SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended
November 30, 2005
Commission File Number
1-31643
CCA INDUSTRIES, INC.
(Exact Name of Registrant as specified in Charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
04-2795439
(I.R.S. Employer
Identification No.)
200 Murray Hill Parkway, East Rutherford, New Jersey 07073
(Address of principal executive offices, including zip code)
(201) 330-1400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Class A Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X].
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 $10.05 on May
31, 2005, was as follows:
Class of Voting Stock
Market Value
5,514,387.shares; Common
Stock, $.01 par value
$55,419,589
On November 30, 2005 there was an aggregate of 7,179,757 shares of Common Stock and
Class A Common Stock of the Registrant outstanding.
Form 10-K
Item No.
1. Business
2. Properties
CROSS REFERENCE SHEET
Headings in this Form
10-K for Year Ended
November 30, 2005
Business
Property
3. Legal Proceedings
Legal Proceedings
4. Submission of Matters
to a Vote of Security
Holders
5. Market for Registrant's
Common Equity and
Related Stockholder
Matters
Submission of Matters to a
Vote of Security Holders
Market for the Company's
Common Stock and Related
Shareholder Matters
6. Selected Financial Data
Selected Financial Data
7. Management's Discussion
and Analysis of Financial
Condition and Results
of Operations
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
7A. Quantitative and Qualitative
Disclosures about Market Risk
Quantitative and Qualitative
Disclosures about Market Risk
8. Financial Statements
and Supplementary Data
9. Changes In and Dis-
agreements With
Accountants On Accounting
and Financial Disclosure
Financial Statements
and Supplementary Data
Changes In and Dis-
agreements With
Accountants On Accounting
and Financial Disclosure
9A. Control and Procedures
Control and Procedures
10. Directors and
Executive Officers
of the Registrant
Directors and Executive
Officers
- iii-
Headings in this Form
Form 10-K
Item No.
10-K for Year Ended
November 30, 2005
11. Executive Compensation
Executive Compensation
12. Security Ownership
of Certain Beneficial
Owners and Management
13. Certain Relationships
and Related Transactions
14. Principal Accountant Fees
and Services
15. Exhibits, Financial
Statement Schedules,
and Reports on Form
8-K
Security Ownership
of Certain Beneficial
Owners and Management
Certain Relationships
and Related Transactions
Principal Accountant Fees
and Services
Exhibits, Financial
Statement Schedules,
and Reports on Form
8-K
- iv-
Item
PART I
TABLE OF CONTENTS
Page
1. Business.............................................................................................
2. Property.............................................................................................
3. Legal Proceedings..............................................................................
4. Submission of Matters to a Vote of Security Holders..........................
1
6
7
7
PART II
5. Market for the Company's Common Stock and Related
Shareholder Matters...........................................................................
6. Selected Financial Data......................................................................
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................
11
7A. Quantitative And Qualitative Disclosure About Market Risk............ 18
8. Financial Statements and Supplementary Data.................................... 19
9. Changes In and Disagreements with Accountants On Accounting
and Financial Disclosure....................................................................
9A.Controls and Procedures……………………………………………
19
19
8
10
PART III
10. Directors and Executive Officers......................................................
21
23
11. Executive Compensation..................................................................
12. Security Ownership of Certain Beneficial Owners and Management. 30
13. Certain Relationships and Related Transactions................................. 31
32
14. Principal Accountant Fees and Services…………………………….
PART IV
15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 34
- v-
Item 1. BUSINESS
(a) General
PART I
CCA INDUSTRIES, INC. (hereinafter, “CCA” or the “Company”) was incorporated in
Delaware in 1983.
The Company operates in one industry segment, in what may be generally described as the
health-and-beauty aids business, selling numerous products in several health-and-beauty aids and
cosmeceutical categories. All of the Company’s products are manufactured by contract
manufacturers, pursuant to the Company's specifications and formulations.
The Company owns registered trademarks, or exclusive licenses to use registered trademarks,
that identify its products by brand-name. Under most of the brand names, the Company markets
several different but categorically-related products. The principal brand and trademark names
include “Plus+White” (oral health-care products),“Sudden Change” (skin-care products), “Nutra
Nail” and “Power Gel” and “Nutra Nail 60" (nail treatments), “Bikini Zone” (pre and after-shave
products), “Mega - T” Green Tea and “Mega G” Grapefruit (dietary products), “Mega - T“ chewing
gum (anti-oxidant dietary product), 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.
The Company's total revenues in fiscal 2005 were $63,721,326. Gross profits were
$40,784,764. International sales accounted for approximately 2% of sales. The Company
experienced a net profit of $3,785,502 for the current fiscal year. Net worth at November 30, 2005,
was $25,999,656 despite the repurchase of 500,000 shares of the Company’s common stock on
October 5, 2004 from Officers/Directors David Edell and Ira W. Berman. (See Certain
Relationships and Related Transactions.
1
Including the principal members of management (see Directors and Executive Officers), the
Company, at November 30, 2005, had 153 sales, administrative, creative, accounting, receiving, and
warehouse personnel in its employ.
(b) Manufacturing and Shipping
The Company creates and/or oversees 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 various
manufacturers and suppliers. All orders and other product shipments are delivered from the
Company's own warehouse facilities, which results in more effective inventory control, more
efficient shipping procedures, and the realization of related economies.
(c) Marketing
The Company markets its products 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 310 accounts, most of which have
numerous outlets. Approximately 40,000 stores carry at least one Company product (SKU).
During the fiscal year ended November 30, 2005, the Company's largest customers were
Wal-Mart (approximately 32 % of net sales), McLanes (approximately 12 %), Walgreens, CVS, and
Rite Aid (approximately 10%, 8%, and 5%, 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.
The Company employs brand managers who are responsible for the marketing of CCA’s
brands. These managers work with the Company’s in-house advertising and art departments to
create media advertising, packaging and point - of - purchase displays.
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.
2
The Company's in-house advertising department is responsible for the selection of its media
advertising. Placement is accomplished either directly or 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", “Wash ‘N Curl”, "Bikini Zone", "Mood Magic", "Mega -T", "Cherry Vanilla",
and "Scar Zone".
(e) All Products
The Company’s gross sales net of returns by category percentage were: Dietary Supplement
35%; Skin Care 31%; Oral Care 17%; Nail Care 9%; Hair Care 5%; and Fragrance and
Miscellaneous 3%.
(f) 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 required 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 had been 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 '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%.
3
The products subject to the Alleghany-Pharmacal License accounted for approximately
$9,917,000 or 16 % of total net sales in the fiscal year ended November 30, 2005. “Nutra Nail” and
the “Hair-Off” depilatory were the leaders among all of the Alleghany license-agreement products,
producing approximately 9 % and 6 %, 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 royalty
on net sales of said licensed products until $1 million total royalties are paid. CCA realized
approximately $ 348,000 in net sales of sun-care products in 2005.
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 net
sales of all products sold under the license, by the Company. Net sales were approximately
$1,940,000 in 2005 and the Company paid or accrued the Nail Consultants the prescribed royalty.
iv. Dr. Stephen Hsu - Green Tea
Stephen Hsu, PhD., research faculty member of the Medical College of Georgia, entered into
an agreement with the Company on February 26, 2004, to create green tea skin care products based
on his years of research related to the various uses of green tea anti-oxidants for skin care problems.
Dr. Hsu collaborated with Drew Edell, Vice-President of Research and Development for the
Company, to create and file a patent application for a special anti-oxidant green tea serum to be used
for topical skin application. The patent was filed in November 2004.
Dr. Hsu will be entitled to a commission on the net factory sales of all of the Company’s
products using the green tea serum created exclusively for the Company. The special anti-oxidant
green tea serum was used as one of the skus in the Denise Austin “Skin Fit For Life” line and has
been included in the new Sudden Change skin care line. Net sales of the products utilizing the green
tea serum were $3,062,000 for the fiscal year ended November 30, 2005.
v. Mega -T Green Tea Chewing Gum and Mints
On May 18, 2004, The Company entered into a license agreement with Tea-Guard, Inc. to
manufacture and distribute Mega -T Green Tea chewing gum and Mega -T Green Tea mints. Dr.
Stephen Hsu created both formulations under special arrangements with Tea-Guard, Inc. (not related
4
to the Company).
The license agreement requires the Company to pay a minimum royalty after the first
eighteen months of the license. The minimum payments are required to maintain the Company’s
exclusivity for the sale of the products and to continue marketing the products and until royalties
have aggregated to $10,000,000, at which time all royalty obligations cease. Except as to maintain
its rights to “exclusivity”, the Company has no obligation to meet minimum royalty requirements.
The Company commenced sales of the Mega -T Green Tea Chewing Gum in July 2004. Net
sales of the Mega-T Green Tea chewing gum for the fiscal year ended November 30, 2005 were
$2,087,000.
vi. Denise Austin “Skin Fit For Life” skin care line
On July 14, 2004, the Company entered into a license agreement with Denise Austin, a well
known, respected fitness expert. Under the agreement, the Company created a special anti-oxidant
line of signature skin care products called the Denise Austin “Skin Fit For Life” skin care line.
The license agreement requires the Company to pay a minimum royalty in order to maintain
the exclusive use of the name, “Denise Austin” to manufacture and sell a special line of skin care
and cosmetic products. The license will continue so long as minimum royalty payments are met.
The license agreement does not require the Company to meet any minimum requirements. Net sales
of the “Skin Fit For Life” skin care line were $3,062,000 for the fiscal year ended November 30,
2005. The Company had returns of $1,804,000 for the fiscal year which includes a reserve of
$938,000 for additional returns, credits and/or allowances.
The Company will not continue with the license in March 2006.
vii. 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 terminated the license agreement without any liability on June 29, 2005. Net
sales during fiscal 2005 were $88,000.
viii. Other Licenses
The Company is not party to any other license agreement that is currently material to its
operations.
5
(g) 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.
(h) 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.
(i) 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
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.
license-requirement circumstances
should arise, delays
inherent
such
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 58,625
square feet of space. Approximately 43,598 square feet in such premises is used for warehousing
and 15,027 square feet for offices. The annual rental is $327,684, with an annual CPI increase not
cumulatively exceeding 15% in any consecutive five year period. 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, 2005, CAM was
$189,776.
6
The Company entered into a warehouse lease on May 1, 2005 at 300-1(D), Route 17, Lodi,
New Jersey for the 12 month period ending April 30, 2006. The lease comprises 13,000 square feet
for warehousing. The year end net rental expense including CAM was $80,070. The Company
anticipates extending the lease for an additional one year period.
Item 3. LEGAL PROCEEDINGS
The only material legal proceedings outstanding as of November 30, 2005 were related to the
Company’s diet suppressant products containing phenylpropanolamine (“PPA”). There were
approximately thirteen 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. Two additional 8Ks were filed in 2004, one on April 7, 2004 and one on
August 3, 2004. Eleven of the suits have been dismissed with prejudice with two remaining. One
suit is in the process of being dismissed. The remaining suit is insured and is being defended by the
Company’s insurance carrier.
There were approximately 6,000 suits that have been brought against 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 two PPA cases still
pending against the Company are defensible. Of the Company’s two 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 June 15, 2005, 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 and Edell own 100% of the Class A Common Stock, and they proposed themselves, Mr.
Polak and Mr. Kreitman.)
(2) As proposed by Management, Dunnan Edell, Robert Lage and Gio Batta Gori, Ph.D.,
were elected as directors by the holders of the Common Stock.
(3) The Board's appointment of KGS LLP as the Company's independent certified public
accountants for the 2005 fiscal year was approved.
(4) The Shareholders approved the Amended and Restated Stock Option Plan.
The Company has not submitted any matter to a vote of security holders since the 2005
Annual Meeting.
7
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
PART II
In June 2000, the Company filed a Schedule TO (and an Amendment No.1 thereto) with the
Securities And Exchange Commission (“SEC”); 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, which matured on 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 SEC 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 2005,
2004 and 2003 fiscal years was as follows:
Quarter Ended 2005
$10.75 - $13.80
February 29
$12.56 - $ 9.45
May 31
August 31
$11.40 - $ 8.85
November 30 $ 9.90 - $ 7.00
2004
$ 9.35 - $ 6.70
$ 8.70 - $ 7.20
$10.80 - $ 6.75
$11.30 - $ 7.00
2003
$3.80 - $1.70
$5.43 - $3.05
$8.69 - $5.10
$8.50 - $6.60
The high and low prices for the Company’s Common Stock, on February 1, 2006 were
$10.10 to $10.30 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 SEC as “Schedule TO”, with the Schedule TO information, the
following documents subject of the tender offer were filed with the SEC, 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.)
On August 1, 2005, the remaining outstanding $497,656 subordinated debentures were
redeemed by the Company.
8
As at November 30, 2005, there were approximately 200 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
2005, $0.07 payable to all shareholders of record May 1, 2005 payable on June 1, 2005 and $0.07
payable to all shareholders of record November 1, 2004 payable on December 1, 2004.
On June 16, 2004, the Board of Directors declared a 2% stock dividend payable to all
shareholders of record on November 1, payable December 1, 2004.
On January 11, 2005, the Board of Directors declared a $0.16 per share dividend for fiscal
2005, $0.08 payable to all shareholders of record May 1, 2005 payable on June 1, 2005 and $0.08
payable to all shareholders of record November 1, 2005 payable on December 1, 2005.
On November 15, 2005, the Board of Directors declared a $0.05 per share dividend for the
first quarter ending February 28, 2006. The dividend is payable to all shareholders of record on
February 1, 2006 payable on March 1, 2006.
9
Item 6. SELECTED FINANCIAL DATA
Statement of Income
Sales
Other income
Costs and Expenses
Income Provision for
Income Taxes
Net Income
Earnings Per Share:
Basic
Diluted
2005
2004
2003
2002
2001
Year Ended November 30,
$63,148,417
572,909
$60,667,562
850,196
$54,145,480
591,271
$45,241,493
439,481
$41,364,648
338,883
63,721,326
56,613,798
61,517,758
54,736,751
45,680,974
41,703,531
52,143,479
46,239,853
40,645,418
38,522,778
7,107,528
9,374,279
8,496,898
5,035,556
3,180,753
$ 3,785,502
$ 5,796,663
$ 5,252,131
$ 3,074,353
$ 2,014,369
$ .53
$ .52
$ .78*
$ .75*
$ .71*
$ .68*
$
$
.42*
.40*
$ .29*
$ .26*
Weighted Average Number
of Shares Outstanding 7,145,297
Weighted Average Number
of Shares and Common Stock
Equivalents Outstanding
7,317,994
7,399,472*
7,372,232*
7,241,751*
7,031,097*
7,680,781*
7,768,361*
7,731,583*
7,676,680*
Balance Sheet Data:
2005
$18,602,107
35,309,308
2004
$13,562,389
31,556,577
As At November 30,
2003
2002
$11,565,685 $11,264,206
24,805,064
29,839,216
Working Capital
Total Assets
Total Liabilities
Total Shareholders’ Equity (1)(2)(3)
9,309,652
25,999,656
8,034,530
6,494,676
23,522,047 23,344,540 18,835,423
5,969,641
2001
$10,236,977
20,598,917
4,674,278
15,924,639
(1) On June 16, 2004, The Company declared a 2% stock dividend payable to all shareholders of record on November 1, payable
December 1, 2004.
On January 11, 2005, the Board of Directors declared a $.16 dividend. $0.08 payable to all shareholders of record May 1, 2005 payable
on June 1, 2005 and $0.08 payable to all shareholders of record November 1, 2005 payable December 1, 2005.
(2) On October 3, 2004, The Company repurchased 500,000 shares of its common stock at $8.99 per share from management. (See
Certain Relationships and Related Transactions.
(3) On November 15, 2005, the board of directors declared a $0.05 per share dividend for the first quarter ending February 28, 2006.
The dividend is payable to all shareholders of record on February 1, 2006 payable on March 1, 2006.
*Adjusted for 2% stock dividend in 2004.
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 2005 and 2004
The Company’s net sales increased from $60,667,652 to $63,148,417 for the current fiscal
year. Gross profit margins on sales were 65% compared to 66% last fiscal year. The reduction in the
gross profit margin was due mainly to the sales returns and allowances increase to 11.3% of gross
sales from 9.2% last year as a result of the unsuccessful launch of its new skin care product line.
The Company’s gross sales net of returns by category were: Dietary Supplement $23,319,940,
35%; Skin Care $20,669,366, 31%; Oral Care $11,535,751, 17%; Nail Care $5,976,850, 9%; Hair
Care $3,222,375, 5%; and Fragrance and Miscellaneous $1,835,205, 3%; for an aggregate total of
$66,559,487.
While the Company makes every effort to control the cost of manufacturing, it has incurred
substantial freight increases, as well as additional increases in the cost of chemicals, plastic resin and
paper goods. The Company will attempt to pass on these increased costs in the coming year.
Income before taxes was $7,107,528 as compared to $9,374,279 in fiscal 2004. The decrease
in income before taxes was a result of additional returns and reserves incurred from the disappointing
introduction of the new skin care line, the increase in oil, pulp and resin prices, as well as additional
SG&A. Returns, allowances and reserves for all products accounted for costs of $5,706,163 that were
expensed in fiscal 2005 as compared to $3,694,702 in fiscal 2004.
The allowance for doubtful accounts is a combination of specific and general reserve amounts
relating to accounts receivable. The general reserve is calculated based on historical percentages
applied to aged accounts receivable and the specific reserves are established and revised based on
individual customer circumstances. This allowance increased from $111,078 as of November 30,
2004 to $260,366 as of November 30, 2005 (134% increase). The increase is directly attributable to
reserves for specific disputes.
11
The reserve for returns and allowances is based on a reserve for returns equal to its gross profit
on its historical percentage of returns on its last five month sales, and specific reserves based on
individual customer circumstances. This reserve increased from $406,556 as of November 30, 2004 to
$678,346 as of November 30, 2005 (67% increase), primarily from possible increases in returns of the
new skin care line.
The reserve for inventory obsolescence is based on a detailed analysis of inventory movement.
There was a minimal decrease in the reserve for inventory obsolescence from $871,488 as of
November 30, 2004 to $854,764 as of November 30, 2005 (3% decrease).
In accordance with GAAP, the Company reclassified certain advertising expenditures as a
reduction of sales rather than report them as advertising expenses. This reclassification is the adoption
by the Company of the EITF 00-14 GAAP standard. The reclassification reflects a reduction in the
sales for the fiscal years ended November 30, 2005 and 2004 by $2,203,917 and $2,005,596
respectively. The reclassification reduces the gross profit margin but does not affect the net income.
For the year ended November 30, 2005, the Company had revenues of $ 63,721,326, net
income of $3,785,502 after a provision of $3,322,026 for taxes. For year ended November 30, 2004,
the Company had revenues of $61,517,758, net income of $5,796,663 after a provision of $3,577,616
for taxes. Fully diluted earnings per share for fiscal 2005 were $0.52, compared to $0.75 in fiscal
2004. The increase in the effective tax rate for the year was due to the increase in the reserves and
other non-deductible tax items as a percentage of the lower book net income.
For fiscal 2005, advertising, cooperative and promotional expenses were $12,706,771 as
compared to $13,118,784 in the same period last year. Advertising expenses were 20.1 % of sales for
the current fiscal year versus 21.6 % last fiscal year. The reduction in advertising expense was due to
the change in the overall budget for the year and the specific reduction of the planned advertising on
our unsuccessful launch of the new skin care line.
SG&A expenses increased from $17,577,032 in fiscal 2004 to $20,548,971 in fiscal 2005. The
increases include freight-out of $789,037, which was due to the increase in sales, the increase in oil
prices, and the expedited delivery costs for the introduction of the new skin care product line. To
promote sales, the Company offered IRC coupons on certain SKUs which increased expenses by
$169,415. IRC coupons are an “instant off” coupon placed on product at retail. Additionally, royalty
expenses increased by $162,535, health insurance costs $58,994 and rent expenses partly due to the
addition of a satellite warehouse increased $148,154.
At year’s end, there was approximately $2,079,000 of open co-op commitments, of which
$32,000 is from 2003, $248,000 from 2004 and $1,799,000 for the current fiscal year. For fiscal 2004,
there was approximately $1,413,000 of open co-op commitments, of which $46,000 was from 2003
and $1,367,000 was from the 2004 fiscal year. The Company’s total co-op commitment increased
from $5,500,000 in fiscal 2004 to $6,000,000 in fiscal 2005 (9% increase). The increase in the total
co-op commitment was in part to offset the reduction in media advertising. Co-op is advertising that is
run by retailers in which the Company shares in part of the cost. If it becomes apparent that this co-op
was not utilized, the unclaimed co-op will be offset against the expense during the fiscal year in which
it is determined that it did not run. This procedure is consistent with the prior year’s methodology
with regard to the accrual of unsupported co-op commitments.
12
Comparison of Results for Fiscal Years 2004 and 2003
The Company’s revenues increased from $54,736,751 in fiscal 2003 to $61,517,758 in the
fiscal 2004. Gross profit margins remained at 66%. Net income was $5,796,663 as compared to
$5,252,131 in fiscal 2003. 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, 2004 and 2003 by
$2,005,596 and $1,760,308, respectively. The reclassification reduces the gross profit margin but does
not affect the net income.
For the 2004 fiscal year, advertising, cooperative and promotional allowance expenditures
were $13,118,784 as compared to $10,328,695 in fiscal 2003. Advertising expenditures were 21.6%
of sales vs. 19.1% last year. SG&A expenses increased 5% to $17,577,032 from $16,753,269 in 2003.
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 increased to 9.2% of gross sales
from 8.5% last year. Research and development expenses decreased to $876,665 from $884,425.
During fiscal 2004, a major drug chain entered into an agreement to be acquired by another
major drug chain. The decrease in their orders caused revenue to decrease approximately $1,563,000
from the prior year.
On November 26, 2004, the Company sold 1,125 shares of K-Mart Holding Corp, (the shares
received in distribution in the K-Mart Chapter 11 proceedings) in the gross amount of $159,483.
Liquidity and Capital Resources
As of November 30, 2005, the Company had working capital of $18,602,107 as compared to
$13,562,389 at November 30, 2004. The ratio of total current assets to current liabilities is 3.0 to 1 as
compared to a ratio of 2.7 to 1 for the prior year. On October 5, 2004, the working capital and the
current ratio in 2004 was reduced by the Company’s purchase of an aggregate of 500,000 shares of the
Company’s common stock at $8.99 per share from officers/directors, David Edell and Ira W. Berman
respectively. Stockholders’ equity increased to $25,999,656 from $23,522,047 primarily due to the
income from operations.
The Company’s cash position and short-term investments at year-end were $10,586,568, up
from $5,094,968 as at November 30, 2004. The Company paid cash dividends in fiscal 2005 in the
amount of $1,059,277, representing the dividends declared at the end of fiscal 2004 but not paid until
fiscal 2005 of $483,426 and $575,848 in dividends declared and paid for fiscal 2005. As of November
30, 2005 there were dividends declared but not paid of $575,560. The company’s increase in its cash
and short-term investment position was due partly to the conversion of roughly $4,500,000 of long-
term (due in excess of one year) securities to short-term (due in less than one year). The cash
generated by profits was offset by the repurchase of the company’s outstanding debentures, the
payment of dividends and the purchase of certain assets. The reclassification of the $4,500,000 of
long-term securities to short-term securities was also more than offset by the purchase of new long-
term securities. The securities the company purchased are all of an investment grade rating of Triple
A. Because of the rating of the securities purchased, the company believes that there is very little risk
13
with regard to the investments since, although they are all classified as “Available for Sale Securities”,
the Company could hold them all to maturity and realize their full value. Our investments are spread
among many different Obligors and Municipalities to decrease the risk due to any specific
concentrations.
The Company’s investment in property and equipment consisted mostly of new computer
hardware and software, additional racking for our expanded warehouse facilities, and furniture to
accommodate our personnel. The increase in our intangible assets consisted of the costs of certain
additional patents and trademarks obtained.
Inventories were $6,554,150 and $6,048,000, in 2005 and 2004 respectively, and accounts
receivable were $9,260,399 and $8,677,984. The increase in inventory was due to a proportional
increase in our core product sales plus additional inventory on hand due to the slower than expected
sales of the newly launched skin care line in January 2005. Current liabilities are $9,309,652 and
$8,023,805, in 2005 and 2004 respectively. The increase in liabilities was due mostly to the increase in
the amount of the accruals for co-op advertising, refunds for returns, and for bonuses as of the end of
the year. At year-end, the Company had long and short-term triple A investments and cash of
$16,861,958 as compared to $13,947,166 in 2004. As of November 30, 2005, 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.
The Company does not have any products that 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’.
The Company plans to continue to promote its sales through an advertising program consisting
of a combination of media and coop advertising. We continue to invest money into research and
development to build our core products to become leaders in their respective categories. We are trying
to decrease the amount of “on hand” inventory we stock however to better service our customers we
often find it difficult to reduce our “safety stock”. We continue to evaluate our sales staff and to try to
attract aggressive salespeople to increase the distribution of our current product line. We are also
continuing to look for additional businesses or product lines which we think will help the company to
grow and are also reviewing possible acquisitions or any other offers which we feel will enhance
shareholders’ value.
Because our products are sold to retail stores (throughout the United States and, in small part,
14
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, unless the
Company 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, 2005. Such obligations include the current lease for the Company’s
premises, written employment contracts and License Agreements.
2006
600,759
Lease on Premises (1)
606,000
Royalty Expense (2)
Employment Contracts (3) 2,294,959
Open Purchase Orders
2,880,100
Total Contractual Obligations 6,381,818
2007
537,933
606,000
2,401,156
2008
497,684
606,000
2,513,726
2009
471,318
606,000
2,633,049
2010
471,684
606,000
2,759,532
3,545,089
3,617,410
3,710,367
3,837,216
(1) The major 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 2005 was $189,776. The figures above do not include adjustments for
the CPI. The lease has an annual CPI adjustment, not to cumulatively exceed 15% in any
consecutive five year period. These figures assume an extension of the major lease to 2010. The
Lodi lease requires a yearly rental of $91,000 plus CAM. The lease is a 12-month lease which
commenced in May 2005. The Company is negotiating to renew the lease until May 2007.
(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 minimum requirements to maintain the licenses under
the various contracts for the licensed products based on fiscal 2005 sales. Royalty expense
includes Alleghany Pharmacal, Solar Sense, Nail Consultants, Tea-Guard, Inc., Stephen Hsu, PhD,
and Denise Austin.
(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%
increase, 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
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
15
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. In fiscal 2005, Drew Edell’s salary
was increased to $250,000. Dunnan Edell is a director and during fiscal 2003 was appointed
President of the Company and Chief Operating Officer. Drew Edell is the Vice President of
Research, and Product Development. On February 10, 2006, the Board of Directors extended the
employment contracts for Dunnan Edell and Drew Edell to December 31, 2010.
Recent Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No.
46R, “Consolidation of Variable Interest Entities (“FIN 46R”), which supercedes Interpretation No.
46, “Consolidation of Variable Interest Entities” issued in January 2003. FIN 46R requires a company
to consolidate a variable interest entity (“VIE”), as defined, when the company will absorb a majority
of the VIE’s expected losses, receives a majority of the VIE’s expected residual returns or both. FIN
46R also requires consolidation of existing, non-controlled affiliates if the VIE is unable to finance its
operations without investor support, or where the other investors do not have exposure to the
significant risks and rewards of ownership. FIN 46R applies immediately to a VIE created or acquired
after January 31, 2003. For a VIE created before February 1, 2003, FIN 46R applies in the first fiscal
year or interim period beginning after March 15, 2004. Application of FIN 46R is also required in
financial statements that have interests in structures that are commonly referred to as special-purpose
entities for periods ending after December 15, 2003. The adoption of FIN 46R did not have a material
impact on our financial position, results of operations or cash flow.
In November 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 151,
“Inventory Costs” (“SFAS 151”). SFAS 151 amends the guidance in Accounting Research Bulletin
No. 43, Chapter 4, “Inventory Pricing”, to clarify that abnormal amounts of idle facility expense,
freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges
and requires the allocation of fixed production overheads to inventory based on normal capacity of
production facilities. This statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The adoption of SFAS 151 is not expected to have an impact on our
financial position, results of operations or cash flows.
In November 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 03-13,
“Applying the Conditions in Paragraph 42 of FASB Statement No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets” in Determining Whether to Report Discontinued
Operations” (“EITF 03-13”). Under the consensus, the approach for assessing whether cash flows of
the component have been eliminated from the ongoing operations of the entity focuses on whether
continuing cash flows are direct or indirect cash flows. The consensus should be applied to a
component of an enterprise that is either disposed of or classified as held for sale in fiscal periods
beginning after December 15, 2004. The adoption of EITF 03-13 did not have an impact on our
financial position, results of operations or cash flows.
In December 2004, the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets” (“SFAS 153”).
SFAS 153 amends the guidance in APB Opinion No. 29, “Accounting for Nonmonetary
Transactions” to eliminate certain exceptions to the principle that exchanges of nonmonetary assets be
measured based on the fair value of the assets exchanged. SFAS 153 eliminates the exception for
nonmonetary exchanges of similar productive assets and replaces it with a general exception for
16
exchanges of nonmonetary assets that do not have commercial substance. This statement is effective
for nonmonetary asset exchanges in fiscal years beginning after June 15, 2005. The adoption of SFAS
153 is not expected to have an impact on our financial position, results of operations or cash flows.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, “(“SFAS
154”). SFAS No. 154 replaced APB No. 20, “Accounting Changes” and SFAS No. 3, “Reporting
Accounting Changes in Interim Financial Statements” and establishes retrospective application as the
required method for reporting a change in accounting.
In December 2004, the FASB issued SFAS 123R which replaces SFAS 123 and supersedes APB 25.
Under the new standard, companies will no longer be allowed to account for stock-based
compensation transactions using the intrinsic value method in accordance with APB 25. Instead,
companies will be required to account for such transactions using a fair value method and to recognize
the expense in the statement of operations. The adoption of SFAS 123R will require additional
accounting related to the income tax effects of share-based payment arrangements and additional
disclosure of their cash flow impacts. SFAS 123R also allows, but does not require companies to
restate prior periods. In April 2005, the SEC issued a final rule that amended the effective date to the
first annual reporting period that begins after December 15, 2005 (the Company’s first quarter ending
February 28, 2007). The impact of adoption is not anticipated to be material to our financial position,
results of operations or cash flow.
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 food and 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. All of the Company’s products have independent competition and must be able to
compete in order to maintain its position on the retail merchandisers’ shelves. {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 of our customers’ orders.
17
There is No Assurance That The Business Will Continue to Operate Profitably.
In Fiscal 2005, net sales were $63,148,417. Almost all of the products were able to maintain
the projected gross profit margins. Net income was $3,785,502. The Company’s new skin care
product line, “Skin Fit For Life,” did not sell as well as the Company had anticipated. The Company
had returns of $ 1,803,794 which provides additional reserves of $937,671 against future returns.
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. Currently, there are two
remaining cases. One case in Pennsylvania is in the process of being dismissed. The other case
pending in Louisiana is fully insured and is being defended by the Company’s insurance carrier. All
of the other cases have been dismissed with prejudice. As previously advised, it is independent
counsel’s opinion that the Company has a defensible position in the two 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 as 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
and it relies upon the creativity and marketing skills of management.
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). $151,649 of the Company’s $13,325,415 portfolio of investments ( as at Nov. 30, 2005) is
invested in the ”Common Stock” and “Other Equity” category, and $792,568 are invested in 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.
18
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, 2005 and 2004:
Fiscal 2005
Feb. 28
May 31
Aug. 31
Nov. 30
Three Months Ended
Net Sales
Total Revenue
Cost of Products Sold
Net Income
Earnings Per Share:
Basic
Diluted
$14,688,237 $18,492,442 $15,064,845 $14,902,893
14,814,188
5,445,359
944,830
15,224,890 15,066,195
18,616,053
6,202,605
5,661,245 5,054,444
1,750,656 ( 390,834) 1,480,850
$.13
$.13
$.25
$.24
($.05) $.21
($.05) $.20
Fiscal 2004
Feb. 28
May 31
Aug. 31
Nov. 30
Three Months Ended
Net Sales
Total Revenue
Cost of Products Sold
Net Income
Earnings Per Share:
Basic
Diluted
$12,929,465 $18,143,645 $16,535,940 $13,058,512
13,087,488
4,849,247
836,142
18,339,247
5,852,863
2,798,203
16,696,391 13,394,632
5,413,461 4,405,286
1,457,230 705,088
$.11
.11
$.38
.36
$.19 $.10
.19 .09
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, 2005.
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) pursuant to preliminary evaluations that the
19
Company believes will materially affect, or are reasonably likely to materially affect, internal control
over financial reporting.
Under Act 404, The Company’s fiscal 2007 annual report is required to be accompanied by a
“Section 404 Formal Report” by management on the effectiveness of internal controls over financial
reporting. Management has commenced preparing a report and reviewing the internal controls in each
of the Company’s departments. The Company’s independent accounting firm is meeting with the
Company to review the internal controls’ effectiveness in each department. The filing of the
Company’s November 30, 2007 must contain an opinion by the Company’s independent accounting
firm on the effectiveness of the Company’s internal controls. The Company’s officers are currently
working to evaluate and confirm that the Company’s automated data processing software systems and
other procedures are effective and that the information created by the Company’s systems adequately
confirm the validity of the information upon which the Company relies.
The Company is continuing to take a thorough review of the effectiveness of its internal
controls and procedures, including financial reporting. It is working to strengthen all of its procedures
wherever necessary.
The Company’s preliminary review has not identified or required any changes over its internal
controls that have materially affected, or are reasonably likely to materially affect internal controls
over financial reporting.
20
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 and Chief Financial Officer. You can find our code
of ethics in Exhibit 14.
The Executive Officers and Directors of the Company are as follows:
NAME POSITION
COMPANY SERVICE
YEAR OF FIRST
David Edell
Ira W. Berman
Chief
Executive Officer,
Director
Chairman of the Board
of Directors, Secretary,
Executive Vice President
Dunnan Edell
President, Chief Operating Officer
and Director
1983
1983
1984
Stephen Heit
Executive Vice President of Operations 2005
Drew Edell
Vice President-
Product Development and Production 1983
John Bingman
Chief Financial Officer
Stanley Kreitman
Director
Jack Polak
Director
Robert Lage
Director
Gio Batta Gori, PhD Director
1986
1996
1983
2003
2004
David Edell, age 73, 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.
Ira W. Berman, age 74, 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 50 year-old son of David Edell. He is a graduate of George Washington
21
University. He has been a director since 1994, and in fiscal 2003, he was promoted to position of
President of the Company and Chief Operating Officer. 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.
Stephen Heit, age 51 joined CCA in May 2005 as Executive Vice President – Operations.
Prior to that he was Vice President – Business Strategies for Del Laboratories, Inc., a consumer
products company that was listed on the American stock exchange, from 2003 to 2005. Mr. Heit
served as President of AM Cosmetics, Inc. from 2001 to 2003, as Chief Financial Officer from 1998 to
2003, and Corporate Secretary to the Board of Directors from 1999 to 2003. From 1986 to 1997 he
was the Chief Financial Officer of Pavion Limited, and also served on the Board of Directors. He
also served as a Director of Loeb House, Inc., a non-profit organization serving mentally handicapped
adults from 1987 to 1995, and Director of Nyack Hospital Foundation from 1993 to 1995. He
received a Bachelor of Science from Dominican College in 1976, with additional graduate work in
Professional Accounting at Fordham University from 1976 – 1978.
Drew Edell, the 48 year-old son of David Edell, is a graduate of Pratt Institute, where he
received a Bachelor's degree in Industrial Design. He joined the Company in 1983, and in 1985, he
was appointed Vice President of Product Development and Production.
John Bingman, age 54, 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 93, 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 Federation of Certified Tax
Consultants. 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.” On May 23, 2004, Hofstra University in Long Island, NY awarded him with an
honorary doctorate in humane letters.
Stanley Kreitman, age 73 has been Vice Chairman of Manhattan Associates an equity
investment firm since 1994. He is a director of Medallion Financial Corp. (NASDAQ), Capital Lease
Financial Corp.(NYSE), KSW Corp., Geneva Mortgage Corp., and Century Bank. He also serves as
Chairman of the New York City Board of Corrections, Nassau County Crime Stoppers, and serves on
the board of the Police Athletic League. From 1975 to 1993 he was President of United States
Banknote Corp.(NYSE) a securities printer.
Robert Lage, age 69, 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.
Gio Batta Gori, PhD, 75, was elected as a director in June of 2004. He is president of the
Health Policy Center, Bethesda, Maryland, a consulting group in toxicology, epidemiology, nutrition,
and related scientific, industrial, and regulatory issues. Advisor to major corporations worldwide, his
previous experiences include directing the Franklin Institute Policy Analysis Center, and executive
positions at the National Cancer Institute as Deputy Director of the Division of Cancer Causes and
Prevention, Director of the Smoking and Health Program, Director of the Diet, Nutrition and Cancer
22
Program. He held earlier positions in the pharmaceutical and biologics industry, and in academia.
Recipient of the U.S. Department of Health Education and Welfare Superior Service Award, he is
active in toxicology, carcinogenesis, nutrition, tobacco, and environmental issues. He has been a two-
term President of the International Society of Regulatory Toxicology and Pharmacology, is a member
of scientific societies, fellow of the Academy of Toxicological Sciences, funding and former editor of
the journal Nutrition and Cancer, and editor of the journal Regulatory Toxicology and Pharmacology.
Item 11. EXECUTIVE COMPENSATION
i. Summary Compensation Table
The following table summarizes compensation earned in the 2005, 2004 and 2003 fiscal years
by all of the executive officers whose fiscal 2005 compensation exceeded $100,000, including the
Chief Executive Officer (the "Named Officers").
Annual Compensation Long-Term Compensation
Number
of Shares
All
Covered Other
Other
by Stock Long-Term
Annual
Compen-
Options Compen-
sation(1) Granted(2) sation
Year
Salary
Bonus
2005
2004
2003
$695,738
656,357
619,205
$510,857
573,543
459,240
$40,752
38,294
39,476
-
-
-
Name and
Principal
Position
David Edell,
Chief
Executive
Officer
Ira W. Berman,
Secretary and
Executive
Vice President
2005
2004
2003
$695,738
656,357
619,205
$510,857
573,543
459,240
$30,256
24,739
29,499
-
-
-
Dunnan Edell,
2005
President, Chief 2004
Operating Officer
$300,000
312,692
2003 282,692
$ 120,000
95,000
50,000
$12,317
5,305
1,931
-
-
-
2005(3)
$110,000
$ 15,000
$ 3,721
-
Stephen Heit
Executive
Vice President,
Operations
23
0
0
0
0
0
0
0
0
0
0
Drew Edell
Vice President
Product
Development and
Production
2005
2004
2003
2005
John Bingman
Chief Financial 2004
2003
Officer
Joel Last
Vice President
Sales
2005
2004
2003
$243,269
222,596
200,000
$ 60,000
50,000
25,000
$ 8,867
1,951
5,081
-
-
-
$111,980
111,980
105,128
$171,838
167,077
160,000
$ 45,000
40,000
25,000
$ 50,881
40,900
32,000
$ 1,587
1,005
2,696
$ 6,020
185
4,833
-
-
-
-
-
-
0
0
0
0
0
0
0
0
0
-------------------------
(1) Includes the personal-use value of Company-leased automobiles, the value of Company-provided
life insurance, and health insurance that is made available to all employees.
(2) Information in respect of stock option plans appears below in the sub-topic, Employment
Contracts/Executive Compensation Program.
(3) Mr. Heit commenced employment on May 1, 2005.
ii. Fiscal 2005 Option Grants and Option Exercises,
Year-End Option Valuation, Option Repricing
No new options were issued to the Named Officers in fiscal 2005.
The next table identifies 2005 fiscal-year option exercises by Named Officers and Directors,
and reports a valuation of their options.
Number of
Shares
Acquired Value
On Exercise Realized (1) at December 1, 2005
Number of Shares
Covered by Un-
Value of Unexercised
exercised Options In-the-Money Options
at December 1, 2005
65,000 $705,700
David Edell
Ira W. Berman 59,000 $651,700
Dunnan Edell
Drew Edell
Jack Polak
John Bingman
--------------------
-
-
-
-
-
-
-
-
47,500
53,000
90,000
15,000
25,000
10,000
$ 175,050
217,840
583,500
-
194,500
-
(1) Represents the difference between market price and the respective exercise prices of options as
of the exercise date. The market price at December 1, 2005 was $8.28.
Repriced Options
The following table identifies the stock options held by the Named Officers and all other officers
24
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)
Ira W. Berman (1)
Dunnan Edell (1)
Drew Edell (1)
Stanley Kreitman (1) 25,000
25,000
Jack Polak (1)
25,000
Dunnan Edell (1)(2)
25,000
Drew Edell (1)(2)
-------------------
100,000 Aug. 1, 1997
Aug. 1, 1997
100,000
Aug. 1, 1997
50,000
$2.50 May 24, 2001
2.50 May 24, 2001
2.50 May 24, 2001
$.50
.50
.50
50,000
Aug. 1, 1997
2.50 May 24, 2001
.50
2.50 May 24, 2001
Aug. 1, 1997
Aug. 1, 1997
2.50 May 24, 2001
Jun. 10, 1995 4.50 May 24, 2001
Jun. 10, 1995 4.50 May 24, 2001
.50
.50
.50
.50
(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 between $2,500 and $5,000 per meeting for attendance of board
meetings in fiscal 2005 (without additional compensation for committee meetings). Mr. Lage received
an additional $30,000 as chairman of the audit committee. The full Board of Directors met five times
in fiscal 2005.
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
25
Committee of the Board of Directors, comprised of Stanley Kreitman, Jack Polak and Robert Lage,
which met four times in fiscal 2005, has established a program to:
(cid:31) Reward executives for long-term strategic management and the enhancement of
shareholder value.
(cid:31)
(cid:31)
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, 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 2004 fiscal year.
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% increase 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. On February
10, 2006, the Board of Directors extended the contracts for Dunnan Edell and Drew Edell to December
26
31, 2010 (See Item 11, Summary Comprehensive Table). Dunnan Edell is a director and President of
the Company. Drew Edell is the Vice President of Product Development and Production. 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 and in 2005, it was increased to $250,000.
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 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.
27
On June 15, 2005, the shareholders approved an amended and Restated Stock Option Plan amending
the 2003 Stock Option Plan.
The Plan provides that the stock option committee may make awards in the form of (a)
incentive stock options, (b) non-qualified stock options, (c) stock appreciation rights, (d) restricted
stock, and (e) performance shares.
No new awards were made by the committee in fiscal 2005.
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, 2005, 285,500 stock options, yet exercisable, to purchase 285,500 shares of
the Company's Common Stock, were outstanding.
The Company has adopted Stock Appreciation Rights incentives and Restricted Stock grants in
the 2005 Amended Stock Option Plan. No such grants were issued in fiscal 2005. All of the terms
and conditions of the Plan were included in the June 15, 2005 Proxy, which Plan was approved by the
shareholders at the annual meeting. The Proxy is incorporated by reference to this 10K Annual
Report.
28
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 TMI/Personal Products Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CCA INDUSTRIES, INC., THE DOW JONES US TOTAL MARKET INDEX
AND THE DOW JONES US PERSONAL PRODUCTS INDEX
D
O
L
L
A
R
S
1800
1600
1400
1200
1000
800
600
400
200
0
11/00
11/01
11/02
11/03
11/04
11/05
* $100 invested on 11/30/00 in stock or index-including reinvestment of dividends.
Fiscal year ending November 30.
CCA Industries -ASE
CCA INDUSTRIES, INC.
DOW JONES US TOTAL MARKET
DOW JONES US PERSONAL PRODUCTS
11/00
100.00
100.00
100.00
Cumulative Total Return
11/03
1069.79
87.01
106.99
11/02
240.68
73.94
92.87
11/01
187.81
88.29
98.82
11/04
1624.54
98.55
119.93
11/05
1240.82
108.41
132.33
29
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial ownership of the Company's
Common Stock and/or Class A Common Stock as of November 30, 2005 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.
Number of
Name and Address
Shares Owned (1):
Common
Stock Class A (2)
Ownership, As A
Percentage of
All Shares Out-
“Option Standing/Assuming
Shares” (1) Option Share Exercise (1)
David Edell
c/o CCA Industries, Inc.
200 Murray Hill Parkway
East Rutherford, NJ 07073
Ira W. Berman
c/o CCA Industries, Inc.
225,359
484,615
47,500
9.9%
10.5%
234,089
483,087
53,000
10.0%
10.6%
Luxor Capital Partners, LP (3)
551 Fifth Avenue
New York, NY 10176
359,477
Alexander Enterprise Holdings Inc. (4)
1114 Ave of the Americas
310,800
New York, NY 10036
-
-
-
4.3%
4.3%
-
4.3%
4.3%
Jack Polak
195 Beach Street
Eastchester, NY 10709
Stanley Kreitman
c/o CCA Industries, Inc.
Dunnan Edell
c/o CCA Industries, Inc.
Robert Lage
72 Cypress Point Lane
Jackson, NJ 08527
28,254
-
25,000
.4%
.7%
24,392
-
-
.3%
.3%
42,075
-
90,000
.6%
1.8%
-
-
-
-
-
30
Drew Edell
c/o CCA Industries, Inc.
John Bingman
c/o CCA Industries, Inc.
Officers and Directors
as a group (10 persons)
_______________________
123,108
-
15,000
1.7% 1.9%
-
-
10,000
0%
.1%
1,347,554
967,702
240,500
(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 and Ira Berman own 100% of the outstanding shares of Class A Common Stock.
Messrs. David Edell, Dunnan Edell, and Ira Berman are officers and directors. Messrs. John Bingman
and Drew Edell is an officer. Messrs. Lage, Kreitman and Polak are independent, outside directors.
(3) Luxor Capital Group is the investment manager of the Onshore Fund and the Offshore Fund.
Luxor Management is the general partner of Luxor Capital Group. Mr. Leone is the managing
member of Luxor Management. The principle business of the Onshore Fund and Offshore Fund is that
of a private investment fund engaged in the purchase and sale pf securities for its own account. The
principle business of Luxor Capital Group is providing investment management services. The
principle business of Luxor Management is serving as the general partner of Luxor capital Group. The
principle business of LCG Holdings is serving as the general partner or managing member of the
Onshore Fund and other private investment funds.
(4) Alexander Enterprise Holdings Corp. is a British Virgin Island corporation, a wholly owned
subsidiary of Berggruen Holdings Ltd, a British Virgin Islands corporation. All of the shares of
Berggruen Holdings Ltd. are owned by Terragona Trust, a British Virgin Island trust. The trustee of
Terragona Trust is Maitland Trustees Limited, a British Virgin Island corporation.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 2005, several related parties provided services to the Company, which were
deemed immaterial to the financial statements.
On October 3, 2004, the Company repurchased 500,000 shares of the Company’s common
stock, 250,000 shares each from David Edell and Ira W. Berman at a price of $8.99.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
31
KGS LLP (“KGS”) (formerly known as Sheft Kahn & Company LLP) served as the
Company’s independent auditors for 2005 and 2004. The services performed by KGS 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
KGS’s fees for professional services rendered in connection with the audit and review of
Forms 10-K and all other SEC regulatory filings were $227,803 for the 2005 fiscal year and $162,178
for the 2004 fiscal year. The Company has paid and is current on all billed fees.
Audit Related Fees
Audit related fees billed in Fiscal 2005 and 2004 by KGS were $39,012 and $3,265,
respectively. Audit related fees consist primarily of fees billed for professional services rendered
by KGS for accounting consultations and services related to business acquisitions and dispositions,
responses to SEC correspondence, and readiness consultations for Section 404 of the Sarbanes
Oxley Act of 2002.
Tax Fees
KGS’s fees for professional services rendered in connection with Federal and State tax return
preparation and other tax matters for the 2005 and 2004 fiscal years were $51,235 and $41,181,
respectively.
All Other Fees
All other fees of $724 and $565 billed in Fiscal years 2005 and 2004, respectively,
represent fees for miscellaneous services other than those described above.
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.
32
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 KGS LLP, formerly known as 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.
33
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, 2005 and 2004, Consolidated Statements of Income (Loss) for the years ended
November 30, 2005, 2004 and 2003, Consolidated Statements of Comprehensive Income
(Loss), Consolidated Statements of Shareholders' Equity for the years ended November 30,
2005, 2004 and 2003, Consolidated Statements of Cash Flows for the years ended November
30, 2005, 2004 and 2003, Notes to Consolidated Financial Statements.
Financial Statement Schedules:
Schedule II: Valuation Accounts; Years Ended Nov. 30, 2005, 2004 and 2003. The remaining
financial statement schedules have been omitted since they are not required to be filed.
Exhibits:
(1)
(3)
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 incorporated by reference to the filing of such documents with the Schedule TO
filed with the SEC, on June 5, 2001.
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).
(10.1) 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.
(10.2) 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). The May 29, 2001 Amended and Restated Employment Agreements of
David Edell and Ira Berman are incorporated by reference herein.
Previously filed as an exhibit to an incorporated by reference from the indicated report filed
with the Securities and Exchange Commission:
(1) The Forms 8K, filed on May 22, 2002 and November 20, 2002, are incorporated by
reference to this 2005 10K. Three 8Ks are referenced, October 29, 2003, November 24,
2003 and December 11, 2003. Three additional 8Ks are referenced, one on April 7, 2004,
one on August 3, 2004 and the last on October 6, 2004.
34
(2) Forms 8K filed on April 11, 2005, June 27, 2005, and July 15, 2005 are incorporated by
reference to this 10K
(3) The Company’s 2003 Stock Option Plan was filed with the 2003 Proxy and is incorporated
by reference to this 10K.
(4) The Company’s 2005 Amended and Restated Stock Option Plan and the 2005 Proxy are
incorporated by reference herein.
The following reports were filed with the Securities and Exchange Commission during the
three months ended November 30, 2005:
(1) Form 10Q, filed on October 17, 2005, for the quarter ended August 31, 2005.
(2) Form 8K, filed on October 17, 2005, announcing our news release of October 12, 2005
discussing our third quarter and nine months earnings.
(3) Form 10Q/A, filed on October 17, 2005, amending our third quarter ended August 31,
2005.
(4) Form 10Q/A, filed on November 15, 2005, amending our third quarter ended August 31,
2005.
(5) Form 13D, filed on November 17, 2005 by filing person, purchasing the subject class of
securities at five percent of outstanding stock.
(11) Statement re Per Share Earnings (included in Item 15, Financial Statements)
(14) Code of Ethics for Chief Executive Officer and Senior Financial Officers are referenced
(31.1) Certification of Chief Executive Officer pursuant to Rule 13a-14(a) included herein
(31.2) Certification of Chief Financial Officer pursuant to Rule 13a-14(a) included herein
(32.1) Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350 included herein
(32.2) Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350 included herein
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.,
the Commission’s Internet website
is available at
Washington, D.C. 20549, and one
(http://www.sec.gov).
35
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.
s/
By:
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/ Chief Executive Officer, February 28, 2006
DAVID EDELL
Director
s/ Chairman of the Board
of Directors, Executive
IRA W. BERMAN
Vice President, Secretary
February 28, 2006
s/ President, Chief Operating
DUNNAN EDELL
Officer, Director
February 28, 2006
s/
STEPHEN HEIT
Vice President,
February 28, 2006
Operations
s/ Vice President ,
DREW EDELL
Product Development
February 28, 2006
s/ Chief Financial Officer
JOHN BINGMAN
February 28, 2006
s/ Director
STANLEY KREITMAN
February 28, 2006
s/
ROBERT LAGE
s/
JACK POLAK
Director
February 28, 2006
Director
February 28, 2006
s/
GIO BATTA GORI
Director
February 28, 2006
36
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2005 AND 2004
C O N T E N T S
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ...................... 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 ........................................... 8-34
SUPPLEMENTARY INFORMATION
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS..................................... 35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
CCA Industries, Inc.
East Rutherford, New Jersey
We have audited the consolidated balance sheets of CCA Industries, Inc. and Subsidiaries
as of November 30, 2005 and 2004, 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, 2005. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain 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. 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, 2005 and 2004, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended November 30, 2005, in conformity
with accounting principles generally accepted in the United States of America.
As more fully discussed in Note 16, subsequent to the issuance of the Company’s 2004
financial statements and our report thereon dated January 30, 2005, we became aware that those
financial statements reflected the Company’s issuance of a stock dividend as if it was a stock
split. In our original report, we expressed an unqualified opinion on the 2004 financial
statements, and our opinion on the revised statements, as expressed herein, remains unqualified.
Our audit was conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule titled “Schedule II – Valuation and Qualifying
Accounts” is presented for purposes of additional analysis and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, is fairly stated in all material respects
in relation to the basic financial statements taken as a whole.
KGS LLP
CERTIFIED PUBLIC ACCOUNTANTS
February 3, 2006
Jericho, New York
-1-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
Current Assets
Cash and cash equivalents (Note 14)
Short-term investments and marketable
securities (Notes 2 and 6)
Accounts receivable, net of allowances of
$938,712 and $517,634, respectively (Note 2)
Inventories (Notes 2 and 3)
Prepaid expenses and sundry receivables
Prepaid income taxes and refunds due (Note 8)
Deferred income taxes (Note 8)
November 30,
2005
2004
$ 3,536,542
$ 3,142,230
7,050,026
1,952,738
9,260,399
6,554,150
526,134
165,560
818,948
8,677,984
6,048,000
695,653
418,651
650,938
Total Current Assets
27,911,759
21,586,194
Property and Equipment, net of accumulated
depreciation and amortization
(Notes 2 and 4)
Intangible Assets, net of accumulated
amortization (Notes 2 and 5)
Other Assets
Marketable securities (Notes 2 and 6)
Deferred income taxes (Note 8)
Other
Total Other Assets
Total Assets
467,238
569,745
583,177
511,029
6,275,390
23,419
48,325
8,852,198
-
37,411
6,347,134
8,889,609
$35,309,308
$31,556,577
See Notes to Consolidated Financial Statements.
-2-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued
liabilities (Note 10)
Income tax payable
Dividends payable
Subordinated debentures (Note 7)
November 30,
2005
2004
$ 8,734,092
-
575,560
-
$ 6,982,835
59,888
483,426
497,656
Total Current Liabilities
9,309,652
8,023,805
Deferred Income Taxes (Note 8)
-
10,725
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 6,212,055 and
6,153,503 shares, respectively
Class A common stock, $.01 par; authorized
5,000,000 shares; issued and outstanding
967,702 and 977,394 shares, respectively
Additional paid-in capital
Retained earnings
Unrealized (losses) on marketable securities
Less: Treasury Stock
86,703 shares, at cost
-
-
62,121
61,535
9,677
5,105,732
21,200,465
( 378,339)
25,999,656
9,774
5,094,660
18,734,693
( 228,944)
23,671,718
-
149,671
Total Shareholders' Equity
25,999,656
23,522,047
Total Liabilities and Shareholders' Equity
$35,309,308
$31,556,577
See Notes to Consolidated Financial Statements.
-3-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended November 30,
2005
2004
2003
Revenues
Sales of health and beauty
aid products, net
Other income
Costs and Expenses
Cost of sales
Selling, general and
administrative expenses
Advertising, cooperative and
promotions
Research and development
Provision for doubtful accounts
Interest expense
$ 63,148,417
572,909
$ 60,667,562
850,196
$ 54,145,480
591,271
63,721,326
61,517,758
54,736,751
22,363,653
20,520,857
18,168,528
20,548,971
17,577,032
16,753,269
12,706,771
772,627
201,864
19,912
13,118,784
876,665
18,675
31,466
10,328,695
884,425
73,537
31,399
Income before Provision
for Income Taxes
56,613,798
52,143,479
46,239,853
7,107,528
9,374,279
8,496,898
Provision for Income Tax
3,322,026
3,577,616
3,244,767
Net Income
$ 3,785,502
$ 5,796,663
$ 5,252,131
Weighted Average Shares
Outstanding
Basic
Diluted
Earnings Per Common Share
(Note 2):
Basic
Diluted
* Adjusted for 2% stock dividend.
7,145,297
7,317,994
7,399,472*
7,680,781*
7,372,232*
7,768,361*
$.53
$.52
$.78*
$.75*
$.71*
$.68*
See Notes to Consolidated Financial Statements.
-4-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended November 30,
2005
2004
2003
Net Income
$3,785,502
$5,796,663
$ 5,252,131
Other Comprehensive Income
(Loss)
Unrealized holding gain (loss)
on investments
( 149,395)
( 133,716)
12,762
Provision (Benefit) for Income Taxes
( 69,767)
( 51,032)
4,874
Other Comprehensive Income
(Loss) - Net
Comprehensive Income
Earnings Per Share:
Basic
Diluted
* Adjusted for 2% stock dividend.
( 79,628)
( 82,684)
7,888
$3,705,874
$5,713,979
$ 5,260,019
$.52
$.51
$.77*
$.74*
$.71*
$.68*
See Notes to Consolidated Financial Statements.
-5-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003
Common Stock (1)
Shares Amount
Additional
Paid-In
Capital
Retained
Earnings
Unrealized
Gain (Loss) on
Marketable Treasury
Securities
Stock
7,562,014
139,889
$75,620
1,399
$3,831,313
( 1,399)
$15,389,415
-
- 5,252,131
- ( 750,005)
($107,990) ($352,935)
-
-
-
-
-
-
-
-
-
-
-
-
- -
7,701,903
131,825
77,019
1,318
-
-
-
-
-
-
12,762
-
- -
19,891,541
3,829,914
3,682
-
- 5,796,663
- ( 5,771)
( 95,228) ( 358,706)
-
-
-
-
-
-
( 133,716)
-
( 192,849)
( 1,928)
38 ( 207,145)
- 209,035
( 510,000)
-
-
7,130,879
137,769
( 5,100)
-
-
71,309
1,378
-
-
-
-
-
-
100 ( 4,490,000)
( 1,260,926)
- ( 995,440)
1,260,926
5,094,660
11,072
18,734,693
-
- 3,785,502
( 1,151,411)
-
-
-
-
-
- -
( 149,671)
( 228,944)
-
-
-
-
-
-
-
-
( 149,395)
-
Balance - November 30, 2002
Issuance of common stock
Net income for the year
Dividends declared
Unrealized gain on marketable
securities
Purchase of 2,958 shares of
treasury stock
Balance - November 30, 2003
Issuance of common stock
Net income for the year
Unrealized (loss) on marketable
securities
Retirement of treasury stock
Purchase and retirement of common
stock
Stock dividend
Dividends declared
Balance - November 30, 2004, as revised
Issuance of common stock
Net income for the year
Dividends declared
Unrealized (loss) on marketable
securities
Purchase of 2,188 shares of common
stock
Retirement of treasury stock
-
( 88,891)
-
-
( 889) -
-
( 168,319)
-
-
( 19,537)
169,208
Balance - November 30, 2005
7,179,757
$71,798
$5,105,732 $21,200,465
($ 378,339) $ -
See Notes to Consolidated Financial Statements.
-6-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization
(Gain) on sale of securities
Loss (gain) on sale or impairment of
intangibles
Decrease (increase) in deferred
income taxes
(Increase) in accounts receivable
(Increase) decrease in inventory
(Increase) decrease in prepaid expenses
and sundry receivables
(Increase) decrease in prepaid income
taxes and refunds due
(Increase) decrease in other assets
Increase in accounts payable and accrued
liabilities
Increase (decrease) in income taxes payable
2005
2004
2003
$3,785,502
$5,796,663
$5,252,131
329,278
-
42,380
( 202,154)
( 582,415)
( 506,150)
307,598
( 143,736)
361,730
( 9,518)
( 9,947)
308,600
( 2,073,002)
( 735,301)
-
333,569
( 339,027)
( 1,569,568)
169,519
( 104,803)
( 227,393)
253,091
( 10,914)
1,751,257
( 59,888)
( 182,031)
1,727
( 234,917)
17,250
1,379,685
59,888
319,041
( 178,690)
Net Cash Provided by Operating
Activities
4,969,506
4,605,341
3,724,608
Cash Flows from Investing Activities:
Acquisition of property and equipment
Acquisition of intangible assets
Purchase of available for sale securities
Proceeds from sale of available for
sales securities
Proceeds from sale of trademark
Net Cash (Used in) Provided by
Investing Activities
Cash Flows from Financing Activities:
Purchase and retirement of common shares
Repurchase of outstanding debentures
Proceeds from exercise of stock options
Purchase of treasury stock
Dividends paid
( 215,066)
( 126,233)
( 4,616,689)
1,946,814
-
( 140,674)
( 27,036)
( 4,249,221)
( 321,446)
( 2,846)
( 9,888,309)
7,078,164
50,000
6,485,792
-
( 3,011,174)
2,711,233
( 3,726,809)
( 19,537)
( 497,656)
12,450
-
( 1,059,277)
( 4,495,000)
-
5,000
-
-
-
( 891,131)
- ( 5,771)
( 370,888)
Net Cash (Used in) Financing Activities
( 1,564,020)
( 5,381,131)
( 376,659)
Net Increase (Decrease) In Cash
394,312
1,935,443
( 378,860)
Cash at Beginning of Year
Cash at End of Year
3,142,230
1,206,787
1,585,647
$3,536,542
$3,142,230
$1,206,787
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest $ 19,912
3,297,371
Income taxes
$ 31,466
3,382,450
$ 31,529
3,322,700
Supplemental Disclosure of Non-Cash
Information:
Dividends declared and accrued
Retirement of 88,891 and 192,849 shares
of treasury stock
See Notes to Consolidated Financial Statements.
$ 575,560
$ 483,426
$ 379,117
$ 169,208
$ 209,035
$ -
-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.
Estimates and Assumptions:
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.
Accounts Receivable
Accounts receivable consist of trade receivables recorded at original invoice amount,
less an estimated allowance for uncollectible amounts. Trade credit is generally
extended on a short term basis; thus trade receivables do not bear interest, although a
finance charge may be applied to receivables that are past due. Trade receivables are
periodically evaluated for collectibility based on past credit history with customers and
their current financial condition. Changes in the estimated collectibility of trade
receivables are recorded in the results of operations for the period in which the
estimate is revised. Trade receivables that are deemed uncollectible are offset against
the allowance for uncollectible accounts. The Company generally does not require
collateral for trade receivables.
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 2003, three officers/shareholders exercised in the aggregate 157,000
options (160,140 as adjusted for the 2% stock dividend) in exchange for 19,854 shares
(20,251 as adjusted for the 2% stock dividend) of previously issued common stock.
During fiscal 2004, five officers/shareholders exercised in the aggregate 138,000
options (140,760 as adjusted for the 2% stock dividend) in exchange for 8,758 shares
(8,933as adjusted for the 2% stock dividend) of previously issued common stock.
During fiscal 2005, three officers/directors exercised in the aggregate 139,000 options,
David Edell - 65,000, Ira Berman - 59,000 and Stanley Kreitman - 15,000. In addition,
5,000 options were exercised by an outside consultant.
For the year ended November 30, 2005, dividends declared but not yet due amounted
to $575,560.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Product returns that are resalable are recorded in inventory when they are received at
the lower of their original cost or market, as appropriate. Obsolete inventory is written
off and its value is removed from inventory at the time its obsolescence is determined.
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. The Company charges to expense repairs
and maintenance items, while major improvements and betterments are capitalized.
When the Company sells or otherwise disposes of property and equipment items, the
cost and related accumulated depreciation are removed from the respective accounts
and any gain or loss is included in earnings.
Depreciation and amortization are provided on the straight-line method over the
following estimated useful lives or lease terms of the assets:
Machinery and equipment
Furniture and fixtures
Tools, dies and masters
Transportation equipment
Leasehold improvements
Intangible Assets:
5-7 Years
3-10 Years
3 Years
5 Years
Remaining life of the lease (ranging
from 1-9 years)
Intangible assets are stated at cost. Patents are amortized on the straight-line method
over a period of 17 years. Such intangible assets are reviewed for potential
impairment whenever events or circumstances indicate that carrying amounts may not
be recoverable.
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.
Sales Incentives
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 2005, 2004 and 2003 would have been $65,352,334,
$62,673,158, and $55,905,788, 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. During the fiscal year, the Company changed its estimate of
future benefits it derives from its advertising expenditures and the affect it has on its
allocations of advertising expenses among the interim quarters. Going forward the
Company will expense its advertising based on when the advertising actually runs.
The Change in estimate affects interim reporting and has no effect on the Company’s
earnings for the year end November 30, 2005.
Shipping Costs:
The Company’s policy for fiscal financial reporting is to charge shipping costs to
operations as incurred. For the years ended November 30, 2005, 2004 and 2003,
included in selling, general and administrative expenses are shipping costs amounting
to $3,601,322, $2,813,479, and $2,668,246, respectively.
Stock Options:
The Company accounts for its stock-based employee compensation under the
recognition and measurement principles of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Under APB No. 25, when the exercise price of stock options equal the
market price of the underlying stock on the date of grant, no compensation expense is
recognized in the consolidated statement of operations.
Recent Accounting Pronouncements:
In December 2003, the Financial Accounting Standards Board (“FASB”) issued
Interpretation No. 46R, “Consolidation of Variable Interest Entities (“FIN 46R”),
which supercedes Interpretation No. 46, “Consolidation of Variable Interest Entities”
issued in January 2003. FIN 46R requires a company to consolidate a variable interest
entity (“VIE”), as defined, when the company will absorb a majority of the VIE’s
expected losses, receives a majority of the VIE’s expected residual returns or both.
FIN 46R also requires consolidation of existing, non-controlled affiliates if the VIE is
unable to finance its operations without investor support, or where the other investors
do not have exposure to the significant risks and rewards of ownership. FIN 46R
applies immediately to a VIE created or acquired after January 31, 2003. For a VIE
created before February 1, 2003, FIN 46R applies in the first fiscal year or interim
period beginning after March 15, 2004. Application of FIN 46R is also required in
financial statements that have interests in structures that are commonly referred to as
special-purpose entities for periods ending after December 15, 2003. The adoption of
FIN 46R did not have a material impact on our financial position, results of operations
or cash flow.
In November 2004, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 151, “Inventory Costs” (“SFAS 151”). SFAS 151 amends the guidance
in Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing”, to clarify that
abnormal amounts of idle facility expense, freight, handling costs and wasted materials
(spoilage) should be recognized as current-period charges and requires the allocation
of fixed production overheads to inventory based on normal capacity of production
facilities. This statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The adoption of SFAS 151 is not expected to have an
impact on our financial position, results of operations or cash flows.
In November 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on
Issue No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No.
144, “Accounting for the Impairment or Disposal of Long-Lived Assets” in
Determining Whether to Report Discontinued Operations” (“EITF 03-13”). Under the
consensus, the approach for assessing whether cash flows of the component have been
eliminated from the ongoing operations of the entity focuses on whether continuing
cash flows are direct or indirect cash flows. The consensus should be applied to a
component of an enterprise that is either disposed of or classified as held for sale in
fiscal periods beginning after December 15, 2004. The adoption of EITF 03-13 did not
have an impact on our financial position, results of operations or cash flows.
-11-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In December 2004, the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets”
(“SFAS 153”). SFAS 153 amends the guidance in APB Opinion No. 29, “Accounting
for Nonmonetary Transactions” to eliminate certain exceptions to the principle that
exchanges of nonmonetary assets be measured based on the fair value of the assets
exchanged. SFAS 153 eliminates the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. This statement is effective
for nonmonetary asset exchanges in fiscal years beginning after June 15, 2005. The
adoption of SFAS 153 is not expected to have an impact on our financial position,
results of operations or cash flows.
In December 2004, the FASB issued SFAS 123R which replaces SFAS 123 and
supersedes APB 25. Under the new standard, companies will no longer be allowed to
account for stock-based compensation transactions using the intrinsic value method in
accordance with APB 25. Instead, companies will be required to account for such
transactions using a fair value method and to recognize the expense in the statement of
operations. The adoption of SFAS 123R will require additional accounting related to
the income tax effects of share-based payment arrangements and additional disclosure
of their cash flow impacts. SFAS 123R also allows, but does not require companies to
restate prior periods. In April 2005, the SEC issued a final rule that amended the
effective date to the first annual reporting period that begins after December 15, 2005
(the Company’s first quarter ending February 28, 2007). The impact of adoption is not
anticipated to be material to our financial position, results of operations or cash flow.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections, “(“SFAS 154”). SFAS No. 154 replaced APB No. 20, “Accounting
Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial
Statements” and establishes retrospective application as the required method for
reporting a change in accounting.
NOTE 3 -
INVENTORIES
At November 30, 2005 and 2004, inventories consist of the following:
Raw materials
Finished goods
2005
2004
$3,946,164
2,607,986
$6,554,150
$3,764,473
2,283,527
$6,048,000
At November 30, 2005and 2004, the Company had a reserve for obsolete inventory of
$854,764 and $871,488, respectively.
NOTE 4 - PROPERTY AND EQUIPMENT
At November 30, 2005 and 2004, property and equipment consisted of the following:
Machinery and equipment
Office furniture and equipment
Transportation equipment
Tools, dies, and masters
Leasehold improvements
Less: Accumulated depreciation
and amortization
Property and Equipment - Net
2005
$ 125,788
793,937
10,918
548,846
294,067
1,773,556
1,306,318
$ 467,238
2004
$ 115,104
708,184
10,918
433,221
291,063
1,558,490
988,745
$ 569,745
Depreciation expense for the years ended November 30, 2005, 2004 and 2003
amounted to $317,573, $299,451, and $313,663, respectively.
-12-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of owned trademarks and patents for ten product lines covering
thirty countries. The cost and accumulated amortization for November 30, 2005 and
2004 is as follows:
Trademarks and patents
Less: Accumulated amortization
Intangible Assets - Net
2005
$741,427
158,250
$583,177
2004
$678,124
167,095
$511,029
Patents are amortized on a straight-line basis over their legal life of 17 years and
trademarks are adjusted to realizable value for each quarterly reporting period.
Amortization expense for the years ended November 30, 2005, 2004 and 2003 amounted
to $11,705, $8,147, and $48,067, respectively. Estimated amortization expense for each
of the ensuing years through November 30, 2010 will remain approximately $12,000.
The Company determined that $42,380 and $40,053 of the net value of certain of its
patents and trademarks had been impaired during fiscal years 2005 and 2004,
respectively, and the corresponding cost and prior amortization were written off.
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, 2005 and November 30, 2004 were as follows:
November 30,
2005
November 30,
2004
Current:
COST MARKET
COST MARKET
Corporate obligations
Government obligations
(including mortgage
backed securities)
Common stock
Mutual funds
Other equity
$ 4,169,918 $ 4,080,882 $ 1,475,000 $ 1,470,690
2,732,192
51,649
198,305
60,335
2,726,444
52,368
136,191
54,141
296,814
51,649
188,247
-
297,045
52,656
132,347
-
Total
7,212,399
7,050,026
2,011,710
1,952,738
Non-Current:
Corporate obligations
Government obli-
gations
Preferred stock
Other equity
investments
Total
Total
3,040,192
2,926,098
5,546,097
5,446,625
2,526,319
824,845
2,456,724
792,568
2,751,228
624,845
2,689,721
615,852
100,000
100,000
100,000
100,000
6,491,356
6,275,390
9,022,170
8,852,198
$13,703,755
$13,325,416
$11,033,880 $10,804,936
-13-
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, 2005 was $13,325,416 as compared to $10,804,936 at November 30,
2004. The gross unrealized gains and losses were $13,577 and ($391,896) for November 30, 2005 and
$4,227 and ($233,171) for November 30, 2004. The cost and market values of the investments at
November 30, 2005 were as follows:
COL. A
COL. C
COL. B
COL.D
Number of
Units-Principal
Amount of
Interest Bonds and
Rate Notes
Cost of
Each Issue
Market Of Equity Security
Issues and Each
Value of
Each Issue
Other Security
at Balance Issue Carried in
Balance Sheet
Sheet Date
COL.E
Amount at Which
Each Portfolio
Name of Issuer and
Title of Each Issue
Maturity
Date
CORPORATE OBLIGATIONS:
American Express Co
American General Fin Corp
Banc One Corp Global Notes
Bank of America Corp
Bank of America Corp
Bank of America Corp
Bear Stearns
Bear Stearns
BP Capital Markets
BP Capital Markets
Caterpillar Finl Svcs Corp
CIT Group Inc.
CITGROUP Global Markets
CITGROUP Global Markets
Ford Motor Credit
GE Capital Corp Internotes
GE Capital Corp Internotes
GE Capital Corp Internotes
GE Capital Corp Internotes
11/20/07
09/15/06
06/30/08
01/15/08
01/15/08
08/15/08
03/30/06
02/15/07
12/29/06
12/29/06
09/15/06
01/15/06
03/15/07
03/15/07
10/20/06
10/15/06
02/15/07
02/15/06
07/15/06
3.750%
2.500%
2.625%
3.875%
3.875%
3.250%
3.000%
2.650%
2.750%
2.750%
2.350%
4.000%
2.350%
3.750%
4.250%
2.250%
2.500%
2.450%
2.150%
100,000
100,000
125,000
200,000
50,000
200,000
200,000
100,000
250,000
50,000
100,000
200,000
150,000
150,000
100,000
300,000
200,000
250,000
200,000
$ 99,858
100,000
124,363
199,644
49,916
199,630
199,272
100,000
247,588
49,522
99,717
200,000
150,000
150,000
100,000
300,000
200,000
250,000
200,000
$ 98,092
98,168
118,219
196,252
49,063
191,942
199,004
97,268
244,492
48,898
98,122
199,748
145,064
147,817
93,148
293,061
194,152
248,930
196,666
-14-
$ 98,092
98,168
118,219
196,252
49,063
191,942
199,004
97,268
244,492
48,898
98,122
199,748
145,064
147,817
93,148
293,061
194,152
248,930
196,666
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
Name of Issuer and
Title of Each Issue
Maturity
Date
CORPORATE OBLIGATIONS (Continued):
09/15/06
GE Capital Corp Internotes
09/15/06
GE Capital Corp Internotes
10/15/06
GE Capital Corp Internotes
03/15/07
GE Capital Corp Internotes
09/25/06
GE Capital Corp Medium
09/25/06
GE Capital Corp Medium
01/15/07
GE Capital Corp Medium
01/15/07
GE Capital Corp Medium
05/15/06
General Dynamics
05/15/06
General Dynamics
04/16/07
Glaxosmithkline CAP PLC
09/15/07
GMAC Smartnotes
12/15/06
GMAC Smartnotes
10/15/06
GMAC Smartnotes
05/15/06
GMAC Smartnotes
10/15/06
Household Finance Corp
07/15/06
John Hancock Life Ins Co.
10/15/06
John Hancock Life Ins Co.
03/15/07
John Hancock Life Ins Co.
10/15/06
John Hancock Life Ins Co.
01/30/08
United Healthcare Notes
08/25/08
Wells Fargo & Co.
Number of
Units-Principal
Amount of
Interest Bonds and
Rate Notes
Cost of
Each Issue
Market Of Equity Security
Issues and Each
Value of
Each Issue
Other Security
at Balance Issue Carried in
Balance Sheet
Sheet Date
COL.E
Amount at Which
Each Portfolio
2.550%
2.350%
2.500%
2.350%
2.750%
2.750%
2.800%
2.800%
2.125%
2.125%
2.375%
3.750%
3.400%
3.550%
4.050%
2.750%
2.250%
2.450%
2.350%
2.300%
3.300%
3.120%
150,000
300,000
400,000
250,000
175,000
200,000
250,000
50,000
150,000
100,000
200,000
200,000
200,000
250,000
400,000
100,000
200,000
100,000
150,000
200,000
75,000
100,000
-15-
$ 150,000 $ 147,135
294,177
391,508
241,500
172,251
196,858
244,638
48,927
148,424
98,949
193,830
171,722
180,882
231,050
386,016
98,025
196,842
97,590
145,116
195,210
72,598
95,626
300,000
400,000
250,000
173,840
197,644
247,270
49,459
149,706
99,739
198,894
200,000
200,000
250,000
400,000
100,000
200,000
100,000
150,000
200,000
74,890
99,158
$ 147,135
294,177
391,508
241,500
172,251
196,858
244,638
48,927
148,424
98,949
193,830
171,722
180,882
231,050
386,016
98,025
196,842
97,590
145,116
195,210
72,598
95,626
7,210,110
7,006,980
7,006,980
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
Name of Issuer and
Title of Each Issue
Maturity
Date
GOVERNMENT OBLIGATIONS:
Number of
Units-Principal
Amount of
Bonds and
Cost of
Notes Each Issue
Interest
Rate
COL. D
COL. E
Amount at Which
Each Portfolio
Market Of Equity Security
Issues and Each
Value of
Other Security
Each Issue
Issue Carried in
at Balance
Balance Sheet
Sheet Date
CA Infrastructure & Econ. Dev
Federal Home Loan Bank
Federal Home Loan Bank
Federal Home Loan Bank
Federal Home Loan Bank
FHLMC
FHLMC
FNMA
FNMA
FNMA
NJ State Turnpike Authority
Tennessee Valley Authority
Power Bonds
Tobacco Settlement Fin Corp.
US Treasury Bill
US Treasury Bill
US Treasury Bill
US Treasury Note
US Treasury Note
US Treasury Note
US Treasury Note
US Treasury Note
US Treasury Note
10/01/20 VARIABLE
2.260%
06/19/06
2.189%
07/28/06
2.590%
08/21/06
2.125%
07/24/08
3.250%
11/15/09
4.500%
11/15/17
2.250%
05/15/06
3.000%
09/24/07
3.000%
12/10/07
1.050%
01/01/30
6.500%
05/01/29
06/01/15
01/19/06
01/26/06
01/26/06
04/30/06
06/30/06
07/31/06
05/15/07
11/15/07
11/15/07
5.000%
0.000%
3.528%
0.000%
2.250%
2.750%
2.750%
3.125%
3.000%
3.000%
300,000
250,000
200,000
200,000
100,000
250,000
200,000
200,000
200,000
150,000
325,000
18,000
200,000
600,000
425,000
300,000
175,000
200,000
200,000
200,000
250,000
50,000
-16-
$ 300,000
249,380
199,000
200,000
100,000
250,000
200,000
198,772
200,000
150,000
150,000
480,576
198,500
594,319
421,131
297,140
174,003
199,032
199,415
199,465
248,109
49,669
5,258,511
$ 300,000
246,875
196,876
197,126
98,156
245,483
195,312
198,062
194,126
147,141
150,000
437,742
200,188
596,982
422,560
298,278
173,591
198,188
197,906
196,382
243,495
48,699
5,183,168
$ 300,000
246,875
196,876
197,126
98,156
245,483
195,312
198,062
194,126
147,141
150,000
437,742
200,188
596,982
422,560
298,278
173,591
198,188
197,906
196,382
243,495
48,699
5,183,168
7CCA 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
Name of Issuer and
Title of Each Issue
Maturity
Date
Number of
Units-Principal
Amount of
Interest Bonds and
Notes
Rate
Market Of Equity Security
Issues and Each
Value of
Each Issue
Other Security
at Balance
Issue Carried in
Sheet Date Balance Sheet
Cost of
Each Issue
EQUITY:
Preferred Stock:
ABN AMRO Cap Fund
General Electric Cap Corp
JP Morgan Chase Cap IX
MetLife Floater
Morgan Stanley Cap Tr
Wells Fargo Cap Tr VIII
Common Stock:
DTE Energy Co.
Mutual Funds:
Dreyfus Premier Limited
Term High Income CL B
07/03/08
11/15/32
06/15/33
06/15010
07/15/33
08/01/33
5.900%
6.100%
5.875%
4.000%
5.750%
5.625%
2,000
8,800
2,000
8,000
4,000
8,000
$ 50,000
224,845
50,000
200,000
100,000
200,000
$ 46,760
219,208
46,680
205,920
89,760
184,240
$ 46,760
219,208
46,680
205,920
89,760
184,240
824,845
792,568
792,568
1,200
51,649
52,368
52,368
16,296.314
198,305
136,191
136,191
-17-
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
Name of Issuer and
Title of Each Issue
Maturity
Date
Other Equity Investments:
Aberdeen Asia Pacific
Income Fund
Pimco Floating rate Strategy Fund
Amount at Which
Each Portfolio
Number of
Units-Principal
Amount of
Interest Bonds and
Cost of
Rate Notes Each Issue
Market Of Equity Security
Issues and Each
Value of
Each Issue
Other Security
at Balance
Issue Carried in
Sheet Date Balance Sheet
4
2,900
$ 100,000
60,335
160,335
$ 100,000
54,141
154,141
$ 100,000
54,141
154,141
Totals
$13,703,755 $13,325,416
$13,325,416
-18-
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, 2005, 2004 and 2003, available-for-sale
securities were liquidated and proceeds amounting to $1,946,814, $7,078,164, and
$6,485,792 were received, with resultant realized gains/(losses) totaling $0.00,
$143,736, and $9,518, 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, 2004. 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, 2004 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, 2005 and 2004.
The Company has extended the line of credit through May 31, 2006.
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 accrued interest at 6% and have matured on August 1, 2005. The
interest was paid semi-annually. The debentures and accrued interest paid in 2005 fully
satisfied the Company’s obligations.
NOTE 8 -
INCOME TAXES
CCA and its subsidiaries file a consolidated federal income tax return. The Company’s
2003 returns have been examined by the Internal Revenue Service. The proposed
assessment is immaterial with no effect on the Company’s financial position.
At November 30, 2005 and 2004, respectively, the Company has temporary differences
arising from the following:
November 30, 2005
Type
Depreciation
Reserve for bad debts
Reserve for returns
Reserve for obsolete
inventory
Vacation accrual
Section 263A costs
Amount
$ 62,631
260,366
678,348
854,764
337,181
60,000
Deferred
Tax
Classified As
Short-
Term
Long-
Term
$ 23,419
97,172
253,650
319,611
126,080
22,435
Asset (Liability)
$ - $23,419
97,172
253,650
-
-
319,611
126,080
22,435
-
-
-
Net deferred income tax
$842,367
$818,948
$23,419
-19-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -
INCOME TAXES (Continued)
November 30, 2004
Type
Amount
Depreciation
Reserve for bad debts
Reserve for returns
Reserve for obsolete
inventory
Section 263A costs
Charitable contributions
Deferred
Tax
Classified As
Short-
Term
Long-
Term
($ 26,714)
111,078
406,558
($ 10,725)
44,595
163,221
Asset (Liability)
$ - ($10,725)
44,595
163,221
-
-
871,488
123,239
109,023
349,877
49,477
43,768
349,877
49,477
43,768
-
-
-
Net deferred income tax
$640,213
$650,938
($10,725)
Income tax expense (benefit) is made up of the following components:
November 30, 2005
State &
Federal Local
Total
$2,563,858
Current tax expense
( 40,000)
Tax credits
Deferred tax expense (benefit) ( 103,222)
$2,420,636
$910,086
$3,473,944
( 30,000) ( 70,000)
( 81,918)
21,304
$3,322,026
$901,390
November 30, 2004
State &
Federal Local
Total
$768,251
72,401
$840,652
$3,262,360
- ( 40,000)
355,256
$3,577,616
Current tax expense
Tax credits
Deferred tax expense
$2,494,109
( 40,000)
282,855
$2,736,964
-20-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -
INCOME TAXES (Continued)
November 30, 2003
State &
Local
Federal
Total
Current tax expense
Tax credits
Deferred tax expense
$2,265,262
( 44,988)
257,604
$2,477,878
$690,924
-
75,965
$766,889
$2,956,186
( 44,988)
333,569
$3,244,767
Prepaid income taxes and refund due are made up of the following components:
Federal
State &
Local
Total
November 30, 2005
$ 50,653
$114,907
$165,560
November 30, 2004
$315,670
$102,981
$418,651
Income taxes payable are made up of the following components:
Federal
State &
Local
Total
November 30, 2005
$ -
$ -
$ -
November 30, 2004
$ -
$ 59,888
$59,888
-21-
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, 2005 is as follows:
2005
Percent
Of Pretax
2004
Percent
of Pretax
Income Amount Income
Amount
2003 .
Percent
of Pretax
Income
Amount
Income tax expense (benefit)
at federal statutory rate
Increases (decreases) in taxes
resulting from:
State income taxes, net of federal
$2,416,559
34.00%
$3,187,255
34.00% $2,888,945
34.00%
income tax benefit
594,911
8.40
554,830
5.92
506,147
5.96
Non-deductible expenses and
other adjustments
380,556
5.47
( 124,469)
( 1.32 ) ( 105,337)
( 1.24 )
Utilization of tax credits
( 70,000)
( 1.13 )
( 40,000)
( .43 ) ( 44,988)
( 0.53 )
Income tax expense (benefit)
at effective rate
$3,322,026
46.74%
$3,577,616
38.17%
$3,244,767
38.19%
-22-
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. On July 9,
2003, the Company approved a Stock Option Plan authorizing the issuance of options up to
1,000,000 shares. The following summarizes the stock options outstanding under these plans
as of November 30, 2005:
Date Granted
June 16, 1999
May 24, 2001
March 9, 2004
March 9, 2004
August 24, 2004
Number Per Share
Option
Price Expiration
Of
Shares
10,000
150,500
50,000
50,000
25,000
285,500
$2.50
$ .50
$9.00
$8.25
$7.50
2009
2007
2009
2009
2009
The following table summarizes stock option activity for the two years ended November 30,
2005:
Number
Of
Shares
Per Share
Option
Price
Balance - November 30, 2003
Granted
Exercised
Balance - November 30, 2004
Exercised
Balance - November 30, 2005
437,500
130,000
(138,000)
429,500
(144,000)
285,500
$7.50-9.00
( .50)
($ .50-8.25)
Value
$ 238,750
1,091,250
( 69,000)
1,261,000
( 110,750)
$1,150,250
-23-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTIONS (Continued)
During the year 2004, the Company issued stock options to purchase 130,000 shares under the 2003
stock option plan. Under the provisions of APB No. 25, no compensation expense has been, or will
be, recognized in the consolidated statement of operations.
Proforma net income and net income per share, as required by SFAS No. 123, have been
determined as if we had accounted for all employee stock options granted under SFAS No. 123's
fair value method. The proforma effect of recognizing compensation expense in accordance with
SFAS No. 123 is as follows:
Year Ended November 30,
2005
2004*
2003*
Net income as reported
SFAS No. 123 based compensation
Income tax benefit
Net income - proforma
$3,785,502
-
-
$3,785,502
$5,796,663
( 976,619)
390,648
$5,210,692
$5,252,131
-
-
$5,252,131
Basic net income per share - as reported
Basic net income per share - proforma
Diluted net income per share - as reported
Diluted net income per share - proforma
Weighted average shares used in
computing net income and proforma
net income per share:
Basic
Diluted
* Adjusted for 2% stock dividend.
$.53
$.53
$.52
$.52
$.78
$.76
$.75
$.73
$.71
$.71
$.68
$.68
7,145,297
7,317,994
7,399,472
7,680,781
7,372,232
7,768,361
-24-
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
2005
2004
2003
Average expected life (years)
2.50
5.00
3.75
Expected volatility*
-
237.35%
-
Risk-free interest rate*
-
3.95%
Weighted average fair value
at grant - Exercise price
equal to market price*
Weighted average remaining
Contractual life of options
Outstanding
Weighted average exercise
-
-
-
$8.22
3.20
4.10
4.00
Price of options outstanding
$4.70
$3.30
$ .55
*No options were granted during 2003 or 2005, therefore, these measures are not
applicable for these periods.
– Average expected life is calculated based on the difference between the expiration date of
the options and the valuation date of the financial statements. Expected volatility is
calculated by using a logarithm of the average fluctuation of the stock price over the course
of 36 months.
- 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.
-25-
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:
Coop advertising
Accrued returns
Accrued bonuses
November 30,
2005
2004
(In Thousands)
$1,372
1,489
784
$3,645
$ 932
980
470
$2,382
All other liabilities were for trade payables or individually did not exceed 5% of total current
liabilities.
NOTE 11 - OTHER INCOME
Other income was comprised of the following:
Interest income
Dividend income
Realized gain (loss) on sale of
securities
Royalty income
Sale of trademark
Miscellaneous
2005
$417,537
32,182
November 30,
2004
$442,936
44,756
2003
$461,291
17,693
9,518
97,271
-
143,736
138,313
50,000
30,455
$850,196
5,498
$591,271
-
109,274
-
13,916
$572,909
-26-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Leases
The Company currently occupies approximately 58,625 square feet of space used for
warehousing and corporate offices. The annual rental for this space is $327,684, with an
annual CPI increase not cumulatively exceeding 15% in any consecutive five year period. 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, which was $189,776 for the current
year. The lease expires on May 31, 2012 with a renewal option for an additional five years.
The Company entered into an additional lease on May 1, 2005 for warehouse space at 300-
1(D), Route 17, Lodi, New Jersey for the 12 month period ending April 30, 2006. The lease
comprises 13,000 square feet for warehousing. The year end net rental expense including
CAM was $80,070. The Company anticipates extending the lease for an additional one year
period.
Rent expense for the years ended November 30, 2005, 2004 and 2003 was $597,530,
$449,376, and $322,684, 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,
2006
2007
2008
2009
2010
Royalty Agreements
$600,759
537,933
497,684
471,318
471,684
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 when, in the aggregate, $9,000,000
in royalties have been paid thereunder, the royalty rate for those products originally “charged”
at 6% would be reduced to 1%. The Company paid an aggregate of $9,000,000 in royalties to
Alleghany in April 2003. Commencing May 1, 2004, the license royalty was reduced to 1%.
The products subject to the Alleghancy Pharmacal License accounted for $9,916,576 or 16%
of total net sales in the fiscal year ended November 30, 2005.
-27-
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
royalty on net sales of the licensed products; with minimum per-annum royalties
of $30,000. The Company paid out the minimum $30,000 for 2005, but has revised
the contract omitting that minimum for the future. The Company realized
$348,354 in net sales of sun-care products in 2005.
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 net sales
of all licensed product sold by the Company. Net sales were $1,939,508 in 2005.
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 royalty of net sales payable quarterly. During
the first 18-month contract period ending June 30, 2004, the minimum royalty the
Company was required to pay was $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 2005, the net sales were $88,479. The company
terminated the license agreement without any liability on June 29, 2005.
On May 18, 2004, the Company entered into a license agreement with Tea-Guard,
Inc. to manufacture and distribute Mega-T Green Tea chewing gum and Mega-T
Green Tea mints. The license agreement requires the Company to pay a minimum
royalty after the first eighteen months of the license. The minimum payments are
required to maintain the Company’s exclusivity for the sale of the products and to
continue marketing the products until royalties have aggregated to $10,000,000, at
which time all royalty obligations cease. Except as to maintaining its rights to
“exclusivity”, the Company has no obligation to meet minimum royalty
requirements. In fiscal 2005, the net sales were $2,086,968.
-28-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
On February 26, 2004, the Company entered into an agreement with Dr. Stephen
Hsu. PhD. to create green tea skin care products. Dr. Hsu will be entitled to a
commission on the net factory sales of all of the Company’s products using the
green tea serum created exclusively for the Company. The special anti-oxidant
green tea serum has been included in the Denise Austin “Skin Fit For Life” skin
care line and Sudden Change product line. Net sales of the products utilizing the
green tea serum were $3,062,000 for the year ended November 30, 2005.
On July 14, 2004, the Company entered into a license agreement with Denise
Austin. The license agreement requires the Company to pay a minimum royalty
in order to maintain the exclusive use of the name “Denise Austin” to
manufacture and sell a special line of skin care and cosmetic products. The
license will continue so long as minimum royalty payments are met. The
Company will not meet the minimum required royalty and may terminate the
license agreement. Net sales of the “Skin Fit For Life” skin care line were
$3,062,000 for the fiscal year ended November 30, 2005. The Company had
returns of $1,803,794 for the fiscal year which includes a reserve of $937,671 for
additional returns, credits and/or allowances. The Company will not continue with
the license in March 2006.
The Company is not party to any other license agreement that is currently material
to its operations.
Total royalty costs by licensor for each fiscal year is as follows:
Summary
Licensor
A
B
C
D
E
F
G
H
I
J
K
2005
2004
2003
$ 45,116
99,166
23,616
( 3,497)
6,815
4,424
0
116,916
96,975
116,870
91,870
$ 91,968 $ 52,033
109,035 427,419
8,369
( 910)
1,829
69,714
186
68,935
86,611
0
0
1,906
12,555
3,973
40,782
143
0
70,362
0
0
-29-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Employment Contracts
The Company has executed Employment Contracts with its Chief Executive
Officer and its Chairman of the Board. 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 two 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.
Two officers of the Company, who are the two sons of the Chief Executive
Officer 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 $225,000, respectively.
Collective Bargaining Agreement
On December 1, 2004, the Company signed a new collective bargaining
agreement with Local 734, L.I.U. of N.A., AFL-CIO with similar provisions of
the one that expired on November 30, 2004. 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 new collective
bargaining agreement is in effect through January 1, 2008. This agreement
pertains to 29% of the CCA labor force.
Litigation
The only material legal proceedings sets forth the fact that there were originally
13 cases filed in which the Company was named along with other defendants 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. Eleven cases have been dismissed with
prejudice. These cases cannot be legally reinstated. The one case in Philadelphia
in which one of the defendants filed for bankruptcy has been delayed. The court
is rendering a decision on our motion to dismiss. We agree with independent
counsel that, as concluded under the decision in Seattle, unless a plaintiff ingested
a product with PPA within three days of a stroke, there can be no causation to
prove that a product caused the stroke. We feel that the case should be dismissed
inasmuch as plaintiff at the deposition deposed that she took our product months
before the stroke.
The remaining case in Louisiana is fully insured to the extent of $5,000,000.
After reviewing the plaintiff’s medical records, it does not appear that there is
ongoing significant medical problems that would cause a jury to render a
substantial judgment. Counsel evidently in discussing the matter with Phoenix
-30-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation (continued)
Insurance Company, has not made any substantial efforts to settle the case which
we have been led to believe could be settled for under $250,000.
We do not believe that any further litigations would be ensuing because the
Statute of Limitations throughout the country provided that the case must be
instituted within three to four years within the time frame in which a plaintiff had
constructive notice of the product that proximately caused a stroke. The FDA put
out a news release nationally in October 2000. However, there can be no
assurance that the current PPA litigation will not have a material adverse effect
upon the Company’s operations.
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 December 1, 2004. On June 16, 2004, CCA declared a 2%
stock dividend payable to all shareholders of record on November 1, 2004,
payable December 1, 2004. All references in the accompanying financial
statements to the number of common shares and per-share amounts for 2004 and
2003 have been restated to reflect the stock dividend.
On January 11, 2005, the Board of Directors declared a $0.16 per share dividend
for fiscal 2005, $0.08 payable to all shareholders of record May 1, 2005 payable
on June 1, 2005 and $0.08 payable to all shareholders of record November 1,
2005 payable on December 1, 2005.
On November 15, 2005, the board of Directors declared a $0.05 per share
dividend for shareholders of record on February 1, 2006 payable March 1, 2006.
NOTE 13 -
401 (K) PLAN
The Company has adopted a 401(K) Profit Sharing Plan that covers all 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. The Plan allows for the Company to make
discretionary contributions. For all fiscal years to date, the Company did not
make any contributions.
NOTE 14 - CONCENTRATION OF RISK
Most of the Company’s products are sold to major drug, food chains, mass-
merchandisers, and wholesale beauty-aids distributors throughout the United
States and Canada.
-31-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - CONCENTRATION OF RISK (Continued)
During the years ended November 30, 2005, 2004 and 2003, certain customers
each accounted for more than 5% of the Company's net sales, as follows:
Customer
A
B
C
D
E
F
Foreign Sales
* under 5%
2005
32%
2004
2003
34%
34%
10
11
13
12
8
5
*
9
7
7
7
8
7
6
*
1.98%
1.80%
2.10%
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, 2005, 2004 and 2003, certain products within the
Company’s product lines accounted for more than 10% of the Company’s net
sales as follows:
Product
Dietary Supplement
Skin Care
Oral Care
Nail Care
2005
35%
31
17
9
2004
2003
26%
37
24
8
10%
37
31
16
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.
-32-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - 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”.
Net income available for common
shareholders, basic and diluted
Weighted average common stock
outstanding- Basic
Year Ended November 30,
2005
2004* 2003*
$3,785,502
$5,796,663
$5,252,131
7,145,297
7,399,472
7,372,232
Net effect of dilutive stock options
172,697
281,309
396,129
Weighted average common stock and
common stock equivalents - Diluted
Basic earnings per share
Diluted earnings per share
*Adjusted for 2% stock dividend
7,317,994
7,680,781
7,768,361
$.53
$.52
$.78
$.75
$.71
$.68
-33-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - REVISED FINANCIAL STATEMENTS
Subsequent to the issuance of the Company’s 2004 financial statements, management
became aware that the Company recorded a 2% stock dividend as if it was a stock split.
The inclusion of this item in the revised 2004 financial statements has the effect of
increasing additional paid in capital by $1,260,926 with a corresponding reduction of
retained earnings. This change had no effect on the Company’s shareholders’ equity and
net income.
NOTE 17 - SUBSEQUENT EVENTS
On February 10, 2006 the Company, as authorized by the Board of Directors, purchased an
aggregate of 225,000 shares of the Company's common stock: 100,000 shares from David
Edell, an officer and director, 100,000 shares from Ira Berman, an officer and director and
25,000 shares from Drew Edell, an officer of the company. The purchase price was $10.50
discounted from $10.82, the closing price at the close of business on that date. The
purchase decreased the number of shares outstanding from 7,246,345 to 7,021,345, thus
increasing earnings per share. Also, on February 10, 2006, the Board of Directors voted to
extend the employment contracts for Dunnan Edell and Drew Edell to December 31, 2010.
-34-
SCHEDULE II
COL. A
Description
CCA INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003
COL. B
Balance at
Beginning
Of Year
COL. C
Additions
Charged To
Costs and
Expenses
COL. D
COL. E
Balance
At End
Deductions Of Year
Year Ended November 30, 2005:
Allowance for doubtful accounts
$ 111,078
$ 206,736
$ 57,448 $ 260,366
Reserve for returns and allowances
$ 406,556
$6,240,837
$ 5,969,045 $ 678,348
Reserve of inventory obsolescence
$ 871,488
$ 265,032
$ 281,756 $ 854,764
Year Ended November 30, 2004:
Allowance for doubtful accounts
$ 549,851
($ 309,780)
$ 128,993 $ 111,078
Reserve for returns and allowances
$ 345,872
$4,282,250
$4,221,566
$ 406,556
Reserve for inventory obsolescence
$1,153,612
$ 78,345
$ 360,469 $ 871,488
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
-35-
CERTIFICATION
I, David Edell, Chief Executive Officer of the Registrant, certify that:
Exhibit 31.1
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of CCA Industries, Inc.;
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;
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.
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)
(b)
(c)
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;
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
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)
(b)
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
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, 2006
/s/
---------------------------------------------------
David Edell
Chief Executive Officer
CERTIFICATION
I, John Bingman, Chief Financial Officer of the Registrant, certify that:
Exhibit 31.2
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of CCA Industries, Inc.;
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;
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.
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)
(b)
(c)
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;
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
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)
(b)
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
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, 2006
/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, 2005 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)
(2)
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
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, 2006
/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, 2005 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)
(2)
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
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, 2006
/s/ ---------------------------------------------------
John Bingman
Chief Financial Officer