CCA10K97
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, 1997 2-85538-B
CCA INDUSTRIES, INC.
(Exact Name of Registrant as specified in Charter)
DELAWARE 04-2795439
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Murray Hill Parkway, East Rutherford, New Jersey 07073
(Address of principal executive offices, including zip code)
(201) 330-1400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Class A Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to filed such reports), and (2) has been subject
to such filing requirement for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (i.e., by persons other than officers and directors of the
Registrant), at the average bid and asked prices, at February 6, 1998, was as
follows:
Class of Voting Stock Market Value
5,636,721 shares; Common Bid Asked
Stock, $.01 par value $13,387,212 $14,091,803
At February 6, 1998 there were an aggregate of 7,259,581 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, 1997
1. Business Business
2. Properties Property
3. Legal Proceedings Legal Proceedings
4. Submission of Matters Submission of Matters to a
to a Vote of Security Vote of Security Holders
Holders
5. Market for Registrant's Market for the Company's
Common Equity and Common Stock and Related
Related Stockholder Shareholder Matters
Matters
6. Selected Financial Data Selected Financial Data
7. Management's Discussion Management's Discussion and
and Analysis of Financial Analysis of Financial
Condition and Results Condition and Results of
of Operation Operations
8. Financial Statements Financial Statements
and Supplementary Data and Supplementary Data
9. Changes In and Dis- Changes In and Dis-
agreements With agreements With
Accountants On Accounting Accountants On Accounting
and Financial Disclosure and Financial Disclosure
10. Directors and Directors and Executive
Executive Officers Officers
of the Registrant
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
-iii-
Headings in this Form
Form 10-K 10-K for Year Ended
Item No. November 30, 1997
14. 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........................................ 4
3. Legal Proceedings............................... 4
4. Submission of Matters to a
Vote of Security Holders........................ 5
PART II
5. Market for the Company's Common Stock
and Related Shareholder Matters................. 5
6. Selected Financial Data......................... 7
7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................... 8
8. Financial Statements and
Supplementary Data.............................. 11
9. Changes In and Disagreements
with Accountants On Accounting.................. 11
and Financial Disclosure
PART III
10. Directors and Executive Officers............... 12
11. Executive Compensation......................... 14
12. Security Ownership of Certain
Beneficial Owners and Management............... 20
13. Certain Relationships and Related
Transactions................................... 22
PART IV
14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K (Restated).. 23
-v-
PART I
Item 1. BUSINESS
(a) General
CCA INDUSTRIES, INC. (hereinafter, the "Company") was incorporated in
Delaware on March 25, 1983.
The Company operates in one industry segment, which may be described
generally as the health-and-beauty aids business, selling numerous products, in
several health-and-beauty categories. Substantially all are manufactured by
contract manufacturers, pursuant to the Company's specifications and
formulations.
The Company owns (or owns license to use) registered trademarks for all of
its brand-name products. Thus, its nail treatment products are sold under the
trademarked names "Nutra Nail" and "Nutra 60"; hair treatment products are sold
under the names "Pro Perm," "Wash 'n Curl," "Wash n Tint" and "Wash 'n
Straight"; depilatory products under the name "Hair Off"; skin care products
under the name "Sudden Change"; oral health-care products under the name
"Plus+White"; and dietary products under the names "Eat 'n Lose," "Hungrex
Plus" and "Permathene."
A substantial number of the Company's products are sold under exclusive
license agreements. (See "Business-License Agreements") All of the licensed
products and the Company's "wholly-owned" products, are sold to major drug and
food chains, mass merchandisers, and wholesale beauty-aids distributors
throughout the United States and Canada. Foreign sales accounted for
approximately 5.34% of sales.
Including the principal members of management (see Directors and Executive
Officers), the Company, at November 30, 1997, had 132 sales, administrative,
creative, accounting, receiving, and warehouse personnel in its employ.
(b) Manufacturing and Shipping
The Company manufactures its hot-wax depilatory 'in house.' Otherwise, the
Company creates formulations, chooses colors and mixtures, and arranges with
independent contractors for the manufacture of its products pursuant to Company
specifications. Manufacturing and component-supply arrangements are maintained
with several manufacturers and suppliers. Almost all orders and other product
shipments are delivered from the Company's own warehouse facilities, which
results in more effective inventory control, more efficient shipping
procedures, and the realization of related economies.
(c) Marketing
The Company markets its products through an in-house sales force of
employees, and independent sales representatives throughout the United States.
Major drug, food and mass-merchandise retail chains, and leading wholesalers,
are the primary focus of the overall sales effort.
The Company sells its products to approximately 600 accounts, most of
which have numerous outlets. (The Company estimates that at least one of its
brands is sold in approximately 40,000 stores.) During the fiscal year ended
November 30, 1997, the Company's two largest customers accounted for
approximately 25% (WalMart) and 12% (Walgreen) of the Company's sales revenues.
(None other accounted for as much as 10%.) The loss of any of these principal
customers could materially and negatively effect the Company's earnings.
Sales of the Company's products are not seasonally dependent.
Nevertheless, certain products are sensitive to seasonal trends. For example,
sales of depilatories and diet aids, customarily, are considerably stronger in
spring and summer months.
The Company has an in-house advertising department. The advertising staff
designs point-of-purchase displays (including 'blister cards'), sales brochures
and packaging layouts. Actual production of displays, brochures, layouts and
the like is accomplished through contract suppliers.
(d) License Agreements
On March 3, 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 subject products, and to use their
trademarks: "Nutra Nail," "Nutra 60," "Pro Perm," "Hair Off," "Permathane",
"Hungrex Plus," and "IPR 3."
The Alleghany Pharmacal License requires the Company to pay royalties of
6% per annum on net sales of nail-enamel products sold under the "Nutra Nail"
trademark, hair-care products ("Pro-Perm") and dietary products ("Permathane,"
"Hungrex Plus" and "IPR 3"), and a 1% royalty for nail-enamel products sold
under the name "Nutra 60," and for the mitten product sold for use in
connection with the "Hair-Off" line of depilatory products.
The Company is required to pay not less than $360,000 per annum in order
to maintain the Alleghany Pharmacal License rights. (Royalties have always
exceeded the minimum; but, if they did not, the Company would be entitled to
maintain the 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 actual
royalties if sales did not yield 'minimum royalties' and the Company chose
in such circumstance to concede the rights.)
The Alleghany Pharmacal License agreement provides that if, and when, in
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%. As at November
30, 1997, the Company had paid or accrued $5,671,760 in royalty payments.
The products subject of the Alleghany-Pharmacal License accounted for
approximately 29.2% of sales in the fiscal year ended November 30, 1997.
The Company has entered into various other license agreements, none of
which has had material impact upon the Company's sales or financial
results.
The overwhelming majority of sales revenues other than those realized in
respect of Alleghany-Pharmacal License products are from sales of the Company's
own, 'wholly owned' products (e.g., Plus+White, Sudden Change, Wash-n-Curl and
others).
(e) Advertising
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 has attraction for 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.
(f) Trademarks
The Company owns, or owns licensed-use of numerous trademarks for
health-and-beauty aids products, which serve to identify the products and the
Company's proprietary interests, for and in respect of domestic and
international sales. The Company considers these marks to be valuable assets,
but there can be no assurance that trademark registration results, or will
result, in 'enforceable' marketplace advantages.
(g) Competition
3
The market for cosmetics, health-and-beauty aids, fragrances, and patent
medicines is characterized by vigorous competition among producers, many of
which have substantially greater financial, technological and marketing
resources than the Company. Competitors such as Revlon, L'Oreal, Colgate,
Del Laboratories, Unilever, and Procter & Gamble, have Fortune 500 or like
status, and public recognition of their products is immediate and 'universal.'
Moreover, the Company and its products compete with a large number of
manufacturers and distributors of lesser renown that may also have greater
resources than the Company.
(h) Government Regulation
All of the products that the Company markets, or which the Company may
develop and plan for the market, 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 regulation or future regulation were
to require particular regulatory approvals, the Company would attempt to obtain
necessary approvals and/or licenses, assuming reasonable and sufficient market
expectations for the regulated product(s) or planned product(s), but there
can be no assurance, in the absence of particular circumstances, that any
license requirements will result in approvals and issuance of licenses. In
the event such license-requirement circumstances should arise, delays inherent
in any application-and-approval process could have a material adverse affect
upon any subject operations or plan of operations.
Item 2. PROPERTY
The principal executive offices of the Company are located at 200 Murray
Hill Parkway, East Rutherford, New Jersey. There, under a net lease, the
Company occupies approximately 62,500 square feet of space. Approximately
45,000 square feet in such premises is used for warehousing and 17,500 for
offices. The annual rental is $259,284. The lease expires on March 31, 2001,
but the Company has a five-year renewal option.
The Company leases an additional 30,000 square feet of warehouse space in
Paterson, New Jersey, on a net lease basis, for $6,875 a month. That lease
expires on September 30, 1998.
Item 3. LEGAL PROCEEDINGS
4
The Company is not engaged in any material litigation, but is involved in
various legal proceedings in the ordinary course of its business activities.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 15, 1997, the Company held its annual meeting of shareholders. At
the meeting, David Edell, Ira W. Berman, Jack Polak, and Stanley Kreitman were
elected as directors by the holders of Class A Common Stock. (No proxy was
solicited therefor, whereas Messrs. Berman, Polak and David Edell own more
than 98% of the Class A Common Stock, and they proposed themselves and Mr.
Kreitman.) As proposed by the Board, Sidney Dworkin, Dunnan Edell and Rami
Abada were elected as directors by the holders of the Common Stock, with
3,726,000 votes 'for' the slate and 161,473 votes withheld. Also, the Board's
appointment of Sheft Kahn & Company LLP as the Company's independent certified
public accountants for the 1997 fiscal year was approved, with 4,985,930 votes
for and a total of 41,473 against or abstaining.
The Company has not submitted any matter to a vote of security holders
since the 1997 Annual Meeting.
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on NASDAQ. The range of high and low
bids during each quarter of the 1996 and 1997 fiscal years is as follows:
Quarter Ended 1997 1996
February 28 3 3/8 - 2 1/16 2 1/2 - 1 1/16
May 31 3 9/16 - 2 1/8 3 11/16 - 2 1/4
August 31 3 3/8 - 2 9/16 5 1/8 - 3
November 30 3 5/8 - 2 3/8 3 1/16 - 2
The published market value of the Common Stock as at February 6, 1998 was
2.438 high bid, and 2.5 low asked.
The only unregistered securities sold by the Company during the 1997
5
fiscal year resulted from sales of Common Stock effected upon exercises of
Stock Options previously issued pursuant to the Company's Stock Option Plans
(see, "Executive Compensation"), as follows:
Number Per Share
Date Purchaser of Shares Consideration
Dec. 1996 David Edell 30,000 $ .50
Dec. 1996 Ira W. Berman 30,000 .50
Each of the Purchasers is a director and/or officer. (See, "Directors And
Executive Officers") The registration exemption relied upon is that afforded
by Section 4(2) of the Securities Act of 1933.
As at February 6, 1998, there were approximately 350 holders of shares of
the Company's equity stock. (There are a substantial number of shares held of
record in various street and depository trust accounts which represent
approximately 1000 additional shareholders.)
The Company has never paid any Common Stock dividend.
6
Item 6. SELECTED FINANCIAL DATA
Year Ended November 30,
1997 1996 1995 1994 1993
(Restated) (Restated) (Restated) (Restated) (Restated)
Statement of Income
Sales $ 37,708,922 $39,469,098 $36,849,803 $47,311,591 $43,973,633
Other income 293,953 235,925 316,928 357,080 367,248
38,002,875 39,705,023 37,166,731 47,668,671 44,340,881
Costs and Expenses 34,730,052 37,790,397 39,397,255 42,956,794 40,020,477
Income (Loss) Before
Provision for Income
Taxes 3,272,823 1,914,626 ( 2,230,524) 4,711,877 4,320,404
Net Income (Loss) 2,031,494 1,051,334 ( 1,354,584) 2,846,750 2,605,818
Earnings Per Share:
Net Income (Loss) $ .25 $ .13 ($ .20) $ .35 $ .32
Weighted Average Number
of Shares Outstanding 8,108,482 7,989,383 6,794,368 8,116,489 8,033,460
Balance Sheet Data:
As At November 30,
1997 1996 1995 1994 1993
Working Capital $11,331,810 $ 9,367,639 $ 8,191,830$ 7,777,269 $ 5,576,218
Total Assets 19,224,291 17,038,752 18,138,359 20,236,182 18,370,094
Total Liabilities 5,139,768 4,983,870 7,287,570 8,293,534 9,127,235
Total Stockholders' Equity 14,084,522 12,054,882 10,850,788 11,942,648 9,242,859
7
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Under the terms of the Alleghany Pharmacal License (see "Business-License
Agreements"), the royalty-rate for those Alleghany Pharmacal License products
now 'charged' at 6% will be reduced to 1% after the sum of $9,000,000 in
royalties has been paid thereunder. (Certain products subject of the license
are, even now, 'charged' at only 1%. See "Business-License Agreements")
As at November 30, 1997, the Company had paid or accrued $5,671,760 in
royalty payments.
Comparison of Results for Fiscal Years 1997 and 1996
The Company's revenues decreased from $39,705,023 in fiscal 1996, to
$38,002,875 in fiscal 1997, due in part to the mergers and consolidations of
major customers, which impacted upon previously planned sales promotions.
Gross margins for the year were 62% in both 1997 and 1996. Advertising,
cooperative and promotional expenses were $8,450,461 and 22% of sales, in 1997,
and $10,655,495 and 27% of sales, in 1996.
Selling, general and administrative expenses were $11,146,894 and 29.5% of
sales in 1997, and $11,408,154 and 29% of sales in 1996.
Comparison of Results for Fiscal Years 1996 and 1995
The Company's revenues for fiscal 1996 increased to $39,705,023, from
$37,166,730 in 1995. The increase was due principally to a substantial
increase in foreign sales, and a slight increase in domestic sales.
Gross margins for the year were 62% in 1996 and 62% in 1995. Advertising,
cooperative and promotional expenses were $10,655,496, and 27% of sales, in
1996, and $13,332,216, and 36% of sales, in 1995.
Selling, general and administrative expenses were $11,408,154, and 29% of
sales in 1996, and $11, 253,543, and 31% of sales, in 1995.
Liquidity and Capital Resources
As at November 30, 1997, the Company had working capital of $11,024,121 as
compared to $9,070,115 at November 30, 1996. The ratio of total current assets
8
to current liabilities was 3.14 to 1, as compared to a ratio of 2.82 to 1 for
the prior year. Stockholders' equity increased to $13,727,991 from
$11,724,209.
The Company's cash position at year end increased to $3,649,774 from
$1,422,783 as at November 30, 1996. The increase came mostly from net cash
provided by operating activities of approximately $3,194,000. The Company
utilized approximately $169,000 in the acquisition of property and equipment,
$20,000 for intangible assets, $40,000 for loans to officers, $5,000 to buy
back treasury stock and $60,000 to increase its marketable security portfolio.
Management adjusted its advertising budget in line with its sales
projections for fiscal 1997, reducing its advertising, cooperative and
promotional expenditures to $8,450,461 from $10,655,495.
Sales decreased $1,760,176, from $39,469,098 in 1996 to $37,708,922 in
1997. Gross profit margin on 1997 sales remained at the 62% achieved in 1996.
Thus, assuming that same 62% margin, the decrease in sales 'cost' $1,091,309
in gross-profit-margin terms, but was more than offset by the $2,205,034
decrease in advertising, cooperative and promotional expenses, which
substantially accounted for the pre-tax profit of $3,272,823 in 1997, compared
to $1,914,626 in 1996.
The Company's selling general and administrative expenses were
substantially the same in 1997 and 1996 [$11,146,894 vs. $11,408,154].
Inventories [$6,014,672 vs. $5,875,742] were up $138,930, and accounts
receivable [$3,931,273 vs. $4,017,500] decreased $86,227. Current liabilities
[$5,139,768 vs. $4,983,870] increased by $155,898. Cash at the beginning of
the year was $1,422,783, and increased to $3,649,774 at year end.
As of November 30, 1997, the Company had paid the remainder of a term note
from a banking institution, and still had a $3,000,000 line of credit at 1%
below prime. As at November 30, 1997, the Company was not utilizing any of the
funds available under this credit line. The Company has issued a security
agreement in connection with the bank financing.
Inventory, Seasonality, Inflation and General Economic Factors
The Company attempts to keep its inventory for every product at levels
that will enable shipment against orders within a three week period. However,
certain components must be inventoried well in advance of actual orders because
of time-to-acquire circumstances. For the most part, purchases are based upon
projected quarterly requirements, which are projected based upon sales
indications received by the sales and marketing departments, and general
9
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.
The Company does not believe that any of its products are seasonal in
nature other than its depilatory and diet brands, which are more active during
the Spring and Summer seasons. 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 costs can be predicted, but if such
circumstances should occur, they could have material and negative impact on
the Company's net sales and revenues, unless the Company were able to pass
along related cost increases to its customers.
10
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are listed under Item 14 in this Form 10-K. The
following financial data is a summary of the quarterly results of operations
(unaudited) during and for the years ended November 30, 1997 and 1996:
Three Months Ended
Fiscal 1997 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales $8,617,289 $10,552,412 $10,227,594 $8,311,627
Total Revenue 8,698,517 10,625,347 10,309,203 8,369,808
Cost of Pro-
ducts Sold 3,076,627 3,940,006 3,850,509 3,593,222
Net Income 310,001 706,712 726,253 262,669
Net Income per
common share .04 .09 .09 .03
Three Months Ended
Fiscal 1996 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales $10,125,118 $10,498,104 $10,232,749 $8,613,127
Total Revenue 10,185,709 10,551,604 10,283,988 8,683,722
Costs of Pro-
ducts Sold 3,855,577 4,002,443 3,872,840 3,440,195
Net Income 368,160 464,585 152,116 130,073
Net Income per .05 .05 .02 .02
common share
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
11
had no reported disagreement with its accountants on any matter of accounting
principles or practices.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The Executive Officers and Directors of the Company are as follows:
YEAR OF FIRST
NAME POSITION COMPANY SERVICE
David Edell President and Chief
Executive Officer,
Director 1983
Ira W. Berman Chairman of the Board
of Directors, Secretary,
Executive Vice President 1983
Dunnan Edell Executive Vice Pres.-
Sales, Director 1984
Drew Edell Vice President-
Manufacturing and
New Product Development 1983
Stanley Kreitman Director 1986
John Bingman Treasurer 1986
Jack Polak Director 1983
Sidney Dworkin Director 1985
Rami G. Abada Director 1997
David Edell, age 66, is President and Chief Executive Officer. Prior to
his association with the Company he was a marketing and financial consultant;
and, by 1983, he had extensive experience in the health and beauty aids field
as an executive director and/or officer of Hazel Bishop, Lanolin Plus and
Vitamin Corporation of America.
Ira W. Berman, age 66, is the Company's Executive Vice President and
Corporate Secretary. He is also Chairman of the Board of Directors. Mr.
12
Berman is an attorney who has been engaged in the practice of law since 1955.
He received a Bachelor of Arts Degree (1953) and Bachelor of Laws Degree
(1955) from Cornell University, and is a member of the American Bar
Association.
Dunnan Edell, the 42 year-old son of David Edell, became a director in
1994. A Senior Vice President-Sales, he joined the Company in 1984, and was
appointed Divisional Vice-President in 1986. He was employed by Alleghany
Pharmacal Corporation from 1982 to 1984, and by Hazel Bishop from 1977 to
1981.
Drew Edell, the 40 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 associated with the Company since 1983. In March 1985 he was appointed
Vice President-Product Development and Production.
John Bingman, age 46, received a Bachelor of Science degree from Farleigh
Dickenson University in 1973. He is a certified public accountant who
practiced with the New Jersey accounting firm of Zarrow, Zarrow & Klein from
1976 to 1986.
Jack Polak, age 85, has been a private investment consultant since April
1982, and holds a tax consultant certification in The Netherlands. From 1977
until 1995, he was a director of Petrominerals Corporation, a public company
engaged in oil and gas production, located in Tustin, California. From August
1993 until February 1995, he was a director of Convergent Solutions, Inc.
Since February 1995 (upon a merger involving Convergent Solutions), he has
been a director of K.T.I. Industries, Inc. of Guttenberg, NJ, and a member of
its Board's Audit and Compensation Committee. K.T.I. is a public company
engaged in the waste - to - energy business.
Stanley Kreitman, age 66, has been Vice Chairman of the Board of Manhattan
Associates, an equity - investment firm, since 1994. He is also a director of
Medallion Financial Corp., an SBIC. Mr. Kreitman has been Chairman of the
Board of Trustees of the New York Institute of Technology since 1989, and of
Crime- Stoppers Nassau County (NY), since 1994. He is also a director and/or
executive committee member of the following organizations: The New York City
Board of Corrections, The New York City Police Foundation, St. Barnabas
Hospital, The New York College of Osteopathic Medicine, and the Police Athletic
League. From 1975 until 1993, he was President of United States Banknote
Corporation, a security printer.
Sidney Dworkin, age 77, has been a director since 1985. He was one of the
founders, and from 1966 until 1987, was the President and Chairman of the Board
of Revco D.S., Inc., one of the largest drug store chains in the United
13
States. (He terminated his association with Revco in September 1987.) Mr.
Dworkin is a certified public accountant and a graduate of Wayne State
University. He is also a director of Northern Technologies, International,
Inc., Crager Industries, Inc., Entile Company Inc., Q.E.P. Company, Inc.,
and Viragen Inc., and is Chairman of the boards of Comtrex Systems, Inc.,
MarbleEdge Group, Inc., and Interactive Technologies, Inc. He was a director
of Neutrogena Corp. until its acquisition by Johnson & Johnson, and is a former
Chairman of the National Association of Chain Drug Stores.
Rami G. Abada, age 38, is the President and Chief Operating Officer of the
publicly-owned Jennifer Convertibles, Inc. He has been its Chief Operating
Officer since April of 1994, and was Executive Vice President from April 1994
to December 1997. From 1982 to 1994, he was a Vice President of Operations in
the Jennifer Convertibles organization. Mr. Abada, who is Ira Berman's
son-in-law, earned a B.B.A. in 1981 upon his graduation from Bernard Baruch
College of The City University of New York.
Item 11. EXECUTIVE COMPENSATION
i. Summary Compensation Table
The following table summarizes compensation earned in 1997, 1996 and 1995
by all of the executive officers whose fiscal 1997 compensation exceeded
$100,000, including the Chief Executive Officer (the "named officers").
Annual Compensation Long-Term Compensation
Number
of Other
Shares Long-
All Covered Term
Other by com-
Name and Annual Stock pen-
Principal Compen- Options sa-
Position Year Salary Bonus sation(1) Granted(2) tion
14
David Edell, 1997 $357,305 $171,254 $24,812 100,000 0
President 1996 337,080 131,896 21,560 - 0
and Chief 1995 318,000 63,600 18,456 - 0
Executive
Officer
Ira W. Berman, 1997 $357,305(3) $171,254 $22,345 100,000 0
Secretary 1996 337,080(4) 131,896 22,876 - 0
and Executive 1995 318,000(5) 63,600 17,096 - 0
Vice President
Annual Compensation Long-Term Compensation
Number
of Other
Shares Long-
All Covered Term
Other by com-
Name and Annual Stock pen-
Principal Compen- Options sa-
Position Year Salary Bonus sation(1) Granted(2) tion
Dunnan Edell, 1997 $200,000 $25,000 $14,898 50,000 0
Executive 1996 185,096 25,000 15,659 - 0
Vice President 1995 175,000 3,365 13,440 25,000 0
- - Sales
Drew Edell, 1997 $131,800 $15,000 $ 2,283 50,000 0
Vice Presi- 1996 112,100 15,000 12,063 - 0
dent-Manufact- 1995 98,000 1,885 2,925 25,000 0
uring
- -------------------------
(1) Includes the personal-use value of Company-leased automobiles, the value of
Company-provided life insurance, and health insurance that is made available to
all employees, plus directors fees paid to Messrs. David Edell, Ira Berman and
Dunnan Edell.
(2) Information in respect of stock option plans appears below in the
sub-topic, Employment Contracts/Executive Compensation Program.
15
(3) Includes $99,396 paid to Ira W. Berman & Associates, P.C.
(4) Includes $110,046 paid to Ira W. Berman & Associates, P.C.
(5) Includes $99,396 paid to the New York City law firm of Berman & Murray,
where Mr. Berman was the Senior Partner through 1995.
16
ii. 1997 Option Grants, Fiscal Year Option
Exercises, Year-End Option Valuation
Fiscal 1997 Option Grants To Named Officers
% of
Total
Options
Granted Potential
Number of To Expir- Realizable
Underlying All ation Values(1)
Shares Employees Date 5% / 10%
David Edell 100,000 33.3 Aug. 1, 2007 $157,224/$398,436
Ira W. Berman 100,000 33.3 Aug. 1, 2007 157,224/ 398,436
Dunnan Edell 50,000 16.7 Aug. 1, 2007 78,612/ 199,218
Drew Edell 50,000 16.7 Aug. 1, 2007 78,612/ 199,218
- -----------------------
(1) The figures shown as Potential Realizable Values are net gains that could
be realized if assumed rates of appreciation of 5% and 10% per annum, were to
result during the term of the options. The SEC requires the presentation of
these assumptions and information based thereon, and no part is intended to
forecast possible future appreciation. Actual net gains, if any, are dependent
upon the actual future performance of the Company's Common Stock, and overall
economic conditions.
The next table identifies 1997 fiscal-year option exercises by named
officers, and reports a valuation of their options.
Fiscal 1997 Aggregated Option Exercises
and November 30, 1997 Option Values
Number of Value of
Shares Unexer-
Number of Covered by cised
Shares Unexercised In-the-Money
Acquired Value Options at Options at
On Exercise Realized November November
30, 1997 30, 1997(1)
David Edell 30,000 $49,687 567,500 $1,628,313
17
Ira W. Berman 30,000 49,687 492,000 1,612,500
Dunnan Edell -0- -0- 25,000 -0-
Drew Edell -0- -0- 25,000 -0-
- ----------------------
(1) Represents the difference between market price and the respective exercise
prices of options at November 30, 1997.
iii. Compensation of Directors
Each director was paid $2,000 per meeting for attendance of board meetings
in fiscal 1997 (without additional compensation for committee meetings); and
directors Rami G. Abada, Stanley Kreitman and Sidney Dworkin were each granted
25,000 options on August 1, 1997, exercisable through August 1, 2007, at $2.50
per share. The full board met three times in 1997.
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 David Edell, Ira W. Berman, Stanley
Kreitman and Jack Polak, which met three times in 1997, has established a
program to:
* Reward executives for long-term strategic management and the enhancement
ofshareholder value.
* Integrate compensation programs with both the Company's annual and
long-term strategic planning.
* Support a performance-oriented environment that rewards performance not
only with respect to Company goals but also Company performance as
compared to industry performance levels.
v. Employment Contracts/Compensation Program
The total compensation program consists of both cash and equity based
compensation. The Audit and Compensation Committee (the "Committee") determines
the level of salary and bonuses, if any, for key executive officers other than
18
Messrs. David Edell and Ira Berman. The Committee determines the salary or
salary range based upon competitive norms. Actual salary changes are based
upon performance.
Bonuses (see the Summary Compensation Tables), other than Mr. David
Edell's and Mr. Berman's, were awarded in consideration of the Company's
performance during 1997.
On March 17, 1994, the Board of Directors approved 10-year employment
contracts for David Edell and Ira Berman (with Mr. Edell and Mr. Berman
abstaining). Pursuant thereto, each was provided a base salary of $300,000 in
fiscal 1994, with a year-to-year CPI or 6% increment, and each is paid 2-1/2%
of the Company's pre-tax income, less depreciation and amortization, plus 20%
of the base salary, as bonus.
Long-term incentives are provided through the issuance of stock options.
vi. Stock Option Plans
The Company's 1984 Stock Option Plan covered 1,500,000 shares of its Common
Stock.
The Company's 1986 Stock Option Plan covered 1,500,000 shares of its Common
Stock.
The Company's 1994 Stock Option Plan covers 1,000,000 shares of its Common
Stock.
The 1994 Option Plan provides (as had the 1984 and 1986 plans) for the
granting of two (2) types of options: "Incentive Stock Options" and
"Nonqualified Stock Options". The Incentive Stock Options (but not the
Nonqualified Stock Options) are intended to qualify as "Incentive Stock
Options" as defined in Section 422(a) of The Internal Revenue Code. The
Plans are not qualified under Section 401(a) of the Code, nor subject to the
provisions of the EmployeeRetirement 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
19
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
20
rights of the Company's outstanding capital stock must be at least 110% of the
fair market value on the date of grant and the maximum term may not exceed
five (5) years.
Consequences to the Company: There are no Federal income tax consequences
to the Company by reason of the grant or exercise of an Incentive Stock Option.
As at November 30, 1997, 1,529,500 stock options, yet exercisable, to
purchase 1,529,500 shares of the Company's Common Stock, were outstanding.
vii. Performance Graph
Set forth below is a line graph comparing cumulative total shareholder
return on the Company's Common Stock, with the cumulative total return of
companies in the NASDAQ Stock Market (U.S.) and the cumulative total return
of Dow Jones's Cosmetics/Personal Care Index.
[Chart Appears Here]
Cumulative Total Return
11/92 11/93 11/94 11/95 11/96 11/97
CCA Industries, Inc. 100.00 378.57 214.29 82.14 132.14 135.71
DJ Equity Market 100.00 109.88 110.77 152.58 195.23 250.10
DJ Cosmetics/Personal 100.00 98.25 119.12 160.96 216.14 262.08
Care
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock and/or Class A Common Stock as of February 6,
1998 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) the "named officers," including the Chief Executive Officer (see Executive
Compensation-Summary Compensation Table); (iii) each officer and director; and
(iv) 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.
21
Ownership, As A
Percentage of
Number of All Shares
Name and Address Shares Owned: Outstanding
Common
Stock Class A
David Edell
c/o CCA Industries, Inc. 234,685 484,615 8.69
200 Murray Hill Parkway
East Rutherford, NJ 07073
Ira W. Berman 204,745 473,675 8.19
c/o CCA Industries, Inc.
Jack Polak 25,000 47,700 0.88
90 Park Avenue
New York, NY 10016
Rami G. Abada - - -
c/o CCA Industries, Inc.
Stanley Kreitman - - -
c/o CCA Industries, Inc.
Dunnan Edell 51,250 - 0.62
c/o CCA Industries, Inc.
Drew Edell 51,250 - 0.62
c/o CCA Industries, Inc.
Sidney Dworkin 50,000 - 0.60
1550 No. Powerline Road
Pompano, FL 33069
John Bingman - - -
c/o CCA Industries, Inc.
Officers and Directors 616,930 1,005,930 19.60
as a group (9 persons)
_______________________
(1) David Edell, Ira Berman and Jack Polak own over 98% of the outstanding
shares of Class A Common Stock. Messrs. David Edell, Dunnan Edell and Ira
Berman are officers and directors. Messrs. Bingman and Drew Edell are
officers. Messrs. Abada, Kreitman, Polak, and Dworkin are directors.
22
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As at November 30, 1997, Company loans, to Drew Edell, an officer, and
Dunnan Edell, a director and officer, in the principal sums of $40,000 and
$25,250, respectively, were outstanding. The loans, secured by second
mortgages upon real properties, carry interest at 1% over prime, payable
semi-annually.
23
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS,
SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements:
Table of Contents, Independent Auditors' Report, Consolidated Balance
Sheets as of November 30, 1997 and 1996, Consolidated Statements of Income
for the years ended November 30, 1997, 1996 and 1995, Consolidated Statements
of Shareholders' Equity for the periods December 1, 1994 through November 30,
1996, Consolidated Statements of Cash Flows for the years ended November 30,
1997, 1996 and 1995, Notes to Consolidated Financial Statements.
Financial Statement Schedules:
Schedule II Valuation Accounts; Years Ended Nov. 30, 1997, 1996 and 1995
Exhibits:
(a) 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).
(b) The Following Material Contracts and Amendments are incorporated by
reference to their filing with the Form 10-KA filed April 5, 1995:
Amended and Restated Employment Agreements, with David Edell and Ira
Berman; License Agreement made February 12, 1986 with Alleghany
Pharmacal Corporation (Exhibit pages 000056-90).
(c) The Company's 1994 Stock Option Plan is incorporated by reference to its
filing as an exhibit printed in the 1994 Proxy Statement, filed on or
about May 15, 1994.
(d) Exhibit 11: Statement re Per Share Earnings
No Form 8-K was filed during the last quarter of 1997.
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.
24
PART IV, ITEM 14. (d) (Continued) EXHIBIT 11
CCA INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Year Ended November 30,
1997 1996 1995
(Restated) (Restated) (Restated)
Primary:
Average shares outstanding 7,205,904 7,120,099 6,794,368
Net effect of dilutive stock
options--based on the
treasury stock method
using average market
price 902,578 869,284 *
TOTALS 8,108,482 7,989,383 6,794,368
Net income (Loss) $ 2,031,494 $1,051,334 ($1,354,584)
Per share amount $ .25 $ .13 ($ .20)
Fully Diluted:
Average shares outstanding 7,205,904 7,120,099 6,794,368
Net effect of dilutive stock
options--based on the
treasury stock method
using higher of ending or
average market price 902,578 869,284 *
TOTALS 8,108,482 7,989,383 6,794,368
Net income (Loss) $ 2,031,494 $1,051,334 ($1,354,584)
Per share amount $ .25 $ .13 ($ .20)
* Anti-dilutive
SIGNATURES
Pursuant to the requirements of Section 13 or 15(A) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned thereunto duly authorized.
CCA INDUSTRIES, INC.
By: s/ David Edell
DAVID EDELL, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons in the capacities
and on the dates indicated.
Signature Title Date
s/ David Edell President, Director,
DAVID EDELL Chief Executive Officer,
and Chief Financial
Officer February 25, 1998
s/ Ira W. Berman Chairman of the Board
IRA W. BERMAN of Directors, Executive
Vice President,
Secretary February 25, 1998
s/ Dunnan Edell Vice President, February 25, 1998
DUNNAN EDELL Director
s/ Stanley Kreitman Director February 25, 1998
STANLEY KREITMAN
s/ Rami Abada Director February 25, 1998
RAMI ABADA
s/ Jack Polak Director February 25, 1998
JACK POLAK
s/ Sidney Dworkin Director February 25, 1998
SIDNEY DWORKIN
25
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(RESTATED)
NOVEMBER 30, 1997 AND 1996
C O N T E N T S
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS (RESTATED). . . . .1
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS (RESTATED). . . . . . . . . . . . . . . .2-3
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (RESTATED) . . . . . . . . . .4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (RESTATED). . . . . . .5
CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED). . . . . . . . . . . .6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) . . . . . . . 7-23
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, 1997 and 1996, and the related consolidated
statements of income (loss), shareholders' equity and cash flows for each of
the three years in the period ended November 30, 1997. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements and related schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain a reasonable assurance about whether the financial statements and
related schedules 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 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended November 30, 1997, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental schedules
listed in the index to Item 14 are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. The supplemental schedules have been
subjected to the auditing procedures applied in the audits of the basis
financial statements and, in our opinion, present fairly, in all material
respects, in relation to the basic consolidated financial statements.
As discussed in Note 17 to the financial statements, the Company restated
the 1997, 1996 and 1995 financial statements to amend the application of
accounting for income taxes.
SHEFT KAHN & COMPANY LLP
CERTIFIED PUBLIC ACCOUNTANTS
January 30, 1998
Jericho, New York
-1-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
November 30,
1997 1996
(Restated) (Restated)
Current Assets
Cash and cash equivalents $ 3,649,774 $ 1,422,783
Short-term investments and marketable
securities (Notes 2 and 6) 1,926,513 1,546,289
Accounts receivable, net of allowances of
$664,325 and $1,066,549, respectively
(Note 8) 3,931,273 4,017,500
Inventories (Notes 2, 3 and 8) 6,014,672 5,875,742
Prepaid expenses and sundry receivables 248,553 603,952
Due from officers - Current 1,500 3,900
Prepaid income taxes and refunds due - 87,552
Deferred income taxes (Note 9) 699,294 793,791
Total Current Assets 16,471,579 14,351,509
Property and Equipment, net of accumulated
depreciation and amortization
(Notes 2 and 4) 486,029 729,706
Intangible Assets, net of accumulated
amortization (Notes 2 and 5) 163,640 155,037
Other Assets
Marketable securities (Notes 2 and 6) 1,874,175 1,634,592
Due from officers - Non-current 65,250 25,250
Deferred income taxes (Note 9) 111,006 88,441
Other 52,612 54,217
Total Other Assets 2,103,043 1,802,500
Total Assets $19,224,291 $17,038,752
See Notes to Consolidated Financial Statements.
-2-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
November 30,
1997 1996
(Restated) (Restated)
Current Liabilities
Notes payable - Current portion (Note 8) $ - $ 163,500
Accounts payable and accrued
liabilities (Note 11) 5,053,665 4,794,865
Income taxes payable (Note 9) 86,104 25,505
Total Current Liabilities 5,139,769 4,983,870
Commitments and Contingencies
(Note 13)
Shareholders' Equity
Common stock, $.01 par; authorized
15,000,000 shares; issued and
outstanding 6,192,621 and 6,012,621
shares, respectively 61,927 60,126
Class A common stock, $.01 par; authorized
5,000,000 shares; issued and outstanding
1,020,930 and 1,154,930 shares,
respectively 10,209 11,549
Additional paid-in capital 4,454,763 4,455,224
Retained earnings 9,578,329 7,546,836
Unrealized gains (losses) on marketable
securities (Note 6) ( 2,737) ( 6,353)
14,102,491 12,067,382
Less: Treasury Stock ( 7,500 and
5,000 shares at November 30,
1997 and November 30, 1996,
respectively) 17,969 12,500
Total Shareholders' Equity 14,084,522 12,054,882
Total Liabilities and Shareholders'Equity $19,224,291 $17,038,752
See Notes to Consolidated Financial Statements.
-3-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Year Ended November 30,
1997 1996 1995
(Restated) (Restated) (Restated)
Revenues
Sales of health and beauty
aid products, net $37,708,922 $39,469,098 $36,849,803
Other income 293,953 235,925 316,928
38,002,875 39,705,023 37,166,731
Costs and Expenses
Cost of sales 14,460,364 15,171,055 14,171,030
Selling, general and
administrative expenses 11,146,894 11,408,154 11,253,593
Advertising, cooperative and
promotions 8,450,461 10,655,495 13,332,216
Research and development 684,224 459,082 496,716
Provision for doubtful accounts ( 17,779) 45,855 87,697
Interest expense 5,888 50,756 56,003
34,730,052 37,790,397 39,397,255
Income (Loss) before Provision
for Income Taxes 3,272,823 1,914,626 (2,230,524)
Provision for Income Tax
(Benefit) 1,241,329 863,292( 875,940)
Net Income (Loss) $ 2,031,494 $ 1,051,334($ 1,354,584)
Weighted Average Shares
Outstanding 8,108,482 7,989,383 6,794,368
Income Per Common Share
(Note 2):
Net Income (Loss) $ .25 $ .13 ($ .20)
See Notes to Consolidated Financial Statements.
-4-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 30, 1997, 1996 AND 1995
Unrealized
Additional Gain (Loss) on
Common Stock Paid-In Retained Marketable
Shares Amount Capital Earnings Securities
Balance - December 1, 1994
(Restated) 6,789,451 $67,895 $4,275,534 $7,667,796 ($250,867)
Prior period adjustment - - - 182,289 -
Issuance of common stock 5,700 57 6,473 - -
Net loss for the year (Restated) - - - ( 1,354,584) -
Unrealized gain on marketable
securities - - - - 256,195
Balance - December 1, 1995
(Restated) 6,795,151 67,952 4,282,007 6,495,501 5,328
Issuance of common stock 372,400 3,724 173,216 - -
Net Income for the year (Restated) - - - 1,051,334 -
Unrealized (loss) on marketable
securities - - - - ( 11,681)
Purchase of Treasury Stock ( 5,000) ( 50) ( 12,450) - -
Balance - December 1, 1996
(Restated) 7,162,551 71,626 4,442,773 7,546,835 ( 6,353)
Issuance of common stock 46,000 460 ( 460) - -
Net Income for the year (Restated) - - - 2,031,494 -
Unrealized gain on marketable
securities - - - - 3,616
Purchase of Treasury Stock ( 2,500) ( 25)( 5,444) - -
Balance - November 30, 1997
(Restated) 7,206,051 $72,061 $4,436,869 $9,578,329 ($ 2,737)
See Notes to Consolidated Financial Statements.
-5-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30,
1997 1996 1995
(Restated) (Restated) (Restated)
Cash Flows from Operating Activities:
Net income (loss) $2,031,494 $1,051,334 ($1,354,584)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 376,381 400,790 332,802
Amortization of bond discount 1,948 2,041 6,576
Decrease (increase) in deferred
income taxes 71,932 244,263 ( 397,339)
Loss (gain) on disposal of assets 1,009 ( 18,237) 5
Decrease in accounts receivable 86,227 26,920 1,294,608
(Increase) decrease in inventory ( 138,930) 538,355 1,104,429
Decrease (increase) in prepaid
expenses and sundry receivables 355,399 288,741( 608,999)
Increase (decrease) in accounts
payable and accrued liabilities 258,800 ( 2,083,560)( 721,688)
Increase (decrease) in income
taxes payable 148,150 25,505 ( 6,354)
Decrease (increase) in security
deposits 1,605 8,447 ( 12,094)
Net Cash Provided by (Used in)
Operating Activities 3,194,015 484,599 ( 362,638)
Cash Flows from Investing Activities:
Acquisition of property and
equipment ( 168,520) ( 407,206) ( 355,719)
Proceeds from sale of property 40,960 - -
Payment for intangible assets ( 20,448) ( 36,664) ( 49,764)
Purchase of marketable securities ( 3,269,674)( 1,102,669) ( 116,475)
Proceeds from sale of marketable
securities 2,657,227 2,253,778 1,353,894
Proceeds of money due from
officers 2,400 - 19,731
Loan to officers ( 40,000) - -
(Decrease) in other assets - - ( 6,192)
Net Cash Provided (Used In)
Investing Activities ( 798,055) 707,239 845,475
Cash Flows from Financing Activities:
Proceeds from borrowings - 1,769,152 688,320
Payment on debt ( 163,500)( 2,014,797) ( 966,242)
Proceeds from exercise of
stock options - 176,940 6,530
Purchase of treasury stock ( 5,469) ( 12,500) -
Net Cash (Used In)
Financing Activities ( 168,969) ( 81,205) ( 271,392)
Net Increase In Cash 2,226,991 1,110,633 211,445
Cash at Beginning of Year 1,422,783 312,150 100,705
Cash at End of Year $3,649,774 $1,422,783 $ 312,150
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest $ 7,025 $ 54,487$ 72,021
Income taxes 1,052,850 26,245 102,625
See Notes to Consolidated Financial Statements
-6-
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 subsidiaries (CCA Cosmetics, Inc., CCA Labs, Inc., and
Berdell, Inc.), all of which are currently inactive.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED)
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.
Short-Term Investments and Marketable Securities:
Short-term investments and marketable securities consist of corporate and
government bonds and equity securities. The Company has classified its
investments as Available-for-Sale securities. Accordingly, such investments
are reported at fair market value, with the resultant unrealized gains and
losses reported as a separate component of shareholders' equity.
Statements of Cash Flows Disclosure:
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an original maturity of less than
three months to be cash equivalents.
During fiscal 1997, two officers/shareholders exercised in the aggregate
60,000 options in exchange for previously issued common stock. The
common shares were put into treasury and were subsequently cancelled.
-7-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Product returns are recorded in inventory when they are received at the lower
of their original cost or market, as appropriate.Obsolete inventory is written
off and its value is removed from inventory at the time its obsolescence is
determined.
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. The Company charges to expense
repairs and maintenance items, while major improvements and betterments
are capitalized. When the Company sells or otherwise disposes of property
and equipment items, the cost and related accumulated depreciation are
removed from the respective accounts and any gain or loss is included in
earnings.
Depreciation and amortization are provided on the straight-line method over
the following estimated useful lives or lease terms of the assets:
Machinery and equipment 7-10 Years
Furniture and fixtures 5-7 Years
Tools, dies and masters 2-7 Years
Transportation equipment 7 Years
Leasehold improvements 7-10 Years or life
of lease, whichever is
shorter
Intangible Assets:
Intangible assets are stated at cost. Patents and trademarks are amortized
on the straight-line method over a period of 17 years.
Financial Instruments:
The carrying value of assets and liabilities considered financial
instruments approximate their respective fair value.
Income Taxes:
Income tax expense includes federal and state taxes currently payable and
deferred taxes arising from temporary differences between income for
financial reporting and income tax purposes.
-8-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Tax Credits:
Tax credits, when present, are accounted for using the flow-through method
as a reduction of income taxes in the years utilized.
Income Per Common Share:
Income per common share has been computed using the weighted average
number of shares of common stock outstanding during the periods based on
the treasury stock method using average market price.
Fully diluted earnings per share are not presented because they are either
anti-dilutive or result in dilution of less than 3%.
Revenue Recognition:
The Company recognizes sales at the time delivery occurs. 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.
Advertising Costs:
The Company's policy for fiscal financial reporting is to charge advertising
cost to operations as incurred.
NOTE 3 - INVENTORIES
At November 30, 1997 and 1996, inventories consist of the following:
1997 1996
Raw materials $ 4,017,838 $4,065,961
Finished goods 1,996,834 1,809,781
$ 6,014,672 $5,875,742
As at November 30, 1997 and 1996, the Company had reserves for inventory
obsolescence of $860,417 and $679,675, respectively.
NOTE 4 - PROPERTY AND EQUIPMENT
At November 30, 1997 and 1996, property and equipment consisted of the
following:
1997 1996
Machinery and equipment $ 236,582 $ 288,067
Furniture and equipment 329,526 280,942
Transportation equipment - 1,917
Tools, dies, and masters 1,584,346 1,465,425
Leasehold improvements 108,474 108,474
2,258,928 2,144,825
Less: Accumulated depreciation
and amortization 1,772,899 1,415,119
Property and Equipment - Net $ 486,029 $ 729,706
Depreciation and amortization expense for the years ended November 30,
1997, 1996 and 1995 amounted to $364,536, $390,625 and $325,609,
respectively.
-9-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following at November 30, 1997 and 1996:
1997 1996
Patents and trademarks 211,596 $191,148
Less: Accumulated amortization 47,956 36,111
Intangible Assets - Net $ 163,640 $155,037
Amortization expense for the years ended November 30, 1997, 1996 and
1995 amounted to $11,845, $10,165 and $7,193, 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, 1997 and 1996 were as follows:
1997 1996
Current: COST MARKET COST MARKET
Corporate obligations $ 99,006 $ 99,448 $447,384 $450,319
Government obligations
(including mortgage
backed securities) 1,827,503 1,827,065 886,711 891,346
Preferred stock - - 200,000 204,624
Total 1,926,509 1,926,513 1,534,095 1,546,289
Non-Current:
Corporate obligations 741,893 744,921 199,006 198,282
Government obli-
gations 1,135,023 1,129,254 1,454,133 1,436,310
Total 1,876,916 1,874,175 1,653,139 1,634,592
Total $3,803,425 $3,800,688$3,187,234$3,180,881
-10-
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, 1997 was $3,800,688 as compared to $3,180,881 at November 30,
1996. The cost and market values of the investments at November 30, 1997 were as follows:
COL. A COL. B COL. C COL.D COL.E
Amount at Which
Each Portfolio
Number of Market Of Equity Security
Units-Principal Value of Issues and Each
Amount of Each Issue Other Security
Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in
Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet
CORPORATE OBLIGATIONS:
AT&T 6/01/98 4.750% $100,000 $ 99,006 $ 99,448 $ 99,448
Florida Power & Light 7/01/99 5.500% 300,000 295,776 297,537 297,537
Virginia Electric & Power 4/01/00 6.481% 250,000 246,117 248,510 248,510
GMAC Smartnotes 10/15/99 5.950% 200,000 200,000 198,874 198,874
840,899 844,369 844,369
-11-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
COL. A COL. B COL. C COL.D COL.E
Amount at Which
Each Portfolio
Number of Market Of Equity Security
Units-Principal Value of Issues and Each
Amount of Each Issue Other Security
Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in
Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet
GOVERNMENT OBLIGATIONS:
Tennesse Valley Authority 3/04/98 5.125% $100,000 $100,000 $ 99,848 $ 99,848
US Treasury Note 10/31/98 4.750 100,000 99,684 99,094 99,094
US Treasury Note 10/31/98 4.750 200,000 199,992 198,188 198,188
US Treasury Note 10/15/98 7.125 250,000 250,000 252,970 252,970
US Treasury Note 4/30/98 5.125 190,000 189,883 189,645 189,645
US Treasury Note 4/30/98 5.125 10,000 9,992 9,981 9,981
US Treasury Note 7/31/98 5.250 250,000 249,834 249,375 249,375
US Treasury Note 2/28/99 5.875 250,000 249,953 250,235 250,235
US Treasury Note 11/15/99 5.875 250,000 249,141 250,313 250,313
US Treasury Note 1/31/98 5.125 200,000 199,695 199,750 199,750
US Treasury Zero Coupon 8/15/99 5.920 148,000 134,040 134,331 134,331
US Treasury Zero Coupon 5/15/98 5.410 215,000 210,007 209,741 209,741
US Treasury Bill 12/04/98 5.210 200,000 197,436 199,850 199,850
US Treasury Bill 12/04/97 5.210 120,000 118,466 119,911 119,911
-12
CCA INDUSTRIES, INC. AND SUBSIDIARIES
MARKETABLE SECURITIES - OTHER INVESTMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
COL. A COL. B COL. C COL.D COL.E
Amount at Which
Each Portfolio
Number of Market Of Equity Security
Units-Principal Value of Issues and Each
Amount of Each Issue Other Security
Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in
Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet
GOVERNMENT OBLIGATIONS: (Continued)
FHLMC 1628-N 12/15/2023 6.500% 50,000 $ 48,024 $ 46,763 $ 46,763
EE Bonds - 7.180 90,000 97,812 97,812 97,812
FNMA 93-G-26-B 8/25/2022 7.000 10,000 6,694 6,673 6,673
FNMA 93-224-D 11/25/2023 6.500 104,000 101,873 94,951 94,951
FNMA 92-2-N 1/25/2024 6.500 52,000 47,424 45,718 45,718
FHLMC 1702-U 3/24/2024 7.000 4,000 2,626 2,608 2,608
FNMA 11/10/98 5.050 200,000 199,950 198,562 198,562
2,962,526 2,956,319 2,956,319
$3,803,425 $3,800,688 $3,800,688
-13-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (Continued)
During the year ended November 30, 1997 available-for-sale securities were
liquidated and proceeds amounting to $2,657,227 were received, with
resultant realized gains totaling $5,692. Cost of available-for-sale
securities includes unamortized premium or discount.
NOTE 7 - PREPAID ROYALTY EXPENSE (DEFERRED)
On March 3, 1986, the Company entered into a License Agreement (the
"Agreement") with Alleghany Pharmacal Corporation ("Alleghany") under the
terms of which the Company was granted the exclusive right to use the
licensed products and trademarks for the manufacture and distribution of the
products subject to the license. Under the terms of the Agreement, on July
5, 1986, the Company paid to Alleghany a non-refundable advance payment
of $1,015,000. The license runs for an indeterminate period. An additional
$525,000 non-refundable advance payment was paid to Alleghany on July 5,
1987.
From the period March 3, 1986 to June 3, 1986, the Company was required
to pay a 7% royalty on all net sales. Thereafter, it is required to pay a 6%
royalty on net sales but no less than $360,000 per annum to maintain its
license. After the sum of $9,000,000 in royalties has been paid to Alleghany,
the royalty is reduced to 1% of net sales. The Company has expanded the
lines licensed from Alleghany and pays only 1% royalty on various new
products created by the Company. As of November 30, 1997, $5,671,760
of royalties have been paid or accrued and only $3,328,240 still remains
until the $9,000,000 level is reached.
-14-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LONG-TERM DEBT
Note payable - Bank represents the balance of a $1,119,067 loan that was
due in monthly installments of $24,000 plus interest to February 1996.
Interest was calculated on the outstanding balance at prime. In connection
with this loan, the bank has been given a secured interest in all of the
accounts receivable and inventory of the Company and its subsidiaries. At
November 30, 1997, the bank's prime rate was 8 1/4%.
In May 1996 the Company refinanced $327,000 (representing the balance
on its term note) at prime. The note was due in installments of $27,250 plus
interest through May 1997.
The Company has an available line of credit of $3,000,000. Interest is
calculated on the outstanding balance at prime minus 1% or Libor plus 150
basis points. As of November 30, 1997, the Company was not utilizing any
of its available line.
NOTE 9 - INCOME TAXES (RESTATED)
CCA and its subsidiaries file a consolidated federal income tax return. No
returns have been examined by the Internal Revenue Service.
At November 30, 1997 and 1996, respectively, the Company has temporary
differences arising from the following:
November 30, 1997
Classified As
Deferred Short- Long-
Type Amount Tax Term Term
Asset (Liability)
Depreciation $ 276,221 $111,006 $ - $111,006
Reserve for bad debts 120,131 48,278 48,278 -
Reserve for returns 544,194 218,698 218,698 -
Reserve for obsolete
inventory 860,417 345,780 345,780 -
Section 263A costs 215,335 86,538 86,538 -
Net deferred income tax $2,016,298 $810,300 $699,294 $111,006
-15-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (Restated)(Continued)
November 30, 1996
Classified As
Deferred Short- Long-
Type Amount Tax Term Term
Asset (Liability)
Depreciation $ 220,070 $ 88,441 $ - $88,441
Reserve for bad debts 143,647 57,728 57,728 -
Reserve for obsolete
inventory 679,675 273,144 273,144 -
Reserve for returns 922,902 370,892 370,892 -
Section 263A costs 228,995 92,027 92,027 -
Net deferred income tax $2,195,289 $882,232 $793,791 $88,441
The tax asset valuation allowance decreased by $25,859 and $63,600 during
the years ended November 30, 1997 and 1996, respectively.
Income tax expense (benefit) is made up of the following components:
November 30, 1997
State &
Federal Local Total
Current tax expense $967,319 $244,553 $1,211,872
Tax credits ( 42,475) - ( 42,475)
Deferred tax benefit 56,827 15,105 71,932
$981,671 $259,658 $1,241,329
-16-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (Restated) (Continued)
November 30, 1996
State &
Federal Local Total
Current tax expense $ 32,821 $ 27,695 $ 60,516
Deferred tax benefit 629,581 173,195 802,776
$662,402 $200,890 $863,292
The current tax expense for the year ended 1996 includes a utilization of
net operating loss carryforward for federal and state of approximately
$492,000 and $50,000, respectively.
November 30, 1995
State &
Federal Local Total
Current tax expense $ - $ 1,530 $ 1,530
Deferred tax (benefit) ( 692,306) ( 185,164) ( 877,470)
($692,306) ($183,634) ($875,940)
Income taxes payable are made up of the following components:
State &
Federal Local Total
November 30, 1997 $44,453 $41,651 $86,104
November 30, 1996 $24,598 $ 907 $25,505
-17-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (Continued)
A reconciliation of income tax expense computed at the statutory rate to
income tax expense at the effective rate for each of the three years ended
November 30, 1997 is as follows:
1997 1996 1995
Percent Percent Percent
Of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
Income tax (benefit) expense at
statutory rate $1,112,760 34.00% $650,973 34.00% ($758,379) (34.00%)
Increases (decreases) in taxes
resulting from:
State income taxes, net of federal
income tax benefit 155,378 4.75 167,667 8.76 ( 129,921) ( 5.83 )
Non-deductible expenses and
other adjustments 15,666 .48 44,652 2.33 12,360 .56
Utilization of tax credits ( 42,475) ( 1.30 ) - - - -
Income tax expense at
effective rate $1,241,329 37.93% $863,292 45.09% ($875,940) (39.27%)
-18-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCK OPTIONS
On November 15, 1984, the Company authorized the granting of incentive
stock options as well as non-qualified options. The plan was amended in
1986 and again in 1994. The following summarizes the stock options
outstanding under these plans as of November 30, 1997:
Number Per Share
Of Option
Date Granted Shares Price Expiration
December 1987 234,500 .50 2002
January 1988 370,000 .55 2002
March 1989 200,000 .75 1999
January 1990 200,000 .63 1999
June 1995 50,000 4.50 2000
December 1995 100,000 1.50 2000
August 1997 375,000 2.50 2007
1,529,500
The following summarizes the activity of shares under option for the two
years ended November 30, 1997:
Number Per Share
Of Option
Shares Price Value
Balance - November 30,
1995 1,515,600 $ .40 - $4.50 $1,041,440
Granted 100,000 $1.50 150,000
Exercised ( 373,600) $ .40 - $ .50 ( 176,940)
Balance - November 30,
1996 1,242,000 $ .50 - $4.50 1,014,500
Granted 375,000 $2.50 937,500
Exercised ( 60,000) .50 ( 30,000)
Expired ( 27,500) .50 ( 13,750)
Balance - November 30,
1997 1,529,500 $ .50 - $4.50 $1,908,250
-19-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE
The following items which exceeded 5% of total current liabilities are
included in accounts payable and accrued liabilities as of:
November 30,
1997 1996
(In Thousands)
Media advertising $ 401 $*
Coop advertising 375 321
Accrued returns 712 505
Royalty payable 269 *
Bonus 286 *
$ 2,043 $ 826
All other liabilities were for trade payables or individually did not
exceed 5% of total current liabilities.
* Under 5%
NOTE 12 - OTHER INCOME
Other income was comprised of the following:
November 30,
1997 1996 1995
Interest income $272,677 $195,234 $271,505
Dividend income 15,131 16,511 16,164
Realized gain (loss) on
disposal of assets ( 1,009) 18,237 ( 5)
Royalty income - - 11,648
Miscellaneous 7,154 5,943 17,616
$293,953 $235,925 $316,928
-20-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS AND CONTINGENCIES
On April 1, 1995, the Company renewed their lease for approximately
62,500 square feet of office and warehouse space at an annual rental of
$259,284. This lease on the Company's premises expires March 31, 2001,
but has a renewal option for an additional five years. On September 22,
1995 the Company leased an additional 30,000 square feet of warehouse
space in Paterson, NJ on a net lease basis at a rental of $6,875 per
month. The lease was due to expire on September 30, 1997 but was extended
until September 30, 1998.
The Company has entered into various operating leases with expiration dates
ranging through December 2001.
Rent expense for the years ended November 30, 1997, 1996 and 1995 was
$458,706, $426,621 and $414,907, respectively.
Future commitments under noncancellable operating lease agreements for
each of the next five (5) years and in the aggregate are as follows:
Year Ending
November 30,
1998 $ 402,856
1999 314,297
2000 280,710
2001 90,954
2002 -
Total $1,088,817
On March 3, 1986, the Company entered into a License Agreement with
Alleghany Pharmacal Corporation (See Note 7).
The Company has entered into various other License Agreements, none of
which materially affect the Company's sales, financial results, financial
condition, or should materially affect its future results of operations.
-21-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
During fiscal 1994, the Board of Directors approved 10-year employment
contracts for two officers/shareholders. Pursuant thereto, each was
provideda base salary of $300,000 in fiscal 1994, with a year-to-year CPI
or 6% increment, and each is paid 2 1/2% of the Company's pre-tax income,
less depreciation and amortization, plus 20% of the base salary, as bonus.
The Company maintains cash balances at several banks. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. In addition, the Company maintains accounts with several
brokerage firms. The accounts contain cash and securities. Balances are
insured up to $500,000 (with a limit of $100,000 for cash) by the Securities
Investor Protection Corporation.
There are various matters in litigation that arose out of the normal
operations of the Company which, in the opinion of management, will not
have a material adverse effect on the financial condition of the Company.
NOTE 14 - RELATED PARTY TRANSACTIONS
As at November 30, 1996, one of the members of the board was indebted
to the Company for $12,500 used to exercise stock options. The note was
repaid in full, with interest, in January 1997
The Company has retained the law firm of Berman & Murray as its general
counsel. Ira W. Berman, a former member of the firm, is the Secretary,
Chairman of the Board and a principal shareholder of the Company.
The Company has outstanding loans of $25,250 and 40,000 from its Vice
President in charge of Sales and Vice President in charge of Manufacturing,
respectively; which were made to aid them in obtaining a first mortgage on
their homes. The loans are secured by a second mortgage and carry an
interest rate at 1% over prime. Interest is payable semi-annually.
Both Vice Presidents are the sons of Mr. David Edell, the President of
the Company.
-22-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - CONCENTRATION OF RISK (RESTATED)
During the years ended November 30, 1997, 1996 and 1995, certain
customers each accounted for more than 5% of the Company's total sales,
as follows:
Customer 1997 1996 1995
A 24% 22% 22%
B 12 9 7
C 6 7 7
D 7 6 5
E 7 * *
F 6 * *
Foreign Sales 5.34% 7.57% *
* Under 5%
NOTE 16 - SUBSEQUENT EVENTS
In December 1997 David Edell and Ira W. Berman exercised stock options and
purchased 50,000 and 20,000 shares of the Company's common stock
respectively, at $.50 per share. They paid for the stock by giving back to
the Company 11,765 and 4,705 shares, respectively, of the Company's own
stock valued at approximately $2 1/8 per share.
In December 1997 75,000 stock options at $.50 expired, 159,500 stock
options at $.50 were extended until 2002, and 100,000 stock options at
$1.50 were canceled.
NOTE 17 - RESTATEMENT OF FINANCIAL STATEMENTS
The accompanying financial statements for the years ended 1997, 1996 and
1995 have been adjusted to reflect the elimination of the valuation
allowance for the Company's deferred tax assets. The effect of the restate-
ment was to increase net income by $25,859 and $211,984, or $.0 and $.03
earnings per share for the years ended November 30, 1997 and 1995,
respectively, and decrease net income by $63,600, or $.01 earnings per share
for the year ended November 30, 1996. In addition, retained earnings at
the beginning of 1995 has been adjusted for the effects of the restatement
on prior years.
-23-
SCHEDULE II
CCA INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995
(RESTATED)
COL. A COL. B COL. C COL. D COL. E
Additions
Balance at Charged To Balance
Beginning Costs and At End
Description Of Year Expenses Deductions Of Year
Year ended November 30, 1997:
Allowance for doubtful accounts $143,647 ($ 17,779) $ 5,739 $120,131
Reserve for returns $922,902 $3,465,866 $3,844,574 $544,194
Reserve for inventory
obsolescence $679,675 $ 486,742 $ 300,000 $860,417
Year ended November 30, 1996:
Allowance for doubtful accounts $157,204 $ 45,855 $ 59,412 $143,647
Reserve for returns $747,749 $4,555,422 $4,380,269 $922,902
Reserve for inventory
obsolescence $1,147,627 $ 57,068 $ 525,020 $679,675
Year ended November 30, 1995:
Allowance for doubtful accounts $208,863 $ 139,355 $ 191,014 $157,204
Reserve for returns $770,933 $2,841,439 $2,864,623 $747,749
Reserve for inventory
obsolescence $563,280 $ 584,347 $ - $1,147,627