maintain the projected gross profit
margins. Net income is $5,252,131. 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. This fiscal year, the replacement products for the dietary
supplements containing PPA had net revenues of $5,915,484.
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" set forth, there were
referenced 8Ks filed on May 23, 2002 and November 20, 2002, in
which the legal issues were discussed. Three additional 8Ks were
filed, one on October 29. 2003, one on November 24, 2003 and one
on December 11, 2003 advising of the dismissal of seven of the
15
eleven lawsuits. An additional lawsuit is in the process of
being dismissed. As previously advised, it is independent
counsel's opinion that the Company has a defensible position in
the three remaining lawsuits.
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, 2003.
Class A Shareholders, David Edell, CEO and Ira W. Berman,
Chairman of the Board of Directors, have the right to elect four
members to the Board of Directors. Common stockholders have the
right to elect three members to the Board of Directors.
Future Success Depends on Continued New Product Development.
The Company is not financially as strong to compete with the
major companies against whom it competes. The ability to
successfully introduce new niche products and increase the growth
and profitability of its current niche brand products will affect
the business and prospects of the future of the Company.
16
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 "Common Stock", "Mutual Funds", "Other
Equity", "Preferred Stock", "Government Obligations" and
"Corporate Obligations" (which, primarily, are intended to be
held to maturity). $510,288 of the Company's $13,632,859
portfolio of investments (approximate, as at Nov. 30, 2003) is
invested in the "Common Stock" and "Other Equity" category, and
approximately $1,366,036 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, 2003 and 2002:
Three Months Ended
Fiscal 2003 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales $12,362,785 $17,439,253 $12,739,346 $11,604,097
Total Revenue 12,515,182 17,610,850 12,852,537 11,758,182
Cost of Products Sold 4,446,827 5,316,313 4,030,837 4,374,551
Net Income 573,626 2,584,095 1,287,125 807,285
Earnings Per Share:
Basic $.08 $.36 $.18 $.11
Diluted .08 .34 .17 .11
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
17
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 9A. CONTROLS AND PROCEDURES
With the participation of our Chief Executive Officer and
Chief Financial Officer, management has carried out an evaluation
of the effectiveness of our disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934). Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of November 30, 2003.
There were no changes in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934) subsequent to the date the controls were
evaluated that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
18
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We have a code of ethics that applies to the Chairman of the
Board, Directors, Officers and Employees, including our Chief
Executive Officer, Treasurer and Controllers. You can find our
code of ethics in Exhibit 14.
The Executive Officers and Directors of the Company are as
follows:
YEAR OF FIRST
NAME POSITION COMPANY SERVICE
David Edell Chief
Executive Officer,
Director 1983
Ira W. Berman Chairman of the Board
of Directors, Secretary,
Executive Vice President 1983
Dunnan Edell President
Director 1984
Drew Edell Vice President-
Operations and
New Product Development
Director 1983
John Bingman Treasurer 1986
Stanley Kreitman Director 1996
Jack Polak Director 1983
Robert Lage Director 2003
David Edell, age 71, is a director, and the Company's 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.
19
Ira W. Berman, age 72, 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 48 year-old son of David Edell. He is a
graduate of George Washington University. He has been a director
since 1994, and in fiscal 2003, he was promoted to position of
President of the Company. 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 46 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 of Product Development and Production.
John Bingman, age 52, received a Bachelor of Science degree
from Farleigh Dickenson University in 1973. He worked as a
Certified Public Accountant who practiced with the New Jersey
accounting firm of Zarrow, Zarrow & Klein from 1976 to 1986.
Jack Polak, age 91, 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.
Robert Lage, age 67, is a retired CPA. He became a director
in fiscal 2003. He was a partner at Price WaterhouseCoopers
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.
20
Item 11. EXECUTIVE COMPENSATION
i. Summary Compensation Table
The following table summarizes compensation earned in the
2003, 2002 and 2001 fiscal years by all of the executive officers
whose fiscal 2003 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, 2003 $619,205 $459,240 $39,476 - 0
Chief 2002 584,155 332,060 40,152 - 0
Executive 2001 514,399 247,806 37,859 - 0
Officer
Ira W. Berman, 2003 $619,205 $459,240 $29,499 - 0
Secretary and 2002 584,155 332,060 27,475 - 0
Executive 2001 514,399 247,806 27,905 - 0
Vice President
Dunnan Edell, 2003 $282,692 $ 50,000 $11,931 - 0
President 2002 253,172 45,000 7,281 - 0
2001 232,595 4,231 8,304 - 0
Drew Edell 2003 $200,000 $ 25,000 $ 5,081 - 0
Vice President 2002 203,845 25,000 1,178 - 0
Operations 2001 187,596 3,365 2,929 - 0
John Bingman 2003 $105,128 $ 25,000 $ 2,696 - 0
Treasurer 2002 99,843 20,000 3,037 - 0
2001 101,354 1,862 2,763 - 0
Joel Last 2003 $160,000 $ 32,000 $ 4,833 - 0
Vice President 2002 160,000 15,000 5,984 - 0
Sales 2001 160,000 10,000 7,067 - 0
21
Patrick Haberman2003 $152,077 $ 31,350 $ 9,278 - 0
Vice President 2002 150,000 10,000 9,603 - 0
Sales 2001 150,000 7,500 8,484 - 0
- -------------------------
(1) Includes the personal-use value of Company-leased
automobiles, the value of Company-provided life insurance, and
health insurance that is made available to all employees.
(2) Information in respect of stock option plans appears below in
the sub-topic, Employment Contracts/Executive Compensation
Program.
ii. Fiscal 2003 Option Grants and Option Exercises,
Year-End Option Valuation, Option Repricing
No new options were issued to any of the Named Officers in
fiscal 2003.
The next table identifies 2003 fiscal-year option exercises
by Named Officers, and reports a valuation of their options.
Fiscal 2003 Aggregated Option Exercises
and November 30, 2003 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 (1) at November 30, 2003 November 30, 2003
David Edell 60,000 $234,000 97,500 $683,475
Ira W. Berman 85,000 $331,500 117,000 $820,170
Dunnan Edell - - 75,000 $525,750
Drew Edell - - 75,000 $525,750
- ---------------------
(1) Represents the difference between market price and the
respective exercise prices of options as
of the exercise date.
22
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
Drew 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
remaining. 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 2003 (without additional
compensation for committee meetings). No new options were
granted to any director in 2003. Mr. Lage received an additional
$15,000 as chairman of the audit committee. The full Board of
Directors met four times in fiscal 2003.
23
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 Stanley Kreitman, Jack Polak and Robert
Lage, which met three times in fiscal 2003, 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,
2003. 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
expert."
Robert A. Lage, age 67, chairman of the audit committee and
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. The Board has
deemed that he is both "independent" and qualifies as a
"financial expert".
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 2003 fiscal year.
24
The Company has executed Employment Contracts with its CEO,
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 (EBITDA), 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 five-
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
President of the Company. Drew Edell is a director and the Vice
President of Operations and Research and Product Development. On
July 1 2003, Dunnan Edell's salary was increased to $300,000, and
on January 5, 2004, Drew Edell's salary was increased to
$225,000.
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.) On July 9, 2003, the Company's
Stock Option Plan was approved by the shareholders authorizing
the issuance of options to issue up to 1,000,000 shares.
The Company's 2003 Stock Option Plan covers 1,000,000 shares
of its Common Stock.
The 2003 Option Plan provides (as had the 1984 , 1986 and
the 1994 plans) for the granting of two (2) types of options:
"Incentive Stock Options" and "Nonqualified Stock Options". The
Incentive Stock Options (but not the Nonqualified Stock Options)
are intended to qualify as "Incentive Stock Options" as defined
in Section 422(a) of The Internal Revenue Code. The Plans are
not qualified under Section 401(a) of the Code, nor subject to
the provisions of the Employee Retirement Income Security Act of
1974.
Options may be granted under the Options Plans to employees
(including officers and directors who are also employees) and
consultants of the Company provided, however, that Incentive
Stock Options may not be granted to any non-employee director or
consultant.
Option plans are administered and interpreted by the Board
of Directors. (Where issuance to a Board member is under
consideration, that member must abstain.) The Board has the
power, subject to plan provisions, to determine the persons to
whom and the dates on which options will be granted, the number
25
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.
As at November 30, 2003, 427,500 stock options, yet
exercisable, to purchase 427,500 shares of the Company's Common
Stock, were outstanding.
26
vii. Performance Graph
Set forth below is a line graph comparing cumulative total
shareholder return on the Company's Common Stock, with the
cumulative total return of companies in the NASDAQ Stock Market
(U.S.) and the cumulative total return of Dow Jones's
Cosmetics/Personal Care Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CCA INDUSTRIES, INC, THE DOW JONES US COSMETICS INDEX
AND THE DOW JONES US TOTAL MARKET INDEX
GRAPH
Cumulative Total Return*
12/98 12/99 12/00 12/01 12/02 12/03
CCA Industries, Inc. 100 90 45 103 159 693
DJ US Cosmetics Index 100 88 85 77 74 81
DJ US Total Market Index 100 123 111 98 76 88
- ---------------------
* $100 invested on December 31, 1998 in stock and indices,
including reinvestment of dividends.
27
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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, 2003 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 396,993 484,615 97,500 12.1%, 12.7%
c/o CCA Industries, Inc.
200 Murray Hill Parkway
East Rutherford, NJ 07073
Ira W. Berman 406,583 473,615 117,000 2.1%, 12.9%
c/o CCA Industries, Inc.
Jack Polak 27,700 - 25,000 4%, .7%
195 Beach Street
Easthester, NY 10709
Stanley Kreitman - - 25,000 0%, .3%
c/o CCA Industries, Inc.
Dunnan Edell 41,250 - 75,000 .6%, 1.5%
c/o CCA Industries, Inc.
Robert Lage - - - -
72 Cypress Point Lane
Jackson, NJ 08527
28
Drew Edell 51,250 - 75,000 .7%, 1.6%
c/o CCA Industries, Inc.
John Bingman - - - -
c/o CCA Industries,
Inc.
Officers and
Directors 923,776 958,230 414,500 25.9%, 29.8%
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 own 100% 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. Lage, Kreitman and Polak are Directors.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 2003, several related parties provided
services to the Company which were deemed immaterial to the
financial statements.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Sheft Kahn & Company LLP ("Sheft Kahn") served as the
Company's independent auditors for 2003 and 2002. The services
performed by Sheft Kahn in this capacity included conducting an
audit in accordance with generally accepted auditing standards
of, and expressing an opinion on, the Company's consolidated
financial statements.
Audit Fees
Sheft Kahn's fees for professional services rendered in
connection with the audit and review of Forms 10-K and all other
SEC regulatory filings were $177,614 for the 2003 fiscal year and
$128,425 for the 2002 fiscal year. The Company has paid and is
current on all billed fees.
29
Tax Fees
Sheft Kahn's fees for professional services rendered in
connection with Federal and State tax return preparation and
other tax matters for the 2003 and 2002 fiscal years were $42,846
and $30,484, respectively.
Consulting Fees
Sheft Kahn's fees of $23,008 for the 2003 fiscal year were
related to work performed in conjunction with PNC Capital Markets
conducting due diligence on the Company for possible future
acquisitions of other companies. The fees of $2,838 for the 2002
fiscal year were related to matters pertaining to the Company's
new computer system.
Engagements Subject to Approval
Under its charter, the Audit Committee must pre-approve all
subsequent engagements of our independent auditor unless an
exception to such pre-approval exists under the Securities
Exchange Act of 1934 or the rules of the Securities and Exchange
Commission. Each year, the independent auditor's retention to
audit our financial statements, including the associated fee, is
approved by the committee before the filing of the preceding
year's annual report on form 10-K. At the beginning of the
fiscal year, the Audit Committee will evaluate other known
potential engagements of the independent auditor, including the
scope of the work proposed to be performed and the proposed fees,
and approve or reject each service, taking into account whether
the services are permissible under applicable law and the
possible impact of each non-audit service on the independent
auditor's independence from management. At each subsequent
committee meeting, the committee will receive updates on the
services actually provided by the independent auditor, and
management may present additional services for approval. The
committee has delegated to the Chairman of the committee the
authority to evaluate and approve engagements on behalf of the
committee in the event that a need arises for pre-approval
between committee meetings. If the Chairman so approves any such
engagements, he will report that approval to the full committee
at the next committee meeting.
Since the May 6, 2003 effective date of the Securities and
Exchange Commission rules stating that an auditor is not
independent of an audit client if the services it provides to the
client are not appropriately approved, each new engagement of
Sheft Kahn & Company LLP was approved in advance by the Audit
Committee, and none of those engagements made use of the de
minimus exception to pre-approval contained in the Commission's
rules.
30
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, 2003 and 2002,
Consolidated Statements of Income (Loss) for the years ended
November 30, 2003, 2002 and 2001, Consolidated Statements of
Comprehensive Income (Loss), Consolidated Statements of
Shareholders' Equity for the years ended November 30, 2003, 2002
and 2001, Consolidated Statements of Cash Flows for the years
ended November 30, 2003, 2002 and 2001, Notes to Consolidated
Financial Statements.
Financial Statement Schedules:
Schedule II: Valuation Accounts; Years Ended Nov. 30, 2003,
2002 and 2001. The remaining financial statement schedules
have been omitted since they are not required to be filed.
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, five- 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-K/A 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 2003 10K.
Three additional 8Ks are referenced, October 29, 2003,
November 24, 2003 and December 11, 2003.
31
(d) The Company's 2003 Stock Option Plan was filed with the
2003 Proxy.
(11) Statement re Per Share Earnings (included in Item 15,
Financial Statements)
Two Forms 8-K were filed during the 2003 fiscal year.
(14) Code of Ethics for Chief Executive Officer and Senior
Financial Officers
(31.1)Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)*
(31.2)Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)*
(32.1)Certification of Chief Executive Officer pursuant to 18
U.S.C. 1350*
(32.2)Certification of Chief Financial Officer pursuant to 18
U.S.C. 1350*
* Filed herewith.
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).
32
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/
DUNNAN 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/ Co-Chairman
DAVID EDELL Chief Executive Officer, February 28, 2004
Chief Financial Officer,
Director
s/ Chairman of the Board February 28, 2004
IRA W. BERMAN of Directors, Executive
Vice President,
Secretary
s/ President, February 28, 2004
DUNNAN EDELL Director
s/ Vice President, February 28, 2004
DREW EDELL Director
s/ Director February 28, 2004
STANLEY KREITMAN
s/ Director February 28, 2004
ROBERT LAGE
s/ Director February 28, 2004
JACK POLAK
s/ Treasurer February 28, 2004
JOHN BINGMAN
_______________________________
33
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2003 AND 2002
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 . . . . . . . . . . . . . . . . . . .4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME . . . . . . . . . . .5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY . . . . . . . . . . . .6
CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . .7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . 8-32
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, 2003 and
2002, and the related consolidated statements of income,
comprehensive income, shareholders' equity and cash flows for
each of the three years in the period ended November 30, 2003.
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, 2003 and 2002, and the consoli-
dated results of their operations and their cash flows for each
of the three years in the period ended November 30, 2003, 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 15 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
January 30, 2004
Jericho, New York
-1-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
November 30,
2003 2002
Current Assets
Cash and cash equivalents (Note 15) $ 1,206,787 $ 1,585,647
Short-term investments and marketable
securities (Notes 2 and 6) 2,632,448 3,479,544
Accounts receivable, net of allowances of
$895,723 and $1,222,408, respectively 6,604,982 6,265,955
Inventories (Notes 2 and 3) 5,312,699 3,743,131
Prepaid expenses and sundry receivables 590,850 363,457
Prepaid income taxes and refunds due (Note 8) 236,620 1,703
Deferred income taxes (Note 8) 963,566 1,287,568
Total Current Assets 17,547,952 16,727,005
Property and Equipment, net of accumulated
depreciation and amortization
(Notes 2 and 4) 728,522 720,739
Intangible Assets, net of accumulated
amortization (Notes 2 and 5) 532,193 577,414
Other Assets
Marketable securities (Notes 2 and 6) 10,991,411 6,723,518
Other 39,138 56,388
Total Other Assets 11,030,549 6,779,906
Total Assets $29,839,216 $24,805,064
See Notes to Consolidated Financial Statements.
-2-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
November 30,
2003 2002
Current Liabilities
Accounts payable and accrued
liabilities (Note 10) $ 5,603,150 $ 5,284,109
Income tax payable - 178,690
Dividends payable 379,117 -
Total Current Liabilities 5,982,267 5,462,799
Subordinated Debentures (Note 7) 497,656 501,656
Deferred Income Taxes (Note 8) 14,753 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 6,592,669 and
6,440,523 shares, respectively 65,926 64,405
Class A common stock, $.01 par; authorized
5,000,000 shares; issued and outstanding
958,230 and 973,230 shares,
respectively 9,582 9,732
Additional paid-in capital 3,831,425 3,832,796
Retained earnings 19,891,541 15,389,415
Unrealized (losses) on marketable
securities ( 95,228) ( 107,990)
23,703,246 19,188,358
Less: Treasury Stock (274,055 and
271,155 shares at November 30,
2003 and 2002, respectively) 358,706 352,935
Total Shareholders' Equity 23,344,540 18,835,423
Total Liabilities and Shareholders' Equity $29,839,216 $24,805,064
See Notes to Consolidated Financial Statements.
-3-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended November 30,
2003 2002 2001
Revenues
Sales of health and beauty
aid products, net $54,145,480 $45,241,493 $41,364,648
Other income 591,271 439,481 338,883
54,736,751 45,680,974 41,703,531
Costs and Expenses
Cost of sales 18,168,528 15,342,317 14,877,421
Selling, general and
administrative expenses 16,753,269 15,389,528 13,812,890
Advertising, cooperative and
promotions 10,328,695 9,239,249 8,776,470
Research and development 884,425 741,974 687,731
Provision for doubtful accounts 73,537 ( 105,724) 299,254
Interest expense 31,399 38,074 69,012
46,239,853 40,645,418 38,522,778
Income before Provision
for Income Taxes 8,496,898 5,035,556 3,180,753
Provision for Income Tax 3,244,767 1,961,203 1,166,384
Net Income $ 5,252,131 $ 3,074,353 $ 2,014,369
Weighted Average Shares
Outstanding
Basic 7,227,678 7,099,759 6,893,232
Diluted 7,616,040 7,579,983 7,526,157
Earnings Per Common Share
(Note 2):
Basic $.73 $.43 $.29
Diluted $.69 $.41 $.27
See Notes to Consolidated Financial Statements.
-4-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended November 30,
2003 2002 2001
Net Income $5,252,131 $3,074,353 $2,014,369
Other Comprehensive Income
(Loss)
Unrealized holding gain (loss)
on investments 12,762 ( 57,839) 14,696
Provision (Benefit) for Income
Taxes 4,874 ( 22,527) 5,555
Other Comprehensive Income
(Loss) - Net 7,888 ( 35,312) 9,141
Comprehensive Income $5,260,019 $3,039,041 $2,023,510
Earnings Per Share:
Basic $.73 $.43 $.29
Diluted $.69 $.40 $.27
See Notes to Consolidated Financial Statements.
-5-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001
Unrealized
Additional Gain (Loss) on
Common Stock Paid-In Retained Marketable Treasury
Shares Amount Capital Earnings Securities Stock
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)
Issuance of common stock 137,146 1,371 ( 1,371) - - -
Net income for the year - - - 5,252,131 - -
Dividends declared - - - ( 750,005) - -
Unrealized gain on marketable
securities - - - - 12,762 -
Purchase of 2,900 shares of
treasury stock - - - - - ( 5,771)
Balance - November 30, 2003 7,550,899 $75,508 $3,831,425 $19,891,541 ($ 95,228) ($358,706)
See Notes to Consolidated Financial Statements.
-6-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
2003 2002 2001
Cash Flows from Operating Activities:
Net income $5,252,131 $3,074,353 $2,014,369
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 361,730 357,627 374,953
(Gain) loss on sale of securities ( 9,518) ( 119) 5,559
Decrease (increase) in deferred
income taxes 333,569 375,126 ( 93,469)
Loss on disposal of property and
equipment - 27,629 -
(Increase) decrease in accounts
receivable ( 339,027) (1,800,964) 1,864,764
(Increase) decrease in inventory ( 1,569,568) 1,040,399 951,897
(Increase) decrease in prepaid
expenses and sundry receivables ( 227,393) 37,946 ( 76,423)
(Increase) decrease in prepaid income
taxes and refunds due ( 234,917) 220,286 555,702
Decrease (increase) in other assets 17,250 275 ( 1,137)
Increase (decrease) in accounts payable
and accrued liabilities 319,041 1,129,853 ( 134,596)
(Decrease) increase in income taxes
payable ( 178,690) 169,324 9,366
Net Cash Provided by Operating
Activities 3,724,608 4,631,735 5,470,985
Cash Flows from Investing Activities:
Acquisition of property and equipment( 321,446) ( 575,923) ( 134,247)
Acquisition of intangible assets ( 2,846) ( 6,292) ( 24,700)
Purchase of available for sale
securities ( 9,888,309) (6,767,658) (7,036,015)
Proceeds from sale of available for
sales securities 6,485,792 1,839,729 5,068,493
Proceeds of money due from officers - 20,598 887
Net Cash (Used in) Investing
Activities ( 3,726,809) (5,489,546) (2,125,582)
Cash Flows from Financing Activities:
Payment on debt - - (1,500,000)
Repurchase of outstanding debentures - ( 6,750) ( 23,000)
Purchase of treasury stock ( 5,771) ( 105,730) ( 70,973)
Dividends paid ( 370,888) - -
Net Cash (Used in) Financing
Activities ( 376,659) ( 112,480) ( 1,593,973)
Net (Decrease) Increase In Cash ( 378,860) ( 970,291) 1,751,430
Cash at Beginning of Year 1,585,647 2,555,938 804,508
Cash at End of Year $1,206,787 $1,585,647 $2,555,938
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest $ 31,529 $ 38,239 $ 69,958
Income taxes 3,322,700 1,310,593 801,950
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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of
CCA and its wholly-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.
Other Comprehensive Income:
Total comprehensive income includes changes in equity that are
excluded from the consolidated statements of operations and are
recorded directly into a separate section of consolidated
statements of comprehensive income. The Company's accumulated
other comprehensive income shown on the consolidated balance
sheet consist of unrealized gains and losses on investment
holdings.
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.
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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 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 are included
in treasury stock on the balance sheet.
During fiscal 2002, two officers/shareholders exercised in the
aggregate 200,000 options in exchange for 50,000 shares of
previously issued common stock. The common shares are included
in treasury stock on the balance sheet.
During fiscal 2003, three officers/shareholders exercised in the
aggregate 157,000 options in exchange for 19,854 shares of
previously issued common stock. The common shares are included
in treasury stock on the balance sheet.
For the year ended November 30, 2003, dividends declared but not
yet due amounted to $379,117.
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 Remaining life of the lease
(ranging from 1-9 years)
Intangible Assets:
Intangible assets are stated at cost and consist primarily of
trademarks which are amortized on the straight-line method over
a period of 15-17 years.
Financial Instruments:
The carrying value of assets and liabilities considered
financial instruments approximate their respective fair value.
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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 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. Had EITF 00-14 not been adopted, net sales for the
years ended November 2003, 2002 and 2001 would have been
$55,905,788, $46,850,507 and $42,527,229, respectively.
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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, 2003, 2002 and 2001, included in selling, general
and administrative expenses is shipping costs amounting to
$2,668,246, $2,120,645 and $2,296,585, respectively.
NOTE 3 - INVENTORIES
At November 30, 2003 and 2002, inventories consist of the
following:
2003 2002
Raw materials $3,746,522 $2,494,489
Finished goods 1,566,177 1,248,642
$5,312,699 $3,743,131
At November 30, 2003 and 2002, the Company had a reserve for
obsolete inventory of $1,153,612 and $976,788, respectively.
NOTE 4 - PROPERTY AND EQUIPMENT
At November 30, 2003 and 2002, property and equipment consisted
of the following:
2003 2002
Machinery and equipment $ 105,478 $ 97,003
Office furniture and equipment 676,494 552,615
Transportation equipment 10,918 10,918
Tools, dies, and masters 347,560 213,188
Leasehold improvements 277,366 222,646
.. 1,417,816 1,096,370
Less: Accumulated depreciation
and amortization 689,294 375,631
Property and Equipment - Net $ 728,522 $ 720,739
Depreciation and amortization expense for the years ended
November 30, 2003, 2002 and 2001 amounted to $313,663, $309,816
and $327,777, respectively.
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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following at November 30, 2003 and
2002:
2003 2002
Trademarks and patents $759,394 $756,548
Less: Accumulated amortization 227,201 179,134
Intangible Assets - Net $532,193 $577,414
Amortization expense for the years ended November 30, 2003, 2002 and
2001 amounted to $48,067, $47,811 and $47,176, respectively.
Estimated amortization expense for each of the ensuing years through
November 30, 2008 is $48,800, $49,200, $49,600, $50,000 and $49,500,
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,
2003 and November 30, 2002 were as follows:
November 30, November 30,
2003 2002
Current: COST MARKET COST MARKET
Corporate obligations $ 850,860 $ 854,466 $2,066,040 $2,071,603
Government obligations
(including mortgage
backed securities) 1,260,340 1,248,731 1,330,345 1,314,604
Common stock 304,379 295,538 - -
Mutual funds 179,320 118,963 169,589 93,337
Other equity 111,750 114,750 - -
Total 2,706,649 2,632,448 3,565,974 3,479,544
Non-Current:
Corporate obligations 5,374,706 5,342,893 1,025,806 1,016,715
Government obli-
gations 4,208,237 4,182,482 4,867,627 4,848,293
Preferred stock 1,329,495 1,366,036 751,645 758,510
Other equity
investments 100,000 100,000 100,000 100,000
Total 11,012,438 10,991,411 6,745,078 6,723,518
Total $13,719,087 $13,623,859 $10,311,052 $10,203,062
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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, 2003 was $13,623,859 as compared to $10,203,062 at November 30,
2002. The gross unrealized gains and losses were $89,761 and ($184,989) for November 30, 2003 and<