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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
November 30, 2004 2-85538-B
CCA INDUSTRIES, INC.
(Exact Name of Registrant as specified in Charter)
DELAWARE 04-2795439
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
200 Murray Hill Parkway, East Rutherford, New Jersey 07073
(Address of principal executive offices, including zip code)
(201) 330-1400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Class A Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X].
Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2) Yes No [X].
The aggregate market value of the voting stock held by
non-affiliates of the Registrant (i.e., by persons other than
officers and directors of the Registrant), at the closing
sales price $7.75 on May 31, 2004, was as follows:
Class of Voting Stock Market Value
5,366,338 shares; Common
Stock, $.01 par value $41,589,120
On November 30, 2004 there was an aggregate of 7,044,194
shares of Common Stock and Class A Common Stock of the Registrant
outstanding.
- ii-
CROSS REFERENCE SHEET
Headings in this Form
Form 10-K 10-K for Year Ended
Item No. November 30, 2004
1. Business Business
2. Properties Property
3. Legal Proceedings Legal Proceedings
4. Submission of Matters Submission of Matters to a
to a Vote of Security Vote of Security Holders
Holders
5. Market for Registrant's Market for the Company's
Common Equity and Common Stock and Related
Related Stockholder Shareholder Matters
Matters
6. Selected Financial Data Selected Financial Data
7. Management's Discussion Management's Discussion and
and Analysis of Financial Analysis of Financial
Condition and Results Condition and Results of
of Operations Operations
7A. Quantitative and Qualitative Quantitative and Qualitative
Disclosures about Market Risk Disclosures about
Market Risk
8. Financial Statements Financial Statements
and Supplementary Data and Supplementary
Data
9. Changes In and Dis- Changes In and Dis-
agreements With agreements With
Accountants On Accounting Accountants On Accounting
and Financial Disclosure and Financial Disclosure
9A. Control and Procedures Control and Procedures
10. Directors and Directors and Executive
Executive Officers Officers
of the Registrant
- iii-
Headings in this Form
Form 10-K 10-K for Year Ended
Item No. November 30, 2004
11. Executive Compensation Executive Compensation
12. Security Ownership Security Ownership
of Certain Beneficial of Certain Beneficial
Owners and Management Owners and Management
13. Certain Relationships Certain Relationships
and Related Transactions and Related Transactions
14. Principal Accountant Fees Principal Accountant Fees
and Services and Services
15. Exhibits, Financial Exhibits, Financial
Statement Schedules, Statement Schedules,
and Reports on Form and Reports on Form
8-K 8-K
- iv-
TABLE OF CONTENTS
Item
Page
PART I
1. Business.............................................1
2. Property.............................................6
3. Legal Proceedings....................................6
4. Submission of Matters to a Vote of Security Holders..7
PART II
5. Market for the Company's Common Stock and Related
Shareholder Matters..................................8
6. Selected Financial Data.............................10
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............11
7A.Quantitative And Qualitative Disclosure About
Market Risk...................................... 16
8. Financial Statements and Supplementary Data........ 16
9. Changes In and Disagreements with Accountants On
Accounting and Financial Disclosure.............. 17
9A. Controls and Procedures............................ 17
PART III
10. Directors and Executive Officers...................18
11. Executive Compensation.............................20
12. Security Ownership of Certain Beneficial Owners and
Management........................................26
13. Certain Relationships and Related Transactions.....27
14. Principal Accountant Fees and Services.............27
PART IV
15. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K......................................29
- v-
PART I
Item 1. BUSINESS
(a) General
CCA INDUSTRIES, INC. (hereinafter, "CCA" or the "Company")
was incorporated in Delaware in 1983.
The Company operates in one industry segment, in what may be
generally described as the health-and-beauty aids business,
selling numerous products in several health-and-beauty aids and
cosmeceutical categories. 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) which includes "Booster," "Sudden Change"
(skin-care products), "Nutra Nail" and "Power Gel" and "Nutra Nail 60"
(nail treatments),"Bikini Zone" (pre and after-shave products),
"Mega - T" Green Tea and "Mega G" Grapefruit (dietary products),
"Mega - T" chewing gum (anti-oxidant dietary product), Hair Off"
(depilatories), "IPR" (foot-care products), "Solar Sense" (sun-
care products), "Wash 'N Curl" (shampoos), "Cherry Vanilla"
(perfumes), "Scar Zone" (scar diminishing cream), and "Denise
Austin, Skin Fit For Life," skin care products.
All Company products are marketed and sold to major drug and
food chains, mass merchandisers, and wholesale beauty-aids
distributors throughout the United States and Canada. In
addition, certain of the Company's products are sold
internationally.
The Company recognizes sales at the time its products are
shipped to customers. However, while sales are not formally
subject to any contract contingency, the acceptance of returns is
an industry-wide practice. The Company thus estimates `unit
returns' based upon a review of the market's recent-historical
acceptance of subject products as well as current market-
expectations, and equates its reserves for estimated returns in
the sum of the gross profits, in the five preceding months,
realized upon an equivalent number of subject-product sales.
(See Item 15, Financial Statements, Note 2). Of course, there
can be no precise going-forward assurance in respect to return
rates and gross margins, and in the event of a significant
increase in the rate of returns, the circumstance could have a
materially adverse affect upon the Company's operations.
The Company's net-revenues in fiscal 2004 were $61,518,000.
Gross profits were $40,147,000. International sales accounted
for approximately 2% of sales. The Company experienced a net
profit of $ 5,797,000 for the current fiscal year. Net worth at
November 30, 2004, was $ 23,522,000 despite the repurchase of
500,000 shares of the Company's common stock on October 5, 2004
from Officers/Directors David Edell and Ira W. Berman1. (See
Certain Relationships and Related Transactions.)
1
Including the principal members of management (see Directors
and Executive Officers), the Company, at November 30, 2004, had
153 sales, administrative, creative, accounting, receiving, and
warehouse personnel in its employ.
(b) Manufacturing and Shipping
The Company creates formulations, chooses colors and
mixtures, and arranges with independent contractors for the
manufacture of its products pursuant to Company specifications.
Manufacturing and component-supply arrangements are maintained
with several manufacturers and suppliers. Almost all orders and
other product shipments are delivered from the Company's own
warehouse facilities, which results in more effective inventory
control, more efficient shipping procedures, and the realization
of related economies.
(c)i Marketing
The Company markets its products to major drug, food and
mass-merchandise retail chains, and leading wholesalers, through
an in-house sales force of employees and independent sales
representatives throughout the United States.
The Company sells its products to approximately 365
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, 2004, the
Company's largest customers were Wal-Mart (approximately 34 % of
net sales), Walgreen (approximately 11%), McLane, Rite Aid, and
CVS, (approximately 9%, 7%, and 7%, respectively). The loss of
any of these principal customers, or substantial reduction of
sales revenues realized from their business, could materially and
negatively affect the Company's earnings.
Most of the Company's products are not particularly
susceptible to seasonal-sales fluctuation. However, sales of
depilatory, sun-care and diet-aids products customarily peak in
the Spring and Summer months, while fragrance-product sales
customarily peak in the Fall and Winter months.
(c)ii Advertising
The Company has an in-house advertising department. The
advertising staff designs point-of-purchase displays, including
'blister cards', sales brochures and packaging layouts. The
production of displays, brochures, layouts and the like is
accomplished through contract suppliers.
The Company primarily utilizes local and national television
advertisements to promote its leading brands. On occasion, print
and radio advertisements are engaged. In addition, and
more-or-less continuously, store-centered product promotions are
co-operatively undertaken with customers.
Each of the Company's brand-name products is intended to
attract a particular demographic segment of the consumer market,
and advertising campaigns are directed to the respective
market-segments.
2
The Company's in-house staff is responsible for the
'traffic' of its advertising. Placement is accomplished directly
and through media-service companies.
(d) "Wholly-Owned" Products
The majority of the Company's sales revenues are from sales
of the Company's "wholly-owned" product lines (i.e., products
sold under trademark names owned by the Company, and not subject
to any other party's interest or license), which included
principally "Plus+White", "Sudden Change", "Wash `N Curl",
"Bikini Zone", "Mood Magic", "Mega -T", "Cherry Vanilla", and
"Scar Zone".
(e) All Products
Health and beauty, cosmetic and fragrance and over the
counter products accounted for approximately 62%, 12% and 26%,
respectively, of the Company's net-sales revenues during fiscal
2004.
(f) License-Agreements Products
i. Alleghany Pharmacal
In 1986, the Company entered into a license agreement with
Alleghany Pharmacal Corporation (the "Alleghany Pharmacal
License"). Under the terms of the Alleghany Pharmacal License,
the Company was granted, and yet retains, the exclusive right to
manufacture and market certain products, and to use their
associated trademarks, including "Nutra Nail," "Nutra Nail 60,"
"Pro Perm," "Hair Off," "Permathene" and "IPR".
The Alleghany Pharmacal License required the Company (a) to
pay royalties of 6% per annum on net sales of "Pro-Perm"
hair-care products, the PPA-based and now discontinued dietary-
product "Permathene", "IPR" foot-care products, "Nutra-Nail"
nail-enamel products, and "Hair-Off" depilatories; and (b) to pay
1% royalties on net sales of a "Hair-Off" mitten that is a
depilatory-product accessory, and "Nutra Nail 60", a fast-acting
nail enamel, and "Nutra Nail Power Gel."
The Company had been required to pay not less than $360,000
per annum in order to maintain exclusive rights under the
Alleghany Pharmacal License. (Royalties have always exceeded the
minimum; but, if they did not, the Company would be entitled to
maintain exclusive license rights by electing to pay the
'difference.' At the same time, the Company would not be
required to pay any fee in excess of royalties payable in respect
of realized sales if sales did not yield 'minimum royalties' and
the Company chose in such circumstance to concede the license
rights.)
The Alleghany Pharmacal License agreement provides that if,
and when, in the aggregate, $9,000,000 in royalties has been paid
thereunder, the royalty-rate for those products now 'charged' at
6% will be reduced to 1%. The Company paid an aggregate of
$9,000,000 in royalties to Allegheny in April 2003. Commencing
May 1, 2003, the license royalty was reduced to 1%.
3
The products subject to the Alleghany-Pharmacal License
accounted for approximately $10,903,000 or 18 % of total net
sales in the fiscal year ended November 30, 2004. "Nutra Nail"
and the "Hair-Off" depilatory were the leaders among all of the
Company's license-agreement products, producing approximately 9 %
and 8 %, 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 $ 1,852,000
in net sales of sun-care products in 2004, and paid or accrued
Solar Sense the royalty payment in excess of the minimum
requirements necessary to maintain the license.
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 $1,732,000 in 2004, and the Company paid or accrued
the Nail Consultants the prescribed royalty. 5.66
iv. Hugger Corporation
In October 2002, the Company entered into a License
Agreement with Hugger Corporation for use of its patented oral
hygiene system to be used in conjunction with regular toothpaste.
The Company's License Agreement is for the use of the product
designated and referred to in the patent owned by Hugger
Corporation. The Company designed, marketed and distributed the
patented product called "Booster" under its Plus+White brand.
The Company is required to pay a royalty of net sales
payable quarterly. The Company is required to pay a minimum
royalty annually. The royalty will continue until the Patent
expires or an aggregate of $3,500,000 is paid to Licensor. Until
that time, Licensee has no liability to meet minimum royalty
requirements except to maintain its rights under the License
Agreement. In fiscal 2004, the net sales were $ 1,394,000,
and the Company paid or accrued all royalties.
v. 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
March 10, 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.
4
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 will be included in the new Denise Austin "Skin
Fit For Life" skin care line.
vi. 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 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 commenced sales of the Mega -T Green Tea Chewing
Gum in July 2004. From July to the November 30, 2004 year-end,
The Company realized approximately $1,149,000 of net sales for
the gum.
vii. 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 and on the Company's behalf, Ms.
Austin and Dr. Stephen Hsu are working together to create a
special green tea anti-oxidant line of signature skin care
products called the Denise Austin "Skin Fit For Life" skin care
line.
The license agreement requires the Company to pay a minimum
royalty in order to maintain the exclusive use of the name,
"Denise Austin" to manufacture and sell a special line of skin
care and cosmetic products. The license will continue so long as
minimum royalty payments are met. The initial sales of the skin
care anti-oxidant skus are targeted for the first week in
February 2005.
viii. Other Licenses
The Company is not party to any other license agreement that
is currently material to its operations.
(f) Trademarks
The Company's own trademarks and licensed-use trademarks
serve to identify its products and proprietary interests. The
Company considers these marks to be valuable assets. However,
there can be no assurance, as a practical matter, that trademark
registration results in marketplace advantages, or that the
presumptive rights acquired by registration will necessarily and
precisely protect the presumed exclusivity and asset value of the
marks.
5
(g) Competition
The market for cosmetics and perfumes, and health-and-beauty
aids products in general, including patent medicines, is
characterized by vigorous competition among producers, many of
whom have substantially greater financial, technological and
marketing resources than the Company. Major competitors such as
Revlon, L'Oreal, Colgate, Del Laboratories, Unilever, and Procter
& Gamble have Fortune 500 status, and the broadest-based public
recognition of their products. Moreover, a substantial number of
other health-and-beauty aids manufacturers and distributors may
also have greater resources than the Company.
(h) Government Regulation
All of the products that the Company markets are subject or
potentially subject to particular regulation by government
agencies, such as the U.S. Food and Drug Administration, the
Federal Trade Commission, and various state and/or local
regulatory bodies. In the event that any future regulations were
to require new approval for any in-the-market products, or should
require approval for any planned product, the Company would
attempt to obtain the necessary approval and/or license, assuming
reasonable and sufficient market expectations for the subject
product. However, there can be no assurance, in the absence of
particular circumstances, that Company efforts in respect of any
future regulatory requirements would result in approvals and
issuance of licenses. Moreover, if such license-requirement
circumstances should arise, delays inherent in any
application-and-approval process, as well as any refusal to
approve, could have a material adverse affect upon existing
operations (i.e., concerning in-the-market products) or planned
operations.
Item 2. PROPERTY
The principal executive offices of the Company are located
at 200 Murray Hill Parkway, East Rutherford, New Jersey. Under a
new net lease, the Company occupies approximately 60,600 square
feet of space. Approximately 43,600 square feet in such premises
is used for warehousing and 17,000 square feet for offices. The
annual rental is $327,684, with an annual CPI increase of 3% but
not to exceed 15% cumulative 5 year increase. The lease expires
on May 31, 2012 with a renewal option for an additional five
years.
The lease requires the Company to pay for additional
expenses, Common Area Maintenance ("CAM"), which includes real
estate taxes, common area expense, utility expense, repair and
maintenance expense and insurance expense. For the year ended
November 30, 2004, CAM was $121,692.
Item 3. LEGAL PROCEEDINGS
The only material legal proceedings outstanding as of
November 30, 2004 were related to the Company's diet suppressant
products containing phenylpropanolamine ("PPA"). There were
approximately eleven suits pending in 2002. Reference is made
to Forms 8K filed on May 22, 2002 and November 20, 2002 for the
6
background and the insurance issues relative thereto. Three
additional 8Ks have been filed: one on October 29, 2003, one on
November 24, 2003 and one on December 11, 2003. Two additional
8Ks were filed in 2004, one on April 7, 2004 and one on August
3, 2004. Eleven of the suits have been dismissed with prejudice
with two remaining. One suit is in the process of being
dismissed. The remaining suit is insured and is being defended
by the Company's insurance carrier.
There are approximately 5,000 suits that have been brought
against the numerous pharmaceutical companies that have been
engaged in distributing and/or manufacturing PPA products.
Almost all have been referred to the United States District
Courts in the Western District of Washington (MDL 1407). Outside
counsel for the Company believes that the two PPA cases still
pending against the Company are defensible. Of the Company's two
pending suits, one is insured by the Company's liability carrier.
However, there can be no assurance that the current PPA
litigation will not have a material adverse effect upon the
Company's operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 16, 2004, 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 Sheft Kahn & Company LLP as
the Company's independent certified public accountants for the
2004 fiscal year was approved.
The Company has not submitted any matter to a vote of
security holders since the 2004 Annual Meeting.
7
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
In June 2000, the Company filed a Schedule TO (and an
Amendment No.1 thereto) with the Securities And Exchange
Commission ("S.E.C."); and, contemporaneously thereafter,
presented the tender offer subject of the Schedule to its
shareholders. Pursuant thereto, the Company offered to purchase
up to 2,500,000 shares of its own Common Stock (but not Class A
Common Stock), in exchange for a $2 subordinated debenture,
maturing August 1, 2005, with 6% interest, payable semi-annually.
In response, 278,328 shares were tendered and accepted for
payment. The tender offer closed, as provided in the Schedule TO
and the Offer documents presented to all Common Stock
shareholders, on July 31, 2000. (A second and final amendment to
the Schedule TO, reporting the results of the tender offer, was
filed with the S.E.C. on August 1, 2000.)
The Company's Common Stock was traded on the NASDAQ National
Market. Because, for some time (a) the Common Stock had traded
at less than $1.00 per share, and (b) the total market value of
shares available for public trading had been below $5,000,000,
NASDAQ notified the Company that its stock was de-listed. The
stock was then traded on the National Market Bulletin Board and
continued trading on the BB through the first quarter of fiscal
2003. On March 18, 2003 the stock was listed and began trading
on the American Stock Exchange under the symbol "CAW."
The range of high and low sales prices of the Common Stock
during each quarter of its 2004, 2003 and 2002 fiscal years was
as follows:
Quarter Ended 2004 2003 2002
February 29 $ 9.35 - $ 6.70 $3.80 - $1.70 $1.73 - $1.25
May 31 $ 8.70 - $ 7.20 $5.43 - $3.05 $1.74 - $1.38
August 31 $ 10.80 - $ 6.75 $8.69 - $5.10 $2.00 - $1.55
November 30 $ 11.30 - $ 7.00 $8.50 - $6.60 $1.99 - $1.55
The high and low prices for the Company's Common Stock, on
February 1, 2005 were $13.47 to $13.20 per share.
The Company's only `sales' of unregistered securities were
represented by its issuance, in consequence of the above
described tender offer and Schedule TO, of the $2, five-year
promissory notes, 6% interest, subject of the offer's $2
subordinated debenture. (Those securities are unregistered
pursuant to an exemption from registration requirements. In any
event, and in addition to the form denominated by the S.E.C. as
"Schedule TO", with the Schedule TO information, the following
documents subject of the tender offer were filed with the S.E.C.,
prior to commencement of the offering: A Trust Indenture, a form
of the eventually-issued Promissory Notes, and the Offering
Document that was thereafter transmitted to Common Stock
shareholders.)
As at November 30, 2004, there were approximately 200
individual shareholders of record of the Company's common stock.
(There are a substantial number of shares held of record in
various street and depository trust accounts, which represent
approximately 1,000 additional shareholders.)
8
The dividend policy is at the discretion of the Board of
Directors and will depend on numerous factors, including
earnings, financial requirements and general business conditions.
On January 8, 2003, the Board of Directors approved the payment
of the Company's first cash dividend in the amount of $0.12 per
share, payable to the holders of the Company's common stock,
$0.06 payable on May 1, 2003 and December 1, 2003 to the
shareholders of record on April 1, 2003 and November 1, 2003,
respectively.
On December 13, 2003, the Board of Directors declared a
$0.14 per share dividend for fiscal 2004, $0.07 payable to all
shareholders of record May 1, 2004 payable on June 1, 2004 and
$0.07 payable to all shareholders of record November 1, 2004
payable on 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.
9
Item 6. SELECTED FINANCIAL DATA
Year Ended November 30,
2004 2003 2002 2001 2000
Statement of Income
Sales $60,667,562 $54,145,480 $45,241,493 $41,364,648 $36,990,170
Other income 850,196 591,271 439,481 338,883 186,284
61,517,758 54,736,751 45,680,974 41,703,531 37,176,454
Costs and Expenses
(excluding special
charge) 52,143,479 46,239,853 40,645,418 38,522,778 36,658,875
Income Before Special
Charge and Provision
for Income Taxes 9,374,279 8,496,898 5,035,556 3,180,753 517,579
Special Charge - - - - ( 1,500,000)
Net Income (Loss) 5,796,663 5,252,131 3,074,353 2,014,369 ( 654,510)
Earnings (Loss) Per Share:
Basic $ .78 $ .71 $ .42 $ .29 ($ .09)
Diluted $ .75 $ .68 $ .40 $ . 26 ($ .09)
Weighted Average Number
of Shares Outstanding 7,399,472 7,372,232 7,241,751 7,031,097 7,296,073
Weighted Average Number
of Shares and Common Stock
Equivalents Outstanding 7,680,781 7,768,361 7,731,58 7,676,680 7,296,073
Balance Sheet Data: As At November 30,
2004 2003 2002 2001 2000
Working Capital 13,562,389 11,565,685 $11,264,206 $10,236,977 $12,361,305
Total Assets 31,556,577 29,839,216 24,805,064 20,598,917 20,312,056
Total Liabilities 8,034,530 6,494,676 5,969,641 4,674,278 6,345,508
Total Stockholders'
Equity (1)(2) 23,522,047 23,344,540 18,835,423 15,924,639 13,966,548
(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.
*Adjusted for 2% stock dividend in 2004.
10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, this
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward-looking statements.
These statements involve known and unknown risks and
uncertainties that may cause actual results or outcomes to be
materially different from any future results, performances or
achievements expressed or implied by such forward-looking
statements, and statements which explicitly describe such issues.
Investors are urged to consider any statement labeled with the
terms "believes," "expects," "intends'" or "anticipates" to be
uncertain and forward-looking.
On March 3, 1986, the Company entered into a License
Agreement with Alleghany Pharmacal Corporation under the terms of
which the Company was granted the exclusive right to use the
licensed products and trademarks for the manufacture and
distribution of the products subject to the License Agreement.
Under the terms of the Alleghany Pharmacal License (see
"Business-License Agreements"), the royalty-rate for those
Alleghany Pharmacal License products previously 'charged' at
6% will be reduced to 1% now that the sum of $9,000,000 in
royalties has been paid thereunder. In April 2003, the Company
concluded payment of an aggregate of $9,000,000. Therefore, all
royalty payments were reduced to 1% on all future orders.
Comparison of Results for Fiscal Years 2004 and 2003
The Company's revenues increased from $54,736,751 in fiscal
2003 to $61,517,758 in the current fiscal year. Gross profit
margins remained at 66% this year compared to 66% as they
were last year. Net income was $5,796,663 as compared to
$5,252,131 in fiscal 2003. In accordance with GAAP, the Company
reclassified certain advertising expenditures as a reduction of
sales rather than report them as advertising expenses. The
reclassification is the adoption by the Company of the EITF 90-16
GAAP standard. The reclassification reflects a reduction in
sales for the years ended November 30, 2004 and 2003 by
$2,005,596 and $1,760,308, respectively. The reclassification
reduces the gross profit margin but does not affect the net
income.
For the current fiscal year, advertising, cooperative and
promotional allowance expenditures were $13,118,784 as compared
to $10,328,695 in fiscal 2003. Advertising expenditures were
21.6% of sales vs. 19.1% last year. SG&A expenses increased 5%
to $17,577,032 from $16,753,269 in 2003. The increase was due
mainly to SG&A expenses, which vary in relation to additional
sales volume (i.e. payroll, freight-out, royalties, etc.). Sales
returns and allowances increased to 9.2% of gross sales from
8.5% last year. Research and development expenses decreased to
$876,665 this year from $884,425 last year.
During fiscal 2004, a major drug chain entered into an
agreement to be acquired by another major drug chain. The
decrease in their orders caused revenue to decrease approximately
$1,563,000 from the prior year.
On November 26, 2004, the Company sold 1,125 shares of K-
Mart Holding Corp, (the shares received in distribution in the K-
Mart Chapter 11 proceedings) in the gross amount of $159,483.
11
Comparison of Results for Fiscal Years 2003 and 2002
The Company's revenues increased from $45,680,974 in fiscal
2002 to $54,736,751 in the fiscal 2003. Gross profit margins
remained at 66% in the fiscal 2003 as they were in the fiscal
2002. Net income was $5,252,131 as compared to $3,074,353. In
accordance with GAAP, the Company reclassified certain
advertising expenditures as a reduction of sales rather than
report them as advertising expenses. The reclassification is the
adoption by the Company of the EITF 90-16 GAAP standard. The
reclassification reflects a reduction in sales for the years
ended November 30, 2003 and 2002 by $1,760,308 and $1,169,775,
respectively. The reclassification reduces the gross profit
margin but does not affect the net income.
For the 2003 fiscal year, advertising, cooperative and
promotional allowance expenditures were $10,328,695 as compared
to $9,239,249 in fiscal 2002. Advertising expenditures were
19.1% of sales vs. 20.4% in 2002. SG&A expenses increased 8.8%
to $16,753,269 from $15,389,528 in 2002. The increase was due
mainly to SG&A expenses, which vary in relation to additional
sales volume (i.e. payroll, freight-out, royalties, etc.). Sales
returns and allowances decreased to 8.5% of gross sales from
10.4% fiscal 2002. Research and development expenses increased
to $884,425 in the fiscal 2003 from $741,974 in fiscal 2002
On January 22, 2002, K-Mart filed for bankruptcy under
Chapter XI. As at November 30, 2002, after adjustments for
charge-backs, there was $256,236 due and outstanding for pre-
petition receivables for which the Company had set up a reserve
of $230,612 (90%). The Company's sales to K-Mart during 2003,
all post-petition, were $1,222,8421. As at November 30, 2003,
after K-Mart emerged from bankruptcy, all receivables from K-Mart
as debtor-in-possession were current. In fiscal 2003, the
Company wrote off the $230,000 pre-petition receivables and
reduced the reserve accordingly.
Liquidity and Capital Resources
As at November 30, 2004, the Company had working capital of
$13,562,389 as compared to $11,565,685 at November 30, 2003.
The ratio of total current assets to current liabilities is
2.7 to 1 as compared to a ratio of 2.9 to 1 for the prior
year. Both the working capital and the current ratio would have
been significantly higher if the Company hadn't purchased, on
October 5, 2004, an aggregate of 500,000 shares of the Company's
common stock at $8.99 per share from officers/directors, David
Edell and Ira W. Berman respectively. Stockholders' equity
increased to $23,522,047 from $23,344,540 primarily due to the
income from operations despite the repurchase of the 500,000
shares.
The Company's cash position and short-term investments at
year-end was $5,094,968, up from $3,839,235 as at November 30,
2003. The increase is due to the liquidation of some of the
Company's short-term and long-term securities. In December 2003,
the Company declared a $.14 dividend for shareholders of record
in May and November 2004, which reduced the Company's cash
position by approximately $890,000.
Inventories were $6,048,000 vs. $5,312,699, and accounts
receivable were $8,677,984 vs. $6,604,982. Current liabilities
are $8,023,805 vs. $5,982,267 in the prior year. At year-end,
12
the Company had long and short-term triple A investments and cash
of $13,947,166 as compared to $14,830,646. As of November 30,
2004, the Company was not utilizing any of the funds available
under its $10,000,000 unsecured credit line.
Inventory, Seasonality, Inflation and General Economic Factors
The Company attempts to keep its inventory for every product
at levels that will enable shipment against orders within a three-
week period. However, certain components must be inventoried
well in advance of actual orders because of time-to-acquire
circumstances. For the most part, purchases are based upon
projected quarterly requirements, which are projected based upon
sales indications received by the sales and marketing
departments, and general business factors. All of the Company's
contract-manufacture products and components are purchased from
non-affiliated entities. Warehousing is provided at Company
facilities, and all products are shipped from the Company's
warehouse facilities.
None of the Company's products are particularly seasonal,
but sales of its sun-care, depilatory and diet-aid products
usually peak during the Spring and Summer seasons, and perfume
sales usually peak in Fall and Winter. The Company does not have
a product that can be identified as a `Christmas item'.
Because its products are sold to retail stores (throughout
the United States and, in small part, abroad), sales are
particularly affected by general economic conditions.
Accordingly, any adverse change in the economic climate can have
an adverse impact on the Company's sales and financial condition.
The Company does not believe that inflation or other general
economic circumstance that would negatively affect operations can
be predicted at present, but if such circumstances should occur,
they could have material and negative impact on the Company's net
sales and revenues; and, more particularly, unless the Company 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, 2004. Such obligations include the
current lease for the Company's premises, written employment
contracts and License Agreements.
2005 2006 2007 2008 2009
Lease on Premises (1) 449,376 449,376 449,376 449,376 449,376
Royalty Expense(2) 606,000 606,000 606,000 606,000 606,000
Employment
Contracts (3) 2,194,772 2,294,959 2,401,156 1,988,726 2,108,049
Total Contractual
Obligations 3,250,148 3,350,335 3,456,532 3,044,102 3,163,425
(1) The Lease is a net, net lease requiring a yearly rental of
$327,684 plus Common Area Maintenance "CAM". See Section Part I,
Item 2. The rental provided above is the base rental and
estimated CAM. CAM for 2004 was $121,692. The figures above do
not include adjustments for the CPI. The lease has an annual CPI
adjustment of 3%, not to exceed 15% cumulative for five years.
13
(2) See Section Part I, Item 1(e). The Company is not required
to pay any royalty in excess of realized sales if the Company
chooses not to continue under the license. The figures set forth
above reflect estimates of the royalty expense anticipated
minimum requirements to maintain the licenses under the various
contracts for the licensed products based on fiscal 2004 sales.
Royalty expense includes Alleghany Pharmacal, Solar Sense, Hugger
Corporation, Nail Consultants, Tea-Guard, Inc., Stephen Hsu,
PhD, and Denise Austin.
(3) The Company has executed Employment Contracts with its
CEO, David Edell, and its Chairman of the Board, Ira W.
Berman. The contracts for both are exactly the same. The
contracts expire on December 31, 2010. The contracts provide for
a base salary which commenced in 1994 in the amount of $300,000
(plus a bonus of 20% of the base salary), with a year-to-year CPI
or 6%, plus 2.5% of the Company's pre-tax income less
depreciation and amortization (EBITDA). (The 2.5% measure in
the bonus provision of the Edell/Berman contracts was amended so
as to calculate it against earnings before income taxes, less
depreciation, amortization and expenditures for media and
cooperative advertising in excess of $8,000,000.) On May 24,
2001, the contract was amended increasing the base salary to
$400,000. The figures above include only the base salaries for
the five years (plus 20% of the base salary),and adjustment for
CPI, and without estimating bonuses, as the bonus
is contingent upon future earnings. David Edell's sons, Dunnan
Edell and Drew Edell have five-year employment contracts in the
amounts of $270,000 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.
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 Operations and Research, and Product
Development.
Cautionary Statements Regarding Forward-Looking Statements
This annual report contains forward-looking statements based
upon current expectations of management that involve risks and
uncertainty. Actual risks could differ materially from those
anticipated. Additional risks and uncertainties not presently
known may possibly impair business operations. If any of these
risks actually occur, the business, financial conditions and
operating results could be materially adversely affected. The
cautionary statements made in this Annual Report on Form 10K
should be read as being applicable to all forward-looking
statements whenever they appear in this Annual Report.
Concentration of Risk
The Company relies on mass merchandisers and major drug
chains for the sales of its products. The loss of any one of
those accounts could have a substantive negative impact upon its
financial operations. During fiscal 2004, a major drug chain
entered into an agreement to be acquired by another major drug
chain. The decrease in their orders caused revenue to decrease
approximately $1,563,000 from the prior year. {See Business -
General, Item 1(c)i Marketing.}
14
The Company does not manufacture any of its products. All
of the products are manufactured for the Company by independent
contract manufacturers. There can be no assurance that the
failure of a supplier to deliver the products ordered by the
Company when requested will not cause burdensome delays in the
Company's shipments to accounts. The Company does constantly
seek alternative suppliers should a major supplier fail to
deliver as contracted. A failure of the Company to ship as
ordered by its accounts could cause penalties and/or
cancellations.
There is No Assurance That Business Will Continue to Operate
Profitably.
In the current year, net sales were $60,667,562. This
year, almost all of the products were able to maintain the
projected gross profit margins. Net income was $5,796,663.
There were no FDA policies that affected the Company's brands.
In 2000, the FDA suggested the discontinuance of the Company's
over-the-counter drug appetite suppressant products containing
PPA. As a result, revenues that year were reduced by $1,245,000
due to returns. In addition, the Company also wrote down
$255,000 in inventory causing the Company to incur a loss of
$654,510 for the year. This fiscal year, Mega - T and Mega - G
dietary supplements, marketed to replace the drug product, had
net revenues of $ 16,231,919.
The Pending Litigations in Connection with the Sale of the
Company's Products Containing PPA May Entail Significant
Uncertainty and Expense.
As described in "Legal Proceedings" set forth, there were
referenced 8Ks filed on May 23, 2002 and November 20, 2002, in
which the legal issues were discussed. Currently, there are two
remaining cases. One case in Pennsylvania is in the process of
being dismissed. The other case pending in Louisiana is fully
insured and is being defended by the Company's insurance carrier.
All of the other cases have been dismissed with prejudice. As
previously advised, it is independent counsel's opinion that the
Company has a defensible position in the two remaining lawsuits.
Competition in the Cosmetic, Health and Beauty Aid Industry
is Highly Competitive.
Reference is made to "Business ` Sub-section' of
Competition."
CLASS A Shareholders Retain Control of Board of Directors.
See "Voting" in the Proxy Statement dated May 24, 2003.
Class A Shareholders, David Edell, CEO and Ira W. Berman,
Chairman of the Board of Directors, have the right to elect four
members to the Board of Directors. Common stockholders have the
right to elect three members to the Board of Directors.
Future Success Depends on Continued New Product Development.
The Company is not financially as strong as the major
companies against whom it competes. The ability to successfully
introduce new niche products and increase the growth and
profitability of its current niche brand products will affect the
business and prospects of the future of the Company and it relies
upon the creativity and marketing skills of management.
15
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). $152,656 of the Company's $10,804,936 portfolio
of investments (as at Nov. 30, 2004) is invested in the "Common Stock"
and "Other Equity" category, and $615,852 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.
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, 2004 and 2003:
Three Months Ended
Fiscal 2004 Feb. 29 May 31 Aug. 31 Nov. 30
Net Sales $12,929,465 $18,143,645 $16,535,940 $13,058,512
Total Revenue 13,087,488 18,339,247 16,696,391 13,394,632
Cost of Products Sold 4,849,247 5,852,863 5,413,461 4,405,286
Net Income 836,142 4,646,436 1,457,230 705,088
Earnings Per Share:
Basic $.11 $.38 $.19 $.10
Diluted .11 .36 .19 .09
Three Months Ended
Fiscal 2003 Feb. 28 May 31 Aug. 31 Nov. 30
Net Sales $12,362,785 $17,439,253 $12,739,346 $11,604,097
Total Revenue 12,515,182 17,610,850 12,852,537 11,758,182
Cost of Products Sold 4,446,827 5,316,313 4,030,837 4,374,551
Net Income 573,626 2,584,095 1,287,125 807,285
Earnings Per Share:
Basic $.08 $.35 $.17 $.11
Diluted .07 .33 .16 .10
16
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, 2004.
There were no changes in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934) pursuant to preliminary evaluations that
the Company believes will materially affect, or are reasonably
likely to materially affect, internal control over financial
reporting.
Under Act 404, The Company's fiscal 2005 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, 2005 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 taking 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.
17
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:
YEAR OF FIRST
NAME POSITION COMPANY SERVICE
David Edell Chief Executive Officer,
Director 1983
Ira W. Berman Chairman of the Board
of Directors, Secretary,
Executive Vice President 1983
Dunnan Edell President, Chief Operating Officer
and Director 1984
Drew Edell Vice President-
Operations and
New Product Development
Director 1983
John Bingman Chief Financial Officer 1986
Stanley Kreitman Director 1996
Jack Polak Director 1983
Robert Lage Director 2003
Gio Batta
Gori, PhD Director 2004
David Edell, age 72, 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 73, 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.
18
Dunnan Edell is the 49 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.
Drew Edell, the 47 year-old son of David Edell, is a
graduate of Pratt Institute, where he received a Bachelor's
degree in Industrial Design. He joined the Company in 1983, and
in 1985, he was appointed Vice President of Product Development
and Production.
John Bingman, age 53, 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 92, 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 72, 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 68, 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, 74, 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.
19
Item 11. EXECUTIVE COMPENSATION
i. Summary Compensation Table
The following table summarizes compensation earned in the
2004, 2003 and 2002 fiscal years by all of the executive officers
whose fiscal 2004 compensation exceeded $100,000, including the
Chief Executive Officer (the "Named Officers").
Annual Compensation Long-Term Compensation
Number
All of Shares
Other Covered Other
Name and Annual by Stock Long-Term
Principal Compen- Options Compen-
Position Year Salary Bonus sation(1) Granted(2) sation
David Edell, 2004 $656,357 $573,543 $38,294 - 0
Chief 2003 619,205 459,240 39,476 - 0
Executive 2002 584,155 332,060 40,152 - 0
Officer
Ira W. Berman 2004 $656,357 $573,543 $24,739 - 0
Secretary and 2003 619,205 459,240 29,499 - 0
Executive 2002 584,155 332,060 27,475 - 0
Vice President
Dunnan Edell, 2004 $312,692 $ 95,000 $ 5,305 - 0
President, Chief2003 282,692 50,000 1,931 - 0
Operating 2002 253,172 45,000 7,281 - 0
Drew Edell 2004 $222,596 $ 50,000 $ 1,951 - 0
Vice President 2003 200,000 25,000 5,081 - 0
Operations 2002 203,845 25,000 1,178 - 0
John Bingman 2004 $111,980 $ 40,000 $ 1,005 - 0
Chief Financial 2003 105,128 25,000 2,696 - 0
Officer 2002 99,843 20,000 3,037 - 0
Joel Last 2004 $167,077 $ 40,900 $ 185 - 0
Vice President 2003 160,000 32,000 4,833 - 0
Sale 2002 160,000 15,000 5,984 - 0
Pat Haberman 2004 $156,922 $ 39,625 $ 6,000 - 0
Vice President 2003 152,077 31,350 9,278 - 0
Sales 2002 150,000 10,000 9,603 - 0
20
- -------------------------
(1) Includes the personal-use value of Company-leased
automobiles, the value of Company-provided life insurance, and
health insurance that is made available to all employees.
(2) Information in respect of stock option plans appears below in
the sub-topic, Employment Contracts/Executive Compensation
Program.
ii. Fiscal 2004 Option Grants and Option Exercises,
Year-End Option Valuation, Option Repricing
New options were issued to the Named Officers in fiscal
2004.
The next table identifies 2004 fiscal-year option exercises
by Named Officers, and reports a valuation of their options.
Fiscal 2004 Aggregated Option Exercises
and November 30, 2004 Option Values
Number of Number of Shares
Shares Covered by Un- Value of Unexercised
Acquired Value exercised Options In-the-Money Options
On Exercise Realized (1) at December 1, 2004 at December 1, 2004
David Edell 10,000 $ 80,000 112,500 $1,237,500
Ira W. Berman 30,000 $240,000 112,000 $1,232,000
Dunnan Edell - - 90,000 $ 990,000
Drew Edell 75,000 $468,750 15,000 $ 165,000
John Bingman - - 10,000 $ 29,000
Stanley
Kreitman 10,000 $ 68,500 15,000 $ 165,000
--------------------
1) Represents the difference between market price and the
respective exercise prices of options as of the exercise date.
Repriced Options
The following table identifies the stock options held by the
Named Officers and all other officers and directors, the exercise
prices of which have been reduced during the past 10 years.
Original
Number Grant Original Date New
of Shares Date Price Repriced Price
David Edell (1) 100,000 Aug. 1, 1997 $2.50 May 24, 2001 .50
Ira W. Berman (1)100,000 Aug. 1, 1997 2.50 May 24, 2001 .50
21
Dunnan Edell (1) 50,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Drew Edell (1) 50,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Stanley
Kreitman (1) 25,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Jack Polak (1) 25,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Rami Abada (1) 25,000 Aug. 1, 1997 2.50 May 24, 2001 .50
Dunnan Edell
(1)(2) 25,000 Jun. 10, 1995 4.50 May 24, 2001 .50
Drew Edell
(1)(2) 25,000 Jun. 10, 1995 4.50 May 24, 2001 .50
- -------------------
(1) On November 3, 1998, the full Board of Directors authorized
the repricing in consequence of a declining market valuation,
inconsistent with the Company's realizable value. The market
price of the Common Stock at the date of repricing was $1.00;
and, at that date, the original option terms (10 years from
August 1, 1997) had approximately 8 years and 10 months
remaining. When the options were originally issued, on August 1,
1997, the market price of the Company's Common Stock was $2.50.
On May 24, 2001, the Company repriced the options again when the
market price was $.50.
(2) On June 10, 2000, the full Board of Directors authorized the
repricing in consequence of a declining market valuation,
inconsistent with the Company's realizable value. The market
price of common stock at the date of repricing was $1.10; and at
that date the original terms (5 years from June 10, 1995) were
extended for an additional 5 years. When the options were
originally issued on June 10, 1995, the market price of the
Company's common stock was $3. On May 24, 2001, the Company
repriced the options again when the market price was $.50, and
changed the expiration date to August 1, 2007.
iii. Compensation of Directors
Each outside director was paid between $2,500 and $5,000 per
meeting for attendance of board meetings in fiscal 2004 (without
additional compensation for committee meetings). Mr. Lage
received an additional $30,000 as chairman of the audit
committee. The full Board of Directors met five times in fiscal
2004.
iv. Executive Compensation Principles
Audit and Compensation Committee
The Company's Executive Compensation Program is based on
guiding principles designed to align executive compensation with
Company values and objectives, business strategy, management
initiatives, and financial performance. In applying these
principles the Audit and Compensation Committee of the Board of
Directors, comprised of Stanley Kreitman, Jack Polak and Robert
Lage, which met three times in fiscal 2004, has established a
program to:
. Reward executives for long-term strategic management and the
enhancement of shareholder value.
. Integrate compensation programs with both the Company's
annual and long-term strategic planning.
22
. Support a performance-oriented environment that rewards
performance not only with respect to Company goals but also
Company performance as compared to industry performance
levels.
Stanley Kreitman, former president of a national bank,
qualifies as a "financial expert" as defined by the SEC in
Instruction 1 to proposed Item 309 of Regulation S-K, which is
set forth in the SEC Release No. 34 - 46701 dated October 22,
2003. Mr. Kreitman is an "independent" as that term is used in
Section 10A(m)(3) of the Exchange Act.
Jack Polak was knighted by the Dutch government in 1993. He
is a certified Dutch tax consultant and a member of the
association of certified tax accountants. The Board has deemed
that he is both "independent" and qualifies as a "financial
expert."
Robert A. Lage, chairman of the audit committee and a
retired CPA, was a partner at 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. The Board has
deemed that he is both "independent" and qualifies as a
"financial expert".
v. Employment Contracts/Compensation Program
The total compensation program consists of both cash and
equity based compensation. The Audit and Compensation Committee
(the "Committee") determines the level of salary and bonuses, if
any, for key executive officers of the Company. The Committee
determines the salary or salary range based upon competitive
norms. Actual salary changes are based upon performance, and
bonuses were awarded by the Committee in consideration of the
Company's performance during the 2004 fiscal year.
The Company has executed Employment Contracts with its
CEO, David Edell and its Chairman of the Board, Ira W.
Berman. The contracts for both are exactly the same. The
contracts expire on December 31, 2010. The contracts provide for
a base salary which commenced in 1994 in the amount of $300,000,
with a year-to-year CPI or 6% plus 2.5% of the Company's pre-tax
income less depreciation and amortization (EBITDA), plus 20% of
the base salary for the fiscal year. (The "2.5% measure" in the
bonus provision of the Edell/Berman contracts was amended so as
to calculate it against earnings before income taxes, less
depreciation, amortization and expenditures for media and
cooperative advertising in excess of $8,000,000). On May 24,
2001, the contract was amended increasing the base salary to
$400,000.
David Edell's sons, Dunnan Edell and Drew Edell have five-
year employment contracts in the amounts of $270,000 and $200,000
respectively, which expire on November 30, 2007. (See Item 11,
Summary Comprehensive Table). Dunnan Edell is a director and
President of the Company. Drew Edell is a director and the Vice
President of Operations and Research and Product Development. On
July 1 2003, Dunnan Edell's salary was increased to $300,000, and
on January 5, 2004, Drew Edell's salary was increased to
$225,000.
23
vi. Stock Option Plans
Long-term incentives are provided through the issuance of
stock options.
(The 1984 Stock Option Plan covered 1,500,000 shares of its
Common Stock, and the 1986 Stock Option Plan covered 1,500,000
shares of its Common Stock.) On July 9, 2003, the Company's
Stock Option Plan was approved by the shareholders authorizing
the issuance of options to issue up to 1,000,000 shares.
The Company's 2003 Stock Option Plan covers 1,000,000 shares
of its Common Stock.
The 2003 Option Plan provides (as had the 1984 , 1986 and
the 1994 plans) for the granting of two (2) types of options:
"Incentive Stock Options" and "Nonqualified Stock Options". The
Incentive Stock Options (but not the Nonqualified Stock Options)
are intended to qualify as "Incentive Stock Options" as defined
in Section 422(a) of The Internal Revenue Code. The Plans are
not qualified under Section 401(a) of the Code, nor subject to
the provisions of the Employee Retirement Income Security Act of
1974.
Options may be granted under the Options Plans to employees
(including officers and directors who are also employees) and
consultants of the Company provided, however, that Incentive
Stock Options may not be granted to any non-employee director or
consultant.
Option plans are administered and interpreted by the Board
of Directors. (Where issuance to a Board member is under
consideration, that member must abstain.) The Board has the
power, subject to plan provisions, to determine the persons to
whom and the dates on which options will be
granted, the number of shares subject to each option, the time or
times during the term of each when options may be exercised, and
other terms. The Board has the power to delegate administration
to a Committee of not less than two (2) Board members, each of
whom must be disinterested within the meaning of Rule 16b-3 under
the Securities Exchange Act, and ineligible to participate in the
option plan or in any other stock purchase, option or
appreciation right under plan of the Company or any affiliate.
Members of the Board receive no compensation for their services
in connection with the administration of option plans.
Option Plans permit the exercise of options for cash, other
property acceptable to the Board or pursuant to a deferred
payment arrangement. The 1994 Plan specifically authorizes that
payment may be made for stock issuable upon exercise by tender of
Common Stock of the Company; and the Executive Committee is
authorized to make loans to option exercisers to finance optionee
tax-consequences in respect of option exercise, but such loans
must be personally guaranteed and secured by the issued stock.
The maximum term of each option is ten (10) years. No
option granted is transferable by the optionee other than upon
death.
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
24
termination (to the extent the option was vested at the time of
such termination); or (ii) the optionee dies while employed by
the Company or a parent or subsidiary of the Company or within
three (3) months after termination of such employment, in which
case the option may, but need not provide that it may be
exercised (to the extent the option was vested at the time of the
optionee's death) within eighteen (18) months of the optionee's
death by the person or persons to whom the rights under such
option pass by will or by the laws of descent or distribution; or
(iii) the option by its terms specifically provides otherwise.
The exercise price of all nonqualified stock options must be
at least equal to 85% of the fair market value of the underlying
stock on the date of grant. The exercise price of all Incentive
Stock Options must be at least equal to the fair market value of
the underlying stock on the date of grant. The aggregate fair
market value of stock of the Company (determined at the date of
the option grant) for which any employee may be granted Incentive
Stock Options in any calendar year may not exceed $100,000, plus
certain carryover allowances. The exercise price of an Incentive
Stock Option granted to any participant who owns stock possessing
more than ten (10%) of the voting rights of the Company's
outstanding capital stock must be at least 110% of the fair
market value on the date of grant. As at November 30, 2004,
429,500 stock options, yet exercisable, to purchase 429,500
shares of the Company's Common Stock, were outstanding.
vii. Performance Graph
Set forth below is a line graph comparing cumulative total
shareholder return on the Company's Common Stock, with the
cumulative total return of companies in the NASDAQ Stock Market
(U.S.) and the cumulative total return of Dow Jones's
TMI/Personal Products Index.
GRAPH
25
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding
the ownership of the Company's Common Stock and/or Class A Common
Stock as of November 30, 2004 by (i) all those known by the
Company to be owners of more than five percent of the outstanding
shares of Common Stock or Class A Common Stock; (ii) each officer
and director; and (iii) all officers and directors as a group.
Unless otherwise indicated, each of the shareholders has sole
voting and investment power with respect to the shares owned
(subject to community property laws, where applicable), and is
beneficial owner of them.
Ownership, As A
Percentage of
All Shares Out-
Number of "Option Standing/Assuming
Name and Address Shares Owned (1) Shares" (1) Option Share Exercise(1)
Common
Stock Class A (2)
David Edell 159,532 494,307 112,500 9.3% 10.3%
c/o CCA Industries, Inc.
200 Murray Hill Parkway
East Rutherford, NJ 07073
Ira W. Berman 187,647 483,087 112,000 9.5% 10.5%
c/o CCA Industries, Inc.
Jack Polak 28,254 - 25,000 .4% .7%
195 Beach Street
Eastchester, NY 10709
Stanley Kreitman 10,200 - 15,000 .1% .3%
c/o CCA Industries, Inc.
Dunnan Edell 42,075 - 90,000 .6% 1.8%
c/o CCA Industries, Inc.
Robert Lage - - - -
72 Cypress Point Lane
Jackson, NJ 08527
Drew Edell 123,108 - 15,000 1.7% 1.9%
c/o CCA Industries, Inc.
John Bingman - - 10,000 0% .1%
Industries, Inc.
Officers and Directors 561,608 977,394 379,500
as a group (88 persons)
26
_______________________
(1) The number of "Option Shares" represents the number of shares
that could be purchased by and upon exercise of unexercised
options exercisable within 60 days; and the percentage ownership
figure denominated "Assuming Option Share Exercise" assumes, per
person, that unexercised options have been exercised and, thus,
that subject shares have been purchased and are actually owned.
In turn, the "assumed" percentage ownership figure is measured,
for each owner, as if each had exercised such options, and
purchased subject `option shares,' and thus increased total
shares actually outstanding, but that no other option owner had
`exercised and purchased.'
(2) David Edell and Ira Berman own 100% of the outstanding shares
of Class A Common Stock. Messrs. David Edell, Dunnan Edell, Drew
Edell and Ira Berman are officers and directors. Mr. John
Bingman is an officer. Messrs. Lage, Kreitman and Polak are
independent, outside directors.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 2004, several related parties provided
services to the Company, which were deemed immaterial to the
financial statements.
On October 3, 2004, the Company repurchased 500,000 shares
of the Company's common stock, 250,000 shares each from David
Edell and Ira W. Berman at a price of $8.99. The Company has no
present plans for the purchase of any additional shares of it
common stock this fiscal year.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Sheft Kahn & Company LLP ("Sheft Kahn") served as the
Company's independent auditors for 2004 and 2003. The services
performed by Sheft Kahn in this capacity included conducting an
audit in accordance with generally accepted auditing standards
of, and expressing an opinion on, the Company's consolidated
financial statements.
Audit Fees
Sheft Kahn's fees for professional services rendered in
connection with the audit and review of Forms 10-K and all other
SEC regulatory filings were $166,008 for the 2004 fiscal year and
$177,614 for the 2003 fiscal year. The Company has paid and is
current on all billed fees.
Tax Fees
Sheft Kahn's fees for professional services rendered in
connection with Federal and State tax return preparation and
other tax matters for the 2004 and 2003 fiscal years were $41,181
and $42,846, respectively.
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
28
Commission. Each year, the independent auditor's retention to
audit our financial statements, including the associated fee, is
approved by the committee before the filing of the preceding
year's annual report on form 10-K. At the beginning of the
fiscal year, the Audit Committee will evaluate other known
potential engagements of the independent auditor, including the
scope of the work proposed to be performed and the proposed fees,
and approve or reject each service, taking into account whether
the services are permissible under applicable law and the
possible impact of each non-audit service on the independent
auditor's independence from management. At each subsequent
committee meeting, the committee will receive updates on the
services actually provided by the independent auditor, and
management may present additional services for approval. The
committee has delegated to the Chairman of the committee the
authority to evaluate and approve engagements on behalf of the
committee in the event that a need arises for pre-approval
between committee meetings. If the Chairman so approves any such
engagements, he will report that approval to the full committee
at the next committee meeting.
Since the May 6, 2003 effective date of the Securities and
Exchange Commission rules stating that an auditor is not
independent of an audit client if the services it provides to the
client are not appropriately approved, each new engagement of
Sheft Kahn & Company LLP was approved in advance by the Audit
Committee, and none of those engagements made use of the de
minimus exception to pre-approval contained in the Commission's
rules.
28
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENTS,
SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements:
Table of Contents, Independent Auditors' Report,
Consolidated Balance Sheets as of November 30, 2004 and 2003,
Consolidated Statements of Income (Loss) for the years ended
November 30, 2004, 2003 and 2002, Consolidated Statements of
Comprehensive Income (Loss), Consolidated Statements of
Shareholders' Equity for the years ended November 30, 2004, 2003
and 2002, Consolidated Statements of Cash Flows for the years
ended November 30, 2004, 2003 and 2002, Notes to Consolidated
Financial Statements.
Financial Statement Schedules:
Schedule II: Valuation Accounts; Years Ended Nov. 30, 2004,
2003 and 2002. The remaining financial statement schedules
have been omitted since they are not required to be filed.
Exhibits:
(3) The Company's Articles of Incorporation and Amendments
thereof, and its By-Laws, are incorporated by reference to
their filing with the Form 10-K/A filed April 5, 1995.
(Exhibit pages 000001-23).
(1) The Indenture (and the Promissory note exhibited therewith)
defining the rights of former shareholders who tendered Common
Stock to the Company for its $2 per share, five- year, 6%
debenture, is filed by reference to the filing of such documents
with the Schedule TO filed with the S.E.C., on June 5, 2001.
(10) (a) The Following Material Contracts are incorporated by
reference to their filing with the Form 10-K/A filed April
5, 1995: Amended and Restated Employment Agreements of
1994, with David Edell and Ira Berman; License Agreement
made February 12, 1986 with Alleghany Pharmacal
Corporation.
(b) The February 1999 Amendments to the Amended and Restated
Employment Agreements of David Edell and Ira Berman (1994)
are incorporated by reference to the 1998 10-K. (Exhibit
pages 00001-00002). The May 29, 2001 Amended and Restated
Employment Agreements of David Edell and Ira Berman are
incorporated by reference herein.
(c) The Forms 8K, filed on May 22, 2002 and November 20,
2002, are incorporated by reference to this 2004 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.
(d) The Company's 2003 Stock Option Plan was filed with the
2003 Proxy.
29
(11) Statement re Per Share Earnings (included in Item 15,
Financial Statements)
Three Forms 8-K were filed during the 2004 fiscal year.
(14) Code of Ethics for Chief Executive Officer and Senior
Financial Officers are referenced
(31.1)Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) included herein
(31.2)Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) included herein
(32.1)Certification of Chief Executive Officer pursuant to 18
U.S.C. 1350 included herein
(32.2)Certification of Chief Financial Officer pursuant to 18
U.S.C. 1350 included herein
Shareholders may obtain a copy of any exhibit not filed
herewith by writing to CCA Industries, Inc., 200 Murray Hill
Parkway, East Rutherford, New Jersey 07073. Moreover, exhibits
may be inspected and copied at prescribed rates at the
Commission's public reference facilities at Judiciary Plaza, 450
Fifth Street, NW, Washington, D.C. 20549; Jacob K. Javits Federal
Building, 26 Federal Plaza, New York, New York 10278; and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such materials may also
be obtained by mail at prescribed rates from the Public Reference
Branch of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and one is available at the Commission's Internet
website (http://www.sec.gov).
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(A) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Annual Report to be signed on its behalf by the undersigned
thereunto duly authorized.
CCA INDUSTRIES, INC.
By: s/
DUNNAN EDELL, President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Annual Report has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
s/ Chief Executive Officer, February 17, 2005
DAVID EDELL Director
s/ Chairman of the Board February 17, 2005
IRA W. BERMAN of Directors, Executive
Vice President,
Secretary
s/ President, Chief Operating February 17, 2005
DUNNAN EDELL Officer, Director
s/ Vice President, February 17, 2005
DREW EDELL
s/ Director February 17, 2005
STANLEY KREITMAN
s/ Director February 17, 2005
ROBERT LAGE
s/ Director February 17, 2005
JACK POLAK
s/ Chief Financial Officer February 17, 2005
JOHN BINGMAN
31
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2004 AND 2003
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. . . . . . . . . . . . . 8-31
SUPPLEMENTARY INFORMATION
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, 2004 and 2003, 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, 2004. 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, 2004 and 2003,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended November 30, 2004, in conformity with
accounting principles generally accepted in the United States of America.
SHEFT KAHN & COMPANY LLP
CERTIFIED PUBLIC ACCOUNTANTS
January 30, 2005
Jericho, New York
-1-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
November 30,
2004 2003
Current Assets
Cash and cash equivalents (Note 14) $ 3,142,230 $ 1,206,787
Short-term investments and marketable
securities (Notes 2 and 6) 1,952,738 2,632,448
Accounts receivable, net of allowances of
$895,723 and $1,222,408, respectively 8,677,984 6,604,982
Inventories (Notes 2 and 3) 6,048,000 5,312,699
Prepaid expenses and sundry receivables 695,653 590,850
Prepaid income taxes and refunds due (Note 8) 418,651 236,620
Deferred income taxes (Note 8) 650,938 963,566
Total Current Assets 21,586,194 17,547,952
Property and Equipment, net of accumulated
depreciation and amortization
(Notes 2 and 4) 569,745 728,522
Intangible Assets, net of accumulated
amortization (Notes 2 and 5) 511,029 532,193
Other Assets
Marketable securities (Notes 2 and 6) 8,852,198 10,991,411
Other 37,411 39,138
Total Other Assets 8,889,609 11,030,549
Total Assets $31,556,577 $29,839,216
See Notes to Consolidated Financial Statements.
-2-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
November 30,
2004 2003
Current Liabilities
Accounts payable and accrued
liabilities (Note 10) $ 6,982,835 $ 5,603,150
Income tax payable 59,888 -
Dividends payable 483,426 379,117
Subordinated debentures (Note 7) 497,656 -
Total Current Liabilities 8,023,805 5,982,267
Subordinated Debentures (Note 7) - 497,656
Deferred Income Taxes (Note 8) 10,725 14,753
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 6,153,503 and
6,724,509 shares, respectively 61,535 67,245
Class A common stock, $.01 par; authorized
5,000,000 shares; issued and outstanding
977,394 shares, respectively 9,774 9,774
Additional paid-in capital 3,833,734 3,829,914
Retained earnings 19,995,619 19,891,541
Unrealized (losses) on marketable
securities ( 228,944) ( 95,228)
23,671,718 23,703,246
Less: Treasury Stock (86,703 and
279,536 shares at November 30,
2004 and 2003, respectively) 149,671 358,706
Total Shareholders' Equity 23,522,047 23,344,540
Total Liabilities and Shareholders' Equity $31,556,577 $29,839,216
See Notes to Consolidated Financial Statements.
-3-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended November 30,
2004 2003 2002
Revenues
Sales of health and beauty
aid products, net $60,667,562 $54,145,480 $45,241,493
Other income 850,196 591,271 439,481
61,517,758 54,736,751 45,680,974
Costs and Expenses
Cost of sales 20,520,857 18,168,528 15,342,317
Selling, general and
administrative expenses 17,577,032 16,753,269 15,389,528
Advertising, cooperative and
promotions 13,118,784 10,328,695 9,239,249
Research and development 876,665 884,425 741,974
Provision for doubtful accounts 18,675 73,537 ( 105,724)
Interest expense 31,466 31,399 38,074
52,143,479 46,239,853 40,645,418
Income before Provision
for Income Taxes 9,374,279 8,496,898 5,035,556
Provision for Income Tax 3,577,616 3,244,767 1,961,203
Net Income $ 5,796,663 $ 5,252,131$ 3,074,353
Weighted Average Shares *
Outstanding
Basic 7,399,472 7,372,232 7,241,754
Diluted 7,680,781 7,768,361 7,731,583
Earnings Per Common Share*
(Note 2):
Basic $.78 $.71 $.42
Diluted $.75 $.68 $.40
* 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,
2004 2003 2002
Net Income $5,796,663 $5,252,131 $3,074,353
Other Comprehensive Income
(Loss)
Unrealized holding gain (loss)
on investments ( 133,716) 12,762 ( 57,839)
Provision (Benefit) for Income
Taxes ( 51,032) 4,874 ( 22,527)
Other Comprehensive Income
(Loss) - Net ( 82,684) 7,888 ( 35,312)
Comprehensive Income $5,713,979 $5,260,019 $3,039,041
Earnings Per Share:*
Basic $.77 $.71 $.42
Diluted $.74 $.68 $.39
* Adjusted for 2% stock dividend.
See Notes to Consolidated Financial Statements.
-5-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2004, 2003 AND 2002
Unrealized
Additional Gain (Loss) on
Common Stock (1) Paid-In Retained Marketable Treasury
Shares Amount Capital Earnings Securities Stock
Balance - December 1, 2001 7,409,014 $74,090 $3,832,843 $12,315,062 ($ 50,151) ($247,205)
Issuance of common stock 153,000 1,530 ( 1,530) - - -
Net income for the year - - - 3,074,353 - -
Unrealized (loss) on marketable
securities - - - - ( 57,839) -
Purchase of 54,018 shares of
treasury stock - - - - - ( 105,730)
Balance - November 30, 2002 7,562,014 75,620 3,831,313 15,389,415 ( 107,990) ( 352,935)
Issuance of common stock 139,889 1,399 ( 1,399) - - -
Net income for the year - - - 5,252,131 - -
Dividends declared - - - ( 750,005) - -
Unrealized gain on marketable
securities - - - - 12,762 -
Purchase of 2,958 shares of
treasury stock - - - - - ( 5,771)
Balance - November 30, 2003 7,701,903 77,019 3,829,914 19,891,541 ( 95,228) ( 358,706)
Issuance of common stock 131,827 1,318 3,682 - - -
Net income for the year - - - 5,796,663 - -
Unrealized (loss) on marketable
securities - - - - ( 133,716) -
Retirement of treasury stock ( 192,833) ( 1,928) 38 ( 207,145) - 209,035
Purchase and retirement of
common stock ( 510,000) ( 5,100) 100 (4,490,000) - -
Dividends declared - - - ( 995,440) - -
Balance - November 30, 2004 7,130,897 $71,309 $3,833,734 $19,995,619 ($228,944) ($149,671)
(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. Stockholders' equity has been retroactively restated to give effect for the stock dividend.
See Notes to Consolidated Financial Statements.
-6-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
2004 2003 2002
Cash Flows from Operating Activities:
Net income $5,796,663 $5,252,131 $3,074,353
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 347,651 361,730 357,627
(Gain) on sale of securities ( 143,736) ( 9,518) ( 119)
(Gain) on sale of trademark ( 50,000) - -
Decrease (increase) in deferred
income taxes 308,600 333,569 375,126
Loss on disposal of property and
equipment - - 27,629
(Increase) in accounts receivable ( 2,073,002) ( 339,027) (1,800,964)
(Increase) decrease in inventory ( 735,301) (1,569,568) 1,040,399
(Increase) decrease in prepaid
expenses and sundry receivables ( 104,803) ( 227,393) 37,946
(Increase) decrease in prepaid income
taxes and refunds due ( 182,031) ( 234,917) 220,286
Decrease in other assets 1,727 17,250 275
Increase in accounts payable and
accrued liabilities 1,379,685 319,041 1,129,853
Increase (decrease) in income
taxes payable 59,888 ( 178,690) 169,324
Net Cash Provided by Operating
Activities 4,605,341 3,724,608 4,631,735
Cash Flows from Investing Activities:
Acquisition of property and equipment( 140,674) ( 321,446) ( 575,923)
Acquisition of intangible assets ( 27,036) ( 2,846) ( 6,292)
Purchase of available for sale
securities ( 4,249,221) (9,888,309) (6,767,658)
Proceeds from sale of available for
sales securities 7,078,164 6,485,792 1,839,729
Proceeds from sale of trademark 50,000 - -
Proceeds of money due from officers - - 20,598
Net Cash Provided by (Used in)
Investing Activities 2,711,233 (3,726,809) (5,489,546)
Cash Flows from Financing Activities:
Purchase and retirement of common
shares ( 4,495,000) - -
Repurchase of outstanding debentures - - ( 6,750)
Proceeds from exercise of stock options 5,000 - -
Purchase of treasury stock - ( 5,771) ( 105,730)
Dividends paid ( 891,131) ( 370,888) -
Net Cash (Used in) Financing
Activities ( 5,381,131) ( 376,659) ( 112,480)
Net Increase (Decrease) In Cash 1,935,443 ( 378,860) ( 970,291)
Cash at Beginning of Year 1,206,787 1,585,647 2,555,938
Cash at End of Year $3,142,230 $1,206,787 $1,585,647
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest $ 31,466 $ 31,529 $ 38,239
Income taxes 3,382,450 3,322,700 1,310,593
Supplemental Disclosure of Non-Cash
Information:
Dividends declared and accrued $ 483,426 $ 379,117 $ -
Retirement of $189,052 shares of treasury
stock at a cost of $209,035
See Notes to Consolidated Financial Statements.
-7-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
CCA Industries, Inc. ("CCA") was incorporated in the State of Delaware
on March 25, 1983.
CCA manufactures and distributes health and beauty aid products.
CCA has several wholly-owned subsidiaries, CCA Cosmetics, Inc., CCA
Labs, Inc., Berdell, Inc., Nutra Care Corporation, and CCA Online
Industries, Inc., all of which are currently inactive.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of CCA and
its wholly-owned subsidiaries (collectively the "Company"). All
significant inter-company accounts and transactions have been
eliminated.
Use of Estimates:
The consolidated financial statements include the use of estimates,
which management believes are reasonable. The process of preparing
financial statements in conformity with generally accepted accounting
principles requires the use of estimates and assumptions regarding
certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of
the date of the financial statements. Accordingly, upon settlement,
actual results may differ from estimated amounts.
Other Comprehensive Income:
Total comprehensive income includes changes in equity that are
excluded from the consolidated statements of operations and are
recorded directly into a separate section of consolidated statements
of comprehensive income. The Company's accumulated other
comprehensive income shown on the consolidated balance sheet consist
of unrealized gains and losses on investment holdings.
Short-Term Investments and Marketable Securities:
Short-term investments and marketable securities consist of corporate
and government bonds and equity securities. The Company has
classified its investments as Available-for-Sale securities.
Accordingly, such investments are reported at fair market value, with
the resultant unrealized gains and losses reported as a separate
component of shareholders' equity.
Statements of Cash Flows Disclosure:
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an original maturity of less
than three months to be cash equivalents.
-8-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Statements of Cash Flows Disclosure (Continued):
During fiscal 2002, two officers/shareholders exercised in the
aggregate 200,000 options (204,000 as adjusted for the 2% stock
dividend) in exchange for 50,000 shares (51,000 as adjusted for the 2%
stock dividend) of previously issued common stock.
During fiscal 2003, three officers/shareholders exercised in the
aggregate 157,000 options (160,140 as adjusted for the 2% stock
dividend) in exchange for 19,854 shares (20,251 as adjusted for the 2%
stock dividend) of previously issued common stock.
During fiscal 2004, five officers/shareholders exercised in the
aggregate 138,000 options (140,760 as adjusted for the 2% stock
dividend) in exchange for 8,758 shares (8,933as adjusted for the 2%
stock dividend) of previously issued common stock.
For the year ended November 30, 2004, dividends declared but not yet
due amounted to $483,426.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Product returns are recorded in inventory when they are received at
the lower of their original cost or market, as appropriate. Obsolete
inventory is written off and its value is removed from inventory at
the time its obsolescence is determined.
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. The Company charges to
expense repairs and maintenance items, while major improvements and
betterments are capitalized. When the Company sells or otherwise
disposes of property and equipment items, the cost and related
accumulated depreciation are removed from the respective accounts and
any gain or loss is included in earnings.
Depreciation and amortization are provided on the straight-line method
over the following estimated useful lives or lease terms of the
assets:
Machinery and equipment 5-7 Years
Furniture and fixtures 3-10 Years
Tools, dies and masters 3 Years
Transportation equipment 5 Years
Leasehold improvements Remaining life of the lease
(ranging from 1-9 years)
Intangible Assets:
Intangible assets are stated at cost and consist primarily of
trademarks which are amortized on the straight-line method over a
period of 15-17 years.
Financial Instruments:
The carrying value of assets and liabilities considered financial
instruments approximate their respective fair value.
-9-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes:
Income tax expense includes federal and state taxes currently payable
and deferred taxes arising from temporary differences between income
for financial reporting and income tax purposes.
Tax Credits:
Tax credits, when present, are accounted for using the flow-through
method as a reduction of income taxes in the years utilized.
Earnings Per Common Share:
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share" in 1998. Basic earnings per
share is calculated using the average number of shares of common
stock outstanding during the year. Diluted earnings per share is
computed on the basis of the average number of common shares
outstanding plus the effect of outstanding stock options using the
"treasury stock method" and convertible debentures using the "if-
converted" method. Common stock equivalents consist of stock
options.
Revenue Recognition:
The Company recognizes sales upon shipment of merchandise. Net sales
comprise gross revenues less expected returns, trade discounts,
customer allowances and various sales incentives. Although no legal
right of return exists between the customer and the Company, it is an
industry-wide practice to accept returns from customers. The
Company, therefore, records a reserve for returns equal to its gross
profit on its historical percentage of returns on its last five
months sales.
Reclassifications
In accordance with EITF 00-14, the Company has accounted for certain
sales incentives offered to customers by charging them directly to
sales as opposed to "advertising and promotional" expense. Had EITF
00-14 not been adopted, net sales for the years ended November 2004,
2003 and 2002 would have been $62,673,158, $55,905,788 and
$46,850,507, respectively.
-10-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising Costs:
The Company's policy for fiscal financial reporting is to charge
advertising cost to operations as incurred.
Shipping Costs:
The Company's policy for fiscal financial reporting is to charge
shipping cost to operations as incurred. For the years ended
November 30, 2004, 2003 and 2002, included in selling, general and
administrative expenses is shipping costs amounting to $2,813,479,
$2,668,246 and $2,120,645, respectively.
NOTE 3 - INVENTORIES
At November 30, 2004 and 2003, inventories consist of the following:
2004 2003
Raw materials $3,764,473 $3,746,522
Finished goods 2,283,527 1,566,177
$6,048,000 $5,312,699
At November 30, 2004 and 2003, the Company had a reserve for obsolete
inventory of $871,488 and $1,153,612, respectively.
NOTE 4 - PROPERTY AND EQUIPMENT
At November 30, 2004 and 2003, property and equipment consisted of
the following:
2004 2003
Machinery and equipment $ 115,104 $ 105,478
Office furniture and equipment 708,184 676,494
Transportation equipment 10,918 10,918
Tools, dies, and masters 433,221 347,560
Leasehold improvements 291,063 277,366
1,558,490 1,417,816
Less: Accumulated depreciation
and amortization 988,745 689,294
Property and Equipment - Net $ 569,745 $ 728,522
Depreciation and amortization expense for the years ended November
30, 2004, 2003 and 2002 amounted to $299,451, $313,663, and $309,816,
respectively.
-11-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following at November 30, 2004 and
2003:
2004 2003
Trademarks and patents $786,430 $759,394
Less: Accumulated amortization 275,401 227,201
Intangible Assets - Net $511,029 $532,193
Amortization expense for the years ended November 30, 2004, 2003 and
2002 amounted to $48,200, $48,067, and $47,811, respectively.
Estimated amortization expense for each of the ensuing years through
November 30, 2009 is $49,200, $49,600, $50,000, $49,500 and $50,100,
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, 2004 and November 30,
2003 were as follows:
November 30, November 30,
2004 2003
Current: COST MARKET COST MARKET
Corporate obligations $1,475,000 $1,470,690 $ 850,860 $ 854,466
Government obligations
(including mortgage
backed securities) 296,814 297,045 1,260,340 1,248,731
Common stock 51,649 52,656 304,379 295,538
Mutual funds 188,247 132,347 179,320 118,963
Other equity - - 111,750 114,750
Total 2,011,710 1,952,738 2,706,649 2,632,448
Non-Current:
Corporate obligations 5,546,097 5,446,625 5,374,706 5,342,893
Government obli-
gations 2,751,228 2,689,721 4,208,237 4,182,482
Preferred stock 624,845 615,852 1,329,495 1,366,036
Other equity
investments 100,000 100,000 100,000 100,000
Total 9,022,170 8,852,198 11,012,438 10,991,441
Total $11,033,880 $10,804,936 $13,719,087 $13,623,859
-12-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
The market value at November 30, 2004 was $10,804,936 as compared to $13,623,859 at November 30,
2003. The gross unrealized gains and losses were $4,227 and ($233,171) for November 30, 2004 and
$89,761 and ($184,989) for November 30, 2003. The cost and market values of the investments at
November 30, 2004 were as follows:
COL. A COL. B COL. C COL.D COL.E
Amount at Which
Each Portfolio
Number of Market Of Equity Security
Units-Principal Value of Issues and Each
Amount of Each Issue Other Security
Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in
Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet
CORPORATE OBLIGATIONS:
American General Fin Corp 08/15/05 2.050% 200,000 $ 200,000 $ 198,894 $ 198,894
American General Fin Corp 09/15/06 2.500% 100,000 100,000 98,206 98,206
Banc One Corp Global Notes 06/30/08 2.625% 125,000 124,363 119,576 119,576
Bank of America Corp 08/15/08 3.250% 200,000 199,630 195,872 195,872
Bear Stearns 02/15/07 2.650% 100,000 100,000 97,894 97,894
Caterpillar Finl Svcs Corp 09/15/06 2.350% 100,000 99,717 98,246 98,246
CIT Group Inc. 10/15/05 2.250% 100,000 100,000 99,156 99,156
CIT Group Inc. 03/15/05 3.200% 100,000 100,000 100,098 100,098
CIT Group Inc. 07/15/05 2.000% 100,000 100,000 99,385 99,385
CIT Group Inc. 01/15/06 4.000% 200,000 200,000 200,160 200,160
CITGROUP Global Markets 03/15/07 2.350% 150,000 150,000 145,845 145,845
Ford Motor Credit 10/20/06 4.250% 100,000 100,000 100,615 100,615
GE Capital Corp Internotes 10/15/06 2.250% 300,000 300,000 293,292 293,292
GE Capital Corp Internotes 02/15/07 2.500% 200,000 200,000 195,598 195,598
GE Capital Corp Internotes 03/15/07 2.350% 250,000 250,000 242,928 242,928
GE Capital Corp Internotes 02/15/06 2.450% 250,000 250,000 247,473 247,473
GE Capital Corp Internotes 07/15/06 2.150% 200,000 200,000 195,946 195,946
-13-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
COL. A COL. B COL. C COL.D COL.E
Amount at Which
Each Portfolio
Number of Market Of Equity Security
Units-Principal Value of Issues and Each
Amount of Each Issue Other Security
Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in
Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet
CORPORATE OBLIGATIONS (Continued):
GE Capital Corp Internotes 09/15/06 2.550% 150,000 $ 150,000 $ 147,387 $ 147,387
GE Capital Corp Internotes 09/15/06 2.350% 300,000 300,000 294,525 294,525
GE Capital Corp Internotes 10/15/06 2.500% 400,000 400,000 392,808 392,808
General Dynamics 05/15/06 2.125% 150,000 149,706 147,855 147,855
General Dynamics 05/15/06 2.125% 100,000 99,739 98,570 98,570
Glaxosmithkline CAP PLC 04/16/07 2.375% 200,000 198,894 195,136 195,136
GMAC 10/15/05 3.100% 200,000 200,000 198,882 198,882
GMAC 10/15/06 3.550% 250,000 250,000 246,760 246,760
GMAC 12/15/06 3.400% 200,000 200,000 196,096 196,096
GMAC Smartnotes 09/15/07 3.750% 200,000 200,000 194,396 194,396
GMAC Smartnotes 05/15/05 5.000% 175,000 175,000 175,889 175,889
GMAC Smartnotes 06/15/05 3.550% 200,000 200,000 199,946 199,946
GMAC Smartnotes 05/15/06 4.050% 400,000 400,000 396,924 396,924
GMAC Smartnotes 10/15/05 3.150% 400,000 400,000 398,440 398,440
Household Finance Corp 10/15/06 2.750% 100,000 100,000 98,553 98,553
John Hancock Life Ins Co. 07/15/06 2.250% 200,000 200,000 196,122 196,122
John Hancock Life Ins Co. 10/15/06 2.450% 100,000 100,000 97,597 97,597
John Hancock Life Ins Co. 03/15/07 2.350% 150,000 150,000 146,424 146,424
John Hancock Life Ins Co. 10/15/06 2.300% 200,000 200,000 195,260 195,260
United Healthcare Notes 01/30/08 3.300% 75,000 74,890 73,637 73,637
Wells Fargo & Co. 08/25/08 3.120% 100,000 99,158 96,924 96,924
7,021,097 6,917,315 6,917,315
-14-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
COL. A COL. B COL. C COL.D COL.E
Amount at Which
Each Portfolio
Number of Market Of Equity Security
Units-Principal Value of Issues and Each
Amount of Each Issue Other Security
Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in
Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet
GOVERNMENT OBLIGATIONS:
Federal Home Loan Bank 07/28/06 2.189% 200,000 $ 199,000 $ 197,000 $ 197,000
Federal Home Loan Bank 08/21/06 2.590% 200,000 200,000 198,188 198,188
Federal Home Loan Bank 07/24/08 2.125% 100,000 100,000 99,438 99,438
FHLB 06/19/06 2.260% 250,000 249,830 246,952 246,952
FHLMC 11/15/09 3.250% 250,000 250,000 248,630 248,630
FHLMC 11/15/17 4.500% 200,000 200,000 198,000 198,000
FNMA 05/15/06 2.250% 200,000 198,772 197,626 197,626
FNMA 09/24/07 3.000% 200,000 200,000 197,500 197,500
FNMA 12/10/07 3.000% 150,000 150,000 149,579 149,579
NJ State Turnpike Authority 01/01/30 1.050% 325,000 325,000 325,000 325,000
Tennessee Valley Authority 05/01/29 6.500% 18,000 480,576 444,060 444,060
Power Bonds
Tobacco Settlement Fin Corp. 06/01/15 5.000% 200,000 198,500 187,748 187,748
US Treasury Bill 05/05/05 0.000% 300,000 296,814 297,045 297,045
3,048,042 2,986,766 2,986,766
EQUITY:
Preferred Stock:
ABN AMRO Cap Fund 07/03/08 5.900% 2,000 50,000 48,600 48,600
General Electric Cap Corp 11/15/32 6.100% 8,800 224,845 226,072 226,072
JP Morgan Chase Cap IX 06/15/33 5.875% 2,000 50,000 48,470 48,740
Morgan Stanley Cap Tr 07/15/33 5.750% 4,000 100,000 95,720 95,720
Wells Fargo Cap Tr VIII 08/01/33 5.625% 8,000 200,000 196,720 196,720
624,845 615,852 615,852
-15-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
COL. A COL. B COL. C COL.D COL.E
Amount at Which
Each Portfolio
Number of Market Of Equity Security
Units-Principal Value of Issues and Each
Amount of Each Issue Other Security
Name of Issuer and Maturity Interest Bonds and Cost of at Balance Issue Carried in
Title of Each Issue Date Rate Notes Each Issue Sheet Date Balance Sheet
EQUITY (Continued):
Common Stock:
DTE Energy Co. 1,200 51,649 52,656 52,656
Mutual Funds:
Dreyfus Premier Limited
Term High Income CL B 16,296.314 188,247 132,347 132,347
Other Equity Investments:
Aberdeen Asia Pacific
Income Fund 4 100,000 100,000 100,000
Totals $11,033,880 $10,804,936 $10,804,936
-16-
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, 2004, 2003 and 2002, available-
for-sale securities were liquidated and proceeds amounting to
$6,926,858, $6,485,792 and $1,839,729 were received, with resultant
realized gains/(losses) totaling ($138,381), ($9,518) and ($2,131),
respectively. Cost of available-for-sale securities includes
unamortized premium or discount.
NOTE 7 - NOTES PAYABLE AND SUBORDINATED DEBENTURES
The Company has an available line of credit of $10,000,000 which was
increased from $7,000,000 on May 27, 2004. Interest is calculated at
the Company's option, either on the outstanding balance at the prime
rate minus 1% or Libor plus 150 basis points at the Company's option.
The line of credit is unsecured as of October 21, 2004 and must adhere
to certain financial covenants pertaining to net worth and debt
coverage. The Company was not utilizing their available credit line
at November 30, 2004 and 2003. The Company has extended the line of
credit through May 31, 2005.
On August 1, 2000, the Company repurchased (pursuant to a tender
offer) 278,328 shares of its outstanding common stock by issuing
subordinated debentures equal to $2 per share, which accrue interest
at 6% and are due to mature on August 1, 2005. The interest is
payable semi-annually.
During the year 2001, the Company repurchased $46,000 of debentures
for $23,000 resulting in a gain of $23,000.
During the year 2002, the Company repurchased $9,000 of debentures for
$6,750 resulting in a gain of $2,250.
NOTE 8 - INCOME TAXES
CCA and its subsidiaries file a consolidated federal income tax
return. No returns have been examined by the Internal Revenue
Service.
At November 30, 2004 and 2003, respectively, the Company has temporary
differences arising from the following:
November 30, 2004
Classified As
Deferred Short- Long-
Type Amount Tax Term Term
Asset (Liability)
Depreciation ($ 26,714) ($ 10,725) $ - ($10,725)
Reserve for bad debts 111,078 44,595 44,595 -
Reserve for returns 406,558 163,221 163,221 -
Reserve for obsolete
inventory 871,488 349,877 349,877 -
Section 263A costs 123,239 49,477 49,477 -
Charitable contributions 109,023 43,768 43,768 -
Net deferred income
tax $640,213 $650,938 ($10,725)
-17-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
November 30, 2003
Classified As
Deferred Short- Long-
Type Amount Tax Term Term
Asset (Liability)
Depreciation ($ 37,633) ($ 14,753) $ - ($14,753)
Reserve for bad debts 549,851 215,558 215,558 -
Reserve for returns 345,872 135,593 135,593 -
Reserve for obsolete
inventory 1,153,612 452,251 452,251 -
Section 263A costs 122,469 48,012 48,012 -
Charitable contributions 186,080 72,949 72,949 -
Accrued litigation
settlement 100,000 39,203 39,203 -
Net deferred income
tax $948,814 $963,566 ($14,753)
Income tax expense (benefit) is made up of the following components:
November 30, 2004
State &
Federal Local Total
Current tax expense $2,494,109 $768,251 $3,262,360
Tax credits ( 40,000) - ( 40,000)
Deferred tax expense 282,855 72,401 355,256
$2,736,964 $840,652 $3,577,616
-18-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
November 30, 2003
State &
Federal Local Total
Current tax expense $2,265,262 $690,924 $2,956,186
Tax credits ( 44,988) - ( 44,988)
Deferred tax expense 257,604 75,965 333,569
$2,477,878 $766,889 $3,244,767
November 30, 2002
State &
Federal Local Total
Current tax expense $1,116,198 $507,307 $1,623,505
Tax credits ( 37,428) - ( 37,428)
Deferred tax expense 341,365 33,761 375,126
$1,420,135 $541,068 $1,961,203
Prepaid income taxes and refund due are made up of the following components:
State &
Federal Local Total
November 30, 2004 $315,670 $102,981 $418,651
November 30, 2003 $59,779 $176,841 $236,620
Income taxes payable are made up of the following components:
State &
Federal Local Total
November 30, 2004 $ - $59,888 $59,888
November 30, 2003 $ - $ - $ -
-19-
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, 2004 is as follows:
2004 2003 2002
Percent Percent Percent
Of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
Income tax expense (benefit)
at federal statutory rate $3,187,255 34.00% $2,888,945 34.00% $1,712,089 34.00%
Increases (decreases) in taxes
resulting from:
State income taxes, net of federal
income tax benefit 554,830 5.92 506,147 5.96 357,105 7.09
Non-deductible expenses and
other adjustments ( 124,469) ( 1.32 ) ( 105,337) ( 1.24 ) ( 70,563) ( 1.40 )
Utilization of tax credits ( 40,000) ( .43 ) ( 44,988) ( .53 ) ( 37,428) ( 0.74 )
Income tax expense (benefit)
at effective rate $3,577,616 38.17% $3,244,767 38.19% $1,961,203 38.95%
-20-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTIONS
On November 15, 1984, the Company authorized the granting of incentive stock
options as well as non-qualified options. The plan was amended in 1986 and
again in 1994. On July 9, 2003, the Company approved a Stock Option Plan
authorizing the issuance of options up to 1,000,000 shares. The following
summarizes the stock options outstanding under these plans as of November
30, 2004:
Number Per Share
Of Option
Date Granted Shares Price Expiration
June 16, 1999 10,000 2.50 2009
May 24, 2001 289,500 .50 2007
March 9, 2004 50,000 9.00 2009
March 9, 2004 50,000 8.25 2009
June 6, 2004 5,000 8.25 2009
August 24, 2004 25,000 7.50 2009
429.500
The following summarizes the activity of shares under option for the two
years ended November 30, 2004:
Number Per Share
Of Option
Shares Price Value
Balance - November 30,
2002 594,500 .50-2.50 $ 317,250
Granted - - -
Repriced - - -
Exercised ( 157,000) ( .50) ( 78,500)
Expired - - -
Cancelled - - -
Balance - November 30,
2003 437,500 238,750
Granted 130,000 7.50-9.00 1,091,250
Repriced - - -
Exercised ( 138,000) ( .50) ( 69,000)
Expired - - -
Cancelled - - -
Balance - November 30,
2004 429,500 $ 1,261,000
-21-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTIONS (Continued)
The Company accounts for its stock-based employee compensation under the
recognition and measurement principles of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Under APB No. 25, when the exercise price of stock options
equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized in the consolidated statement of
operations.
During the year 2004, the Company issued stock options to purchase 130,000
shares under the 2003 stock option plan. Under the provisions of APB No. 25,
no compensation expense has been, or will be, recognized in the consolidated
statement of operations.
Proforma net income and net income per share, as required by SFAS No. 123,
have been determined as if we had accounted for all employee stock options
granted under SFAS No. 123's fair value method. The proforma effect of
recognizing compensation expense in accordance with SFAS No. 123 is as
follows:
Year Ended November 30,
2004 2003 2002
Net income as reported $5,796,663 $5,252,131 $3,074,353
SFAS No. 123 based compensation ( 976,619) - -
Income tax benefit 390,648 - -
Net income - proforma $5,210,692 $5,252,131 $3,074,353
Basic net income per share - as reported $.78 $.71 $.42
Basic net income per share - proforma $.76 $.71 $.42
Diluted net income per share - as reported $.75 $.68 $.40
Diluted net income per share - proforma $.73 $.68 $.40
Weighted average shares used in
computing net income and proforma
net income per share:
Basic 7,399,472 7,372,232 7,241,754
Diluted 7,680,781 7,768,361 7,731,583
-22-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTIONS
The Company used the Black-Scholes model to value stock options for pro
forma presentation. The assumptions used to estimate the value of the
options included in the pro forma amounts and the weighted average estimated
fair value of options granted are as follows:
Stock Option Plan Shares
2004 2003 2002
Average expected life (years) 7.00 3.75 5.10
Expected volatility 237.35% 185.67% 210.19%
Risk-free interest rate 3.95% 3.00% 2.88%
Weighted average fair value
at grant - Exercise price
equal to market price $8.22 $7.01 $1.73
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, the Black-Scholes model requires the input
of highly subjective assumptions, including the expected stock price
volatility and option life. Because the Company's stock options granted
to employees have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, existing
models do not necessarily provide a reliable measure of the fair value of
its stock options granted to employees. For purposes of this model, no
dividends have been assumed.
-23-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE
The following items which exceeded 5% of total current liabilities are
included in accounts payable and accrued liabilities as of:
November 30,
2004 2003
(In Thousands)
Coop advertising $ 932 $ 607
Accrued returns 980 787
Accrued bonuses 470 499
$2,382 $1,893
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,
2004 2003 2002
Interest income $442,936 $461,291 $383,569
Dividend income 44,756 17,693 11,780
Realized gain on repurchase of
debentures - - 2,250
Realized gain (loss) on sale of
securities 143,736 9,518 ( 2,131)
Royalty income 138,313 97,271 41,820
Sale of trademark 50,000 - -
Miscellaneous 30,455 5,498 2,193
$850,196 $591,271 $439,481
-24-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Leases
The Company currently occupies approximately 60,600 square feet of
space used for warehousing and offices. The annual rental is
$327,684, with an annual CPI increase of 3%, but not to exceed 15%
cumulative five year increase. The lease requires the Company to pay
for additional expenses "Expense Rent" (Common Area Maintenance
"CAM"), which includes real estate taxes, common area expense,
utility expense, repair and maintenance expense and insurance
expense. The lease expires on May 31, 2012 with a renewal option for
an additional five years.
Rent expense for the years ended November 30, 2004, 2003 and 2002 was
$449,376, $322,684 and $433,983, respectively.
In addition, the Company has entered into various property and
equipment operating leases with expiration dates ranging through
November 2006.
Future commitments under noncancellable operating lease agreements
having a remaining term in excess of one year for each of the next
five (5) years and in the aggregate are as follows:
Year Ending
November 30,
2005 $392,208
2006 360,432
2007 343,872
2008 327,684
2009 327,684
2010 and thereafter 983,052
Royalty Agreements
In 1986, the Company entered into a license agreement with Alleghany
Pharmacal Corporation (the "Alleghany Pharmacal License"). This
license required the Company to pay 6% royalty on net sales but no
less than $360,000 per annum to maintain its license. The Company
has expanded the lines licensed from Alleghany and pays only 1%
royalty on various new products created by the Company.
The Alleghany Pharmacal License agreement provided that 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 Alleghancy Pharmacal License accounted
for $10,903,458 or 18% of total net sales in the fiscal year ended
November 30, 2004.
-25-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
In May of 1998, the Company entered into a License Agreement with
Solar Sense, Inc. for the marketing of sun care products under
trademark names. The Company's License Agreement with Solar Sense,
Inc. is for the exclusive use of the trademark names "Solar Sense"
and "Kids Sense", in connection with the commercial exploitation of
sun care products. The Company is required to pay a royalty on net
sales of the licensed products; with minimum per-annum royalties of
$30,000. The Company realized $1,851,911 in net sales of sun-care
products in 2004.
In October of 1999, the Company entered into a License Agreement with
The Nail Consultants, Ltd. for the use of an activator invented in
connection with a method for applying a protective covering to
fingernails. The Company's License Agreement with The Nail
Consultants, Ltd. is for the exclusive use of the method and its
composition in a new product kit packaged and marketed by CCA under
its own name, "Nutra Nail Power Gel". The Company will pay a royalty
of net sales of all licensed product sold by the Company. Net sales
were $1,732,213 in 2004.
In October 2002, the Company entered into a License Agreement with
Hugger Corporation for use of its patented oral hygiene system to be
used in conjunction with regular toothpaste. The Company's License
Agreement is for the use of the product designated and referred to in
the patent owned by Hugger Corporation. The Company designed,
marketed and distributed the patented product called "Booster" under
its Plus+White brand.
The Company is required to pay a royalty of net sales payable
quarterly. During the first 18-month contract period ending June 30,
2004, the minimum royalty the Company is required to pay is $100,000
to maintain its exclusive rights under the License Agreement.
Thereafter, the Company is required to pay a minimum royalty of
$50,000 annually. The royalty will continue until the Patent expires
or an aggregate of $3,500,000 is paid to Licensor. Until that time,
Licensee has no liability to meet minimum royalty requirements except
to maintain its rights under the License Agreement. In fiscal 2004,
the net sales were $1,394,281.
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 commenced sales of the Mega-T Green Tea Chewing Gum in
July 2004. From July to the November 30, 2004 year-end, the Company
realized $1,148,913 of net sales for the gum.
-26-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
On March 10, 2004, the Company entered into an agreement with Dr.
Stephen Hsu. PhD. to create green tea skin care products.
Dr. Hsu will be entitled to a commission on the net factory sales of
all of the Company's products using the green tea serum created
exclusively for the Company. The special anti-oxidant green tea
serum will be included in the new Denise Austin "Skin Fit For Life"
skin care line.
On July 14, 2004, the Company entered into a license agreement with
Denise Austin.
The license agreement requires the Company to pay a minimum royalty
in order to maintain the exclusive use of the name, "Denise Austin"
to manufacture and sell a special line of skin care and cosmetic
products. The license will continue so long as minimum royalty
payments are met. The initial sales of the skin care anti-oxidant
skus are targeted for the first week in February 2005.
The Company is not party to any other license agreement that is
currently material to its operations.
Employment Contracts
The Company has executed Employment Contracts with its Chief
Executive Officer and its Chairman of the Board. The contracts for
both are exactly the same. The contracts expire on December 31,
2010. The contracts provide for a base salary which commenced in
1994 in the amount of $300,000, with a year-to-year CPI or 6% plus
2.5% of the Company's pre-tax income less depreciation and
amortization (EBITDA), plus 20% of the base salary for the fiscal
year. The "2.5% measure" in the bonus provision of the two contracts
was amended so as to calculate it against earnings before income
taxes, less depreciation, amortization and expenditures for media and
cooperative advertising in excess of $8,000,000. On May 24, 2001,
the contract was amended increasing the base salary to $400,000.
Two officers of the Company who are the two sons of the Chief
Executive Officers of the Company have five year contracts in the
amounts of $270,000 and $200,000 which expire on November 30, 2007.
In July 2003 and January 2004, such officers' salaries were increased
to $300,000 and $225,000, respectively.
-27-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Collective Bargaining Agreement
On December 1, 1998, the Company signed a collective bargaining
agreement with Local 734, L.I.U. of N.A., AFL-CIO. Other than
standard wage, holiday, vacation and sick day provisions, the
agreement calls for CCA to provide certain medical and dental
benefits and to contribute to the Local 734 Educational Fund $.01 per
hour for each hour the employees are paid. The agreement expired on
November 30, 2004. A new collective bargaining agreement with
similar provisions is in effect for December 1, 2004 through January
1, 2008. This agreement pertains to 29% of the CCA labor force.
Litigation
The Company has been named as a defendant in 13 lawsuits alleging
that the plaintiffs were injured as a result of their purchasing and
ingesting our diet suppressant containing phenylpropanolamine (PPA),
which the Company utilized as its active ingredient in its products
prior to November 2000. The lawsuits brought against the Company are
for unspecified amount of compensatory and exemplary damages. Eleven
of the suits have been dismissed with prejudice with two remaining.
One suit is in the process of being dismissed. The other suit is
insured and is being defended by the Company's insurance carrier.
Dividends
CCA declared a dividend of $0.14 per share payable to all holders of
the Company's common stock, $0.07 to shareholders of record on May 1,
2004 payable on June 1, 2004 and $0.07 to shareholders of record on
November 1, 2004, payable on November 30, 2004.
On June 16, 2004, CCA declared a 2% stock dividend payable to all
shareholders of record on November 1, 2004, payable December 1, 2004.
All references in the accompanying financial statements to the number
of common shares and per-share amounts for 2004, 2003 and 2002 have
been restated to reflect the stock dividend.
On January 11, 2005, the Board of Directors declared a $0.16 per
share dividend for fiscal 2005, $0.08 payable to all shareholders of
record May 1, 2005 payable on June 1, 2005 and $0.08 payable to all
shareholders of record November 1, 2005 payable on December 1, 2005.
NOTE 13 - PENSION PLANS
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.
-28-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - CONCENTRATION OF RISK
All of the Company's products are sold to major drug and food chains
merchandisers, and wholesale beauty-aids distributors throughout the
United States and Canada.
During the years ended November 30, 2004, 2003 and 2002, certain
customers each accounted for more than 5% of the Company's net sales,
as follows:
Customer 2004 2003 2002
A 34% 34% 31%
B 11 13 13
C 9 8 7
D 7 7 7
E 7 6 5
F 7 * *
Foreign Sales 1.80% 2.10% 2.40%
* under 5%
The loss of any one of these customers could have a material adverse
affect on the Company's earnings and financial position.
During the years November 30, 2004, 2003 and 2002, certain products
within the Company's product lines accounted for more than 10% of the
Company's net sales as follows:
Product 2004 2003 2002
Health and Beauty 62% 67% 75%
Cosmetic and Fragrance 12 19 19
Over-The-Counter 26 14 -
The Company maintains cash balances at several banks. Accounts at
each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. In addition, the Company maintains
accounts with several brokerage firms. The accounts contain cash and
securities. Balances are insured up to $500,000 (with a limit of
$100,000 for cash) by the Securities Investor Protection Corporation
(SIPC). Each brokerage firm has substantial insurance beyond the
$500,000 SIPC limit.
-29-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - EARNINGS PER SHARE
Basic earnings per share is calculated using the average number of common shares outstanding. Diluted earnings per share
is computed on the basis of the average number of common shares outstanding plus the effect of outstanding stock options
using the "treasury stock method".
Year Ended November 30,
2004* 2003* 2002*
Net income available for common
shareholders, basic and diluted $5,796,663 $5,252,131 $3,074,353
Weighted average common stock
outstanding- Basic 7,399,472 7,372,232 7,241,754
Net effect of dilutive stock options 281,309 396,129 480,224
Weighted average common stock and
common stock equivalents - Diluted 7,680,781 7,768,361 7,731,583
Basic earnings per share $.78 $.71 $.42
Diluted earnings per share $.75 $.68 $.40
*Adjusted for 2% stock dividend
-30-
SCHEDULE II
CCA INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
YEARS ENDED NOVEMBER 30, 2004, 2003 AND 2002
COL. A COL. B COL. C COL. D COL. E
Additions
Balance at Charged To Balance
Beginning Costs and At End
Description Of Year Expenses Deductions Of Year
Year Ended November 30, 2004:
Allowance for doubtful accounts $ 549,851 ($ 472,566) $ 33,793 $ 111,078
Reserve for returns and
allowances $ 345,872 $4,282,250 $4,221,566 $ 406,556
Reserve for inventory
obsolescence $1,153,612 $ 88,591 $ 360,469 $ 881,734
Year ended November 30, 2003:
Allowance for doubtful accounts $ 695,824 $ 188,347 $ 334,320 $ 549,851
Reserve for returns and
allowances $ 526,584 $3,444,804 $3,625,516 $ 345,872
Reserve for inventory
obsolescence $ 976,788 $ 408,993 $ 232,169 $1,153,612
Year Ended November 30, 2002:
Allowance for doubtful accounts $ 481,399 $ 283,954 $ 69,529 $ 695,824
Reserve for returns and
allowances $ 813,686 $4,094,332 $4,381,434 $ 526,584
Reserve of inventory
obsolescence $1,052,716 $ 397,643 $ 473,571 $ 976,788
-31-
Exhibit 14
CCA INDUSTRIES, INC.
CODE OF ETHICS FOR CHIEF EXECUTIVE OFFICER AND SENIOR
FINANCIAL OFFICERS
CCA Industries, Inc. (the "Company") has its Business
Guideposts, which is a code of business conduct applicable
to all directors and employees of the Company. The
Business Guideposts contains a number of specific
provisions relating to compliance with legal requirements,
conflicts of interest, maintenance of accurate records and
reporting financial information accurately and timely.
The Company has also adopted this Code of Ethics
specifically for its chief executive officer ("CEO") and
all financial officers and executives (collectively, the
"Financial Officers and Executives"), including the chief
financial officer and controllers. This Code of Ethics
supplements the Business Guideposts and is intended to
promote ethical conduct and compliance with law and to
deter wrongdoing and conflicts of interest. The Financial
Officers and Executives subject to this Code of Ethics
will be designated and informed of such designation by the
Company.
In addition to the Business Guideposts, the CEO and the
Financial Officers and Executives are subject to the
following additional specific policies:
1. In carrying out their duties, the CEO and Financial
Officers and Executives will promote full, fair, accurate,
timely and understandable disclosure in all reports and
other documents the Company files with, or furnishes or
submits to the Securities and Exchange Commission, as well
as other public communications made by the Company.
Accordingly, the CEO and each Financial Officer and
Executive shall promptly bring to the attention of the
Audit Committee established by the Company, The CEO and/or
General Counsel any material information of which he or
she may become aware that affects the disclosures made by
the Company in its public filings, if such information is
not already being adequately addressed in public filings
being prepared for the Company.
2. The CEO and each Financial Officer and Executive
shall promptly bring to the attention of the Audit
Committee any information he or she may have concerning
(a)significant deficiencies in the design or operation of
internal controls which could adversely affect the
Company's ability to record, process, summarize and report
financial data or (b) any fraud, whether or not material,
that involves management or other employees who have a
significant role in the Company's financial reporting,
disclosures or internal controls.
3. In carrying out their duties, the CEO and each
Financial Officer and Executive shall endeavor to comply
and cause the Company to comply with all applicable
governmental laws, rules and regulations.
4. The CEO shall promptly bring to the attention of the
General Counsel or the Chairman of the Audit Committee and
each Financial Officer and Executive shall promptly bring
to the attention of the General Counsel or the CEO, any
information he or she may have concerning any (a)
unethical behavior or dishonest or illegal acts in
violation of the Company's Business Guideposts involving
any management or other employee who has a significant
role in the Company's financial reporting, disclosures or
internal controls or (b) violation of this Code of Ethics,
including any actual or apparent conflicts of interest
between personal and professional relationships. If any
of the matters described in the preceding sentence
involves the CEO, the Financial Officer or Executive shall
promptly bring the matter to the attention of the General
Counsel and the Chairman of the Audit Committee.
5. The CEO shall promptly bring to the attention of the
General Counsel or the Chairman of the Audit Committee and
each Financial Officer and Executive shall promptly bring
to the attention of the General Counsel or the CEO, any
evidence he or she may have concerning any (a) material
violation of the securities or other laws, rules and
regulations applicable to the Company and the operation of
its business, by the Company or any agent thereof or (b)
material violation by the CEO or any Financial Officer or
Executive of the Business Guideposts or this Code of
Ethics. If any violation described in the preceding
sentence involves the CEO, the Financial Officer or
Executive shall bring the matter to the attention of the
General Counsel and the Chairman of the Audit Committee.
If the CEO or any Financial Officer or Executive reports
such evidence in accordance with this paragraph and
believes or has reason to believe the matter reported is
not being or has not been adequately addressed by the
Company, he or she shall report such matter to the
Chairman of the Audit Committee.
6. The Board of Directors shall determine or designate
appropriate persons to determine appropriate actions to be
taken in the event of violations of the Business
Guideposts or of this Code of Ethics by the CEO or any
Financial Officer or Executive. Such actions shall be
reasonably designed to deter wrongdoing and to promote
accountability for adherence to the Business Guidepost and
to this Code of Ethics. The Company shall at least
annually report violations and the actions taken by the
Company to the Audit Committee.
Exhibit 31.1
CERTIFICATION
I, David Edell, Chief Executive Officer of the Registrant,
certify that:
1. I have reviewed this annual report on Form 10-K of CCA
Industries, Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the Registrant as of, and for,
the periods presented in this report.
4. The Registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relation to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
(b) Evaluated the effectiveness of the Registrant's
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(c) Disclosed in this report any change in the
Registrant's internal control over financial reporting that
occurred during the Registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
affect, the Registrant's internal control over financial
reporting; and
5. The Registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
controls over financial reporting, to the Registrant's auditors
and the audit committee of the Registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
Registrant's ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Registrant's internal control over financial reporting.
Date: February 17, 2005
/s/---------------------------
David Edell
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, John Bingman, Chief Financial Officer of the Registrant,
certify that:
1. I have reviewed this annual report on Form 10-K of
CCA Industries, Inc.;
2. Based on my knowledge, this report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the Registrant as of, and for,
the periods presented in this report.
4. The Registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relation to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
(b) Evaluated the effectiveness of the Registrant's
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(c) Disclosed in this report any change in the
Registrant's internal control over financial reporting that
occurred during the Registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
affect, the Registrant's internal control over financial
reporting; and
5. The Registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
controls over financial reporting, to the Registrant's auditors
and the audit committee of the Registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
Registrant's ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Registrant's internal control over financial reporting.
Date: February 17, 2005
/s/-------------------------------
John Bingman
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CCA Industries, Inc. (the
"Registrant") on Form 10-K for the annual period ended November
30, 2004 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 17, 2005
/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, 2004 as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), I, John Bingman, Chief Financial
Officer of the Registrant, certify, in accordance with 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that to the best of my knowledge:
(1) The Report, to which this certification is attached,
fully complies with the requirements of section 13(a) of the
Securities Exchange Action of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and results of
operations of the Registrant.
Date: February 17, 2005
/s/---------------------------
John Bingman
Chief Financial Officer