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. -8- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Statements of Cash Flows Disclosure (Continued): During fiscal 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. -9- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes: Income tax expense includes federal and state taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Tax Credits: Tax credits, when present, are accounted for using the flow- through method as a reduction of income taxes in the years utilized. Earnings Per Common Share: The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" in 1998. Basic earnings per share is calculated using the average number of shares of common stock outstanding during the year. Diluted earnings per share is computed on the basis of the average number of common shares outstanding plus the effect of outstanding stock options using the "treasury stock method" and convertible debentures using the "if-converted" method. Common stock equivalents consist of stock options. Revenue Recognition: The Company recognizes sales upon shipment of merchandise. Net sales comprise gross revenues less expected returns, trade discounts, customer allowances and various sales incentives. Although no legal right of return exists between the customer and the Company, it is an industry-wide practice to accept returns from customers. The Company, therefore, records a reserve for returns equal to its gross profit on its historical percentage of returns on its last five months sales. Reclassifications In 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. -10- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Advertising Costs: The Company's policy for fiscal financial reporting is to charge advertising cost to operations as incurred. Shipping Costs: The Company's policy for fiscal financial reporting is to charge shipping cost to operations as incurred. For the years ended November 30, 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. -11- 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 -12- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED) The market value at November 30, 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 $58,411 and ($166,401) for November 30, 2002. The cost and market values of the investments at November 30, 2003 were as follows: COL. A COL. B COL. C COL.D COL.E Amount at Which Each Portfolio Number of Market Of Equity Security Units-Principal Value of Issues and Each Amount of Each Issue Other Security Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet CORPORATE OBLIGATIONS: GMAC Smartnotes 10/15/05 3.100% 200,000 $ 200,000 $ 198,792 $ 198,792 GMAC Smartnotes 10/15/05 3.150 400,000 400,000 399,024 399,024 GMAC Smartnotes 5/15/04 4.250 250,000 250,000 251,973 251,973 GMAC Smartnotes 5/15/05 5.000 175,000 175,000 177,431 177,431 GMAC Smartnotes 8/15/04 2.650 250,000 250,000 249,628 249,628 GMAC Smartnotes 6/15/05 3.550 200,000 200,000 199,678 199,678 GMAC Smartnotes 5/15/06 4.050 400,000 400,000 401,780 401,780 GMAC Smartnotes 10/15/06 3.550 250,000 250,000 248,700 248,700 Household Finance Corp. Internotes 5/15/04 4.250 250,000 250,000 252,865 252,865 Household Finance Corp. Internotes 10/15/06 2.750 100,000 100,000 98,866 98,866 Colgate-Palmolive 12/1/03 5.270 100,000 100,860 100,000 100,000
-13- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED) COL. A COL. B COL. C COL.D COL.E Amount at Which Each Portfolio Number of Market Of Equity Security Units-Principal Value of Issues and Each Amount of Each Issue Other Security Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet CORPORATE OBLIGATIONS (Continued): Ford Motor Credit 5/22/06 4.750 250,000 $ 250,000 $ 250,738 $ 250,738 Ford Motor Corp. 10/20/06 4.250 100,000 100,000 99,304 99,304 CIT Group Inc. 1/15/06 4.000 200,000 200,000 202,848 202,848 CIT Group Inc. 3/15/05 3.200 100,000 100,000 100,870 100,870 CIT Group Inc. 7/15/05 2.000 100,000 100,000 99,139 99,139 CIT Group Inc. 10/15/05 2.250 100,000 100,000 99,299 99,299 GE Capital Group Internotes 2/15/06 2.450 250,000 250,000 248,725 248,725 GE Capital Group Internotes 7/15/06 2.150 200,000 200,000 196,106 196,106 GE Capital Group Internotes 10/15/06 2.500 400,000 400,000 395,280 395,280 GE Capital Group Internotes 9/15/06 2.550 150,000 150,000 148,025 148,025 GE Capital Group Internotes 9/15/06 2.350 300,000 300,000 296,046 296,046 GE Capital Group Internotes 10/15/06 2.250 300,000 300,000 295,239 295,239 Sears Roebuck Acceptance Corp. 5/15/06 3.500 250,000 250,000 251,823 251,823 American General Fin. Corp. 8/15/05 2.050 200,000 200,000 199,576 199,576 American General Fin. Corp. 9/15/06 2.500 100,000 100,000 98,652 98,652 John Hancock Life Ins. Co. 7/15/06 2.250 200,000 200,000 196,412 196,412 John Hancock Life Ins. Co. 10/15/06 2.450 100,000 100,000 97,573 97,573 John Hancock Life Ins. Co. 7/15/06 2.300 200,000 200,000 195,244 195,244 General Dynamics Corp. 10/15/06 2.125 150,000 149,706 147,723 147,723 6,225,566 6,197,359 6,197,359
-14- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED) COL. A COL. B COL. C COL.D COL.E Amount at Which Each Portfolio Number of Market Of Equity Security Units-Principal Value of Issues and Each Amount of Each Issue Other Security Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet GOVERNMENT OBLIGATIONS: US Treasury Note 7/31/05 1.500% 250,000 $ 249,531 $ 248,750 $ 248,750 US Treasury Note 6/30/2005 1.125 200,000 199,524 198,062 198,062 Federal Home Loan Bank 8/21/06 2.590 200,000 200,000 199,126 199,126 Federal Home Loan Bank 7/24/06 2.125 100,000 100,000 98,375 98,375 Federal Home Loan Bank 12/15/05 2.550 200,000 200,000 200,126 200,126 Federal Home Loan Bank 7/28/06 2.189 200,000 199,000 197,312 197,312 FNMA 5/15/06 2.250 200,000 198,772 199,062 199,062 FHLB 6/19/06 2.260 250,000 249,380 247,815 247,815 FHLMC 2/27/07 2.000 100,000 100,000 100,188 100,188 FHLMC 11/15/17 4.250 200,000 200,000 196,626 196,626 FHLMC 2/27/12 4.000 225,000 225,000 226,125 226,125 FHLMC 10/15/09 3.000 250,000 250,000 249,923 249,923 FHLMC 11/15/09 3.000 250,000 250,000 244,623 244,623 FNMA 8/15/12 4.000 250,000 250,000 251,798 251,798 FHLMC 1/30/06 2.000 250,000 250,000 250,313 250,313 FNMA 9/24/07 3.000 200,000 200,000 198,126 198,126 Tennessee Valley Authority Power Bonds 5/1/29 6.500 26,000 688,530 697,580 697,580 Tobacco Settlement Fin Corp. N 6/1/15 5.000 200,000 198,500 178,552 178,552 NJ EDA Trans Sublease RV Lightrail 199A FSA 5/1/04 5.000 300,000 317,444 304,935 304,935 Port Authority NY & NJ Cons 88th SR BE 10/1/04 4.500 225,000 238,789 231,071 231,071 CLOSED END MUNICIPAL BONDS/MUTUAL FUNDS: Muniyield New Jersey Insd Frd Inc. 6,500 96,905 95,940 95,940 Muniholdings New Jersey Insd FD Inc. 6,900 94,549 99,981 99,981 Nuveen New Jersey Invt Quality Municipal Fund 6,200 95,162 96,410 96,410 Nuveen New Jersey Prem Inc Municipal Fund 5,200 78,639 81,536 81,536 Van Kamp Amer Cap Inv Gr NJ 4,800 80,502 81,888 81,888 Blackrock New Jersey Municipal Inc. 6,000 87,989 86,400 86,400 Eaton Vance New Jersey Municipal Inc. 5,600 85,506 86,324 86,324 Nuveen New Jersey Dividend Advantage 5,700 84,865 84,246 84,246 5,468,577 5,431,213 5,431,213
-15- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED) COL. A COL. B COL. C COL.D COL.E Amount at Which Each Portfolio Number of Market Of Equity Security Units-Principal Value of Issues and Each Amount of Each Issue Other Security Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet EQUITY: Preferred Stock: Public Income NTS General Electric Cap Corp. 11/15/32 6.100% 14,800 $ 379,495 $ 385,836 $ 385,836 Merrill Lynch Trust 9/30/08 7.280 6,000 150,000 163,200 163,200 Corporate Backed Trust Certificates For AIG Sun America 5/17/07 6.700 6,000 150,000 161,940 161,940 Corporate Backed Trust Certificates For Bristol Myers Squibb 5/23/07 6.800 6,000 150,000 163,200 163,200 Morgan Stanley Cap Tr 7/15/33 5.750 4,000 100,000 96,720 96,720 ABN AMRO Cap Fund 7/3/08 5.900 2,000 50,000 48,680 48,680 JP Morgan Chase Cap IX 6/15/33 5.875 2,000 50,000 48,620 48,620 Wells Fargo Cap Tr VIII 8/1/33 5.625 8,000 200,000 197,840 197,840 Lehman Cap Trust IV 10/31/52 6.375 4,000 100,000 100,000 100,000 1,329,495 1,366,036 1,366,036
-16- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED) COL. A COL. B COL. C COL.D COL.E Amount at Which Each Portfolio Number of Market Of Equity Security Units-Principal Value of Issues and Each Amount of Each Issue Other Security Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet EQUITY (Continued): Common Stock: DTE Energy Co. 1,200 $ 51,649 $ 45,252 $ 45,252 Consolidated Edison Inc. 3,800 153,485 153,140 153,140 Progress Energy Inc. 1,000 48,000 43,820 43,820 Public Service Enterprise Group 1,300 51,245 53,326 53,326 304,379 295,538 295,538 Mutual Funds: Dreyfus Premier Limited Term High Income CL B 16,296,314 179,320 118,963 118,963 Other Equity Investments: Aberdeen Asia Pacific Income Fund 4 100,000 100,000 100,000 Enterprise Production Partners LP 5,000 111,750 114,750 114,750 211,750 214,750 214,750 $13,719,087 $13,623,859 $13,623,859
-17- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (Continued) During the years ended November 30, 2003, 2002 and 2001, available- for-sale securities were liquidated and proceeds amounting to $6,485,792, $1,839,729 and $5,068,493 were received, with resultant realized gains/(losses) totaling $9,518, ($2,131) and ($28,559), respectively. Cost of available-for-sale securities includes unamortized premium or discount. NOTE 7 - NOTES PAYABLE AND SUBORDINATED DEBENTURES The Company has an available line of credit of $10,000,000 which was increased from $7,000,000 on May 27, 2003. Interest is calculated at the Company's option, either on the outstanding balance at the prime rate minus 1% or Libor plus 150 basis points at the Company's option. The line of credit is unsecured as of October 21, 2003 and must adhere to certain financial covenants pertaining to net worth and debt coverage. The Company was not utilizing their available credit line at November 30, 2003 and 2002. On August 1, 2000, the Company repurchased (pursuant to a tender offer) 278,328 shares of its outstanding common stock by issuing subordinated debentures equal to $2 per share, which accrue interest at 6% and are due to mature on August 1, 2005. The interest is payable semi-annually. During the year 2001, the Company repurchased $46,000 of debentures for $23,000 resulting in a gain of $23,000. During the year 2002, the Company repurchased $9,000 of debentures for $6,750 resulting in a gain of $2,250. NOTE 8 - INCOME TAXES CCA and its subsidiaries file a consolidated federal income tax return. No returns have been examined by the Internal Revenue Service. At November 30, 2003 and 2002, respectively, the Company has temporary differences arising from the following: November 30, 2003 Classified As Deferred Short- Long- Type Amount Tax Term Term Asset (Liability) Depreciation ($ 37,633) ($ 14,753) $ - ($14,753) Reserve for bad debts 549,851 215,558 215,558 - Reserve for returns 345,872 135,593 135,593 - Reserve for obsolete inventory 1,153,612 452,251 452,251 - Section 263A costs 122,469 48,012 48,012 - Charitable contributions 186,080 72,949 72,949 - Accrued litigation settlement 100,000 39,203 39,203 - Net deferred income tax $948,814 $963,566 ($14,753) -18- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - INCOME TAXES (Continued) November 30, 2002 Classified As Deferred Short- Long- Type Amount Tax Term Term Asset (Liability) Depreciation ($ 13,024) ($ 5,186) $ - ($5,186) Reserve for bad debts 695,824 277,100 277,100 - Reserve for returns 526,584 209,703 209,703 - Reserve for obsolete inventory 976,788 388,989 388,989 - Section 263A costs 290,000 115,487 115,487 - Charitable contributions 744,010 296,289 296,289 - Net deferred income tax $1,282,382 $1,287,568 ($5,186) Income tax expense (benefit) is made up of the following components: November 30, 2003 State & Federal Local Total Current tax expense $2,265,262 $690,924 $2,956,186 Tax credits ( 44,988) - ( 44,988) Deferred tax expense 257,604 75,965 333,569 $2,477,878 $766,889 $3,244,767 -19- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - INCOME TAXES (Continued) November 30, 2002 State & Federal Local Total Current tax expense $1,116,198 $507,307 $1,623,505 Tax credits ( 37,428) - ( 37,428) Deferred tax expense 341,365 33,761 375,126 $1,420,135 $541,068 $1,961,203 November 30, 2001 State & Federal Local Total Current tax expense $976,295 $170,755 $1,147,050 Tax credits ( 35,000) - ( 35,000) Deferred tax expense ( 77,369) 131,703 54,334 $863,926 $302,458 $1,166,384 Prepaid income taxes and refund due are made up of the following components: State & Federal Local Total November 30, 2003 $59,779 $176,841 $236,620 November 30, 2002 $ - $ 1,703 $ 1,703 Income taxes payable are made up of the following components: State & Federal Local Total November 30, 2003 $ - $ - $ - November 30, 2002 $ 35,873 $142,817 $178,690 -20- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued) A reconciliation of income tax expense (benefit) computed at the statutory rate to income tax expense at the effective rate for each of the three years ended November 30, 2003 is as follows: 2003 2002 2001 Percent Percent Percent Of Pretax of Pretax of Pretax Amount Income Amount Income Amount Income Income tax expense (benefit) at federal statutory rate $2,888,945 34.00% $1,712,089 34.00% $ 1,081,456 34.00% Increases (decreases) in taxes resulting from: State income taxes, net of federal income tax benefit 506,147 5.96 357,105 7.09 235,302 7.40 Non-deductible expenses and other adjustments ( 105,337) ( 1.24 ) ( 70,563) ( 1.40 ) ( 115,374) ( 3.63 ) Utilization of tax credits ( 44,988) ( .53 ) ( 37,428) ( 0.74 ) ( 35,000) ( 1.10 ) Income tax expense (benefit) at effective rate $3,244,767 38.19% $1,961,203 38.95% $1,166,384 36.67%
-21- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - STOCK OPTIONS On November 15, 1984, the Company authorized the granting of incentive stock options as well as non-qualified options. The plan was amended in 1986 and again in 1994. The following summarizes the stock options outstanding under these plans as of November 30, 2003: Number Per Share Of Option Date Granted Shares Price Expiration January 1990 (1)(5) 14,500 .50 2007 June 1995 (2)(5) 50,000 .50(3)(5) 2007 August 1997 (5) 363,000 .50(4)(5) 2007 427,500 (1) These options were originally scheduled to expire January 2000 but were extended for an additional five years. (2) These options were originally scheduled to expire June 2000 but were extended for an additional five years. (3) These stock options were repriced from $4.50 to $1.50 in June of 2000 when they were extended. (4) These stock options were repriced from $2.50 on November 3, 1998. (5) On May 24, 2001, the Board of Directors repriced all the outstanding options to $.50 and changed their expiration date to August 1, 2007. The following summarizes the activity of shares under option for the two years ended November 30, 2003: Number Per Share Of Option Shares Price Value Balance - November 30, 2001 784,500 $.50 $ 392,250 Granted - - - Repriced - - - Exercised 200,000 ( .50) ( 100,000) Expired - - - Cancelled - - - Balance - November 30 2002 584,500 .50 292,250 Granted - - - Repriced - - - Exercised 157,000 ( .50) ( 78,500) Expired - - - Cancelled - - - Balance - November 30, 2003 427,500 $.50 $ 213,750 -22- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTIONS (Continued) Pro Forma Disclosure The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation", issued in October 1995. Accordingly, compensation cost has been recorded based on the intrinsic value of the option only. The Company recognized no compensation cost in 1999 and 1998, respectively, for stock-based employee compensation awards. The pro forma compensation cost for stock-based employee compensation awards was $.8 million, $1 million and $.5 million in 2003, 2002 and 2001, respectively. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, net income and earnings per share would have been changed to the pro forma amounts indicated in the table below: 2003 2002 2001 As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma Net income $5,252,131 $4,451,991 $3,074,353 $2,063,168 $2,014,369 $1,470,083 Diluted earnings per share $.69 $.58 $.41 $.27 $.27 $.20 The above pro forma amounts, for purposes of SFAS No. 123, reflect the portion of the estimated fair value of awards earned in 2003, 2002 and 2001. For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options' vesting period (for stock options). The effects on pro forma disclosures of applying SFAS 123 are not likely to be representative of the effects on pro forma disclosures of future years.
-23- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - STOCK OPTIONS The Company used the Black-Scholes model to value stock options for pro forma presentation. The assumptions used to estimate the value of the options included in the pro forma amounts and the weighted average estimated fair value of options granted are as follows: Stock Option Plan Shares 2003 2002 2001 Average expected life (years) 3.75 5.10 5.67 Expected volatility 185.67% 210.19% 204.59% Risk-free interest rate 3.00% 2.88% 4.25% Weighted average fair value at grant - Exercise price equal to market price $7.01 $1.73 $.69 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, the Black-Scholes model requires the input of highly subjective assumptions, including the expected stock price volatility and option life. Because the Company's stock options granted to employees have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, existing models do not necessarily provide a reliable measure of the fair value of its stock options granted to employees. For purposes of this model, no dividends have been assumed. -24- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE The following items which exceeded 5% of total current liabilities are included in accounts payable and accrued liabilities as of: November 30, 2003 2002 (In Thousands) Coop advertising $ 607 $804 Accrued returns 787 878 Vacation accrual * 320 Accrued bonuses 499 467 $1,893 $2,469 All other liabilities were for trade payables or individually did not exceed 5% of total current liabilities. * under 5% NOTE 11 - OTHER INCOME Other income was comprised of the following: November 30, 2003 2002 2001 Interest income $461,291 $383,569 $265,240 Dividend income 17,693 11,780 16,057 Realized gain on repurchase of debentures 4,000 2,250 25,342 Realized (loss) on sale of securities 9,518 ( 2,131) ( 0,901) Royalty income 97,271 41,820 57,385 Miscellaneous 5,498 2,193 5,760 $591,271 $439,481 $338,883 -25- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - COMMITMENTS AND CONTINGENCIES Leases The Company currently occupies approximately 60,600 square feet of space used for warehousing and offices. The annual rental is $327,684, with an annual CPI increase of 3%, but not to exceed 15% cumulative five year increase. The lease requires the Company to pay for additional expenses "Expense Rent" (Common Area Maintenance "CAM"), which includes real estate taxes, common area expense, utility expense, repair and maintenance expense and insurance expense. The lease expires on May 31, 2012 with a renewal option for an additional five years. Rent expense for the years ended November 30, 2003, 2002 and 2001 was $322,684, 433,983 and $531,062, respectively. In addition, the Company has entered into various property and equipment operating leases with expiration dates ranging through November 2006. Future commitments under noncancellable operating lease agreements having a remaining term in excess of one year for each of the next five (5) years and in the aggregate are as follows: Year Ending November 30, 2004 $396,572 2005 375,934 2006 344,244 2007 329,172 2008 327,684 Royalty Agreements In 1986, the Company entered into a license agreement with Alleghany Pharmacal Corporation (the "Alleghany Pharmacal License"). This license required the Company to pay 6% royalty on net sales but no less than $360,000 per annum to maintain its license. The Company has expanded the lines licensed from Alleghany and pays only 1% royalty on various new products created by the Company. The Alleghany Pharmacal License agreement provided that if and when, in the aggregate, $9,000,000 in royalties have 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 Alleghany in April 2003. Commencing May 1, 2003, the license royalty was reduced to 1%. The products subject to the Alleghancy Pharmacal License accounted for approximately $14,777,460 or 27% of total net sales in the fiscal year ended November 30, 2003. -26- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued) In May of 1998, the Company entered into a License Agreement with Solar Sense, Inc. for the marketing of sun care products under trademark names. The Company's License Agreement with Solar Sense, Inc. is for the exclusive use of the trademark names "Solar Sense" and "Kids Sense", in connection with the commercial exploitation of sun care products. The Company is required to pay a 5% royalty on net sales of the licensed products until $1 million total royalties are paid and 1% thereafter; and minimum per-annum royalties of $30,000. The Company realized $1,040,662 in net sales of sun-care products in 2003, and paid or accrued Solar Sense the royalty of $52,033. In October of 1999, the Company entered into a License Agreement with The Nail Consultants, Ltd. for the use of an activator invented in connection with a method for applying a protective covering to fingernails. The Company's License Agreement with The Nail Consultants, Ltd. is for the exclusive use of the method and its composition in a new product kit packaged and marketed by CCA under its own name, "Nutra Nail Power Gel". The Company will pay a royalty of 5% of net sales of all licensed product sold by the Company. Net sales were $2,872,313 in 2003, and paid or accrued The Nail Consultants, Ltd. the royalty of $143,616. 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. The Company is not party to any other license agreement that is currently material to its operations. -27- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued) The Company settled a patent infringement claim for the use of Alpha Hydroxy in its Sudden Change exfoliation products for $323,927. The Company paid half in September 2001 and paid the balance in February 2002. The total expense was recorded in the fiscal year ended November 30, 2001. The Company entered into a license agreement for the future use of Alpha Hydroxy in its beauty aid products. The Company will pay a 5% royalty of net sales of all such licensed product sold by the Company. The license fees in 2003 were not material. The Company has entered into various other License Agreements, none of which materially affect the Company's sales, financial results, financial condition, or should materially affect its future results of operations. Employment Contracts During fiscal 1994, the Board of Directors approved contracts for two officers/shareholders. Pursuant thereto, each was provided a base salary of $300,000 in fiscal 1994, with yearly increases of the higher of CPI or 6%, and each is paid 2.5% of the Company's pre-tax income, less depreciation and amortization, plus 20% of the adjusted base salary, as a bonus. During 1998 the contracts were amended, commencing in fiscal 1999, to limit the amount of advertising expense charged against pre-tax income for purposes of the 2.5% calculation to $8,000,000. In May 2001 an amendment increased the base salary to $400,000. The contract expires on December 31, 2010. Two officers of the Company who are the two sons of the Chief Executive Officers of the Company have five year contracts in the amounts of $270,000 and $200,000 which expire on November 30, 2007. In July 2003 and January 2004, such officers' salaries were increased to $300,000 and $223,000, respectively. Collective Bargaining Agreement On December 1, 1998, the Company signed a collective bargaining agreement with Local 734, L.I.U. of N.A., AFL-CIO. Other than standard wage, holiday, vacation and sick day provisions, the agreement calls for CCA to provide certain medical and dental benefits and to contribute to the Local 734 Educational Fund $.01 per hour for each hour the employees are paid. The agreement expired on November 30, 2001. A new collective bargaining agreement with similar provisions is in effect for December 1, 2001 through November 30, 2004. This agreement pertains to 29% of the CCA labor force. Litigation The Company has been named as a defendant in 11 lawsuits alleging that the plaintiffs were injured as a result of their purchasing and ingesting our diet suppressant containing phenylpropanolamine (PPA), which the Company utilized as its active ingredient in its products prior to November 2000. The lawsuits brought against the Company are for unspecified amount of compensatory and exemplary damages. Seven of the suits have been dismissed with prejudice. An additional suit is in the process of being dismissed. 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. -28- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued) Dividends CCA declared a dividend of $0.14 per share payable to all holders of the Company's common stock, $0.07 to shareholders of record on May 1, 2004 payable on June 1, 2004 and $0.07 to shareholders of record on November 1, 2004, payable on November 30, 2004. NOTE 13 - PENSION PLANS The Company has adopted a 401(K) Profit Sharing Plan that covers most of their non-union employees with over one year of service and attained Age 21. Employees may make salary reduction contributions up to twenty-five percent of compensation not to exceed the federal government limits. NOTE 14 - RELATED PARTY TRANSACTION During fiscal 2003 and 2002, the Company retained legal services from a firm where a partner is the son of a Director of the Company. Total legal fees amounted to approximately $5,000 and $142,000, respectively. -29- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - CONCENTRATION OF RISK All of the Company's products are sold to major drug and food chains merchandisers, and wholesale beauty-aids distributors throughout the United States and Canada. During the years ended November 30, 2003, 2002 and 2001, certain customers each accounted for more than 5% of the Company's net sales, as follows: Customer 2003 2002 2001 A 34% 31% 28% B 13 13 12 C 8 7 7 D 7 7 5 E 6 5 * F * * 7 Foreign Sales 2.10% 2.40% 2.85% * under 5% The loss of any one of these customers could have a material adverse affect on the Company's earnings and financial position. During the years November 30, 2003, 2002 and 2001, certain products within the Company's product lines accounted for more than 10% of the Company's net sales as follows: Product 2003 2002 2001 Health and Beauty 67% 75% 69% Cosmetic and Fragrance 19 19 19 Over-The-Counter 14 - - The Company maintains cash balances at several banks. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. In addition, the Company maintains accounts with several brokerage firms. The accounts contain cash and securities. Balances are insured up to $500,000 (with a limit of $100,000 for cash) by the Securities Investor Protection Corporation (SIPC). Each brokerage firm has substantial insurance beyond the $500,000 SIPC limit. -30- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - EARNINGS PER SHARE Basic earnings per share is calculated using the average number of common shares outstanding. Diluted earnings per share is computed on the basis of the average number of common shares outstanding plus the effect of outstanding stock options using the "treasury stock method". Year Ended November 30, 2003 2002 2001 Net income available for common shareholders, basic and diluted $5,252,131 $3,074,353 $2,014,369 Weighted average common stock outstanding- Basic 7,227,678 7,099,759 6,893,232 Net effect of dilutive stock options 388,362 480,224 632,925 Weighted average common stock and common stock equivalents - Diluted 7,616,040 7,579,983 7,526,157 Basic earnings per share $.73 $.43 $.29 Diluted earnings per share $.69 $.41 $.27
-31- SCHEDULE II CCA INDUSTRIES, INC. AND SUBSIDIARIES VALUATION ACCOUNTS
YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 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, 2003: Allowance for doubtful accounts $ 695,824 $ 188,347 $ 334,320 $ 549,851 Reserve for returns and allowances $ 526,584 $3,444,804 $3,625,516 $ 345,872 Reserve for inventory obsolescence $ 976,788 $ 408,993 $ 232,169 $ 1,153,612 Year Ended November 30, 2002: Allowance for doubtful accounts $ 481,399 $ 283,954 $ 69,529 $ 695,824 Reserve for returns and allowances $ 813,686 $4,094,332 $4,381,434 $ 526,584 Reserve of inventory obsolescence $ 1,052,716 $ 397,643 $ 473,571 $ 976,788 Year Ended November 30, 2001: Allowance for doubtful accounts $ 323,257 $ 299,254 $ 141,112 $ 481,399 Reserve for returns and allowances $ 1,056,167 $2,833,405 $3,075,886 $ 813,686 Reserve for inventory obsolescence $1,050,714 $ 548,815 $ 546,813 $ 1,052,716
-32- Exhibit 14 CCA INDUSTRIES, INC. CODE OF ETHICS FOR CHIEF EXECUTIVE OFFICER AND SENIOR FINANCIAL OFFICERS CCA Industries, Inc. (the "Company") has its Business Guideposts, which is a code of business conduct applicable to all directors and employees of the Company. The Business Guideposts contains a number of specific provisions relating to compliance with legal requirements, conflicts of interest, maintenance of accurate records and reporting financial information accurately and timely. The Company has also adopted this Code of Ethics specifically for its chief executive officer ("CEO") and all financial officers and executives (collectively, the "Financial Officers and Executives"), including the chief financial officer and controllers. This Code of Ethics supplements the Business Guideposts and is intended to promote ethical conduct and compliance with law and to deter wrongdoing and conflicts of interest. The Financial Officers and Executives subject to this Code of Ethics will be designated and informed of such designation by the Company. In addition to the Business Guideposts, the CEO and the Financial Officers and Executives are subject to the following additional specific policies: 1.In carrying out their duties, the CEO and Financial Officers and Executives will promote full, fair, accurate, timely and understandable disclosure in all reports and other documents the Company files with, or furnishes or submits to the Securities and Exchange Commission, as well as other public communications made by the Company. Accordingly, the CEO and each Financial Officer and Executive shall promptly bring to the attention of the Audit Committee established by the Company, The CEO and/or General Counsel any material information of which he or she may become aware that affects the disclosures made by the Company in its public filings, if such information is not already being adequately addressed in public filings being prepared for the Company. 2.The CEO and each Financial Officer and Executive shall promptly bring to the attention of the Audit Committee any information he or she may have concerning (a)significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's financial reporting, disclosures or internal controls. 3.In carrying out their duties, the CEO and each Financial Officer and Executive shall endeavor to comply and cause the Company to comply with all applicable governmental laws, rules and regulations. 4.The CEO shall promptly bring to the attention of the General Counsel or the Chairman of the Audit Committee and each Financial Officer and Executive shall promptly bring to the attention of the General Counsel or the CEO, any information he or she may have concerning any (a) unethical behavior or dishonest or illegal acts in violation of the Company's Business Guideposts involving any management or other employee who has a significant role in the Company's financial reporting, disclosures or internal controls or (b) violation of this Code of Ethics, including any actual or apparent conflicts of interest between personal and professional relationships. If any of the matters described in the preceding sentence involves the CEO, the Financial Officer or Executive shall promptly bring the matter to the attention of the General Counsel and the Chairman of the Audit Committee. 5.The CEO shall promptly bring to the attention of the General Counsel or the Chairman of the Audit Committee and each Financial Officer and Executive shall promptly bring to the attention of the General Counsel or the CEO, any evidence he or she may have concerning any (a) material violation of the securities or other laws, rules and regulations applicable to the Company and the operation of its business, by the Company or any agent thereof or (b) material violation by the CEO or any Financial Officer or Executive of the Business Guideposts or this Code of Ethics. If any violation described in the preceding sentence involves the CEO, the Financial Officer or Executive shall bring the matter to the attention of the General Counsel and the Chairman of the Audit Committee. If the CEO or any Financial Officer or Executive reports such evidence in accordance with this paragraph and believes or has reason to believe the matter reported is not being or has not been adequately addressed by the Company, he or she shall report such matter to the Chairman of the Audit Committee. 6.The Board of Directors shall determine or designate appropriate persons to determine appropriate actions to be taken in the event of violations of the Business Guideposts or of this Code of Ethics by the CEO or any Financial Officer or Executive. Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to the Business Guidepost and to this Code of Ethics. The Company shall at least annually report violations and the actions taken by the Company to the Audit Committee. Exhibit 31.1 CERTIFICATION I, David Edell, Chief Executive Officer of the Registrant, certify that: 1. I have reviewed this annual report on Form 10-K of CCA Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report. 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relation to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: February 28, 2004 /s/------------------------------------ David Edell Chief Executive Officer Exhibit 31.2 CERTIFICATION I, John Bingman, Chief Financial Officer of the Registrant, certify that: 1. I have reviewed this annual report on Form 10-K of CCA Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report. 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relation to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: February 28, 2004 /s/------------------------------- John Bingman Chief Financial Officer Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of CCA Industries, Inc. (the "Registrant") on Form 10-K for the annual period ended November 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David Edell, Chief Executive Officer of the Registrant, certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, that to the best of my knowledge: (1) The Report, to which this certification is attached, fully complies with the requirements of section 13(a) of the Securities Exchange Action of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 28, 2004 /s/-------------------------------------------- David Edell Chief Executive Officer Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of CCA Industries, Inc. (the "Registrant") on Form 10-K for the annual period ended November 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Bingman, Chief Financial Officer of the Registrant, certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, that to the best of my knowledge: (1) The Report, to which this certification is attached, fully complies with the requirements of section 13(a) of the Securities Exchange Action of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 28, 2004 /s/--------------------------------------- John Bingman Chief Financial Officer