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, 2006
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 $9.45 on May
31, 2006, was as follows:
Class of Voting Stock
Market Value
5,510,678 .shares; Common
Stock, $.01 par value
$52,075,907
On November 30, 2006 there was an aggregate of 7,002,353 shares of Common Stock and
Class A Common Stock of the Registrant outstanding.
Form 10-K
Item No.
1. Business
2. Property
CROSS REFERENCE SHEET
Headings in this Form
10-K for Year Ended
November 30, 2006
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. Controls and Procedures
Controls and Procedures
10. Directors and
Executive Officers
of the Registrant
Directors and Executive
Officers of the Registrant
- iii-
Form 10-K
Item No.
Headings in this Form
10-K for Year Ended
November 30, 2006
11. Executive Compensation
Executive Compensation
12. Security Ownership
of Certain Beneficial
Owners and Management
and Related Stockholder Matters Stockholder Matters
Security Ownership
of Certain Beneficial
Owners and Management and Related
13. Certain Relationships
and Related Transactions
14. Principal Accountant Fees
and Services
15. Exhibits, Financial
Statements, Schedules,
and Reports on Form
8-K
Certain Relationships
and Related Transactions
Principal Accountant Fees
and Services
Exhibits, Financial
Statements, 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
6
8
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..................................................................
13
7A. Quantitative And Qualitative Disclosure About Market Risk............ 21
8. Financial Statements and Supplementary Data.................................... 21
9. Changes In and Disagreements with Accountants On Accounting
and Financial Disclosure....................................................................
9A.Controls and Procedures……………………………………………
22
22
9
11
PART III
10. Directors and Executive Officers of the Registrant............................... 23
11. Executive Compensation..................................................................
25
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matter………………………. 32
13. Certain Relationships and Related Transactions................................. 33
34
14. Principal Accountant Fees and Services…………………………….
PART IV
15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 36
- v-
Item 1. BUSINESS
(a) Recent Developments
PART I
On November 1, 2006 the Company entered into a letter of intent with Dubilier and Company
relating to a proposed acquisition of the Company by Dubilier. A copy of the letter of intent was
included as an exhibit to the Company’s 8K filed Report with the Securities and Exchange
Commission on November 2, 2006. The Company and Dubilier have reached an agreement in
principle on a transaction pursuant to which Dubilier will acquire all of the outstanding common
stock and Class A common stock of the Company at a price per share of $12.25. The transaction is
subject to, among other matters, the execution and delivery of a definitive merger agreement,
approval of the transaction by CCA’s board of directors and shareholders, receipt of an opinion
from an independent investment banking firm to the effect that the consideration to be paid by
Dubilier is fair, from a financial point of view, to the public holders of the Company’s common
stock, and Dubilier’s ability to obtain financing for the transaction.
(b) General
CCA INDUSTRIES, INC. (hereinafter, “CCA” or the “Company”) was incorporated in
Delaware in 1983.
The Company operates in one industry segment, in what may be generally described as the
health-and-beauty aids business, selling numerous products in several health-and-beauty aids and
cosmeceutical categories. All 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), “Pound-X” (dietary supplement), “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
1
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 net sales in fiscal 2006 were $ 63,302,220. Gross profits were $40,041,913.
International sales accounted for approximately 2% of sales. The Company experienced a net profit
of $ 5,604,251 for the current fiscal year. Net worth at November 30, 2006, was $27,284,791 despite
the repurchase of an aggregate of 253,304 shares of the Company’s common stock from
Officers/Directors and the purchase of 19,600 shares pursuant to Rule 144. (See Certain
Relationships and Related Transactions.)
Including the principal members of management (see Directors and Executive Officers), the
Company, at November 30, 2006, had 154 sales, administrative, creative, accounting, receiving, and
warehouse personnel in its employ.
(c) 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.
(d) 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 300 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, 2006, the Company's largest customers were
Wal-Mart (approximately 34% of net sales), McLanes (approximately 6 %), Walgreens, CVS, and
Rite Aid (approximately 13%, 7%, 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.
2
The Company primarily utilizes local and national television advertisements to promote its
leading brands. On occasion, print and radio advertisements are engaged. In addition, and
more-or-less continuously, store-centered product promotions are co-operatively undertaken with
customers.
Each of the Company's brand-name products is intended to attract a particular demographic
segment of the consumer market, and advertising campaigns are directed to the respective
market-segments.
The Company's in-house advertising department is responsible for the selection of its media
advertising. Placement is accomplished either directly or through media-service companies.
(e) "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 include principally "Plus+White",
"Sudden Change", “Wash ‘N Curl”, "Bikini Zone", "Mood Magic", "Mega -T", “Pound-X,” "Cherry
Vanilla", and "Scar Zone".
(f) All Products
The Company’s gross sales net of returns by category percentage were: Dietary Supplement
31%; Skin Care 30%; Oral Care 24%; Nail Care 9%; Hair Care 3% and Fragrance and
Miscellaneous 3%.
(g) 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
3
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 had been paid thereunder, the royalty-rate for those products 'charged' at 6%
would be reduced to 1%. The Company paid an aggregate of $9,000,000 in royalties to Allegheny
in April 2003. Commencing May 1, 2003, the license royalty was reduced to 1%.
The products subject to the Alleghany-Pharmacal License accounted for approximately
$9,062,416 or 14.3 % of total net sales in the fiscal year ended November 30, 2006. “Nutra Nail”
and the “Hair-Off” depilatory were the leaders among all of the Alleghany license-agreement
products, producing approximately 9% and 4.4%, 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 $801,178 in net sales of sun-care products in 2006.
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
$1,347,491 in 2006 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
4
been included in the new Sudden Change skin care line. Net sales of the products utilizing the green
tea serum were $1,516,127 for the fiscal year ended November 30, 2006.
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
to the Company).
The license agreement requires the Company to pay a minimum royalty of $250,000
commencing with the period beginning March 1, 2007 to February 28, 2008. 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, 2006 were
$1,235,806.
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
Company discontinued the license in March 2006.
vii. Other Licenses
The Company is not party to any other license agreement that is currently material to its
operations.
(h) 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.
(i) 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 &
5
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.
(j) 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, 2006, CAM was
$164,880.
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 was extended to April 30,
2008. The lease comprises 13,000 square feet for warehousing. The year end net rental expense
including CAM was $135,860.
Item 3. LEGAL PROCEEDINGS
The only material legal proceedings outstanding as of November 30, 2006 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. Twelve of the suits have been dismissed with prejudice with one remaining. The
remaining suit is insured and is being defended by the Company’s insurance carrier.
6
Markets Edge Management LLC v. CCA Industries, Inc., et al., Docket No. L-677-07 (N.J.
Super. Ct. Bergen Co., Chancery Div.). On January 26, 2007, a complaint was filed against the
Company and its seven directors, as well as Dubilier & Company, Inc. ("Dubilier"). The action is
brought by an alleged shareholder of the Company on behalf of a purported class of shareholders to
enjoin the proposed acquisition of the shares of the Company by Dubilier, or in the alternative for
monetary damages. The complaint alleges that the Agreement and related transactions, "provides
for an unreasonable and unfair premium to be paid to CCA's Class A Stockholders -- all of which
are CCA officers and directors -- over and above the price that the Common Stockholders will
receive for their shares." The complaint alleges that the price to be paid for the shares of the
Company is "grossly inadequate" and that the transaction unfairly provides for "lucrative non-
compete agreements" paying millions of dollars to two officer-directors, and continuing
employment contracts for two children of one of the officer-directors and "another Company
insider." The complaint alleges that CCA and the director defendants have breached their fiduciary
duties of care, loyalty, candor, good-faith, and independence owed to the shareholders of the
Company. The Company has until March 20, 2007 to respond to the complaint and intends to
defend the matter vigorously.
On November 17, 2006, the Board of Directors of CCA received a letter from Kasowitz,
Benson, Torres & Friedman LLP, who identified themselves as counsel for Costa Brava Partnership
III, LP (“Costa Brava”), and its general partner, Roark, Roarden & Hamot Capital. The letter stated
that Costa Brava is the largest holder of the Company’s common stock. Among other things, the
letter claimed that the merger transaction proposed in the Letter of Intent, dated November 1, 2006,
signed by the Company and Dubilier & Company, Inc., was discriminatory and unfair as it
contemplated a premium to be paid to Class A share holders at a price more than 20% above the
price to be paid to the Company’s common stock holders. Costa Brava asserted in the letter that it
intended to oppose any transaction that failed to provide equal treatment to the common stock and
Class A shares and that it would take all necessary steps to protect its rights.
7
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 21, 2006, 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 2006 fiscal year was approved.
The Company has not submitted any matter to a vote of security holders since the 2006
Annual Meeting.
8
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
PART II
The Company's Common Stock is traded 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 2006,
2005 and 2004 fiscal years was as follows:
Quarter Ended 2006
$11.45 - $7.80
February 28
$11.10 - $9.95
May 31
August 31
$10.40 - $9.41
November 30 $11.73 - $9.49
2005
$10.75 - $13.80
$12.56 - $ 9.45
$11.40 - $ 8.85
$ 9.90 - $ 7.00
2004
$9.35 - $ 6.70
$8.70 - $ 7.20
$10.80 - $ 6.75
$11.30 - $ 7.00
The high and low prices for the Company’s Common Stock, on February 1, 2007 were
$11.40 to $11.20 per share.
The Company’s only ‘sales’ of unregistered securities were represented by its issuance, in
consequence of the described tender offer and Schedule TO as filed with the SEC on June 7, 2000,
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.
Throughout fiscal 2006, the Company repurchased 19,600 shares in the market pursuant to
Rule 144. It also purchased an aggregate of 253,304 shares from officers/directors.
As at November 30, 2006, there were approximately 160 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
9
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 was payable to all shareholders of record on
February 1, 2006 payable on March 1, 2006.
On March 14, 2006, the Board of Directors declared a $0.05 per share dividend to all
shareholders of record May 1, 2006 payable on June 1, 2006.
On June 29, 2006, the Board of Directors declared a $0.07 per share dividend to all
shareholders of record August 1, 2006 payable on September 1, 2006.
On October 5, 2006, the Board of Directors declared a $0.07 per share dividend to all
shareholders of record November 1, 2006 payable on December 1, 2006.
On December 28, 2006, the Board of Directors declared a $0.07 per share dividend to all
shareholders of record February 1, 2007 payable on March 1, 2007.
10
Item 6. SELECTED FINANCIAL DATA
Statement of Income
Sales, Net
Other income
Costs and Expenses
Income before provision for
Income Taxes
Net Income
Earnings Per Share:
Basic
Diluted
2006
2005
Year Ended November 30,
2003
2004
2002
$63,302,220
797,803
$61,181,344
572,909
$59,008,135
850,196
$53,388,602
591,271
$44,198,856
439,481
64,100,023
55,183,378
61,754,243
59,858,331
53,979,873
44,638,337
54,646,715
50,484,052
45,482,975
39,602,781
8,916,645
7,107,528
9,374,279
8,496,898
5,035,556
$ 5,604,251
$ 3,785,502
$ 5,796,663
$ 5,252,131
$ 3,074,353
$ .80
$ .79
$ .53
$ .52
$ .78* $ .71* $
$ .75* $ .68* $
.42*
.40*
Weighted Average Number
of Shares Outstanding 7,034,276 7,145,297 7,399,472*
Weighted Average Number
of Shares and Common Stock
Equivalents Outstanding 7,133,332 7,317,994 7,680,781* 7,768,361*
7,372,232*
7,241,751*
7,731,583*
Balance Sheet Data:
2006
$22,295,983
36,516,571
2005
$18,602,107
35,309,308
As At November 30,
2004
$13,562,389
31,556,577
2003
2002
$11,565,685 $11,264,206
24,805,064
29,839,216
Working Capital
Total Assets
8,034,530
23,522,047 23,344,540 18,835,423
6,494,676
5,969,641
Total Liabilities
Total Shareholders’ Equity (1)(2)(3)
9,131,780
27,284,791
9,309,652
25,999,656
11
Item 6. SELECTED FINANCIAL DATA (Continued)
(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 was payable to all shareholders of record on February 1, 2006 payable on March 1, 2006.
(4) The board of Directors declared $0.05 per share dividends for the first and second quarters, and $0.07 per share for the third and
fourth quarters ended November 30, 2006, and $0.07 per share for the first quarter ending February 28, 2007.
(5) Certain additional promotional expenses were re-classified during 2006 from an expense to a reduction of net sales. In order to have
an accurate comparison, the same expenses were re-classified accordingly for the years ended November 30, 2002 – 2005.
*Adjusted for 2% stock dividend in 2004.
12
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% was reduced to 1%, as the sum of $9,000,000 in royalties had been paid thereunder as of April
2003. Thereafter, all royalty payments were reduced to 1% on all future orders.
Comparison of Results for Fiscal Years 2006 and 2005
The Company’s net sales increased from $61,181,334 (after reclassifying certain advertising
expenses from selling expense to a reduction of net sales as more fully described in the footnotes to
the financial statements) to $63,302,220 for the current fiscal year. Gross profit margins increased
from 62.8% to 63.3%. The increase in net sales is principally due to increased sales in Oral Care.
The Company’s gross sales net of returns and allowances by category were: Dietary
Supplement $21,055,278 or 31% of sales, Skin Care $20,347,016 or 30% of sales, Oral Care
$16,025,534 or 24% of sales, Nail Care $6,003,041 or 9% of sales, Hair Care $2,285,329 or 3% of
sales, and Fragrance and Miscellaneous $2,382,240 or 3% of sales.
Income before taxes was $8,916,645 as compared to $7,107,528 for fiscal 2005. The increase
in income before taxes for fiscal 2006 is principally the result of higher gross sales and less returns
than in 2005. Returns were higher in 2005 primarily due to the return of product from the launch of
the Denise Austin skin care line in 2005.
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 reserve is established and revised based on
individual customer circumstances. This allowance decreased from $260,366 as of November 30,
2005 to $185,779 as of November 30, 2006. The decrease is directly attributable to the reduction of
reserves for specific disputes.
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’s sales, and a specific reserve based on
customer circumstances. This reserve increased from $678,346 as of November 30, 2005 to $840,418
as of November 30, 2006 primarily from additional reserves for the Pound –X brand which was
launched in the fourth quarter of 2006.
13
The reserve for inventory obsolescence is based on a detailed analysis of inventory movement.
The reserve decreased from $854,764 as of November 30, 2005 to $ 777,715 as of November 30,
2006.
In accordance with GAAP, the Company reclassified certain advertising and promotional
expenditures as a reduction of sales rather than report them as 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, 2006 and 2005 by $4,013,619 and $4,007,051
respectively.
For the year ended November 30, 2006, the Company had revenues of $64,100,023, and net
income of $5,604,251, after a provision of $3,312,394 for taxes. For the year ended November 30,
2005, the Company had revenues of $61,754,243 (after reclassification), and net income of 3,785,502
after a provision of $3,322,026 for taxes. Fully diluted earnings per share for fiscal 2006 were $.79
compared to $.52 in fiscal 2005.
The effective tax rate in Fiscal 2006 was significantly lower than Fiscal 2005 due to the effect
of permanent tax adjustments and certain over accruals affecting the tax due for the periods. In Fiscal
2005, the company accrued for additional taxes due based on audits in progress for the previous three
years. The actual settlement of the audits in 2006 was less than anticipated which resulted in smaller
than estimated adjustments. The favorable outcome of some of the calculations in the audit also
resulted in an over accrual of the actual tax due for 2005, which were originally accrued for based on
the proposed change to some of our methods of calculating certain adjustments. There were also
certain deductions and credits which we were able to avail ourselves of in our final preparation of our
2005 return that we had not anticipated at the time of making the accrual for financial reporting. These
items resulted in an over accrual of our taxes in 2005 by approximately $200,000. The reversal of the
over accrual in 2005 results in showing $200,000 less in 2006 (a $400,000 adjustment in the tax
provision). We also had a larger deduction for donations of certain of our inventory in 2006 which
resulted in a lower effective tax rate for 2006 versus 2005. The combination of the prior year’s over
accrual and the larger “permanent” differences resulted in a significantly lower effective tax rate for
Fiscal 2006.
For fiscal 2006, advertising, cooperative and promotional expenses were $10,345,407 as
compared to $10,671,906 in the same period for fiscal 2005. Advertising expenses were 16.3% of
sales in fiscal 2006 versus 17.4% for fiscal 2005. The reduction in advertising expense was due to the
change in the overall budget for the year.
SG&A expenses increased from $20,246,344 in fiscal 2005 to $21,104,728 in fiscal 2006.
This was primarily due to increased compensation and related benefit costs as a result of hiring
additional sales and marketing personnel.
At year’s end, there were approximately $2,053,946 of open co-op commitments, of which
$1,172,057 is from 2006, $673,378 is from 2005 and 208,511 is from 2004. The Company’s total co-
op commitment increased from $6,000,000 in fiscal 2005 to $6,484,840 in fiscal 2006. Co-op is
advertising that is run by the 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.
14
Comparison of Results for Fiscal Years 2005 and 2004
The Company’s net sales increased from $59,008,135 to $61,181,334 (after reclassification)
for the fiscal year ended November 30, 2005. Gross profit margins on sales were 62.8% compared to
64.7% for the 2004 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 the new skin care product line.
The Company’s gross sales net of returns and allowances 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%.
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.
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 and promotional
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 $4,007,051 and $3,665,023 respectively. The reclassification reduces the gross profit margin but
does not affect the net income. To promote sales, the Company offered IRC coupons on certain
15
SKUs which decreased net sales by $169,415. IRC coupons are an “instant off” coupon placed on
product at retail.
For the year ended November 30, 2005, the Company had revenues of $ 61,754,243, 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 $59,858,331, 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 $10,671,906 as
compared to $11,349,618 in the same period last year. Advertising expenses were 17.4 % of sales for
the current fiscal year versus 19.2 % 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 $17,399,483 in fiscal 2004 to $20,246,344 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. 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 November 30, 2005, there was approximately $2,079,000 of open co-op commitments, of
which $32,000 is from 2003, $248,000 from 2004 and $1,172,057 for 2005. 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.
Liquidity and Capital Resources
As of November 30, 2006, the Company had working capital of $22,295,983 as compared to
$18,602,107 at November 30, 2005. The ratio of total current assets to current liabilities is 3.5 to 1 as
compared to a ratio of 3.0 to 1 for the prior year. The working capital and the current ratio in 2006
were reduced by the Company’s purchase of an aggregate of 253,304 shares of the Company’s
common stock for $2,653,867 from current and past officers/directors. The company also purchased
19,600 shares under Rule 144 for an aggregate of $171,738. Stockholders’ equity increased to
$27,284,791 from $25,999,656 despite treasury stock purchases offset partially by the income from
operations. All treasury stock that was purchased has been retired.
The Company’s cash position and short-term investments at fiscal 2006 year-end were
$15,901,689, up from $10,586,568 as at November 30, 2005. The Company paid cash dividends in
fiscal 2006 in the amount of $1,776,975, representing the dividends declared at the end of fiscal 2005
but not paid until fiscal 2006 of $575,560 and $1,201,415 in dividends declared and paid for fiscal
16
2006. As of November 30, 2006 there were dividends declared but not paid of $490,970. The
company’s increase in its cash and short-term investment position was due partly to the conversion of
roughly $2,774,000 of long-term (due in excess of one year) securities to short-term (due in less than
one year). The reclassification of the $2,774,000 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 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 $6,350,013 and $6,554,150, in 2006 and 2005 respectively, and accounts
receivable were $7,188,197 and $9,260,399. The decrease in inventory was due in part to increasing
the obsolescence reserves for Pound-X, a dietary supplement product that was launched in the fourth
quarter of 2006. Current liabilities are $9,009,263 and $9,309,652, in 2006 and 2005 respectively. The
decrease in liabilities was due principally to a decrease in accounts payable and accrued liabilities of
$629,668, offset by an increase in income tax payable of $413,869. At year-end, the Company had
long and short-term triple A investments and cash of $19,975,345 as compared to $16,861,958 in
2005. As of November 30, 2006, the Company was not utilizing any of the funds available under its
$25,000,000 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 co-op 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
17
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,
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, 2006. Such obligations include the current lease for the Company’s
premises, written employment contracts and License Agreements.
2007
631,284
Lease on Premises (1)
Royalty Expense (2)
345,675
Employment Contracts (3) 2,426,157
Open Purchase Orders
4,480,758
Total Contractual Obligations 7,883,874
2008
561,984
345,675
2,538,726
2009
492,684
345,675
2,658,050
2010
2011
492,684 492,684
345,675
345,675
1,328,828
2,784,533
3,446,385
3,496,409
3,622,892
2,167,187
(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 2006 was $164,880. 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. The lease expires on May 31, 2012 with a renewal option for an
additional five years. 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 extended the lease to April 30,
2008.
(2) See Section Part I, Item 1(f). 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 2006 sales. Royalty expense
includes Alleghany Pharmacal, Solar Sense, Nail Consultants, Tea-Guard, Inc. and Stephen Hsu,
PhD.
(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
18
amended on November 3, 1998 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 then in effect
by $100,000 per annum. The contracts also provide that at the end of the term or upon retirement,
Edell/Berman shall be retained by the Company as consultants at the consideration equal to 50%
of the prior year’s salary and bonus for a five year period. 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, and also including payments
that would be due as consulting payments upon expiration or retirement. David Edell’s sons,
Dunnan Edell and Drew Edell have five-year employment contracts in the amounts of $270,000
and $200,000 respectively, which expire on November 30, 2007 (See Item 11, Summary
Compensation Table). In July 2003, Dunnan Edell’s salary was increased to $300,000 and in
January 2004, Drew Edell’s salary was increased to $225,000. 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 June 2006, the Financial Accounting Standards Board (“FASB”) issue FASB Interpretation No. 48
(“FIN No. 48”) “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB No. 109”.
FIN No. No. 48 established a recognition threshold and measurement for income tax positions
recognizes in an enterprise’s financial statements in accordance with FASB No. 109, “Accounting for
Income Taxes”. FIN No. 48 also prescribes a two-step evaluation process for tax positions. The first
step is recognition and the second is measurement. FIN No. 48 is effective for fiscal years beginning
after December 15, 2006. Accordingly, the Company plans to adopt FIN No. 48 on December 1,
2007. The Company has not determined the impact if any, on the adoption of FIN No. 48.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair
Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, established a framework
for measuring fair value in generally accepted accounting principles and expands disclosures about
fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require
or permit fair value measurements, the FASB previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007, and interim periods in
those fiscal years. The Company has not determined the impact, if any, of the adoption of SFAS No.
157.
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of SFAS Statements Nos. 87, 88,106 and
132R. SFAS No. 158, requires an employer to recognize the over-funded or under-funded status of a
defined benefit postretirement plan as an asset or liability in its statement of financial position,
measure a plan’s assets and obligations as of the end of the employer’s fiscal year-end and recognize
changes in the funded status in the year in which the changes occur through comprehensive income.
SFAS No. 158 is effective as of the end of the fiscal year ending after December 15, 2007. Since the
Company does not have a defined benefit plan, the adoption will not have an impact on the
Company’s financial statements.
19
In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
Bulletin No. 108 (“SAB 108”) which provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in quantifying a current year
misstatement. SAB 108 is effective for the first fiscal year ending after November 15, 2006 which
will be the fiscal year ending November 30, 2006. The adoption of this statement had no material
impact on the Company’s financial position or results of operations.
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.
There is No Assurance That The Business Will Continue to Operate Profitably.
In Fiscal 2006, net sales were $63,302,220. Almost all of the products were able to maintain
the projected gross profit margins. Net income was $5,604,251. The Company’s new dietary
supplement product line, “Pound-X,” which was introduced in the fourth quarter of fiscal 2006 might
not sell as well as the Company has anticipated in fiscal 2007.
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
20
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 15,2006. 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). $204,972 of the Company’s $15,590,005 portfolio of investments ( as at Nov. 30, 2006) is
invested in the ”Common Stock” and “Other Equity” category, and $818,204 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.
21
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, 2006 and 2005:
Fiscal 2006 **
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
$14,562,927 $18,558,174 $15,788,172 $14,392,947
15,996,688 14,597,050
4,993,420 6,252,283
900,889
18,773,398
6,109,857
1,705,108 1,927,476
14,732,887
5,904,747
1,070,778
$.15
$.15
$.24
$.24
$.28 $.13
$.27 $.13
Fiscal 2005 **
Feb. 28
Three Months Ended
Aug. 31
May 31
Nov. 30
Net Sales
Total Revenue
Cost of Products Sold
Net Income
Earnings Per Share:
Basic
Diluted
$13,985,365 $18,143,816 $14,722,055 $14,330,098
14,111,316
5,599,609
944,830
14,882,100 14,493,400
18,267,427
6,261,360
5,727,927 5,145,166
1,750,656 ( 390,834) 1,480,850
$.13
$.13
$.25
$.24
($.05) $.21
($.05) $.20
** After reclassification of certain additional promotional expenses from expense to a reduction of net
sales.
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, 2006.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-
22
15(f) under the Securities Exchange Act of 1934) pursuant to preliminary evaluations that the
Company believes will materially affect, or are reasonably likely to materially affect, internal control
over financial reporting.
Under Section 404 of the Sarbanes-Oxley Act of 2002,, The Company’s fiscal 2009 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, 2008 annual report 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.
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
Stephen Heit
Executive Vice President and
23
1983
1983
1984
Chief Financial Officer
2005
Drew Edell
Vice President-
Product Development and Production 1983
John Bingman
Vice President and Treasurer
Stanley Kreitman
Director
Jack Polak
Director
Robert Lage
Director
Gio Batta Gori, PhD Director
1986
1996
1983
2003
2004
David Edell, age 74, 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 75, 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 51 year-old son of David Edell. He is a graduate of George Washington
University. He has been a director since 1994, and in fiscal 2003, he was promoted to position of
President of the Company 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 52 joined CCA in May 2005 as Executive Vice President – Operations, and
was appointed Chief Financial Officer in March 2006. 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,
and is a MBA Candidate at the University of Connecticut Graduate Business School.
Drew Edell, the 49 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.
24
John Bingman, age 55, 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 94, 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 74 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 70, 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, 76, 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
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.
25
Item 11. EXECUTIVE COMPENSATION
i. Summary Compensation Table
The following table summarizes compensation earned in the 2006, 2005 and 2004 fiscal years
by all of the executive officers whose fiscal 2006 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
2006
2005
2004
$737,001
695,738
656,357
$556,410
510,857
573,543
$ 41,193
28,976
38,294
-
-
-
Name and
Principal
Position
David Edell,
Chief
Executive
Officer
Ira W. Berman,
Secretary and
Executive
Vice President
2005
2005
2004
$737,001
695,738
656,357
$556,410
510,857
573,543
$31,718
30,256
24,739
-
-
-
Dunnan Edell,
2006
President, Chief 2005
Operating Officer
$300,000
300,000
2004 312,692
$120,000
120,000
95,000
$ 9,155
12,317
5,305
$211,538
110,000
$ 30,000
15,000
$7,972
3,721
-
-
-
-
-
$250,000
243,269
222,596
$ 60,000
60,000
50,000
$ 9,188
8,861
1,951
-
-
-
Stephen Heit
Executive
Vice President,
Chief Financial Officer
2006
2005
Drew Edell
Vice President
Product
Development and
Production
2006
2005
2004
2006
John Bingman
Vice President 2005
2004
Treasurer
$111,980
111,980
111,980
$ 20,000
45,000
40,000
$ 1,558
1,587
1,005
-
-
-
-------------------------
(1) Includes the personal-use value of Company-leased automobiles, the value of Company-provided
26
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
life insurance, and health insurance that is made available to all employees.
(2) Information in respect of stock option plans appears below in the sub-topic, Employment
Contracts/Executive Compensation Program.
ii. Fiscal 2006 Option Grants and Option Exercises,
Year-End Option Valuation, Option Repricing
No new options were issued to the Named Officers in fiscal 2006.
The next table identifies 2006 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, 2006
Number of Shares
Value of Unexercised
Covered by Un-
exercised Options In-the-Money Options
at December 1, 2006
22,500 $190,125
David Edell
Ira W. Berman 28,000 $236,600
$171,800
Dunnan Edell 20,000
-
Drew Edell
$235,000
Jack Polak
John Bingman
-
--------------------
-
25,000
-
25,000
25,000
70,000
15,000
0
10,000
$ 290,500
290,500
813,400
174,300
-
116,200
(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, 2006 was $11.62.
Repriced Options
The following table identifies the stock options held by the Named Officers and all other officers
and directors, the exercise prices of which have been reduced during the past 10 years.
Original
Number Grant Original Date New
of Shares Date Price Repriced Price
100,000 Aug. 1, 1997
David Edell (1)
$2.50 May 24, 2001
Aug. 1, 1997
100,000
Ira W. Berman (1)
2.50 May 24, 2001
Aug. 1, 1997
50,000
Dunnan Edell (1)
2.50 May 24, 2001
Aug. 1, 1997
Drew Edell (1)
50,000
2.50 May 24, 2001
Aug. 1, 1997
Stanley Kreitman (1) 25,000
2.50 May 24, 2001
2.50 May 24, 2001
Aug. 1, 1997
25,000
Jack Polak (1)
Jun. 10, 1995 4.50 May 24, 2001
25,000
Dunnan Edell (1)(2)
Drew Edell (1)(2)
Jun. 10, 1995 4.50 May 24, 2001
25,000
-------------------
$.50
.50
.50
.50
.50
.50
.50
.50
(1) On November 3, 1998, the full Board of Directors authorized the repricing in consequence of a
27
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 2006 (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 six times in
fiscal 2006.
iv. Executive Compensation Principles
Audit and Compensation Committee
The Company's Executive Compensation Program is based on guiding principles designed to
align executive compensation with Company values and objectives, business strategy, management
initiatives, and financial performance. In applying these principles the Audit and Compensation
Committee of the Board of Directors, comprised of Stanley Kreitman, Jack Polak and Robert Lage,
which met four times in fiscal 2006, 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.”
28
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 2006 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 (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 on November
3, 1998 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 then in effect by $100,000 per annum (See Item 11,
Summary Compensation Table). The contracts also provide that at the end of the term or upon
retirement, Edell/Berman shall be retained by the Company as consultants at the consideration equal to
50% of the prior year’s salary and bonus for a five year period.
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 31, 2010 (See Item 11, Summary Compensation 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
29
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.
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 2006.
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
30
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, 2006, 181,000 stock options, yet exercisable, to purchase 181,000 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 2006. 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 was incorporated by reference to the 10K Annual
Report for fiscal 2005.
31
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
$1,200
$1,000
$800
$600
$400
$200
$0
12/01
12/02
12/03
12/04
12/05
12/06
CCA Industries, Inc.
Dow Jones US Total Market
Dow Jones US Personal Products
* $100 invested on 12/31/01 in stock or index-including reinvestment of dividends.
Fiscal year ending December 31.
CCA Industries - ASE
12/01
12/02
Cumulative Total Return
12/04
12/03
12/05
12/06
CCA Industries, Inc.
Dow Jones US Total Market
Dow Jones US Personal Products
100.00
100.00
100.00
154.26
77.92
95.54
670.71
101.88
110.51
941.41
114.12
128.80
774.26
121.34
136.75
989.01
140.23
163.19
32
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, 2006 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.
146,609
484,615
25,000
9.0%
9.3%
160,533
483,087
25,000
9.2%
9.5%
Costa Brava Partnership III LP (3)
420 Boylston Street
Boston, MA
500,000
-
-
7.1%
7.1%
Jack Polak
c/o CCA Industries, Inc.
Stanley Kreitman
c/o CCA Industries, Inc.
Dunnan Edell
c/o CCA Industries, Inc.
53,254
-
-
0.8%
0.8%
15,000
-
-
0.2%
0.2%
60,969
-
70,000
0.9%
1.9%
Gio Batta Gori, PhD
c/o CCA Industries, Inc.
-
Robert Lage
c/o CCA Industries, Inc.
-
-
-
-
-
-
-
-
-
Drew Edell
c/o CCA Industries, Inc.
98,108
-
15,000
1.4% 1.6%
33
John Bingman
c/o CCA Industries, Inc.
Stephen A. Heit
c/o CCA Industries, Inc.
Officers and Directors
as a group (10 persons)
_______________________
-
-
10,000
0%
.1%
1,000
-
-
.01%
-
1,035,473
967,702
145,000
(1) The number of “Option Shares” represents the number of shares that could be purchased by and
upon exercise of unexercised options exercisable within 90 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. Stephen Heit,
John Bingman and Drew Edell is an officer. Messrs. Lage, Kreitman and Polak are independent,
outside directors.
(3) The principal business of Costa Brava Partnership III L.P. is to make investments in, buy, sell,
hold, pledge and assign securities. The principal business of Roark, Rearden and Hamot, LLC is to
act as general partner of Costa Brava Partnership III L.P. The principal business address is 420
Boylston Street, Boston, MA 02116. Seth W. Hamot is the president of Roark, Rearden & Hamot,
LLC, which is the general partner of Costa Brava Partnership III L.P.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 2006, several related parties provided services to the Company, which were
deemed immaterial to the financial statements.
During fiscal 2006 the Company purchased and retired an aggregate of 225,000 shares of
common stock from three officers/directors, David Edell-100,000, Ira Berman-100,000 and Drew
Edell-25,000. The purchase price was $10.50 per share discounted from $10.82 per share, the
closing price at the close of business on the transaction date. The Company purchased 9,392
shares from Stanley Kreitman, a director, and 15,000 shares from Rami Abada, a former director,
for $10.50 per share discounted from $10.70 per share, the closing price at the close of business on
the transaction date.
34
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
KGS LLP (“KGS”) (formerly known as Sheft Kahn & Company LLP) served as the
Company’s independent auditors for 2006 and 2005. 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 $216,725 for the 2006 fiscal year and $162,178
for the 2005 fiscal year. The Company has paid and is current on all billed fees.
Audit Related Fees
Audit related fees billed in Fiscal 2006 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 2006 and 2005 fiscal years were $58,100 and $41,181,
respectively.
All Other Fees
All other fees of $140 and $565 billed in Fiscal years 2006 and 2005, 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
35
report that approval to the full committee at the next committee meeting.
Since the May 6, 2003 effective date of the Securities and Exchange Commission rules stating
that an auditor is not independent of an audit client if the services it provides to the client are not
appropriately approved, each new engagement of 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.
36
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENTS,
SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements:
Table of Contents, Report of Independent Registered Public Accounting Firm, Consolidated
Balance Sheets as of November 30, 2006 and 2005, Consolidated Statements of Income for the
years ended November 30, 2006, 2005 and 2004, Consolidated Statements of Comprehensive
Income (Loss), Consolidated Statements of Shareholders' Equity for the years ended
November 30, 2006, 2005 and 2004, Consolidated Statements of Cash Flows for the years
ended November 30, 2006, 2005 and 2004, Notes to Consolidated Financial Statements.
Financial Statement Supplementary Information:
Schedule II: Valuation Accounts; Years Ended Nov. 30, 2006, 2005 and 2004.
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 and 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 2006 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.
(2) Forms 8K filed on April 11, 2005, June 27, 2005, and July 15, 2005 are incorporated by
37
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, 2006:
(1) Form 425, filed on September 6, 2006 announcing that the Company entered into a $25
million non-secured revolving Line of Credit with the Wells Fargo Bank.
(2) Form 8K, filed on September 6, 2006, announcing that the Company entered into a $25
million non-secured revolving Line of Credit with the Wells Fargo Bank.
(3) Form 10Q, filed on October 10,2006, for the quarter ended August 31, 2006.
(4) Form 8K, filed on October 23, 2006, announcing that On October 11, 2006, in the case
of Ellen and Murray Swartz v. CCA Industries, Inc . in the Court of Common Pleas,
Philadelphia County, all claims and cross claims against CCA Industries, Inc. were
dismissed with prejudice.
(5) Form 8K, filed on November 3, 2006, announcing that In a news release made public
today (attached herewith as Exhibit “A”), CCA Industries, Inc. announced that Dubilier &
Company has entered into a Letter of Intent (attached herewith as Exhibit “B”) with CCA
Industries, Inc. to acquire the Company for approximately $94,000,000 or $12.00 per share
for the common stock and $14.50 per share for the restricted Class A stock. The purchase
is contingent upon the execution of the mutually agreed to terms and conditions of the
Definitive Purchase Agreement.
(6) Form 13D/A, filed on November 6, 2006 by filing person, announcing that the Reporting
Person no longer beneficially owns more than 5% of the Issuer’s securities.
(7) Form 13D/A filed on November 22, 2006 by filing person, announcing that on November
17, 2006, Costa Brava sent a letter to the Board of Directors of the Issuer expressing its
concerns over the proposed merger between the Issuer and Dubilier & Company, Inc.
(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
38
(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).
39
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
Executive Vice President,
February 28, 2006
Chief Financial Officer
s/ Vice President ,
DREW EDELL
Product Development
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
40
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006 AND 2005
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 ACCOUNTS……………………………………………...35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
CCA Industries, Inc.
East Rutherford, New Jersey
We have audited the consolidated balance sheets of CCA Industries, Inc. and Subsidiaries
as of November 30, 2006 and 2005, 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, 2006. 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, 2006 and 2005, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended November 30, 2006, in conformity
with accounting principles generally accepted in the United States of America.
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 financials statements taken as a whole.
KGS LLP
CERTIFIED PUBLIC ACCOUNTANTS
February 28, 2007
Jericho, New York
-1-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
November 30,
2006
2005
$ 4,385,340
$ 3,536,542
11,516,349
7,050,026
7,188,197
9,260,399
6,350,013
684,875
-
1,180,472
31,305,246
6,554,150
526,134
165,560
818,948
27,911,759
561,634
467,238
503,595
583,177
4,073,656
24,940
47,500
6,275,390
23,419
48,325
4,146,096
6,347,134
$36,516,571
$35,309,308
Current Assets
Cash and cash equivalents
Short-term investments and marketable
securities (Notes 2 and 6)
Accounts receivable, net of allowances of
$1,026,197 and $938,712 respectively
Inventories, net of reserve for inventory
obsolescence of $777,715 and $854,764
respectively (Notes 2 and 3)
Prepaid expenses and sundry receivables
Prepaid income taxes and refunds due (Note 8)
Deferred income taxes (Note 8)
Total Current Assets
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 taxes
Other
Total Other Assets
Total Assets
See Notes to Consolidated Financial Statements.
-2-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
November 30,
2006 2005
Current Liabilities
Accounts payable and accrued
liabilities (Note 10)
Income tax payable
Dividends payable
$ 8,104,424
$ 8,734,092
413,869
490,970
575,560
Total Current Liabilities
9,009,263
9,309,652
Capitalized lease obligations 122,517 -
Total Liabilities
9,131,780
9,309,652
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 6,034,651 and
6,212,055 shares, respectively
Class A common stock, $.01 par; authorized
5,000,000 shares; issued and outstanding
967,702 and 967,702 shares, respectively
Additional paid-in capital
Retained earnings
Unrealized (losses) on marketable securities
-
-
60,346
62,121
9,677
2,329,570
25,112,331
( 127,133)
9,677
5,105,732
21,200,465
( 378,339)
Total Shareholders' Equity
27,284,791
25,999,656
Total Liabilities and Shareholders' Equity
$36,516,571
$35,309,308
See Notes to Consolidated Financial Statements.
-3-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended November 30,
2005
2004
2006
$63,302,220
797,803
$61,181,334
572,909
$59,008,135
850,196
64,100,023
61,754,243
59,858,331
23,260,307
22,734,062
20,808,145
21,104,728
20,246,344
17,399,483
10,345,407
536,590
( 73,657)
10,003
10,671,906
772,627
201,864
19,912
11,349,618
876,665
18,675
31,466
55,183,378
54,646,715
50,484,052
8,916,645
7,107,528
9,374,279
3,312,394
$ 5,604,251
3,322,026
$ 3,785,502
3,577,616
$ 5,796,663
7,034,276
7,133,332
7,145,297
7,317,994
7,399,472*
7,680,781*
$.80
$.79
$.53
$.52
$.78*
$.75*
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
Income before Provision
for Income Taxes
Provision for Income Tax
Net Income
Weighted Average Shares *
Outstanding
Basic
Diluted
Earnings Per Common Share*
(Note 2):
Basic
Diluted
* Adjusted for 2% stock dividend.
See Notes to Consolidated Financial Statements.
-4-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended November 30,
2005
2004
2006
Net Income
$5,604,251
$3,785,502
$5,796,663
Other Comprehensive Income (Loss)
Unrealized holding gain (loss)
on investments
251,206
( 149,395)
( 133,716)
Comprehensive Income
$5,855,457
$3,636,107
$5,662,947
See Notes to Consolidated Financial Statements.
-5-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2006, 2005 AND 2004
COMMON STOCK (1)
SHARES AMOUNT
ADDITIONAL
PAID IN
CAPITAL
RETAINED
EARNINGS
UNREALIZED
GAIN (LOSS)
ON
MARKETABLE
SECURITIES
TREASURY
STOCK
7,701,903
131,825
$77,019
1,318
$3,829,914
3,682
$19,891,541
($95,228)
($358,706)
5,796,663
(995,440)
(133,716)
(192,849)
(1,928)
38
(207,145)
209,035
(510,000)
(5,100)
7,130,879
137,769
71,309
1,378
100
1,260,926
5,904,660
11,072
(88,891)
7,179,757
95,500
(889)
71,798
955
5,105,732
46,795
(4,490,000)
(1,260,926)
18,734,693
3,785,502
(1,151,411)
(168,319)
21,200,465
5,604,251
(1,692,385)
(228,944)
(149,671)
(19,537)
169,208
-
(149,395)
(378,339)
251,206
(272,904)
7,002,353
(2,730)
$70,023
(2,822,957)
$2,329,570
$25,112,331
($127,133)
$ -
Balance – November 30, 2003
Issuance of common stock
Net income for the year
Dividends declared
Unrealized (loss) on marketable securities
Retirement of treasury stock
Purchase and retirement of
common stock
Stock dividend
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
Balance – November 30, 2005
Issuance of common stock
Net income for the year
Dividends declared
Unrealized (loss) on marketable securities
Purchase and retirement of common stock
Balance – November 30, 2006
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 intangible assets
(Increase) decrease in deferred
income taxes
Decrease (increase) in accounts receivable
Decrease (increase) in inventory
(Increase) decrease in prepaid expenses
and sundry receivables
Decrease (increase) in prepaid income
taxes and refunds due
Decrease (increase) in other assets
(Decrease) increase in accounts payable and
accrued liabilities
(Decrease) increase in income taxes payable
Net Cash Provided by Operating
Activities
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 of common shares
Repurchase of outstanding debentures
Proceeds from exercise of stock options
Increase in capital lease obligation
Payments in capital lease obligation
Purchase of treasury stock
Dividends paid
2006
2005
2004
$5,604,251
$3,785,502
$5,796,663
227,039
( 62,012)
112,901
( 363,045)
2,072,202
204,137
329,278
307,598
( 143,736)
42,380
(9,947)
( 202,154)
( 582,415)
( 506,150)
308,600
( 2,073,002)
( 735,301)
( 158,741)
169,519
( 104,803)
165,560
825
( 629,667)
413,869
253,091
( 10,914)
( 182,031)
1,727
1,751,257
( 59,888)
1,379,685
59,888
7,587,319
4,969,506
4,605,341
( 309,594)
( 45,161)
(12,588,205)
( 215,066)
( 126,233)
(4,616,689)
( 140,674)
( 27,036)
( 4,249,221)
7,078,164
1,946,814
10,636,835
- - 50,000
( 2,306,125)
( 3,011,174)
2,711,233
594
( 4,495,000)
( 2,825,687)
-
47,749
151,407
( 28,890)
-
( 1,776,975)
( 497,656)
(8,548)
-
-
867
( 1,059,277)
5,000
-
-
-
( 891,131)
Net Cash (Used in) Financing Activities
( 4,432,396)
( 1,564,020)
( 5,381,131)
Net Increase In Cash
Cash at Beginning of Year
848,798
394,312
1,935,443
3,536,542
3,142,230
1,206,787
Cash and Cash Equivalents at End of Year
$ 4,385,340
$ 3,536,542
$ 3,142,230
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest $ 10,003
Income taxes
2,256,400
$ 19,912
3,297,371
$ 31,466
3,382,450
Supplemental Disclosure of Non-Cash
Information:
Dividends declared and accrued
Retirement of 272,904, 88,891 and 192,849 shares of
Treasury stock
See Notes to Consolidated Financial Statements.
$ 490,970
$ 575,560
$ 483,426
2,825,687
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. The accounts receivable balance
is further reduced by allowances for coop advertising and reserves for returns which
are anticipated to be taken as credits against the balances as of November 30th. The
allowances and reserves which are anticipated to be deducted from future invoices are
included in accrued liabilities. 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 estimate 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.
-8-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Statements of Cash Flows Disclosure:
For purposes of the statement of cash flows, the Company considers all highly liquid
instruments purchased with an original maturity of less than three months to be cash
equivalents.
During fiscal 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/shareholders exercised in the aggregate 139,000
options, David Edell with 65,000, Ira Berman with 59,000 and Stanley Kreitman with
15,000. In addition, 5,000 options were exercised by Aimee Boutcher.
During fiscal 2006, four officers/directors exercised in the aggregate 95,500 options,
David Edell with 22,500, Ira Berman with 28,000, Dunnan Edell with 20,000 and Jack
Pollack with 25,000.
In addition, the Company purchased and retired an aggregate of 225,000 shares of
common stock from three officers/directors, David Edell-100,000, Ira Berman-100,000
and Drew Edell-25,000. The purchase price was $10.50 per share discounted from
$10.82 per share, the closing price at the close of business on the transaction date. The
Company purchased 9,392 shares from Stanley Kreitman, a director, and 15,000 shares
from Rami Abada, a former director, for $10.50 per share discounted from $10.70 per
share, the closing price at the close of business on the transaction date.
For the year ended November 30, 2006, dividends declared but not yet due amounted
to $490,970.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Product returns are recorded in inventory when they are received at the lower of their
original cost or market, as appropriate. Obsolete inventory is written off and its value
is removed from inventory at the time its obsolescence is determined.
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. The Company charges to expense repairs
and maintenance items, while major improvements and betterments are capitalized.
When the Company sells or otherwise disposes of property and equipment items, the
cost and related accumulated depreciation are removed from the respective accounts
and any gain or loss is included in earnings.
Depreciation and amortization are provided on the straight-line method over the
following estimated useful lives or lease terms of the assets:
Machinery and equipment
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. Those returns which are
anticipated to be taken as credits against the balances as of November 30th are offset
against the accounts receivable. The reserves which are anticipated to be deducted
from future invoices are included in accrued liabilities.
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 2006, 2005 and 2004 would have been $65,352,334,
$65,352,334, and $62,673,158 respectively. In the fourth quarter of 2006, the
Company reclassified certain promotional expenses from sales expense to a charge
against sales for fiscal 2006. For comparison purposes, those same expenses were
reclassified for fiscal years 2004 and 2005. None of these changes affect net income
reported for the interim periods or fiscal years ended November 30, 2004, 2005 and
2006.
-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 is to charge advertising costs to expense as incurred. During
fiscal 2005, the Company changed its estimate of future benefits it derives from
advertising expenditures and the effect it has on its allocation among the interim
quarters. Effective June 1, 2005, the Company expensed its advertising based on when
the advertising ran. The change in estimate affected interim reporting in fiscal 2005
and had no effect on the Company’s year-end earnings for fiscal 2005.
Shipping Costs:
The Company’s policy for fiscal financial reporting is to charge shipping cost to
operations as incurred. For the years ended November 30, 2006, 2005 and 2004,
included in selling, general and administrative expenses are shipping costs amounting
to $2,542,685, $3,601,322, and $2,813,479, respectively.
Stock Options:
In December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Accounting for
Share-Based Compensation” which is a revision of SFAS No. 123. Effective for
annual or interim periods beginning after December 15, 2005, SFAS No. 123R
requires stock grants to employees to be recognized in the income statement based on
their fair values. The adoption of SFAS No. 123R did not have any impact on the
Company’s financial position, results of operations or cash flow.
Reclassifications
Certain prior years amounts have been reclassified to conform with the current years
presentation.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issue FASB
Interpretation No. 48 (“FIN No. 48”) “Accounting for Uncertainty in Income Taxes –
an Interpretation of FASB No. 109”. FIN No. No. 48 established a recognition
threshold and measurement for income tax positions recognizes in an enterprise’s
financial statements in accordance with FASB No. 109, “Accounting for Income
Taxes”. FIN No. 48 also prescribes a two-step evaluation process for tax positions. The
first step is recognition and the second is measurement. FIN No. 48 is effective for
fiscal years beginning after December 15, 2006. Accordingly, the Company plans to
adopt FIN No. 48 on December 1, 2007. The Company has not determined the impact
if any, on the adoption of FIN No. 48.
In September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value,
established a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. SFAS No. 157
applies under other accounting pronouncements that require or permit fair value
measurements, the FASB previously concluded in those accounting pronouncements
that fair value is the relevant measurement attribute. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007, and
interim periods in those fiscal years. The Company has not determined the impact, if
any, of the adoption of SFAS No. 157.
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of SFAS
Statements Nos. 87, 88,106 and 132R. SFAS No. 158, requires an employer to
recognize the over-funded or under-funded status of a defined benefit postretirement
plan as an asset or liability in its statement of financial position , measure a plan’s
assets and obligations as of the end of the employer’s fiscal year-end and recognize
changes in the funded status in the year in which the changes occur through
comprehensive income. SFAS No. 158 is effective as of the end of the fiscal year
ending after December 15, 2007. Since the Company does not have a defined benefit
plan, the adoption will not have an impact on the Company’s financial statements.
-11-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 108 (“SAB 108”) which provides interpretive guidance on
how the effects of the carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. SAB 108 is effective for the
first fiscal year ending after November 15, 2006 which will be the fiscal year ending
November 30, 2006. The adoption of this statement had no material impact on the
Company’s financial position or results of operations.
NOTE 3 -
INVENTORIES
At November 30, 2006 and 2005, inventories consist of the following:
Raw materials
Finished goods
2006
2005
$3,822,073
2,527,940
$6,350,013
$3,946,164
2,607,986
$6,554,150
At November 30, 2006and 2005, the Company had a reserve for obsolete inventory of
$777,715 and $854,764, respectively.
NOTE 4 - PROPERTY AND EQUIPMENT
At November 30, 2006 and 2005, property and equipment consisted of the following:
2006
2005
Machinery and equipment
Office furniture and equipment
Transportation equipment
Tools, dies, and masters
Capitalized lease obligations
Leasehold improvements
$ 125,788
825,928
10,918
426,470
300,402
1,851,724
$ 125,788
793,937
10,918
548,846
294,067
1,773,556
162,218 -
Less: Accumulated depreciation
and amortization
1,290,090
1,306,318
Property and Equipment - Net
$ 561,634
$ 467,238
Depreciation expense for the years ended November 30, 2006, 2005 and 2004
amounted to $215,197, $317,573, and $299,451, 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, 2006 and
2005 is as follows:
2006
2005
Trademarks and patents
Less: Accumulated amortization
Intangible Assets - Net
$650,274
146,679
$503,595
$741,427
158,250
$583,177
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. During
2006, $112,901 ($23,413 of accumulated amortization) of intangibles were deemed to be
impaired and written off. Amortization expense for the years ended November 30, 2006,
2005 and 2004 amounted to $11,843, $54,085, and $48,200, respectively. Estimated
amortization expense for November 30, 2007, 2008, 2009, 2010 and 2011 will be
$21,871, $21,095, $18,136, $13,463 and $12,769, respectively.
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
Short-term investments and marketable securities, which consist of stock and various
corporate and government obligations, are stated at market value. The Company has
classified its investments as Available-for-Sale securities and considers as current assets
those investments which will mature or are likely to be sold in the next fiscal year. The
remaining investments are considered non-current assets. The cost and market values of
the investments at November 30, 2006 and November 30, 2005 were as follows:
November 30,
2006
November 30,
2005___________
Current:
COST MARKET
COST MARKET
Corporate obligations
Government obligations
(including mortgage
backed securities)
Common stock
Mutual funds
Other equity
$ 4,725,545
$ 4,712,154 $ 4,169,918 $ 4,080,882
6,519,395
51,649
208,955
64,881
6,536,115
56,508
148,464
63,108
2,732,192
51,649
198,305
60,335
2,726,444
52,368
136,191
54,141
Total
11,570,425 11,516,349
7,212,399
7,050,026
Non-Current:
Corporate obligations
Government obli-
gations
Preferred stock
Other equity
investments
Total
Total
1,591,292
1,571,928
3,040,192
2,926,098
1,630,576
824,845
1,583,524
818,204
2,526,319
824,845
2,456,724
792,568
100,000
100,000
100,000
100,000
4,146,713
4,073,656
6,491,356
6,275,390
$15,717,138
$15,590,005
$13,703,755 $13,325,416
-13-
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The market value at November 30, 2006 was $15,590,005 as compared to $13,325,416 at November 30,
2005. The gross unrealized gains and losses were $47,504 and ($174,637) for November 30, 2006 and
$13,577 and ($391,896) for November 30, 2005. The cost and market values of the investments at
November 30, 2006 were as follows:
COL. A
COL. C
COL. B
COL.D
Number of
Units-Principal
Amount of
Bonds and
Interest
Rate
Notes Each Issue
Cost of
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:
Alcoa
American Express Co
American General Fin Corp
Banc One Global Notes
Banc One Global Notes
Bank of America Corp
Bank of America Corp
Bear Sterns
Berkshire Hathaway
BP Capital Markets
Caterpillar Fin Service Corp
Chevron Texaco Capital Co
Citigroup Global Markets
Citigroup Global Markets
Citigroup Global Markets
GE Capital Corp Medium
GE Capital Internotes
GE Capital Internotes
General Electric Capital Corp
Glaxosmithkline CAP PLC
GMAC Smartnotes
GMAC Smartnotes
Goldman Sachs Group
HSBC Financial Corp
John Deere Capital Corp
John Hancock Life Ins
Lehman Brothers
8/15/07
11/20/07
11/15/07
9/01/07
6/30/08
1/15/08
8/15/08
2/15/07
7/02/07
12/29/06
6/15/07
9/17/07
12/20/07
3/15/07
3/15/07
1/15/07
2/15/07
3/15/07
8/15/07
4/16/07
12/15/06
9/15/07
1/15/08
10/15/07
8/22/07
3/15/07
1/22/08
4.250
3.750
4.500
4.125
2.625
3.875
3.250
2.650
3.400
2.750
4.875
3.500
4.200
2.350
3.750
2.800
2.500
2.350
3.500
2.375
3.400
3.750
4.125
5.050
4.500
2.350
4.000
300,000
100,000
200,000
200,000
125,000
250,000
200,000
100,000
250,000
300,000
100,000
200,000
200,000
150,000
150,000
300,000
200,000
250,000
200,000
200,000
200,000
200,000
200,000
250,000
150,000
150,000
200,000
298,311
99,858
198,530
199,172
124,363
249,560
199,630
100,000
247,338
297,110
99,970
197,384
199,442
150,000
150,000
296,728
200,000
250,000
197,354
198,894
200,000
200,000
199,196
250,000
149,250
150,000
196,950
296,998
98,629
198,830
197,880
120,281
246,333
194,300
99,411
247,490
299,478
99,734
197,486
197,948
148,643
149,205
298,075
198,806
247,723
197,786
197,754
199,900
195,460
197,906
249,715
149,136
148,698
197,404
296,998
98,629
198,830
197,880
120,281
246,333
194,300
99,411
247,490
299,478
99,734
197,486
197,948
148,643
149,205
298,075
198,806
247,723
197,786
197,754
199,900
197,460
197,906
249,715
149,136
148,698
197,404
-14-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
COL. A
COL. B
COL. C
COL.D
Name of Issuer and
Title of Each Issue
Maturity
Date
CORPORATE OBLIGATIONS (Continued):
Number of
Units-Principal
Amount of
Bonds and
Interest
Rate
Notes Each Issue
Cost of
COL.E
Amount at Which
Each Portfolio
Market Of Equity Security
Issues and Each
Value of
Each Issue
Other Security
at Balance Issue Carried in
Balance Sheet
Sheet Date
Merrill Lynch & Co
United Healthcare Notes
Walmart
Washington Mutual
Wells Fargo & Co
11/15/07
1/30/08
7/12/07
1/15/08
8/25/08
4.000
3.300
4.375
4.375
3.120
400,000
75,000
200,000
250,000
100,000
$ 396,994
74,890
198,652
248,103
99,158
$ 395,044
73,324
199,172
247,703
96,730
$ 395,044
73,324
199,172
247,703
96,730
6,316,837
6,284,082
6,284,082
-15-
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COL. A
COL. B COL. C COL. D COL. E
Each Portfolio
Amount at Which
Number of Market Of Equity Security
Units-Principal Value of Issues and Each
Amount of
Each Issue
at Balance
Sheet Date
Other Security
Issue Carried in
Balance Sheet
Name of Issuer and Maturity Interest Bonds and Cost of
Title of Each Issue
Notes Each Issue
Rate
Date
GOVERNMENT OBLIGATIONS:
CA Infrastructure & Dev
NJ Turnpike Authority
Tennessee Valley
US T Bill
US T Bill
US T Note
US T Note
US T Bill
US T Note
US T Bill
US T Bill
US T Bill
US T Bill
US T Bill
US T Note
US T Note
US T Note
US T Note
US T Note
US T Note
US T Note
US T Note
US T Note
US T Note
US T Note
Federal Natl Mtg Assn
Federal Natl Mtg Assn
US T Note
FNMA
Federal Home Loan Bank
Federal Home Loan Bank
10/01/20
1/01/30
5/01/29
12/21/06
2/15/07
8/15/07
5/15/07
12/21/06
1/04/07
1/18/07
2/22/07
2/28/07
3/22/07
4/30/07
5/15/07
5/15/07
5/15/07
5/15/07
5/31/07
5/31/07
6/30/07
6/30/07
6/30/07
6/30/07
6/30/07
7/15/07
7/15/07
8/31/07
9/24/07
10/03/07
10/19/07
Variable
1.05
6.50
4.76
4.86
6.13
3.13
0
0
0
0
3.38
0
3.63
4.38
4.38
4.38
4.38
3.50
3.50
3.50
3.63
3.63
3.63
3.63
3.63
4.25
4.25
4.00
3.00
5.25
300,000
150,000
4,700
298,000
450,000
410,000
200,000
350,000
220,000
200,000
250,000
200,000
350,000
250,000
250,000
100,000
250,000
100,000
200,000
200,000
250,000
100,000
250,000
150,000
200,000
100,000
100,000
250,000
200,000
200,000
200,000
$ 300,000
150,000
122,820
290,993
444,851
413,493
199,465
345,800
214,399
197,563
243,772
197,792
341,354
248,512
248,996
99,598
249,446
99,851
197,259
198,719
247,680
99,072
247,973
148,784
199,757
99,462
99,600
249,258
200,000
200,000
198,178
$ 300,000
150,000
115,150
297,145
445,347
413,186
198,296
348,996
218,977
198,712
247,170
199,180
344,712
248,623
249,288
99,715
249,288
99,715
199,490
198,546
248,038
99,215
248,038
148,823
198,430
99,438
99,438
248,233
196,688
200,250
198,376
$ 300,000
150,000
115,150
297,145
445,347
413,186
198,296
348,996
218,977
198,712
247,170
199,180
344,712
248,623
249,288
99,715
249,288
99,715
199,490
198,546
248,038
99,215
248,038
148,823
198,43
99,438
99,438
248,233
196,688
200,250
198,376
US T Note
US T Note
FNMA
11/15/07
11/15/07
12/10/07
4.13
3.00
3.00
250,000
50,000
150,000
248,109
49,669
150,000
245,635
49,127
148,454
245,635
49,127
148,454
-16-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
COL. A
Name of Issuer and Maturity Interest Bonds and Cost of
Title of Each Issue
Date
Rate
Notes Each Issue Sheet Date Balance Sheet
COL. B COL. C COL. D COL. E
Each Portfolio
Amount at Which
Number of Market Of Equity Security
Units-Principal Value of Issues and Each
Amount of
Each Issue
at Balance
Other Security
Issue Carried in
Federal Home Loan Bank
FHLMC
FHLMC
Tennessee Valley
Tennessee Valley
7/24/08
11/15/09
11/15/17
5/01/29
5/01/29
2.13
3.25
4.50
6.50
6.50
100,000
250,000
200,000
4,000
9,300
$ 100,000
250,000
200,000
106,688 98,000 98,000
227,850
$ 99,188
247,070
197,812
$ 99,188
247,070
197,812
227,850
251,068
EQUITY:
Preferred Stock:
General Electric Cap Corp
MetLife Floater
ABN AMRO Cap Fund
JP Morgan Chase Cap IX
Morgan Stanley Cap Tr
Wells Fargo Cap Tr VIII
8,149,971
8,119,639
8,119,639
11/15/32
6/15/10
07/03/08
06/15/33
07/15/33
08/01/33
6.10%
4.00%
5.900%
5.875%
5.750%
5.625%
8,800
8,000
2,000
2,000
4,000
8,000
224,845
200,000
50,000
50,000
100,000
200,000
221,144
209,200
49,320
48,540
95,200
194,800
221,144
209,200
49,320
48,540
95,250
194,800
824,845
818,204
818,204
-17-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
COL. A
Name of Issuer and Maturity Interest Bonds and Cost of
Title of Each Issue
Date
Rate
COL. B COL. C COL. D COL. E
Each Portfolio
Amount at Which
Number of Market Of Equity Security
Units-Principal Value of Issues and Each
Amount of
Each Issue
at Balance
Notes Each Issue Sheet Date
Other Security
Issue Carried in
Balance Sheet
Common Stock:
DTE Energy Company
Mutual Funds:
Dreyfus Premier Ltd High Income
Other Equity Investments:
Aberdeen Asia Pacific Fund
PIMCO Floating Rate Strategy
1,200
$ 51,649 $ 56,508
$ 56,508
16,296.314
208,955
148,464
148,464
4
2,900
100,000
64,881
100,000
63,108
100,000
63,108
Totals
$15,717,138 $15,590,005
$15,590,005
-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, 2006, 2005 and 2004, available-for-sale
securities were liquidated and proceeds amounting to $10,636,835 $1,946,814, and
$7,078,164 were received, with resultant realized gains/(losses) totaling $62,012, $0,
and $143,736, 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 $25,000,000.. 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 November 30, 2006 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, 2006 and 2005. The Company has extended the line of credit through
August 31, 2007.
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 any accrued interest were 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
2004 returns have been examined by the Internal Revenue Service.
At November 30, 2006 and 2005, respectively, the Company has temporary differences
arising from the following:
November 30, 2006___________
Type
Amount
Depreciation
Reserve for bad debts
Reserve for returns
Reserve for obsolete
inventory
Vacation accrual
Charitable contributions
Section 263A costs
Net deferred income tax
Deferred
Tax
Classified As
Short-
Term
Long-
Term
$ 62,361 $24,940 $ -
74,298
185,779
74,298
177,336
177,336
443,418
Asset (Liability)
$ 24,940
-
-
777,715
344,031
1,047,761
153,000
311,031
137,588
419,030
61,189
311,031
137,588
419,030
61,189
-
-
$1,205,412
$1,180,472 $ 24,940
-19-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -
INCOME TAXES (Continued)
November 30, 2005___________
Deferred
Tax
Classified As
Short-
Term
Long-
Term
Asset (Liability)
$ - $23,419
Type
Amount
$ 62,631
260,366
678,346
Depreciation
Reserve for bad debts
Reserve for returns
Reserve for obsolete
inventory
319,611
Vacation accrual 337,181 126,080 126,080
Section 263A costs
22,435
-
Charitable contributions
$ 23,419
97,172
253,650
22,435
-
97,172
253,650
60,000
-
854,764
319,611
-
-
-
-
-
Net deferred income tax
$842,367
$818,948
$23,419
Income tax expense (benefit) is made up of the following components:
November 30, 2006
State &
Federal Local Total
Current tax expense
Tax credits - - -
Deferred tax expense(benefit) ( 331,944)
$2,560,334
(97,504)
$752,060
$2,892,278
$849,564
(429,448)
$3,312,394
$3,741,842
November 30, 2005
State &
Federal Local Total
Current tax expense
Tax credits
Deferred tax expense
$2,563,858
( 40,000)
( 103,222)
$2,420,636
$910,086
$3,473,944
( 30,000) ( 70,000)
21,304
$901,390
( 81,918)
$3,322,026
-20-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -
INCOME TAXES (Continued)
November 30, 2004
Current tax expense
Tax credits
Deferred tax expense
Federal
$2,494,109
( 40,000)
282,855
$2,736,964
State &
Local
Total
$768,251
72,401
$840,652
$3,262,360
- ( 40,000)
355,256
$3,577,616
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, 2006 $182,404 $231,465 $ 413,869
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, 2006 is as follows:
2006
Percent
Of Pretax
Amount
Percent
of Pretax
Income Amount Income
Percent
of Pretax
Income
Amount
2005
2004 .
Income tax expense (benefit)
at federal statutory rate
Increases (decreases) in taxes
resulting from:
State income taxes, net of federal
$3,031,659
34.00%
$2,416,559
34.00%
$3,187,255
34.00%
income tax benefit
560,712
6.29
594,911
8.40
554,830
5.92
Non-deductible expenses and
other adjustments
(279,977)
(3.14)
380,556
5.47
( 124,469)
( 1.32 )
Utilization of tax credits
-
-
( 70,000)
( 1.13 )
( 40,000)
( 0.43 )
Income tax expense (benefit)
at effective rate
$3,312,394
37.15%
$3,322,026
46.74%
$3,244,767
38.17%
-22-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -
STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, “Share-
Based Payment” (“SFAS No. 123R”) which requires an entity to recognize the grant-date fair value of stock
options and other equity-based compensation issued to employees in the financial statements. Accordingly,
the Company applied the provisions of SFAS No. 123R to all awards granted subsequent to December 31,
2005 and will apply the provisions to the extent that these awards are subsequently modified, repurchased or
cancelled.
Prior to January 1, 2006, the Company accounted for stock based compensation plans under the intrinsic value
method of accounting as defined by Accounting Principles Board Opinion No. 25, “Accounting for Stock-
Based Compensation”, as amended. Under Opinion No. 25, no compensation expense was recognized for
employee share option grants because the exercise price of the options granted equaled the market price of the
underlying shares on the date of grant. SFAS No. 123, required that the Company provide pro forma
information regarding net earnings as if compensation cost for the Company’s stock-based awards had been
determined in accordance with the fair value prescribed therein.
There were no share-based awards granted or vested subsequent to December 31, 2005 and therefore there was
no share-based compensation to recognize.
The following table illustrated the effect on net earning if the Company had applied the fair value recognition
of SFAS No. 123R to stock-based employee compensation.
Net income
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards net of related tax effects
Twelve months ended November 30,
2006
2005
$5,797,272
$3,785,502
-
-
Pro forma net earnings
$5,797,272
$3,785,502
-23-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -
STOCK-BASED COMPENSATION (Continued)
The following summarizes stock option activity for the two years ended November 30, 2006.
Weighted Average
exercise price of Weighted Average
Shares Outstanding Options Remaining Life
Number of
Intrinsic
Value
0
0
0
0
0
0
Outstanding November 30, 2004
Granted
Exercised
Forfeited
(144,000)
429,500
$3.30
4.10
Outstanding November 30, 2005 285,500
$4.70
3.20
Granted
0
Exercised
Forfeited
(95,500)
( 9,000)
Outstanding November 30, 2006 181,000
$ .50
$7.50
$5.88
1.83
-24-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE
The following items which exceeded 5% of total current liabilities are included in accounts
payable and accrued liabilities as of:
Coop advertising
Accrued returns
Accrued bonuses
November 30,
2006
2005
(In Thousands)
$ 1,356
1,011
777
$3,144
$ 1,372
1,489
784
$3,645
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:
November 30,
2006
2005
2004
Interest income
Dividend income
Realized gain (loss) on sale of
Securities 49,280 - 143,736
138,313
Royalty income
50,000
Sale of trademark
$442,936
44,756
$417,537
32,182
$582,149
43,820
109,274
108,249
-
30,455
13,916
14,305
$797,803 $572,909 $850,196
-
Miscellaneous
-25-
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 of 3%, but shall not cumulatively exceed 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 $164,880 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
$135,860. The Company has extended the lease for an additional one year period ending April
30, 2008.
Rent expense for the years ended November 30, 2006, 2005 and 2004 was $605,893, $597,530,
and $449,376, respectively.
In addition, the Company has entered into various property and equipment operating leases with
expiration dates ranging through November 2011.
Future commitments under non cancelable 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,
2007
2008
2009
2010
2011
Royalty Agreements
$771,743
651,179
554,140
511,041
492,684
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% will 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 Alleghany Pharmacal License accounted for $ 9,062,416 or 14.3% of
total net sales in the fiscal year ended November 30, 2006.
-26-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Royalty Agreements (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
$801,178 in net sales of sun-care products in 2006.
In October of 1999, the Company entered into a License Agreement with The Nail
Consultants, Ltd. for the use of an activator invented in connection with a method
for applying a protective covering to fingernails. The Company’s License
Agreement with The Nail Consultants, Ltd. is for the exclusive use of the method
and its composition in a new product kit packaged and marketed by CCA under its
own name, “Nutra Nail Power Gel”. The Company will pay a royalty of 5% of net
sales of all licensed product sold by the Company. Net sales for products subject
to the Nail Consultants, Ltd. License were $1,347,491 in fiscal 2006.
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 in order to maintain its exclusivity for the sale of the products and to
continue marketing the products so long as the minimum requirements are met and
until royalties have aggregated to $10,000,000. The Company is required to pay a
royalty of net sales payable quarterly. In fiscal 2006, the net sales were
$1,235,806.
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 net sales for products
subject to a commission under the agreement was $1,516,127 in 2006.
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 agreement was not renewed and expired on July 13, 2006.
-27-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Royalty Agreements (Continued)
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
2006
2005
2004
$ 45,116 $ 91,968
99,166 109,035
23,616
(3,497)
8,369
(910)
1,829
4,424 69,714
$ 43,367
92,630
11,892
(88)
3,237
1,054
0
74,148
81,363
(60,402) 116,870
91,870
37,939
116,916
96,975
6,815
0
186
68,935
86,611
0
0
-28-
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 on November 3,
1998 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 then in effect by $100,000 per annum.
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 2007. On February
10, 2006, the Board of Directors extended the contracts for Dunnan Edell and Drew Edell to
December 31, 2010. 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.
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.
-29-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation (Continued)
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 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.
On November 17, 2006, the Board of Directors of CCA received a letter from Kasowitz, Benson,
Torres & Friedman LLP, who identified themselves as counsel for Costa Brava Partnership III,
LP (“Costa Brava”), and its general partner, Roark, Roarden & Hamot Capital. The letter stated
that Costa Brava is the largest holder of the Company’s common stock. Among other things, the
letter claimed that the merger transaction proposed in the Letter of Intent, dated November 1,
2006, signed by the Company and Dubilier & Company, Inc., was discriminatory and unfair as it
contemplated a premium to be paid to Class A share holders at a price more than 20% above the
price to be paid to the Company’s common stock holders. Costa Brava asserted in the letter that
it intended to oppose any transaction that failed to provide equal treatment to the common stock
and Class A shares and that it would take all necessary steps to protect its rights.
Dividends and Capital Transactions
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 was paid on March 1, 2006 to all
shareholders of record as of February 1, 2006. On March 14, 2006, the Board of Directors
declared another $0.05 per share dividend for the second quarter ending May 31, 2006.
The dividend was paid on June 1, 2006 to all shareholders of record as of May 31, 2006.
On June 29, 2006, the Board of Directors declared a $0.07 per share dividend for the third
quarter ending August 31, 2006. The dividend was paid to all shareholders of record as of
August 1, 2006 and payable on September 1, 2006. On October 5, 2006 the Board of
Directors declared a $0.07 per share dividend for the fourth quarter ending November 30,
2006. The dividend was paid to shareholders of record as of November 1, 2006 and
payable on December 1, 2006.
During fiscal 2006, three officer/directors and one director exercised in the aggregate
95,500 options, the officers/directors David Edell-22,500, Ira Berman-28,000, Dunnan
Edell-20,000 and the director Jack Polak-25,000. In addition, the Company purchased and
retired an aggregate of 225,000 shares of common stock from three officer/directors, David
Edell100,000, Ira Berman-100,000 and Drew Edell-25,000. The purchase price was
$10.50 per share discounted from $10.82 per share, the closing price at the close of
business on the transaction date. The Company purchased 9,392 shares from Stanley
Kreitman, a director, and 15,000 shares from Rami Abada, a former director, for $10.50 per
share discounted from $10.70, the closing price at the close of business on the transaction
date.
-30-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the Fiscal years 2004 – 2006, the Company did not make any contributions.
NOTE 14 - CONCENTRATION OF RISK
Most of the Company’s products are sold to major drug and food chains merchandisers,
and wholesale beauty-aids distributors throughout the United States and Canada.
During the years ended November 30, 2006, 2005 and 2004, certain customers each
accounted for more than 5% of the Company's net sales, as follows:
Customer
Walmart
Walgreen
McLanes
CVS
Rite Aid
Albertsons
Foreign Sales
* under 5%
2006
2005
2004
34%
13
6
7
5
*
32%
10
12
8
5
*
34%
11
9
7
7
7
2.3%
1.98%
1.80%
The loss of any one of these customers could have a material adverse affect on the
Company’s earnings and financial position.
-31-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - CONCENTRATION OF RISK (Continued)
During the years November 30, 2006, 2005 and 2004, 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
2006
31%
30
24
9
2005
2004
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 -
SUBSEQUENT EVENTS
On November 1, 2006 the Company entered into a letter of intent with Dubilier and
Company relating to a proposed acquisition of the Company by Dubilier. A copy of the
letter of intent was included as an exhibit to the Company’s 8K filed Report with the
Securities and Exchange Commission on November 2, 2006. The Company and Dubilier
have reached an agreement in principle on a transaction pursuant to which Dubilier will
acquire all of the outstanding common stock and Class A common stock of the Company at
a price per share of $12.25. The transaction is subject to, among other matters, the
execution and delivery of a definitive merger agreement, approval of the transaction by
CCA’s board of directors and shareholders, receipt of an opinion from an independent
investment banking firm to the effect that the consideration to be paid by Dubilier is fair,
from a financial point of view, to the public holders of the Company’s common stock, and
Dubilier’s ability to obtain financing for the transaction
On December 28, 2006, the Board of Directors declared a $0.07 per share dividend to all
shareholders of record February 1, 2007 payable on March 1, 2007.
Markets Edge Management LLC v. CCA Industries, Inc., et al., Docket No. L-677-07 (N.J.
Super. Ct. Bergen Co., Chancery Div.). On January 25, 2007, a complaint was filed
against the Company and its seven directors, as well as Dubilier & Company, Inc.
("Dubilier"). The action is brought by an alleged shareholder of the Company on behalf of
a purported class of shareholders to enjoin the proposed acquisition of the shares of the
Company by Dubilier, or in the alternative for monetary damages. The complaint alleges
that the Agreement and related transactions, "provides for an unreasonable and unfair
premium to be paid to CCA's Class A Stockholders -- all of which are CCA officers and
directors -- over and above the price that the Common Stockholders will receive for their
shares." The complaint alleges that the price to be paid for the shares of the Company is
"grossly inadequate" and that the transaction unfairly provides for "lucrative non-compete
agreements" paying millions of dollars to two officer-directors, and continuing
employment contracts for two children of one of the officer-directors and "another
Company insider." The complaint alleges that CCA and the director defendants have
breached their fiduciary duties of care, loyalty, candor, good-faith, and independence owed
to the shareholders of the Company. The Company has until March 20, 2007 to respond to
the complaint and intends to defend the matter vigorously.
On February 6, 2007 the Company entered into a License Agreement with Compwhite,
LLC for certain oral care products. The License Agreement calls for a deposit of $300,000
into an escrow account, after which there is a forty-five due diligence period. The
Company has the right to cancel the License Agreement at the end of the due diligence
period. The agreement provides for a royalty payment of 5% of net sales for the products
sold under the agreement. The Company has not completed its due diligence at this time,
and therefore cannot ascertain as to whether it will be proceeding with the agreement. In
the event that the Company does not proceed with the agreement, then the $300,000
deposit will be returned to the Company.
- 33 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - EARNINGS PER SHARE
Basic earnings per share is calculated using the average number of common shares outstanding. Diluted earnings per share is
computed on the basis of the average number of common shares outstanding plus the effect of outstanding stock options using
the “treasury stock method”.
Net income available for common
shareholders, basic and diluted
Weighted average common stock
outstanding- Basic
Year Ended November 30,
2006
2005 2003*
$5,604,251
$3,785,502
$5,796,663
7,034,276
7,145,297
7,399,472
Net effect of dilutive stock options
99,056
172,697
281,309
Weighted average common stock and
common stock equivalents - Diluted
Basic earnings per share
Diluted earnings per share
*Adjusted for 2% stock dividend
7,133,332
7,317,994
7,680,781
$.80
$.79
$.53
$.52
$.78
$.75
-34-
SCHEDULE II
CCA INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
YEARS ENDED NOVEMBER 30, 2006, 2005 AND 2004
COL. A
COL. B
COL. C
COL. D
COL. E
Description
Year Ended November 30, 2006:
Allowance for doubtful accounts
Reserve for returns and allowances
Balance at
Beginning
Of Year
Additions
Charged To
Costs and
Expenses
Balance
At End
Deductions Of Year
$ 260,366
$ 678,348
$ 938,714
$185,779
$ (73,657)
$ (930)
$4,520,660 $(4,358,590)
$840,418
$4,447,003 $(4,359,520) $1,026,197
Reserve of inventory obsolescence
$ 854,764
$ 625,743 $ (702,792)
$777,715
Year Ended November 30, 2005:
Allowance for doubtful accounts
Reserve for returns and allowances
$ 111,078
$ 406,556
$ 517,634
$ 206,736 $ (57,448)
$6,240,837 $(5,969,045)
$6,447,573 $(6,026,493)
$260,366
$678,348
$938,714
Reserve of inventory obsolescence
$ 871,488
$ 265,032 $ (281,756)
$854,764
Year Ended November 30, 2004:
Allowance for doubtful accounts
Reserve for returns and allowances
$ 549,851
$ 345,872
$ 895,723
$(309,780) $ (128,993)
$4,282,250 $(4,221,566)
$3,972,470 $(4,350,559)
$ 111,078
$406,556
$517,634
Reserve for inventory obsolescence
$1,153,612
$ 78,345 $ 360,469
$ 871,488
-35-
CERTIFICATION
I, David Edell, Chief Executive Officer of the Registrant, certify that:
1. I have reviewed this annual report on Form 10-K of CCA Industries, Inc.;
Exhibit 31.1
2. To the best of my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. To the best of my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this report.
4. The Registrant’s other certifying officer, Stephen A. Heit, and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relation to
the Registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the Registrant’s internal control over financial reporting that
occurred during the Registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to affect, the
Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer, Stephen A. Heit, and I have disclosed, based on our most
recent evaluation of internal controls over financial reporting, to the Registrant’s auditors and the
audit committee of the Registrant’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Registrant’s internal control over financial reporting.
Date: February 28, 2007
/s/--------------------------------------
David Edell
Chief Executive Officer
CERTIFICATION
I, Stephen A. Heit, Chief Financial Officer of the Registrant, certify that:
1. I have reviewed this annual report on Form 10-K of CCA Industries, Inc.;
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this report.
4. The Registrant’s other certifying officer, David Edell, and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) for the Registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relation to the
Registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c)
Disclosed in this report any change in the Registrant’s internal control over financial reporting that
occurred during the Registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to affect, the Registrant’s internal
control over financial reporting; and
5. The Registrant’s other certifying officer, David Edell, and I have disclosed, based on our most recent
evaluation of internal controls over financial reporting, to the Registrant’s auditors and the audit
committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
(b)
significant role in the Registrant’s internal control over financial reporting.
Date: February 28, 2007
/s/------------------------------
Stephen A. Heit
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, 2006 as filed with the Securities and Exchange Commission on the
date hereof (the “Report”), I, David Edell, Chief Executive Officer of the Registrant, certify, in
accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge:
(1) The Report, to which this certification is attached, fully complies with the requirements of section
13(a) of the Securities Exchange Action of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Registrant.
Date: February 28, 2007
/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, 2006 as filed with the Securities and Exchange Commission on the
date hereof (the “Report”), I, Stephen A. Heit, Chief Financial Officer of the Registrant, certify, in
accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge:
(1) The Report, to which this certification is attached, fully complies with the requirements of section
13(a) of the Securities Exchange Action of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Registrant.
Date: February 28, 2007
/s/ ---------------------------------------------------
Stephen A. Heit
Chief Financial Officer