FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended February 28, 2005
Commission File Number 1-31643
CCA INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-2795439
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
200 Murray Hill Parkway
East Rutherford, NJ 07073
(Address of principal executive offices) (Zip Code)
(201) 330-1400
Registrant's telephone number, including area code
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 re
quired to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the Registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes______ No X
Common Stock, $.01 Par Value - 6,156,803 shares of as February 28, 2005
Class A Common Stock, $.01 Par Value - 967,702 shares as of February 28, 2005
CCA INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I FINANCIAL INFORMATION:
Item1. Financial Statements:
Consolidated Balance Sheets as of
February 28, 2005 and November 30, 2004 1-2
Consolidated Statements of Operations
for the three months ended February 28, 2005
and February 29, 2004 3
Consolidated Statements of Comprehensive Income
for the three months ended February 28, 2005
and February 29, 2004 4
Consolidated Statements of Cash Flows for
the three months ended February 28, 2005
and February 29, 2004 5
Notes to Consolidated Financial Statements 6-16
Item 2. Management Discussion and Analysis of
Results of Operations and Financial
Condition 17-19
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 19
Item 4. Controls and Procedures 19
PART II OTHER INFORMATION 20
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 21
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
February 28, November 30,
2005 2004
(Unaudited)
Current Assets
Cash and cash equivalents $ 2,528,816 $ 3,142,230
Short-term investments and marketable
securities 2,460,225 1,952,738
Accounts receivable, net of allowances
of $666,743 and $517,634,
respectively 9,629,747 8,677,984
Inventories 8,190,851 6,048,000
Prepaid expenses and sundry
receivables 569,258 695,653
Deferred income taxes 633,565 650,938
Prepaid income taxes and refunds due 298,463 418,651
Deferred advertising 2,224,952 -
Total Current Assets 26,535,877 21,586,194
Property and Equipment, net of
accumulated depreciation and
amortization 578,158 569,745
Intangible Assets, net of accumulated
amortization 553,439 511,029
Other Assets
Marketable securities 8,379,136 8,852,198
Deferred Income Taxes 897 -
Other 36,963 37,411
Total Other Assets 8,416,996 8,889,609
Total Assets $36,084,470 $31,556,577
See Notes Consolidated to Financial Statements.
-1-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
February 28, November 30,
2005 2004
(Unaudited)
Current Liabilities
Accounts payable and accrued
liabilities $11,145,444 $ 6,982,835
Income tax payable - 59,888
Dividends payable - 483,426
Subordinated debentures 497,656 497,656
Total Current Liabilities 11,643,100 8,023,805
Deferred Income Taxes - 10,725
Shareholders' Equity
Preferred stock, $1.00 par; authorized
20,000,000 shares; none issued
Common stock, $.01 par; authorized
15,000,000 shares; 6,156,803 and
6,066,800 shares issued,
respectively 61,578 61,535
Class A common stock, $.01 par;
authorized 5,000,000 shares;
967,702 and 977,394 shares
issued, respectively 9,677 9,774
Additional paid-in capital 5,093,847 5,094,660
Retained earnings 19,530,719 18,734,693
Unrealized gains (losses) on
marketable securities ( 254,451) ( 228,944)
24,441,370 23,671,718
Less: Treasury Stock, 86,703
shares, at cost - ( 149,671)
Total Shareholders' Equity 24,441,370 23,522,047
Total Liabilities and
Shareholders' Equity $36,084,470 $31,556,577
See Notes to Consolidated Financial Statements.
-2-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
February 28, February 29,
2005 2004
Revenues
Sales of health and beauty aid
products - Net $14,688,237 $12,929,465
Other income 125,951 158,023
14,814,188 13,087,488
Costs and Expenses
Costs of sales 5,445,359 4,849,247
Selling, general and
administrative expenses 4,393,496 3,804,153
Advertising, cooperative and
promotions 3,098,440 2,824,306
Research and development 231,528 233,846
Provision for doubtful accounts 113,981 9,460
Interest expense 7,471 7,923
13,290,275 11,728,935
Income before Provision for
Income Taxes 1,523,913 1,358,553
Provision for Income Taxes 579,083 522,411
Net Income $ 944,830 $ 836,142
Earnings per Share:
Basic $.13 $.11
Diluted $.13 $.11
See Notes to Consolidated Financial Statements.
-3-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
February 28, February 29,
2005 2004
Net Income $944,830 $836,142
Other Comprehensive Income
Unrealized holding (losses)
gains on investments ( 25,507) 158,725
(Benefit) Provision for
Income Taxes ( 3,683) 61,035
Other Comprehensive (Loss)
Income - Net ( 21,824) 97,690
Comprehensive Income $923,006 $933,832
Earnings Per Share:
Basic $.13 $.13
Diluted $.12 $.12
See Notes to Consolidated Financial Statements.
-4-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended
February 28, February 29,
2005 2004
Cash Flows from Operating Activities:
Net income $ 944,830 $ 836,142
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 96,743 82,991
(Gain) on sale of marketable
securities and repurchase of
debentures - ( 1,081)
Increase (decrease) in deferred
income taxes 5,751 ( 11,076)
(Increase) in accounts receivable ( 951,763) ( 2,075,865)
(Increase) in inventory ( 2,142,851) ( 410,443)
Decrease in prepaid expenses
and miscellaneous receivables 126,396 33,347
(Increase) in deferred
advertising ( 2,224,952) ( 3,722,909)
Decrease in other assets 450 1,250
Increase in accounts payable
and accrued liabilities 4,162,606 5,822,012
Decrease (increase) in prepaid
income taxes 120,188 ( 18,508)
(Decrease) in taxes payable ( 59,888) -
(Decrease) in dividends payable - ( 379,117)
Net Cash Provided by Operating
Activities 77,510 156,743
Cash Flows from Investing Activities:
Acquisition of property, plant
and equipment ( 92,041) ( 23,414)
Acquisition of intangible assets ( 55,525) -
Purchase of marketable securities ( 59,932) ( 652,292)
Proceeds from sale and maturity of
investments - 1,126,941
Net Cash (Used in) Investing
Activities ( 207,498) 451,235
Cash Flows from Financing Activities:
Dividends Paid ( 483,426 -
Net Increase (Decrease) in Cash ( 613,414) 607,978
Cash and Cash Equivalents at Beginning
of Period 3,142,230 1,206,787
Cash and Cash Equivalents at End
of Period $ 2,528,816 $1,814,765
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $ 14,936 $ 15,388
Income taxes 512,835 552,200
Schedule of Non Cash Financing Activities:
Cancellation of Treasury Stock
Common Stock $ 867
Retained Earnings 148,804
$ 149,671
See Notes to Consolidated Financial Statements.
-5-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance
with generally accepted accounting principles for interim
financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. In the opinion of
management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. Operating results for
the three-month period ended February 28, 2005 are not
necessarily indicative of the results that may be
expected for the year ended November 30, 2005. For
further information, refer to the consolidated financial
statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended
November 30, 2004.
NOTE 2 - 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, CCA Online Industries, Inc., and CCA
Industries Canada (2003) Inc., all of which are currently
inactive.
NOTE 3 - 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").
-6-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates:
The consolidated financial statements include the use of
estimates, which management believes are reasonable. The
process of preparing financial statements in conformity
with generally accepted accounting principles requires
the use of estimates and assumptions regarding certain
types of assets, liabilities, revenues, and expenses.
Such estimates primarily relate to unsettled transactions
and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ
from estimated amounts.
Short-Term Investments and Marketable Securities:
Short-term investments and marketable securities consist
of corporate and government bonds and equity securities.
The Company has classified its investments as Available-
for-Sale securities. Accordingly, such investments are
reported at fair market value, with the resultant
unrealized gains and losses reported as a separate
component of shareholders' equity.
Statements of Cash Flows Disclosure:
For purposes of the statement of cash flows, the Company
considers all highly liquid instruments purchased with an
original maturity of less than three months to be cash
equivalents.
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.
-7-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. Patents and
trademarks are amortized on the straight-line method over
a period of 15-17 years. Such intangible assets are
reviewed for potential impairment whenever events or
circumstances indicate that carrying amounts may not be
recoverable.
Financial Instruments:
The carrying value of assets and liabilities considered
financial instruments approximate their respective fair
value.
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.
-8-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Common Share:
Basic earnings per share is calculated using the average
weighted number of shares of common stock outstanding
during the year. Diluted earnings per share is computed
on the basis of the weighted 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 are comprised of gross sales 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.
Accounts Receivable:
Accounts receivable consist of trade receivables recorded
at original invoice amount, less an estimated allowance
for uncollectible accounts. Trade credit is generally
extended on a short-term basis; thus trade receivables do
not bear interest, although a finance charge may be
applied to receivables that are past due. Trade
receivables are periodically evaluated for collectibility
based on past credit history with customers and their
current financial condition. Changes in the estimated
collectibility of trade receivables are recorded in the
results of operations for the period in which the
estimate is revised. Trade receivables that are deemed
uncollectible are offset against the allowance for
uncollectible accounts. The Company generally does not
require collateral for trade receivables.
Accounts receivable are presented net of an allowance for
doubtful accounts of $223,316 and $111,078 as of February
28, 2005 and November 30, 2004, respectively.
Shipping and Handling Costs:
The Company presents shipping and handling costs as part
of selling, general and administrative expense and not as
part of cost of sales. Freight costs were $811,421 and
$486,036 for the three months ended February 28, 2005 and
February 29, 2004, respectively.
Comprehensive Income:
The Company adopted SFAS #130, Comprehensive Income,
which considers the Company's financial performance in
that it includes all changes in equity during the period
from transactions and events from non-owner sources.
Reclassifications:
Certain prior year amounts have been reclassified to
conform to the 2004 presentation.
-9-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements:
In December 2003, the Financial Accounting Standards
Board ("FASB") issued Interpretation No. 46R,
"Consolidation of Variable Interest Entities" ("FIN
46R"), which supercedes Interpretation No. 46,
"Consolidation of Variable Interest Entities" issued in
January 2003. FIN 46R requires a company to consolidate
a variable interest entity ("VIE"), as defined, when the
company will absorb a majority of the VIE's expected
losses, receives a majority of the VIE's expected
residual returns or both. FIN 46R also requires
consolidation of existing, non-controlled affiliates if
the VIE in unable to finance its operations without
investor support, or where the other investors do not
have exposure to the significant risks and rewards of
ownership. FIN 46R applies immediately to a VIE created
or acquired after January 31, 2003. For a VIE created
before February 1, 2003, FIN 46R applies in the first
fiscal year or interim period beginning after March 15,
2004, our third fiscal quarter beginning June 1, 2004.
Application of FIN 46R is also required in financial
statements that have interests in structures that are
commonly referred to as special-purpose entities for
periods after December 15, 2003. The adoption of FIN 46R
did not have an impact on our financial position, results
of operations or cash flows.
In November 2004, the FASB issued Statement of Financial
Accounting Standards ("SFAS") No. 151, "Inventory Costs"
("SFAS 151"). SFAS 151 amends the guidance in Accounting
Research Bulletin No. 43, Chapter 4, "Inventory Pricing",
to clarify that abnormal amounts of idle facility
expense, freight, handling costs and wasted materials
(spoilage) should be recognized as current-period charges
and required the allocation of fixed production overheads
to inventory based on normal capacity of the production
facilities. This statement is effective for inventory
costs incurred during fiscal years beginning after June
15, 2005. The adoption of SFAS 151 is not expected to
have an impact on our financial position, results of
operations or cash flows.
In November 2004, the Emerging Issues Task Force ("EITF")
reached a consensus on Issue No. 03-13, "Applying the
Conditions in Paragraph 42 of FASB Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived
Assets" in Determining Whether to Report Discontinued
Operations" (EITF 03-13"). Under the consensus, the
approach for assessing whether cash flows of the
component have been eliminated from the ongoing
operations of the entity focuses on whether continuing
cash flows are direct or indirect cash flows. Cash flows
of the component would not be eliminated if the
continuing cash flows to the entity are considered direct
cash flows. The consensus should be applied to a
component of an enterprise that is either disposed of or
classified as held for sale in fiscal period beginning
after December 15, 2004. The adoption of EITF 03-13 is
not expected to have an impact on our financial position,
results of operations or cash flows.
In December 2004, the FASB issued SFAS No. 123 (revised
2004), "Share-Based Payment" ("SFAS 123R"), which is a
revision of SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS 123R supercedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and amends
SFAS No. 95, "Statement of Cash Flows". SFAS 123R
focuses primarily on accounting for transactions in which
an entity obtains employee services in share-based
payment transactions and requires all share-based
payments to employees, including grants of employee stock
options, to be recognized in the income statement based
on their fair values. Accordingly, the adoption of SFAS
123R's fair value method will have a significant impact
on our results of operations, although it will have no
impact on our overall financial position. The impact of
the adoption of SFAS 123R cannot be predicted at this
time because it will depend on the levels of share-based
payments granted in the future. However, had we adopted
SFAS 123R in prior periods the impact of that standard
would have approximated the impact of SFAS 123 as
described n the disclosure of proforma net income and
earnings per share in Note 5. SFAS 123R also requires
the benefits of tax deductions in excess of recognized
compensation costs to be reported as a financing cash
-10-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued):
flow, rather than as an operating cash flow as
required under current literature. This
requirement would reduce net operating cash flows
and increase net financing cash flows in periods after
adoption. While we cannot estimate what those amounts
will be in the future (because they depend on, among
other things, the issuance of future options and when
they would be exercised), the amount of operating cash
flows recognized in prior periods for such excess tax
deductions were not material to our consolidated
financial position or results of operations. This
statement is effective for our interim periods beginning
after June 15, 2005.
In December 2004, the FASB issued SFAS 153, "Exchanges of
Nonmonetary Assets" ("SFAS 153"). SFAS 153 amends the
guidance in APB Opinion No. 29, "Accounting for
Nonmonetary Transactions" to eliminate certain exceptions
to the principle that exchanges of nonmonetary assets be
measured based on the fair value of the assets exchanged.
SFAS 153 eliminates the exception for nonmonetary
exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. This
statement is effective for nonmonetary asset exchanges in
fiscal years beginning after June 15, 2005. The adoption
of SFAS 153 is not expected to have an impact on our
financial position, results of operations or cash flows.
NOTE 4 - INVENTORIES
The components of inventory consist of the following:
February 28, November 30,
2005 2004
Raw materials $5,032,839 $3,764,473
Finished goods 3,158,012 2,283,527
$8,190,851 $6,048,000
At February 28, 2005 and November 30, 2004, the Company
had a reserve for obsolescence of $696,171 and $871,488,
respectively.
NOTE 5 - PROPERTY AND EQUIPMENT
The components of property and equipment consisted of the
following:
February 28, November 30,
2005 2004
Machinery and equipment $ 115,104 $ 115,104
Furniture and equipment 746,666 708,184
Transportation equipment 10,918 10,918
Tools, dies, and masters 483,776 433,221
Leasehold improvements 294,067 291,063
1,650,531 1,558,490
Less: Accumulated depreciation
and amortization 1,072,373 988,745
Property and Equipment - Net $ 578,158 $ 569,745
-11-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - PROPERTY AND EQUIPMENT (Continued)
Depreciation expense for the three months ended February
28, 2005 and February 28, 2004 amounted to $83,628 and
$70,965, respectively.
NOTE 6 - INTANGIBLE ASSETS
Intangible assets consist of the following:
February 28, November 30,
2005 2004
Patents and trademarks $841,955 $786,430
Less: Accumulated
amortization 288,516 275,401
Intangible Assets - Net $553,439 $511,029
Amortization expense for the three months ended February
28, 2005 and February 29, 2004 amounted to $13,115 and
$12,026, respectively. Estimated amortization expense
for each quarter of the ensuing five years through
February 28, 2009 is $12,000.
NOTE 7 - DEFERRED ADVERTISING
In accordance with APB 28, Interim Financial Reporting,
the Company expenses its advertising and related costs
over the interim periods based on its total expected
costs per its various advertising programs. Consequently
a deferral of $2,224,952 is accordingly reflected in the
balance sheet for the interim period. This deferral is
the result of the Company's $9 million media budget and
$6 million co-op budget for the year which contemplates
lower spending in the 3rd and 4th quarter than in the
first two quarters.
The table below sets forth the calculation:
February February
2005 2004
(In Millions) (In Millions)
Media advertising budget for
the fiscal year $9.00 $9.00
Pro-rata portion for three months $2.25 $2.25
Media advertising spent 2.49 4.48
Accrual (deferral) ($0.24) ($2.23)
Anticipated Co-op advertising
commitments $6.00 $5.50
Pro-rata portion for three months $1.50 $1.38
Co-op advertising spent 3.48 2.87
Accrual (deferral) ($1.98) ($1.49)
-12-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The following items which exceeded 5% of total current
liabilities are included in accounts payable and accrued
liabilities as of:
February 28, November 30,
2005 2004
(In Thousands) (In Thousands)
a)Media advertising $2,514 $ *
b)Coop advertising 2,593 932
c)Accrued returns 915 980
d)Accrued bonuses * 470
$6,022 $2,382
* under 5%
All other liabilities were for trade payables or
individually did not exceed 5% of total current
liabilities.
NOTE 9 - OTHER INCOME
Other income consists of the following:
February 28, February 29,
2005 2004
Interest and dividend income $102,020 $137,066
Royalty income 23,766 17,933
Miscellaneous 165 3,024
$125,951 $158,023
NOTE 10 - NOTES PAYABLE AND SUBORDINATED DEBENTURES
The Company has an available line of credit of
$10,000,000. Interest is calculated at the Company's
option, either on the outstanding balance at prime rate
minus 1% or Libor plus 150 basis points. The line of
credit is unsecured and the Company must adhere to
certain financial covenants pertaining to net worth and
debt coverage. The Company was not utilizing their
available credit line at February 28, 2005 or November
30, 2004.
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.
-13-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Litigation
The only material legal proceedings sets forth the fact
that there were originally 13 cases filed in which the
Company was named along with other defendants. Eleven
cases have been dismissed with prejudice. These cases
cannot be legally reinstated. The one case in
Philadelphia in which one of the defendants filed for
bankruptcy has been delayed. The court is rendering a
decision on our motion to dismiss. We agree with
independent counsel that, as concluded under the decision
in Seattle, unless a plaintiff ingested a product with
PPA within three days of a stroke, there can be no
causation to prove that a product caused the stroke. We
feel that the case should be dismissed inasmuch as
plaintiff at the deposition deposed that she took our
product months before the stroke.
The remaining case in Louisiana is fully insured to the
extent of $5,000,000. After reviewing the plaintiff's
medical records, it does not appear that there is ongoing
significant medical problems that would cause a jury to
render a substantial judgment. Counsel evidently in
discussing the matter with Phoenix Insurance Company has
not made any substantial efforts to settle the case which
we have been led to believe could be settled for under
$250,000.
We do not believe that any further litigations would be
ensuing because the Statute of Limitations throughout the
country provided that the case must be instituted within
three to four years within the time frame in which a
plaintiff had constructive notice of the product that
proximately caused a stroke. The FDA put out a news
release nationally in October 2000. However, there can be
no assurance that the current PPA litigation will not
have a material adverse effect upon the Company's
operations.
Dividends
CCA declared a dividend of $0.16 per share payable to all
holders of the Company's common stock, $0.08 to
shareholders of record on May 1, 2005 payable on June 1,
2005 and $0.08 to shareholders of record on November 1,
2005, payable on December 1, 2005.
NOTE 12 - PENSION PLANS
The Company has adopted a 401(K) Profit Sharing Plan that
covers union and non-union employees with over one year
of service and attained age 21. Employees may make
salary reduction contributions up to twenty-five percent
of compensation not to exceed the federal government
limits. The Company is not required to match any
employee contributions but may make a voluntary Company
contribution at the discretion of the Board of Directors.
-14-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 13 - 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 February 28, 2005 and
November 30, 2004 were as follows:
February 28, 2005 November 30, 2004
Current: COST MARKET COST MARKET
Corporate
obligations $ 1,925,000 $ 1,915,869 $ 1,475,000 $ 1,470,690
Government
obligations
(including mortgage
backed securities) 296,814 298,586 296,814 297,045
Common stock 51,649 53,064 51,649 52,656
Mutual funds 190,606 135,766 188,247 132,347
Other equity
investments 57,576 56,940 - -
Total 2,521,645 2,460,225 2,011,710 1,952,738
Non-Current:
Corporate
obligations 5,096,097 4,965,354 5,546,097 5,446,625
Government obli-
gations 2,751,228 2,694,410 2,751,228 2,689,721
Preferred stock 624,845 619,372 624,845 615,852
Other equity invest-
ments 100,000 100,000 100,000 100,000
Total 8,572,170 8,379,136 9,022,170 8,852,198
Total $11,093,815 $10,839,361 $11,033,880 $10,804,936
-15-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 -SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
(CONTINUED)
The market value at February 28, 2005 was $10,839,361 as
compared to $10,804,936 at November 30, 2004. The gross
unrealized gains and losses were $4,064 and ($258,515) for
February 28, 2005 and $4,227 and ($233,171) for November
30, 2004.
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED)
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.
The Company's net sales increased from $12,929,465 for quarter
ending February 29, 2004 to $14,688,237, primarily because of the
increased sales of the Company's Mega - T appetite suppressant
product and Mega T chewing gum and the introduction of the Denise
Austin Product line. Sales returns and allowances decreased to
8.5% of gross sales from 9.7% last year. Gross profit margins
increased to 62.93% for quarter ending February 28, 2005 compared
to 62.49% for the same quarter in the prior year. The Company's
gross revenues by category were: Cosmetics and Fragrances
$1,482,706, 9.52%; Health and Beauty Aids $8,874,574, 57.01%; and
miscellaneous over-the-counter $5,210,391, 33.47% for an aggregate
total of $15,567,670. The Company's gross revenues for the prior year
by category were: Cosmetics and Fragrances $1,694,927, 12.37%;
Health and Beauty Aids $9,024,875, 65.87%; and miscellaneous
over-the-counter $2,981,517, 21.76% for an aggregate total of
$13,701,319. The Company makes every effort to control the cost
of manufacturing and has had no substantial cost increases.
Net income was $944,830 as compared to $836,142 for the
same quarter in 2004. The 13% increase in net income was a result
of an increase of $1,758,772 in net sales. 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 00-
14 GAAP standard. The reclassification reflects a reduction in
sales for the quarters ending February 28, 2005, and 2004 by
$601,783 and $625,226. The reclassification reduces the gross
profit margin but does not affect the net income.
For the three-month period ending February 28, 2005, the
Company had revenues of $14,814,188 and net income of $944,830
after a provision for taxes of $579,083. For the same quarter in
2004, revenues were $13,087,488 and net income of $836,142 after a
provision for taxes of $522,411. Earnings per share was $0.13 for
the first quarter 2005 as compared to earnings per share of $0.11
for the first quarter 2004.
For the current first quarter, advertising, cooperative and promotional
allowance expenses were $3,098,440 as compared to $2,824,306 in
same quarter in 2004, increasing only $274,134. A portion of that
was that commercial costs increased by $63,973 for the shooting of
many new commercials. The balance was due to the increased co-op
advertising budget over the prior year. Advertising expenditures
were 21.1% of sales vs. 21.8% last year. The SG&A expenses
increased 15% or $589,343 to $4,393,496 from $3,804,153 in 2004.
-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED)
The increase was due mainly to those SG&A expenses which
vary in relation to additional sales volume. Freight out,
in particular, increased by $329,197 from 2004 to
2005. That increase is due to three factors. Those factors are
increased sales overall, the increase of oil prices passed on to
CCA, and immediate ship dates of our Denise Austin Product line. To
promote sales, CCA has offered IRC coupons in skus which increased
expenses $55,656. Additionally, royalty expenses increased by
$61,670 due to the new royalty licenses. Consulting expense
increased to $122,188 due to the marketing of new products, as
well. Research and development expenses stayed about the same from
the quarter last year to this year.
Both media and co-op commitments have a material effect on the
Company's operations. The Company attempts to anticipate its
advertising and promotional commitments as a percentage of gross
sales in order to control its effect on net income. In accordance
with APB No. 28, Interim Financial Reporting, the Company expenses
its advertising and related costs over the interim periods based on
its total expected expenses for its various advertising programs.
The total advertising programs for the year are budgeted at $9
million for media and $6 million for co-op advertising up from $9
million for media and $5.5 million for the prior year. The
Company's co-op budget for the quarter is $1,500,000. Research of
prior year's show that the entire amount of the budgeted co-op has
never been fully utilized by the Company's accounts as a result of
merchandising changes and cancelled promotions. Reduction of
$207,921 to co-op expense is due to this reserve placed on co-op
commitments. The reduction is based on an estimate of co-op
commitments that will not be utilized based on the historical
facts. Of the remaining $1,292,079, $601,783 was offset against
net sales in accordance with EITF 00-14. The remaining $690,296
was expensed for co-op for the quarter and is reflected as part of
the total advertising expense of $3,098,441. Since the actual co-
op commitments for the quarter were $3,480,566, a deferral of
$1,980,566 for co-op advertising is reflected on the balance sheet.
This deferral will be fully expensed by year-end. The deferral is
primarily a result of the Company's current $6,000,000 co-op
advertising budget, which is predicated on substantially lower
spending in the third and fourth quarters. The Company expensed
$2,249,304 for its media advertising for the current quarter and
deferred $244,396 based on actual spending of $2,493,700.
For the period ended February 28 2005, there was approximately
$919,178 of unclaimed co-op commitments from the prior years. If
it becomes apparent that this co-op will not be utilized, the
unclaimed co-op will be offset against the expense during the rest
of the fiscal year. This procedure is consistent with prior years'
methodology with regard to the unclaimed co-op expenses.
The Company's financial position as at February 28, 2005
consists of current assets of $26,535,877 and current liabilities
of $11,643,100, or a current ratio of 2.3:1. In addition,
shareholders' equity increased from $23,522,047 to $24,441,370
primarily due to net income earned during the current quarter.
All of the Company's investments are classified as available
for sale. Investments with a maturity date greater than one year
from February 28, 2005 are presented as long-term investments.
Assuming these long-term investments can be sold and turned into
liquid assets at any time, it would result in a current ratio of
3.0:1.
-18-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED)
Accounts receivable were $9,629,747 vs. $8,677,984 for periods
ending February 28, 2005 and November 30, 2004, respectively. The
increase in accounts receivable is predominately due to large sales
increases late in the first Quarter. Inventories increased to
$8,190,851 from $6,048,000, due to the addition of the Mega -T and
Denise Austin products. Current liabilities are $11,643,100 for
period ending February 28, 2005 vs. $8,023,805 as of November 30,
2004. Accounts payable and accrued expenses increased primarily
due to the large amount of advertising incurred for the period but
remaining unpaid. Liabilities also increased somewhat in order to
carry an increase in inventory of $2,142,851. As of February 28,
2005, the Company was not utilizing any of the funds available
under its $10,000,000 unsecured credit line.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
The Company's financial statements 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." $210,004 of the Company's $10,839,364 portfolio of
investments (approximate, as at Feb. 28, 2005) is invested in the
"Common Stock" and "Other Equity" categories, and approximately
$619,372 in that category are Preferred Stock holdings. Whereas
the Company does not take positions or engage in transactions in
risk-sensitive market instruments in any substantial degree, nor as
defined by SEC rules and instructions; therefore, the Company does
not believe that its investment-market risk is material.
ITEM 4. 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 February 28, 2005.
There were no changes in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934) subsequent to the date the controls were
evaluated that materially affect, or are reasonably likely to
materially affect, our internal control over financial reporting.
-19-
CCA INDUSTRIES, INC.
PART II OTHER INFORMATION
Item 1. Legal Proceedings:
See Part I - Note 11 of the Financial Statements regarding litigation.
Item 4. Submission of Matters to a Vote of Security Holders:
None.
Item 5. Other Information:
The Company plans to hold its Annual Meeting of Shareholders
on June 15, 2005 with proxy materials mailed to shareholders
of record on May 1, 2005 prior to the proposed meeting date.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
(31.1) Certification of Chief Executive Officer pursuant to Rule
13a-14(a)*
(31.2) Certification of Chief Financial Officer pursuant to Rule
13a-14(a)*
(32.1) Certification of Chief Executive Officer pursuant to 18
U.S.C. 1350*
(32.2) Certification of Chief Financial Officer pursuant to 18
U.S.C. 1350*
* Filed herewith.
(b) Reports on Form 8-K.
There were no Form 8-K's filed during the first quarter ended
February 28, 2005.
On April 11, 2005, Form 8-K was filed announcing the technical
change of our auditors from Sheft Kahn & Company LLP to KGS
LLP (a "spin-off" of Sheft Kahn).
-20-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: April 13, 2004
CCA INDUSTRIES, INC.
By:
David Edell, Chief Executive Officer
By:
Ira W. Berman, Chairman of the Board
-21-
Exhibit 11
CCA INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
Three Months Ended
February 28, February 29,
2005 2004
Item 6.
Weighted average shares outstanding -
Basic 7,093,730 7,289,255
Net effect of dilutive stock
options--based on the
treasury stock method
using average market
price 241,353 363,000
Weighted average shares outstanding -
Diluted 7,335,083 7,652,255
Net income $ 944,830 $ 836,142
Per share amount
Basic $.13 $.11
Diluted $.13 $.11
Exhibit 31.1
CERTIFICATION
I, David Edell, Chief Executive Officer of the Registrant, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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: April 13, 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 quarterly report on Form 10-Q 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: April 13, 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 Quarterly Report of CCA Industries, Inc. (the
"Registrant") on Form 10-Q for the quarterly period ended February 29,
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: April 13, 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 Quarterly Report of CCA Industries, Inc. (the
"Registrant") on Form 10-Q for the quarterly period ended February 29,
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: April 13, 2005
/s/--------------------------------
John Bingman
Chief Financial Officer