** **

**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 YearEnded                                                                                                                       Commission File Number

November 30, 2005                                                                                                                                 1-31643

 

  **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'sknowledge, 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].

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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 salesprice $10.05 on May 31, 2005, was as follows: 

 

Class of Voting Stock                                                                                              Market Value

 

5,514,387.shares; Common                                             

Stock, $.01 parvalue                                                                                              $55,419,589

 

On November 30, 2005 there was an aggregate of 7,179,757 shares of Common Stock and Class A Common Stock of the Registrant outstanding.

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CROSS REFERENCE SHEET

 

                                                                                   Headings in this Form

Form10‐K                                                                 10‐K for Year Ended

Item No.                                                                     November 30, 2005 

 

1.Business                                                                Business

 

2.Properties                                                              Property

 

3. Legal Proceedings                                                 LegalProceedings

 

4. Submission ofMatters                                            Submissionof Matters to a

     to a Vote of Security                                            Vote of Security Holders

     Holders

 

5. Market forRegistrant's                                           Marketfor the Company's

    Common Equityand                                              Common Stock and Related

    RelatedStockholder                                               ShareholderMatters

    Matters

 

6. Selected FinancialData                                          SelectedFinancial Data

 

7. Management's Discussion                                      Management's Discussion and

   and Analysis ofFinancial                                          Analysis ofFinancial

   Condition andResults                                             Condition and Results of

   of Operations                                                         Operations

 

7A. Quantitative andQualitative                                 Quantitative and Qualitative

       Disclosures about MarketRisk                            Disclosures about Market Risk

 

8. Financial Statements                                              Financial Statements

   and SupplementaryData                                          andSupplementary Data

 

9. Changes In andDis‐                                              Changes In and Dis‐

    agreementsWith                                                     agreementsWith

    Accountants OnAccounting                                    Accountants On Accounting

    and FinancialDisclosure                                          andFinancial Disclosure

 

9A. Control andProcedures                                       Control andProcedures

 

10. Directors and                                                      Directors and Executive

      Executive Officers                                               Officers

      of the Registrant

                                                                          ‐ iii‐

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                                                                                   Headings in this Form

Form10‐K                                                                 10‐K for Year Ended

Item No.                                                                     November 30, 2005     

 

11. ExecutiveCompensation                                         ExecutiveCompensation

 

12. SecurityOwnership                                               Security Ownership

      of CertainBeneficial                                               of Certain Beneficial

      Owners and Management                                     Owners and Management

 

13. CertainRelationships                                             Certain Relationships

      and Related Transactions                                       and Related Transactions

 

14. Principal AccountantFees                                       Principal AccountantFees

      andServices                                                          and Services

 

15. Exhibits, Financial                                                  Exhibits, Financial

    StatementSchedules,                                              Statement Schedules,

    and Reports onForm                                              and Reports on Form

    8‐K                                                                        8‐K

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

‐ iv‐

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**TABLE OF CONTENTS**

**I**

**Item                                                                                                                           Page**

** **

PART I

 

1. Business.............................................................................................                       1

2. Property.............................................................................................                       6

3. Legal Proceedings..............................................................................                        7

 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............                       18

8. Financial Statements and Supplementary Data....................................                      19

9. Changes In and Disagreements with Accountants On Accounting

     and Financial Disclosure....................................................................                     19

9A.Controls andProcedures...................................................                   19

 

PART III

 

10. Directors and Executive Officers......................................................                      21

11. Executive Compensation..................................................................                      23

12. Security Ownership of Certain Beneficial Owners andManagement.                        30

13. Certain Relationships and RelatedTransactions.................................                      31

14. Principal Accountant Fees andServices..................................                     32

  

PART IV

 

15. Exhibits, Financial Statement Schedules, and Reports on Form 8‐K...                    34

 

 

 

 

 

 ‐ v‐

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**PART I**

**Item 1. BUSINESS**

** **

(a) General

 

            CCA INDUSTRIES, INC. (hereinafter, “CCA” or the “Company”) was incorporated in Delaware in1983. 

 

The Company operates in one industry segment, in what may be generally described as the health‐and‐beauty aids business, selling numerous products in severalhealth‐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, theCompany markets several different but categorically-related products.  The principal brand and trademark names include “Plus+White” (oral health-care products),“Sudden Change” (skin-care products), “Nutra Nail” and“Power Gel” and “Nutra Nail 60" (nail treatments), “Bikini Zone” (pre and after-shave products), “Mega - T” Green Tea and “Mega G” Grapefruit (dietary products), “Mega - T“ chewing gum (anti-oxidantdietary product), Hair Off” (depilatories), “IPR” (foot-care products), “Solar Sense” (sun-care products), “Wash 'N Curl” (shampoos), “Cherry Vanilla” (perfumes),  and “Scar Zone” (scardiminishing cream).

 

All Company products are marketed and sold to major drug and food chains, mass merchandisers, and wholesale beauty‐aids distributors throughout the United States and Canada. In addition, certain of the Company’s products are sold internationally.

 

The Company recognizes sales at the time its products are shipped to customers.  However, while sales are not formally subject to any contract contingency, the acceptance of returnsis 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 estimatedreturns 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 toreturn rates and gross margins, and in the event of a significant increase in the rate of returns, the circumstance could have a materially adverse affect upon the Company’s operations.

 

The Company's total revenues in fiscal 2005 were $63,721,326. Gross profits were $40,784,764.  International sales accounted for approximately 2%of sales.  The Company experienced a net profit of $3,785,502 for the current fiscal year. Net worth at November 30, 2005, was $25,999,656 despite the repurchase of 500,000 shares of the Company’s common stock on October 5, 2004 from Officers/DirectorsDavid Edell and Ira W. Berman.  (See Certain Relationships and Related Transactions.

 

1

 

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Including the principal members of management (see Directors and Executive Officers), the Company, at November 30, 2005, had 153 sales, administrative, creative, accounting, receiving,and warehouse personnel in its employ.

 

(b) Manufacturing and Shipping

 

The Company creates and/or oversees formulations, chooses colors and mixtures, and arranges with independent contractors for the manufacture of its products pursuant to Companyspecifications.  Manufacturing and component‐supply arrangements are maintained with various manufacturers and suppliers.  All orders and other product shipments are delivered from the Company's own warehouse facilities, which results in moreeffective inventory control, more efficient shipping procedures, and the realization of related economies.

 

(c) Marketing

 

The Company markets its products to major drug, food and mass‐merchandise retail chains, and leading wholesalers, through an in‐house sales force of employees and independentsales representatives throughout the United States.

 

The Company sells its products to approximately 310 accounts, most of which have numerous outlets. Approximately 40,000 stores carry at least one Company product (SKU).

 

During the fiscal year ended November 30, 2005, the Company's largest customers were Wal-Mart (approximately 32 % of net sales), McLanes (approximately 12 %), Walgreens, CVS, and RiteAid  (approximately 10%, 8%,  and 5%, respectively).  The loss of any of these principal customers, or substantial reduction of sales revenues realized from their business, could materially and negatively affect the Company's earnings.

 

Most of the Company's products are not particularly susceptible to seasonal‐sales fluctuation. However, sales of depilatory, sun‐care and diet‐aids products customarilypeak in the Spring and Summer months, while fragrance‐product sales customarily peak in the Fall and Winter months.

           

The Company employs brand managers who are responsible for the marketing of CCA’s brands.  These managers work with the Company’s in-house advertising and artdepartments to create media advertising, packaging and point - of - purchase displays.

 

The Company primarily utilizes local and national television advertisements to promote its leading brands.  On occasion, print and radio advertisements are engaged.  Inaddition, 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 respectivemarket‐segments.

 

 

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The Company's in‐house advertising department is responsible for the selection of its media advertising.  Placement is accomplished either directly or throughmedia‐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 notsubject to any other party’s interest or license), which included principally "Plus+White", "Sudden Change", “Wash ‘N Curl”,  "Bikini Zone", "Mood Magic", "Mega -T", "Cherry Vanilla", and "Scar Zone".

 

(e) All Products

 

The Company’s gross sales net of returns by category percentage were: Dietary Supplement   35%; Skin Care 31%; Oral Care 17%; Nail Care 9%; Hair Care 5%; and Fragranceand Miscellaneous 3%.

 

(f) License-Agreements Products

 

        i. Alleghany Pharmacal

 

        In 1986, the Company entered into a license agreement with Alleghany Pharmacal Corporation (the "Alleghany Pharmacal License").  Under theterms 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 AlleghanyPharmacal 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 anyfee 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, theroyalty‐rate for those products 'charged' at 6% will be reduced to 1%.  The Company paid an aggregate of $9,000,000 in royalties to Allegheny in April 2003.  Commencing May 1, 2003, the license royalty was reduced to 1%.

 

3

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        The products subject to the Alleghany‐Pharmacal License accounted for approximately $9,917,000 or 16 % of total net sales in the fiscalyear ended November 30, 2005.  “Nutra Nail” and the “Hair-Off” depilatory were the leaders among all of the Alleghany license-agreement products, producing approximately 9 % and 6 %, respectively, of net sales.

 

        ii. Solar Sense, Inc.

 

        CCA commenced the marketing of its sun‐care products line following a May 1998 License Agreement with Solar Sense, Inc. (the “SolarSense 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 onnet sales of said licensed products until $1 million total royalties are paid.  CCA realized approximately $ 348,000 in net sales of sun-care products in 2005.

 

        iii. The Nail Consultants Ltd.

 

        In October of 1999, the Company entered into a License Agreement with The Nail Consultants, Ltd. for the use of an activator invented in connection with a method for applying aprotective 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 PowerGel”.  The Company is required to pay a royalty of net sales of all products sold under the license, by the Company.   Net sales were approximately $1,940,000 in 2005 and the Company paid or accrued the Nail Consultants the prescribedroyalty.

                       

        iv. Dr. Stephen Hsu - Green Tea

 

        Stephen Hsu, PhD., research faculty member of the Medical College of Georgia, entered into an agreement with the Company on February 26, 2004,to create green tea skin care products based on his years of research related to the various uses of green tea anti-oxidants for skin care problems.

 

         Dr. Hsu collaborated with Drew Edell, Vice-President of Research and Development for the Company, to create and file a patent applicationfor 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 serumcreated exclusively for the Company.  The special anti-oxidant green tea serum was used as one of the skus in the Denise Austin “Skin Fit For Life” line and has been included in the new Sudden Change skin care line.  Net sales of the productsutilizing the green tea serum were $3,062,000 for the fiscal year ended November 30, 2005.

 

     v. Mega -T Green Tea Chewing Gum and Mints

 

    On May 18, 2004, The Company entered into a license agreement with Tea-Guard, Inc. to manufacture and distribute Mega -T Green Tea chewing gum and Mega -T Green Teamints.  Dr. Stephen Hsu created both formulations under special arrangements with Tea-Guard, Inc. (not related to the Company).

 

4

 

 

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            The license agreement requires the Company to pay a minimum royalty after the first eighteen months of thelicense.  The minimum payments are required to maintain the Company’s exclusivity for the sale of the products and to continue marketing the products and until royalties have aggregated to $10,000,000, at which time all royalty obligations cease. Except as to maintain its rights to “exclusivity”, the Company has no obligation to meet minimum royalty requirements.

 

            The Company commenced sales of the Mega -T Green Tea Chewing Gum in July 2004.  Net sales of the Mega-T Green Teachewing gum for the fiscal year ended November 30, 2005 were $2,087,000. 

 

            vi. Denise Austin “Skin Fit For Life” skin care line

 

        On July 14, 2004, the Company entered into a license agreement with Denise Austin, a well known, respected fitness expert.  Under the agreement,the Company created a special anti-oxidant line of signature skin care products called the Denise Austin “Skin Fit For Life” skin care line. 

 

        The license agreement requires the Company to pay a minimum royalty in order to maintain the exclusive use of the name, “DeniseAustin” to manufacture and sell a special line of skin care and cosmetic products.  The license will continue so long as minimum royalty payments are met.  The license agreement does not require the Company to meet any minimum requirements.  Netsales of the “Skin Fit For Life” skin care line were $3,062,000 for the fiscal year ended November 30, 2005.  The Company had returns of $1,804,000 for the fiscal year which includes a reserve of $938,000 for additional returns, credits and/orallowances. 

#            

#           The Company will not continue with the license in March2006.           

 

#           vii.  HuggerCorporation

 

        In October 2002, the Company entered into a License Agreement with Hugger Corporation for use of its patented oral hygiene system to be used inconjunction with regular toothpaste.  The Company’s License Agreement is for the use of the product designated and referred to in the patent owned by Hugger Corporation.  The Company designed, marketed and distributed the patented product called“Booster” under its Plus+White brand.

 

        The Company terminated the license agreement without any liability on June 29, 2005.  Net sales during fiscal 2005 were$88,000.

           

            viii. Other Licenses

 

        The Company is not party to any other license agreement that is currently material to its operations.

 

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(g) Trademarks

 

        The Company's own trademarks and licensed‐use trademarks serve to identify its products and proprietary interests.  The Company considersthese 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 thepresumed exclusivity and asset value of the marks.

 

(h) Competition

 

        The market for cosmetics and perfumes, and health‐and‐beauty aids products in general, including patent medicines, is characterizedby 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 haveFortune 500 status, and the broadest‐based public recognition of their products.  Moreover, a substantial number of other health‐and‐beauty aids manufacturers and distributors may also have greater resources than the Company.

 

(i) Government Regulation

 

        All of the products that the Company markets are subject or potentially subject to particular regulation by government agencies, such as theU.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 forany 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 thatCompany 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, aswell 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, NewJersey.  Under a new net lease, the Company occupies approximately 58,625 square feet of space.  Approximately 43,598 square feet in such premises is used for warehousing and 15,027 square feet for offices.  The annual rental is $327,684, with anannual CPI increase not cumulatively exceeding 15% in any consecutive five year period.   The lease expires on May 31, 2012 with a renewal option for an additional five years. 

 

            The lease requires the Company to pay for additional expenses, Common Area Maintenance (“CAM”), whichincludes real estate taxes, common area expense, utility expense, repair and maintenance expense and insurance expense.  For the year ended November 30, 2005, CAM was $189,776**. **

**    **

**           ** The Company entered into a warehouse lease on May 1, 2005 at 300-1(D), Route 17, Lodi, New Jersey for the12 month period ending April 30, 2006.  The lease comprises 13,000 square feet for warehousing.  The year end net rental expense including CAM was $80,070. The Company anticipates extending the lease for an additional one year period.

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### **Item 3. LEGAL PROCEEDINGS**

** **

The only material legal proceedings outstanding as of November 30, 2005 were related to the Company’s diet suppressant products containing phenylpropanolamine(“PPA”).  There were approximately thirteen suits pending in 2002.  Reference is made to Forms 8K filed on May 22, 2002 and November 20, 2002 for the background and the insurance issues relative thereto. Three additional 8Ks have been filed: oneon 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 isin the process of being dismissed.  The remaining suit is insured and is being defended by the Company’s insurance carrier. 

 

There were approximately 6,000 suits that have been brought against numerous pharmaceutical companies that have been engaged in distributing and/or manufacturing PPA products. Almost all have been referred to the United States District Courts in the Western District of Washington (MDL 1407).  Outside counsel for the Company believes that the two PPA cases still pending against the Company are defensible.  Of the Company’stwo pending suits, one is insured by the Company’s liability carrier.  However, there can be no assurance that the current PPA litigation will not have a material adverse effect upon the Company’s operations. 

 

**Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

** **

On June 15, 2005, the Company held its annual meeting of shareholders.  The actions taken, and the voting results thereupon, were as follows:

 

(1) David Edell, Ira W. Berman, Jack Polak, and Stanley Kreitman were elected as directors by the holders of Class A Common Stock.  (No proxy was solicited therefore, whereasMessrs. Berman and Edell own 100% of the Class A Common Stock, and they proposed themselves, Mr. Polak and Mr. Kreitman.)

 

(2) As proposed by Management, Dunnan Edell, Robert Lage and Gio Batta Gori, Ph.D., were elected as directors by the holders of the Common Stock.

 

(3) The Board's appointment of KGS LLP as the Company's independent certified public accountants for the 2005 fiscal year was approved.

 

(4)  The Shareholders approved the Amended and Restated Stock Option Plan.

 

The Company has not submitted any matter to a vote of security holders since the 2005 Annual Meeting.

 

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**PART II**

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**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 (“SEC”); and, contemporaneously thereafter,presented the tender offer subject of the Schedule to its shareholders.  Pursuant thereto, the Company offered to purchase up to 2,500,000 shares of its own Common Stock (but not Class A Common Stock), in exchange for a $2 subordinated debenture, which maturedon 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, onJuly 31, 2000.  (A second and final amendment to the Schedule TO, reporting the results of the tender offer, was filed with the SEC on August 1, 2000.)

 

The Company's Common Stock was traded on the NASDAQ National Market.  Because, for some time (a) the Common Stock had traded at less than $1.00 per share, and (b) the total marketvalue 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 fiscal2003.  On March 18, 2003 the stock was listed and began trading on the American Stock Exchange under the symbol “CAW.” 

 

The range of high and low sales prices of the Common Stock during each quarter of its 2005, 2004 and 2003 fiscal years was as follows:

 

Quarter Ended                 2005                        2004                           2003                

February 29           $10.75 - $13.80            $  9.35 - $6.70          $3.80 - $1.70            

May 31                  $12.56 - $  9.45           $  8.70 - $ 7.20          $5.43 - $3.05        

August 31               $11.40 - $  8.85            $10.80 - $6.75          $8.69 - $5.10        

November 30         $  9.90 -  $ 7.00            $11.30 - $7.00          $8.50 - $6.60        

 

The high and low prices for the Company’s Common Stock, on February 1, 2006 were $10.10 to $10.30per 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 SECas “Schedule TO”, with the Schedule TO information, the following documents subject of the tender offer were filed with the SEC, prior to commencement of the offering: A Trust Indenture, a form of the eventually-issued Promissory Notes, and the OfferingDocument that was thereafter transmitted to Common Stock shareholders.)

 

On August 1, 2005, the remaining outstanding $497,656 subordinated debentures were redeemed by the Company.

 

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As at November 30, 2005, there were approximately 200 individual shareholders of record of the Company's common stock.  (There are a substantial number of shares held of record invarious street and depository trust accounts, which represent approximately 1,000 additional shareholders.)

 

The dividend policy is at the discretion of the Board of Directors and will depend on numerous factors, including earnings, financial requirements and general business conditions. On January 8, 2003, the Board of Directors approved the payment of the Company’s first cash dividend in the amount of $0.12 per share, payable to the holders of the Company’s common stock, $0.06 payable on May 1, 2003 and December 1, 2003 to theshareholders of record on April 1, 2003 and November 1, 2003, respectively. 

 

On December 13, 2003, the Board of Directors declared a $0.14 per share dividend for fiscal 2005, $0.07 payable to all shareholders of record May 1, 2005 payable on June 1, 2005 and$0.07 payable to all shareholders of record November 1, 2004 payable on December 1, 2004.

 

On June 16, 2004, the Board of Directors declared a 2% stock dividend payable to all shareholders of record on November 1, payable December 1, 2004.

 

On January 11, 2005, the Board of Directors declared a $0.16 per share dividend for fiscal 2005, $0.08 payable to all shareholders of record May 1, 2005 payable on June 1, 2005 and $0.08payable to all shareholders of record November 1, 2005 payable on December 1, 2005.

 

On November 15, 2005, the Board of Directors declared a $0.05 per share dividend for the first quarter ending February 28, 2006.  The dividend is payable to all shareholders ofrecord on February 1, 2006 payable on March 1, 2006.

 

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### **Item 6. SELECTED FINANCIAL DATA**

                                                                                                                                     Year Ended November 30,   

                                                                     2005                           2004                      2003                      2002                  2001                           

Statement of Income                                                 

 Sales                                                    $63,148,417                $60,667,562          $54,145,480          $45,241,493      $41,364,648                                   

Other income                                                 572,909                      850,196                591,271                  439,481              338,883 

                                                                63,721,326                  61,517,758            54,736,751            45,680,974        41,703,531                                   

 

Costs andExpenses                                 56,613,798                  52,143,479           46,239,853             40,645,418          38,522,778

 

Income Provision for

  IncomeTaxes                                          7,107,528                    9,374,279             8,496,898                5,035,556           3,180,753                                                                                                   

Net Income                                             $3,785,502                $ 5,796,663           $ 5,252,131             $ 3,074,353       $ 2,014,369

                                                                                  

Earnings Per Share:

 Basic                                                    $            .53                  $         ..78*          $            .71*           $          ..42*       $            .29*

 Diluted                                                  $            .52                  $         ..75*          $            .68*           $          ..40*       $            .26*

                                                                                                                                                                                      

Weighted Average Number

  of Shares Outstanding                              7,145,297                    7,399,472*            7,372,232*            7,241,751*          7,031,097*    

Weighted Average Number

  of Shares and Common Stock

  EquivalentsOutstanding                            7,317,994                    7,680,781*            7,768,361*           7,731,583*         7,676,680*                                        

Balance SheetData:                                                                                                  As At November30,                      

                                                                    2005                              2004                     2003                       2002                     2001                             

WorkingCapital                                      $18,602,107                $13,562,389          $11,565,685          $11,264,206       $10,236,977             

TotalAssets                                             35,309,308                  31,556,577            29,839,216           24,805,064          20,598,917

 

TotalLiabilities                                           9,309,652                    8,034,530              6,494,676             5,969,641             4,674,278

Total Shareholders’ Equity (1)(2)(3)         25,999,656                  23,522,047            23,344,540           18,835,423           15,924,639 

 

(1) On June 16, 2004, The Company declared a 2% stock dividend payable to all shareholders of record on November 1, payable December 1, 2004.

 

On January 11, 2005, the Board of Directors declared a $.16 dividend.  $0.08 payable to all shareholders of record May 1, 2005 payable on June 1, 2005 and $0.08 payable to allshareholders 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 RelatedTransactions.

 

(3) On November 15, 2005, the board of directors declared a $0.05 per share dividend for the first quarter ending February 28, 2006.  The dividend is payable to all shareholders ofrecord on February 1, 2006 payable on March 1, 2006.

 

*Adjusted for 2% stock dividend in 2004.

10

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****

### **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 involveknown 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 suchissues.  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 licensedproducts 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 Licenseproducts 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 reducedto 1% on all future orders.

 

Comparison of Results for Fiscal Years 2005 and 2004

 

The Company’s net sales increased from $60,667,652 to $63,148,417 for the current fiscal year. Gross profit margins on sales were 65% compared to 66% last fiscal year.  Thereduction in the gross profit margin was due mainly to the sales returns and allowances increase to 11.3% of gross sales from 9.2% last year as a result of the unsuccessful launch of its new skin care product line.

 

The Company’s gross sales net of returns by category were: Dietary Supplement  $23,319,940, 35%; Skin Care $20,669,366, 31%; Oral Care $11,535,751, 17%; Nail Care $5,976,850,9%; Hair Care $3,222,375, 5%; and Fragrance and Miscellaneous $1,835,205, 3%; for an aggregate total of $66,559,487. 

 

While the Company makes every effort to control the cost of manufacturing, it has incurred substantial freight increases, as well as additional increases in the cost of chemicals,plastic resin and paper goods.  The Company will attempt to pass on these increased costs in the coming year.

 

Income before taxes was $7,107,528 as compared to $9,374,279 in fiscal 2004.  The decrease in income before taxes was a result of additional returns and reserves incurred from thedisappointing introduction of the new skin care line, the increase in oil, pulp and resin prices, as well as additional SG&A.  Returns, allowances and reserves for all products accounted for costs of $5,706,163 that were expensed in fiscal 2005 as comparedto $3,694,702 in fiscal 2004.

 

The allowance for doubtful accounts is a combination of specific and general reserve amounts relating to accounts receivable.  The general reserve is calculated based on historicalpercentages applied to aged accounts receivable and the specific reserves are established and revised based on individual customer circumstances.  This allowance increased from $111,078 as of November 30, 2004 to $260,366 as of November 30, 2005 (134% increase).The increase is directly attributable to reserves for specific disputes. 

 

 

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The reserve for returns and allowances is based on a reserve for returns equal to its gross profit on its historical percentage of returns on its last five month sales, and specificreserves based on individual customer circumstances.  This reserve increased from $406,556 as of November 30, 2004 to $678,346 as of November 30, 2005 (67% increase), primarily from possible increases in returns of the new skin care line. 

 

The reserve for inventory obsolescence is based on a detailed analysis of inventory movement.  There was a minimal decrease in the reserve for inventory obsolescence from $871,488as of November 30, 2004 to $854,764 as of November 30, 2005 (3% decrease). 

 

In accordance with GAAP, the Company reclassified certain advertising expenditures as a reduction of sales rather than report them as advertising expenses.  This reclassification isthe adoption by the Company of the EITF 00-14 GAAP standard.  The reclassification reflects a reduction in the sales for the fiscal years ended November 30, 2005 and 2004 by $2,203,917 and $2,005,596 respectively.  The reclassification reduces the grossprofit margin but does not affect the net income.

 

For the year ended November 30, 2005, the Company had revenues of $ 63,721,326, net income of $3,785,502 after a provision of $3,322,026 for taxes.  For year ended November 30,2004, the Company had revenues of $61,517,758, net income of $5,796,663 after a provision of $3,577,616 for taxes.  Fully diluted earnings per share for fiscal 2005 were $0.52, compared to $0.75 in fiscal 2004. The increase in the effective tax rate for the yearwas due to the increase in the reserves and other non-deductible tax items as a percentage of the lower book net income.

 

For fiscal 2005, advertising, cooperative and promotional expenses were $12,706,771 as compared to $13,118,784 in the same period last year.  Advertising expenses were 20.1 % ofsales for the current fiscal year versus 21.6 % last fiscal year. The reduction in advertising expense was due to the change in the overall budget for the year and the specific reduction of the planned advertising on our unsuccessful launch of the new skin careline.

 

SG&A expenses increased from $17,577,032 in fiscal 2004 to $20,548,971 in fiscal 2005.  The increases include freight-out of $789,037, which was due to the increase in sales,the increase in oil prices, and the expedited delivery costs for the introduction of the new skin care product line.    To promote sales, the Company offered IRC coupons on certain SKUs which increased expenses by $169,415.  IRC coupons are an“instant off” coupon placed on product at retail.  Additionally, royalty expenses increased by $162,535, health insurance costs $58,994 and rent expenses partly due to the addition of a satellite warehouse increased $148,154.

 

At year’s end, there was approximately $2,079,000 of open co-op commitments, of which $32,000 is from 2003, $248,000 from 2004 and $1,799,000 for the current fiscal year.  Forfiscal 2004, there was approximately $1,413,000 of open co-op commitments, of which $46,000 was from 2003 and $1,367,000 was from the 2004 fiscal year.   The Company’s total co-op commitment increased from $5,500,000 in fiscal 2004 to $6,000,000 in fiscal2005 (9% increase).  The increase in the total co-op commitment was in part to offset the reduction in media advertising.  Co-op is advertising that is run by retailers in which the Company shares in part of the cost.  If it becomes apparent that thisco-op was not utilized, the unclaimed co-op will be offset against the expense during the fiscal year in which it is determined that it did not run.  This procedure is consistent with the prior year’s methodology with regard to the accrual of unsupportedco-op commitments.

 

12

 

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Comparison of Results for Fiscal Years 2004 and 2003

 

The Company’s revenues increased from $54,736,751 in fiscal 2003 to $61,517,758 in the fiscal 2004. Gross profit margins remained at 66%.  Net income was $5,796,663 ascompared 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 EITF90-16 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 netincome.

 

For the 2004 fiscal year, advertising, cooperative and promotional allowance expenditures were $13,118,784 as compared to $10,328,695 in fiscal 2003.  Advertising expenditures were21.6% of sales vs. 19.1% last year.  SG&A expenses increased 5% to $17,577,032 from $16,753,269 in 2003.  The increase was due mainly to SG&A expenses, which vary in relation to additional sales volume (i.e. payroll, freight-out, royalties,etc.).  Sales returns and allowances increased to 9.2% of gross sales from 8.5% last year.  Research and development expenses decreased to $876,665 from $884,425.

 

During fiscal 2004, a major drug chain entered into an agreement to be acquired by another major drug chain.  The decrease in their orders caused revenue to decrease approximately$1,563,000 from the prior year.

 

On November 26, 2004, the Company sold 1,125 shares of K-Mart Holding Corp, (the shares received in distribution in the K-Mart Chapter 11 proceedings) in the gross amount of$159,483.

 

## Liquidity and Capital Resources

 

As of November 30, 2005, the Company had working capital of $18,602,107 as compared to $13,562,389 at November 30, 2004.  The ratio of total current assets to current liabilities is3.0 to 1 as compared to a ratio of 2.7 to 1 for the prior year.  On October 5, 2004, the working capital and the current ratio in 2004 was reduced by the Company’s purchase of an aggregate of 500,000 shares of the Company’s common stock at $8.99 pershare from officers/directors, David Edell and Ira W. Berman respectively.  Stockholders’ equity increased to $25,999,656 from $23,522,047 primarily due to the income from operations.

 

The Company’s cash position and short-term investments at year-end were $10,586,568, up from $5,094,968 as at November 30, 2004.  The Company paid cash dividends in fiscal2005 in the amount of $1,059,277, representing the dividends declared at the end of fiscal 2004 but not paid until fiscal 2005 of $483,426 and $575,848 in dividends declared and paid for fiscal 2005. As of November 30, 2005 there were dividends declared but not paidof $575,560. The company’s increase in its cash and short-term investment position was due partly to the conversion of roughly $4,500,000 of long-term (due in excess of one year) securities to short-term (due in less than one year). The cash generated byprofits was offset by the repurchase of the company’s outstanding debentures, the payment of dividends and the purchase of certain assets. The reclassification of the $4,500,000 of long-term securities to short-term securities was also more than offset by thepurchase of new long-term securities. The securities the company purchased are all of an investment grade rating of Triple A. Because of the

 

13

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rating of the securities purchased, the company believes that there is very little risk with regard to the investments since, although they are all classified as “Available forSale Securities”, the Company could hold them all to maturity and realize their full value. Our investments are spread among many different Obligors and Municipalities to decrease the risk due to any specific concentrations.

 

The Company’s investment in property and equipment consisted mostly of new computer hardware and software, additional racking for our expanded warehouse facilities, and furnitureto accommodate our personnel. The increase in our intangible assets consisted of the costs of certain additional patents and trademarks obtained.

 

Inventories were $6,554,150 and $6,048,000, in 2005 and 2004 respectively, and accounts receivable were $9,260,399 and $8,677,984. The increase in inventory was due to a proportionalincrease in our core product sales plus additional inventory on hand due to the slower than expected sales of the newly launched skin care line in January 2005. Current liabilities are $9,309,652 and $8,023,805, in 2005 and 2004 respectively. The increase inliabilities was due mostly to the increase in the amount of the accruals for co-op advertising, refunds for returns, and for bonuses as of the end of the year. At year-end, the Company had long and short-term triple A investments and cash of $16,861,958 as comparedto $13,947,166 in 2004.  As of November 30, 2005, the Company was not utilizing any of the funds available under its $10,000,000 unsecured credit line. 

 

Inventory, Seasonality, Inflation and General Economic Factors

 

The Company attempts to keep its inventory for every product at levels that will enable shipment against orders within a three-week period.  However, certain components must beinventoried 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 andmarketing 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 fromthe Company's warehouse facilities.

 

The Company does not have any products that are particularly seasonal, but sales of its sun-care, depilatory and diet-aid products usually peak during the spring and summer seasons, andperfume sales usually peak in fall and winter.  The Company does not have a product that can be identified as a ‘Christmas item’.     

 

The Company plans to continue to promote its sales through an advertising program consisting of a combination of media and coop advertising. We continue to invest money into research anddevelopment to build our core products to become leaders in their respective categories. We are trying to decrease the amount of “on hand” inventory we stock however to better service our customers we often find it difficult to reduce our “safetystock”. We continue to evaluate our sales staff and to try to attract aggressive salespeople to increase the distribution of our current product line. We are also continuing to look for additional businesses or product lines which we think will help the companyto grow and are also reviewing possible acquisitions or any other offers which we feel will enhance shareholders’ value.

 

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Because our products are sold to retail stores (throughout the United States and, in small part, abroad), sales are particularly affected by general economic conditions. Accordingly, any adverse change in the economic climate can have an adverse impact on the Company's sales and financial condition.  The Company does not believe that inflation or other general economic circumstance that would negatively affect operations can bepredicted at present, but if such circumstances should occur, they could have material and negative impact on the Company's net sales and revenues, unless the Company was able to pass along related cost increases to its customers. There was no significant impact onoperations 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 November30, 2005.  Such obligations include the current lease for the Company’s premises, written employment contracts and License Agreements.

 

                                                  2006               2007                 2008                2009                2010

Lease on Premises (1)            600,759          537,933           497,684           471,318            471,684

Royalty Expense    (2)             606,000          606,000           606,000           606,000           606,000

Employment Contracts (3)    2,294,959        2,401,156       2,513,726        2,633,049        2,759,532

# Open Purchase Orders        2,880,100                                                                                             

# Total Contractual

#    Obligations                        6,381,818        3,545,089        3,617,410        3,710,367        3,837,216

 

(1) The major Lease is a net, net lease requiring a yearly rental of $327,684 plus Common Area Maintenance “CAM”.  See Section Part I, Item 2. The rental provided above is thebase rental and estimated CAM.  CAM for 2005 was $189,776. The figures above do not include adjustments for the CPI.  The lease has an annual CPI adjustment, not to cumulatively exceed 15% in any consecutive five year period.  These figures assume anextension of the major lease to 2010. The Lodi lease requires a yearly rental of $91,000 plus CAM.  The lease is a 12-month lease which commenced in May 2005. The Company is negotiating to renew the lease until May 2007.

 

(2) See Section Part I, Item 1(e).  The Company is not required to pay any royalty in excess of realized sales if the Company chooses not to continue under the license.  The figures setforth above reflect estimates of the royalty expense anticipated minimum requirements to maintain the licenses under the various contracts for the licensed products based on fiscal 2005 sales.  Royalty expense includes Alleghany Pharmacal, Solar Sense, NailConsultants, 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 expireon December 31, 2010.  The contracts provide for a base salary which commenced in 1994 in the amount of $300,000 (plus a bonus of 20% of the base salary), with a year-to-year CPI or 6% increase, plus 2.5% of the Company’s pre-tax income less depreciationand 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 inexcess 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

 

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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 employmentcontracts 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 wasincreased to $300,000 and in January 2004, Drew Edell’s salary was increased to $225,000.  In fiscal 2005, Drew Edell’s salary was increased to $250,000.  Dunnan Edell is a director and during fiscal 2003 was appointed President of the Companyand Chief Operating Officer. Drew Edell is the Vice President of Research, and Product Development.  On February 10, 2006, the Board of Directors extended the employment contracts for Dunnan Edell and Drew Edell to December 31, 2010.

 

### Recent Accounting Pronouncements

 

In December 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46R, “Consolidation of Variable Interest Entities (“FIN 46R”),which supercedes Interpretation No. 46, “Consolidation of Variable Interest Entities” issued in January 2003.  FIN 46R requires a company to consolidate a variable interest entity (“VIE”), as defined, when the company will absorb amajority of the VIE’s expected losses, receives a majority of the VIE’s expected residual returns or both.  FIN 46R also requires consolidation of existing, non-controlled affiliates if the VIE is unable to finance its operations without investorsupport, 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 inthe first fiscal year or interim period beginning after March 15, 2004.  Application of FIN 46R is also required in financial statements that have interests in structures that are commonly referred to as special-purpose entities for periods ending after December15, 2003.  The adoption of FIN 46R did not have a material impact on our financial position, results of operations or cash flow.

 

In November 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs” (“SFAS 151”).  SFAS 151 amendsthe 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 andrequires the allocation of fixed production overheads to inventory based on normal capacity of production facilities.  This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.  The adoption of SFAS 151 isnot 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 havebeen eliminated from the ongoing operations of the entity focuses on whether continuing cash flows are direct or indirect cash flows.  The consensus should be applied to a component of an enterprise that is either disposed of or classified as held for sale infiscal periods beginning after December 15, 2004.  The adoption of EITF 03-13 did not have an impact on our financial position, results of operations or cash flows.

 

In December 2004, the FASB issued SFAS 153, “Exchanges of  Nonmonetary Assets” (“SFAS 153”).  SFAS 153 amends the guidance in APB Opinion No. 29,“Accounting for Nonmonetary Transactions” to eliminate certain exceptions to the principle that exchanges of nonmonetary assets be measured based on the

 

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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 exchangesof nonmonetary assets that do not have commercial substance.  This statement is effective for nonmonetary asset exchanges in fiscal years beginning after June 15, 2005.  The adoption of SFAS 153 is not expected to have an impact on our financial position,results of operations or cash flows.

 

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, “(“SFAS 154”).  SFAS No. 154 replaced APB No. 20, “AccountingChanges” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements” and establishes retrospective application as the required method for reporting a change in accounting.

 

In December 2004, the FASB issued SFAS 123R which replaces SFAS 123 and supersedes APB 25.   Under the new standard, companies will no longer be allowed to account forstock-based compensation transactions using the intrinsic value method in accordance with APB 25.  Instead, companies will be required to account for such transactions using a fair value method and to recognize the expense in the statement of operations. The adoption of SFAS 123R will require additional accounting related to the income tax effects of share-based payment arrangements and additional disclosure of their cash flow impacts.  SFAS 123R also allows, but does not require companies to restate priorperiods.   In April 2005, the SEC issued a final rule that amended the effective date to the first annual reporting period that begins after December 15, 2005 (the Company’s first quarter ending February 28, 2007).  The impact of adoption is notanticipated to be material to our financial position, results of operations or cash flow.

 

Cautionary Statements Regarding Forward-Looking Statements

 

 This annual report contains forward-looking statements based upon current expectations of management that involve risks and uncertainty.  Actual risks could differ materiallyfrom 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 adverselyaffected.  The cautionary statements made in this Annual Report on Form 10K should be read as being applicable to all forward-looking statements whenever they appear in this Annual Report. 

           

Concentration of Risk

 

The Company relies on mass merchandisers and major food and drug chains for the sales of its products.  The loss of any one of those accounts could have a substantive negativeimpact upon its financial operations. All of the Company’s products have independent competition and must be able to compete in order to maintain its position on the retail merchandisers’ shelves. {See Business - General, Item 1(c)i Marketing.}

 

The Company does not manufacture any of its products.  All of the products are manufactured for the Company by independent contract manufacturers.  There can be no assurancethat 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 todeliver as contracted.  A failure of the Company to ship as ordered by its accounts could cause penalties and/or cancellations of our customers’ orders. 

 

17

 

 

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There is No Assurance That The Business Will Continue to Operate Profitably. 

** **

In Fiscal 2005, net sales were $63,148,417.  Almost all of the products were able to maintain the projected gross profit margins.  Net income was $3,785,502.  The Company’s new skin care product line,“Skin Fit For Life,” did not sell as well as the Company had anticipated.  The Company had returns of $ 1,803,794 which provides additional reserves of $937,671 against future returns. 

 

The Pending Litigations in Connection with the Sale of the Company’s Products Containing PPA May Entail Significant Uncertainty and Expense.

** **

As described in “Legal Proceedings” set forth, there were referenced 8Ks filed on May 23, 2002 and November 20, 2002, in which the legal issues were discussed.  Currently, there are two remainingcases.  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.  Aspreviously 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 ofDirectors.  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 andprofitability of its current niche brand products will affect the business and prospects of the future of the Company and it relies upon the creativity and marketing skills of management.

 

### **Item 7A. QUANTITATIVE AND QUALITATIVE**

**                DISCLOSURE ABOUT MARKET RISK**

** **

The Company’s financial statements (See Item 15) record the Company’s investments under the “mark to market” method (i.e., at date-of-statement marketvalue).  The investments are, categorically listed, in “Common Stock”, “Mutual Funds”, “Other Equity”, “Preferred Stock”, “Government Obligations” and “Corporate Obligations” (which,primarily, are intended to be held to maturity).  $151,649 of the Company’s $13,325,415 portfolio of investments ( as at Nov. 30, 2005) is invested in the ”Common Stock” and “Other Equity” category, and $792,568 are invested inPreferred 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 itsinvestment-market risk is material.

 

 

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**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 andfor the years ended November 30, 2005 and 2004:

 

                                                                                               Three Months Ended

Fiscal2005                                            Feb. 28             May 31           Aug. 31           Nov. 30

 

NetSales                                            $14,688,237    $18,492,442    $15,064,845    $14,902,893   

TotalRevenue                                       14,814,188      18,616,053      15,224,890      15,066,195

Cost of ProductsSold                              5,445,359       6,202,605        5,661,245        5,054,444

NetIncome                                                944,830        1,750,656     (     390,834)       1,480,850

Earnings Per Share:

 Basic                                                             $.13                 $.25                ($.05)                $.21

 Diluted                                                          $.13                 $.24                ($.05)                $.20

 

                                                                                             Three Months Ended

Fiscal2004                                            Feb. 28             May 31           Aug. 31           Nov. 30

 

NetSales                                            $12,929,465    $18,143,645    $16,535,940    $13,058,512   

TotalRevenue                                       13,087,488      18,339,247      16,696,391      13,394,632

Cost of ProductsSold                              4,849,247       5,852,863        5,413,461        4,405,286

NetIncome                                                836,142        2,798,203        1,457,230           705,088

 

Earnings Per Share:

 Basic                                                             $.11                 $.38                $.19                $.10

 Diluted                                                            .11                   .36                  ..19                  .09

 

                                                                               

**Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS**

**             ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

The Company did not change its accountants within the twenty‐four months prior to the date of the most recent financial statements (nor since), and had no reported disagreementwith its accountants on any matter of accounting principles or practices.

 

### **Item 9A. CONTROLS AND PROCEDURES**

** **

With the participation of our Chief Executive Officer and Chief Financial Officer, management has carried out an evaluation of the effectiveness of our disclosure controls and procedures(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934).  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of November 30, 2005.

 

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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 thatthe Company believes will materially affect, or are reasonably likely to materially affect, internal control over financial reporting.

 

Under Act 404, The Company’s fiscal 2007 annual report is required to be accompanied by a “Section 404 Formal Report” by management on the effectiveness of internalcontrols 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 internalcontrols’ effectiveness in each department. The filing of the Company’s November 30, 2007 must contain an opinion by the Company’s independent accounting firm on the effectiveness of the Company’s internal controls.  The Company’sofficers 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 theinformation upon which the Company relies. 

 

The Company is continuing to take a thorough review of the effectiveness of its internal controls and procedures, including financial reporting.  It is working to strengthen all ofits 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 affectinternal controls over financial reporting.

 

 

 

 

 

 

 

                                                                            

 

 

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###### **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 Exhibit14.**        **

** **

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 VicePresident                           1983

 

Dunnan Edell                President, Chief Operating Officer

                                    andDirector                                             1984

 

Stephen Heit                 Executive Vice President of Operations    2005

 

Drew Edell                   Vice President‐

                                    Product Development andProduction        1983           

                                               

John Bingman               Chief FinancialOfficer                              1986

 

Stanley Kreitman         Director                                                   1996

 

Jack Polak                  Director                                                   1983

 

Robert Lage                Director                                                   2003

 

Gio Batta Gori, PhD    Director                                                   2004

 

David Edell, age 73, is a director, and the Company's Chief Executive Officer.  Prior to his association with the Company, he was a marketing and financialconsultant; 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 fromSyracuse University.

 

Ira W. Berman, age 74, is the Company's Executive Vice President and Corporate Secretary. He is also Chairman of the Board of Directors.  Mr. Berman is an attorney who has beenengaged 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.

 

21

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Dunnan Edell is the 50 year‐old son of David Edell.  He is a graduate of George Washington University.  He has been a director since 1994, and infiscal 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 1984and by Hazel Bishop from 1977 to 1981.

 

Stephen Heit, age 51 joined CCA in May 2005 as Executive Vice President – Operations.    Prior to that he was Vice President – Business Strategies for DelLaboratories, Inc., a consumer products company that was listed on the American stock exchange, from 2003 to 2005.  Mr. Heit served as President of AM Cosmetics, Inc. from 2001 to 2003, as Chief Financial Officer from 1998 to 2003, and Corporate Secretary to theBoard of Directors from 1999 to 2003.  From 1986 to 1997 he was the Chief  Financial Officer of Pavion Limited, and also served on the Board of Directors.  He also served as a Director of Loeb House, Inc., a non-profit organization serving mentallyhandicapped adults from 1987 to 1995, and Director of Nyack Hospital Foundation from 1993 to 1995.  He received a Bachelor of Science from Dominican College in 1976, with additional graduate work in Professional Accounting at Fordham University from 1976 –1978. 

 

Drew Edell, the 48 year‐old son of David Edell, is a graduate of Pratt Institute, where he received a Bachelor's degree in Industrial Design. He joined the Company in 1983, and in1985, he was appointed Vice President of Product Development and Production.

 

John Bingman, age 54, received a Bachelor of Science degree from Farleigh Dickenson University in 1973.  He worked as a Certified Public Accountant who practiced with the New Jerseyaccounting firm of Zarrow, Zarrow & Klein from 1976 to 1986.

 

Jack Polak, age 93, has been a private investment consultant and a banker since April 1982.  He is a certified Dutch Tax Consultant and a member of TheNetherlands Federation of Certified Tax Consultants.  He was knighted on his 80th birthday by Queen Beatrix of the Netherlands for his untiring efforts on behalf of the Anne Frank Center USA for which he is still actively working as the“Chairman-Emeritus.”  On May 23, 2004, Hofstra University in Long Island, NY awarded him with an honorary doctorate in humane letters. 

 

Stanley Kreitman, age 73 has been Vice Chairman of Manhattan Associates an equity investment firm since 1994.  He is a director of Medallion Financial Corp. (NASDAQ), Capital LeaseFinancial 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 wasPresident of United States Banknote Corp.(NYSE) a securities printer.

 

Robert Lage, age 69, is a retired CPA.  He became a director in fiscal 2003.  He was a partner at Price WaterhouseCoopers Management Consulting Service prior to his retirementin 1997.  He has been engaged in the practice of public accounting and management consulting since 1959.  He received a BBA from Bernard Baruch College of the City University of New York in 1958.

 

Gio Batta Gori, PhD, 75, was elected as a director in June of 2004.  He is president of the Health Policy Center, Bethesda, Maryland, a consulting group in toxicology, epidemiology,nutrition, and related scientific, industrial, and regulatory issues. Advisor to major corporations worldwide, his previous experiences include directing the Franklin Institute Policy Analysis Center, and executive positions at the National Cancer Institute as DeputyDirector of the Division of

 

22

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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 andbiologics 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 theInternational 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 *RegulatoryToxicology and Pharmacology*.

 

** **

**Item 11. EXECUTIVE COMPENSATION**

** **

 

i. Summary Compensation Table

 

The following table summarizes compensation earned in the 2005, 2004 and 2003 fiscal years by all of the executive officers whose fiscal 2005 compensation exceeded $100,000, includingthe Chief Executive Officer (the "Named Officers").

 

Annual Compensation      Long‐Term Compensation

 

                                                                                                                        Number

                                                                                                      All              of Shares

                                                                                                     Other          Covered        Other

Nameand                                                                                  Annual           by Stock    Long-Term

Principal                                                                                     Compen-       Options         Compen-

Position                   Year            Salary               Bonus               sation(1)        Granted(2)       sation   

 

David Edell,            2005          $695,738       $510,857             $40,752            -                   0

Chief                      2004            656,357          573,543              38,294            -                    0

Executive                2003           619,205          459,240               39,476           -                     0

Officer

 

Ira W. Berman,       2005          $695,738       $510,857             $30,256             -                    0

Secretary and          2004            656,357         573,543               24,739            -                     0

Executive                2003           619,205          459,240                29,499            -                     0

Vice President      

 

Dunnan Edell,         2005          $300,000       $ 120,000           $12,317             -                    0

President, Chief       2004            312,692            95,000                5,305            -                     0

Operating Officer    2003            282,692             50,000               1,931            -                     0

 

Stephen Heit           2005(3)         $110,000        $   15,000            $3,721            -                      0

Executive

Vice President,

Operations

 

 

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Drew Edell              2005         $243,269        $  60,000             $ 8,867             -                      0

Vice President         2004            222,596           50,000                 1,951              -                     0

Product                   2003           200,000            25,000                 5,081              -                     0

Development and

Production

 

John Bingman          2005          $111,980        $ 45,000           $   1,587               -                     0

Chief Financial         2004            111,980           40,000                1,005               -                     0

Officer                    2003           105,128            25,000                 2,696               -                     0

 

Joel Last                 2005         $171,838        $  50,881            $   6,020              -                      0

Vice President         2004            167,077           40,900                   185              -                      0

Sales                      2003            160,000            32,000               4,833               -                      0

 

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

(1) Includes the personal‐use value of Company‐leased automobiles, the value of Company‐provided life insurance, and health insurance that is made available to allemployees.

(2) Information in respect of stock option plans appears below in the sub‐topic, Employment Contracts/Executive Compensation Program.

(3) Mr. Heit commenced employment on May 1, 2005.

 

ii.  Fiscal 2005 Option Grants and Option Exercises,

     Year‐End Option Valuation, Option Repricing

 

No new options were issued to the Named Officers in fiscal 2005.

 

The next table identifies 2005 fiscal‐year option exercises by Named Officers and Directors, and reports a valuation of their options.

 

                            Number of                                Number of Shares

                               Shares                                      Covered byUn-               Value of Unexercised

                            Acquired          Value                exercised Options               In-the-MoneyOptions

                           OnExercise      Realized (1)       at December 1, 2005             at December 1, 2005

 

David Edell                65,000        $705,700                   47,500                                   $   175,050

Ira W. Berman           59,000        $651,700                   53,000                                         217,840

Dunnan Edell                -                     -                           90,000                                         583,500

Drew Edell                   -                     -                            15,000                                               -

Jack Polak                   -                     -                            25,000                                        194,500  

John Bingman               -                     -                            10,000                                               -

  ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

 

(1) Represents the difference between market price and the respective exercise prices of options as of the exercise date.  The market price at December 1, 2005 was $8.28.

#  

# 24

#  

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# 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 10years.

 

                                                             Original

                                       Number           Grant          Original         Date                       New

                                         ofShares           Date            Price         Repriced                  Price

 

David Edell (1)                 100,000       Aug. 1, 1997   $2.50     May 24, 2001              $.50

Ira W. Berman (1)            100,000       Aug. 1, 1997       2.50   May 24, 2001                .50

Dunnan Edell (1)                 50,000       Aug. 1, 1997      2.50    May 24, 2001               .50

Drew Edell (1)                    50,000       Aug. 1,1997       2.50    May 24, 2001               .50

Stanley Kreitman (1)           25,000       Aug. 1, 1997       2.50   May 24, 2001               .50

Jack Polak (1)                    25,000       Aug. 1,1997       2.50    May 24, 2001               .50

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.  Themarket 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, themarket 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 theCompany’s common stock was $3. On May 24, 2001, the Company repriced the options again when the market price was $.50, and changed the expiration date to August 1, 2007.

 

iii. Compensation of Directors

 

Each outside director was paid between $2,500 and $5,000 per meeting for attendance of board meetings in fiscal 2005 (without additional compensation for committee meetings). Mr. Lagereceived an additional $30,000 as chairman of the audit committee. The full Board of Directors met five times in fiscal 2005.

 

 

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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, managementinitiatives, and financial performance.  In applying these principles the Audit and Compensation Committee of the Board of Directors, comprised of Stanley Kreitman, Jack Polak and Robert Lage, which met four times in fiscal 2005, has established a programto:

 

   .      Reward executives for long‐term strategic management and the enhancement of shareholder value.

 

   .      Integrate compensation programs with both the Company's annual and long‐term strategic planning.

 

   .      Support a performance‐oriented environment that rewards performance not only with respect to Company goals but also Company performanceas 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, whichis 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 hasdeemed that he is both “independent” and qualifies as a “financial expert.”

 

Robert A. Lage, Chairman of the Audit Committee and a retired CPA, was a partner at PriceWaterhouseCoopers Management Consulting Service prior to his retirement in 1997.  He hasbeen 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 andbonuses, 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 ofthe 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 contractsexpire on December 31, 2010.  The contracts provide for a base salary which commenced in 1994 in the amount of $300,000, with a year-to-year CPI or 6% increase plus 2.5% of the Company’s pre-tax income less depreciation and amortization (EBITDA), plus 20%of the base salary for the fiscal year. (The “2.5% measure” in the bonus provision of the Edell/Berman contracts was amended so as to calculate it against earnings before income taxes, less depreciation, amortization and expenditures for media andcooperative advertising in excess of $8,000,000).  On May 24, 2001, the contract was amended increasing the base salary to $400,000.

 

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David Edell’s sons, Dunnan Edell and Drew Edell have five-year employment contracts in the amounts of $270,000 and $200,000 respectively, which expire on November 30, 2007. On February 10, 2006, the Board of Directors extended the contracts for Dunnan Edell and Drew Edell to December 31, 2010 (See Item 11, Summary Comprehensive Table).  Dunnan Edell is a director and President of the Company.  Drew Edell is the Vice Presidentof Product Development and Production.  On July 1 2003, Dunnan Edell’s salary was increased to $300,000, and on January 5, 2004, Drew Edell’s salary was increased to $225,000 and in 2005, it was increased to $250,000.

 

 

vi. Stock Option Plans

 

Long‐term incentives are provided through the issuance of stock options.

 

(The 1984 Stock Option Plan covered 1,500,000 shares of its Common Stock, and the 1986 Stock Option Plan covered 1,500,000 shares of its Common Stock.)  On July 9, 2003, theCompany’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 theprovisions 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 IncentiveStock 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 hasthe 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 delegateadministration 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, optionor 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.

 

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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 authorizesthat 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 loansmust be personally guaranteed and secured by the issued stock.

 

The maximum term of each option is ten (10) years.  No option granted is transferable by the optionee other than upon death.

 

On June 15, 2005, the shareholders approved an amended and Restated Stock Option Plan amending the 2003 Stock Option Plan. 

 

The Plan provides that the stock option committee may make awards in the form of (a) incentive stock options, (b) non-qualified stock options, (c) stock appreciation rights, (d)restricted stock, and (e) performance shares.

 

No new awards were made by the committee in fiscal 2005.

 

Under the plans, options will terminate three (3) months after the optionee ceases to be employed by the Company or a parent or subsidiary of the Company unless (i) the termination ofemployment is due to such person's permanent and total disability, in which case the option may, but need not, provide that it may be exercised at any time within one (1) year of such termination (to the extent the option was vested at the time of such termination);or (ii) the optionee dies while employed by the Company or a parent or subsidiary of the Company or within three (3) months after termination of such employment, in which case the option may, but need not provide that it may be exercised (to the extent the option wasvested 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 specificallyprovides 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 allIncentive 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 begranted 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 theCompany's outstanding capital stock must be at least 110% of the fair market value on the date of grant. As at November 30, 2005, 285,500 stock options, yet exercisable, to purchase 285,500 shares of the Company's Common Stock, were outstanding.

 

The Company has adopted Stock Appreciation Rights incentives and Restricted Stock grants in the 2005 Amended Stock Option Plan.  No such grants were issued in fiscal 2005.  All of theterms and conditions of the Plan were included in the June 15, 2005 Proxy, which Plan was approved by the shareholders at the annual meeting.  The Proxy is incorporated by reference to this 10K Annual Report.  

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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.) andthe cumulative total return of Dow Jones's TMI/Personal Products Index.
|  |
|--|
|  |  |

 

 

GRAPH 

 

 

 

 

 

 

 

 

 

 

29

 

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**Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

 

The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock and/or Class A Common Stock as of November 30, 2005 by (i) all thoseknown 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 isbeneficial 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)        

 

DavidEdell                               225,359          484,615           47,500             9.9%                10.5%

c/o CCA Industries, Inc.          

200 Murray Hill Parkway

East Rutherford, NJ 07073

 

Ira W. Berman                         234,089           483,087           53,000            10.0%              10.6%

c/o CCA Industries, Inc.

 

Luxor Capital Partners, LP (3)               

551 Fifth Avenue                     359,477              -                           -                 4.3%                4.3%

New York, NY 10176

 

Alexander Enterprise Holdings Inc. (4)               

1114 Ave of the Americas        310,800             -                           -                 4.3%                4.3% 

New York, NY 10036

 

JackPolak                                 28,254             -                      25,000              ..4%                  .7%

195 Beach Street

Eastchester, NY 10709

 

Stanley Kreitman                       24,392              ‐                          -                   .3%                  .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

 

30

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DrewEdell                               123,108            ‐                      15,000              1.7%              1.9%

c/o CCA Industries, Inc.

 

 

John Bingman                             ‐                        ‐                    10,000              0%                 .1%

c/o CCA Industries, Inc.

 

Officers and Directors               1,347,554       967,702           240,500

as a group (10 persons)

_______________________

 

(1) The number of “Option Shares” represents the number of shares that could be purchased by and upon exercise of unexercised options exercisable within 60 days; and thepercentage 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 andpurchased.’

 

(2) David Edell and Ira Berman own 100% of the outstanding shares of Class A Common Stock. Messrs. David Edell, Dunnan Edell, and Ira Berman are officers and directors.  Messrs.John Bingman and Drew Edell is an officer.  Messrs. Lage, Kreitman and Polak are independent, outside directors.

 

(3) Luxor Capital Group is the investment manager of the Onshore Fund and the Offshore Fund.  Luxor Management is the general partner of Luxor Capital Group.  Mr. Leone is themanaging member of Luxor Management.  The principle business of the Onshore Fund and Offshore Fund is that of a private investment fund engaged in the purchase and sale pf securities for its own account.  The principle business of Luxor Capital Group isproviding investment management services.  The principle business of Luxor Management is serving as the general partner of Luxor capital Group.  The principle business of LCG Holdings is serving as the general partner or managing member of the Onshore Fundand other private investment funds.

 

(4) Alexander Enterprise Holdings Corp. is a British Virgin Island corporation, a wholly owned subsidiary of Berggruen Holdings Ltd, a British Virgin Islands corporation.  All ofthe shares of Berggruen Holdings Ltd. are owned by Terragona Trust, a British Virgin Island trust.  The trustee of Terragona Trust is Maitland Trustees Limited, a British Virgin Island corporation.

** **

##### **Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

 

During fiscal 2005, several related parties provided services to the Company, which were deemed immaterial to the financial statements.

 

On October 3, 2004, the Company repurchased 500,000 shares of the Company’s common stock, 250,000 shares each from David Edell and Ira W. Berman at a price of$8.99. 

 

** **

** **

31

 

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**Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

 

 KGS LLP (“KGS”) (formerly known as Sheft Kahn & Company LLP) served as the Company’s independent auditors for 2005 and 2004.  The services performed byKGS in this capacity included conducting an audit in accordance with generally accepted auditing standards of, and expressing an opinion on, the Company’s consolidated financial statements.

 

 Audit Fees

 

 KGS’s fees for professional services rendered in connection with the audit and review of Forms 10-K and all other SEC regulatory filings were $227,803 for the 2005 fiscalyear and $162,178 for the 2004 fiscal year.  The Company has paid and is current on all billed fees.

 

 Audit Related Fees

 

Audit related fees billed in Fiscal 2005 and 2004 by KGS were $39,012 and $3,265, respectively.  Audit related fees consist primarily of fees billed for professional servicesrendered by KGS for accounting consultations and services related to business acquisitions and dispositions, responses to SEC correspondence, and readiness consultations for Section 404 of the Sarbanes Oxley Act of 2002.

 

Tax Fees

 

KGS’s fees for professional services rendered in connection with Federal and State tax return preparation and other tax matters for the 2005 and 2004 fiscal years were $51,235 and$41,181, respectively.

           

All Other Fees

           

All other fees of $724 and $565 billed in Fiscal years 2005 and 2004, respectively, represent fees for miscellaneous services other than those describedabove.       

 

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 SecuritiesExchange Act of 1934 or the rules of the Securities and Exchange Commission.  Each year, the independent auditor’s retention to audit our financial statements, including the associated fee, is approved by the committee before the filing of the precedingyear’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, andapprove 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 committeemeeting, 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 andapprove 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 committeemeeting.

 

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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 theclient are not appropriately approved, each new engagement of KGS LLP, formerly known as Sheft Kahn & Company LLP was approved in advance by the Audit Committee, and none of those engagements made use of the *de minimus* exception to pre-approval containedin the Commission’s rules.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33

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**PART IV**

 

**Item 15. EXHIBITS, FINANCIAL STATEMENTS,**

**              SCHEDULES AND REPORTS ON FORM 8‐K**

 

Financial Statements:

 

Table of Contents, Independent Auditors' Report, Consolidated Balance Sheets as of November 30, 2005 and 2004, Consolidated Statements of Income (Loss) for the years ended November 30,2005, 2004 and 2003, Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Shareholders' Equity for the years ended November 30, 2005, 2004 and 2003, Consolidated Statements of Cash Flows for the years ended November 30, 2005, 2004 and2003, Notes to Consolidated Financial Statements.

 

Financial Statement Schedules:

 

Schedule II: Valuation Accounts; Years Ended Nov. 30, 2005, 2004 and 2003.  The remaining financial statement schedules have been omitted since they are not required to befiled.

 

Exhibits:

 

(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 incorporated by reference to the filing of such documents with the Schedule TO filed with the SEC, on June 5, 2001.

 

(3)       The Company's Articles of Incorporation and Amendments thereof, and its By‐Laws, are incorporated by reference to their filing with the Form10‐K/A filed April 5, 1995.  (Exhibit pages 000001‐23).

 

 (10.1)  The Following Material Contracts are incorporated by reference to their filing with the Form 10‐K/A filed April 5, 1995: Amended and Restated EmploymentAgreements of 1994, with David Edell and Ira Berman; License Agreement made February 12, 1986 with Alleghany Pharmacal Corporation.

 

(10.2)   The February 1999 Amendments to the Amended and Restated Employment Agreements of David Edell and Ira Berman (1994) are incorporated by reference to the 199810‐K. (Exhibit pages 00001‐00002).  The May 29, 2001 Amended and Restated Employment Agreements of David Edell and Ira Berman are incorporated by reference herein.

 

            Previously filed as an exhibit to an incorporated by reference from the indicated report filed with the Securities andExchange Commission:

 

            (1) The Forms 8K, filed on May 22, 2002 and November 20, 2002, are incorporated by reference to this 2005 10K. Three 8Ks are referenced, October 29, 2003, November 24, 2003 and December 11, 2003.  Three additional 8Ks are referenced, one on April 7, 2004, one on August 3, 2004 and the last on October 6, 2004. 

 

34

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            (2) Forms 8K filed on April 11, 2005, June 27, 2005, and July 15, 2005 are incorporated by reference to this10K

 

            (3) The Company’s 2003 Stock Option Plan was filed with the 2003 Proxy and is incorporated by reference to this10K. 

 

            (4) The Company’s 2005 Amended and Restated Stock Option Plan and the 2005 Proxy are incorporated by referenceherein.

 

            The following reports were filed with the Securities and Exchange Commission during the three months ended November 30,2005:

 

            (1) Form 10Q, filed on October 17, 2005, for the quarter ended August 31, 2005.

 

            (2) Form 8K, filed on October 17, 2005, announcing our news release of October 12, 2005 discussing our third quarterand nine months earnings.

 

            (3) Form 10Q/A, filed on October 17, 2005, amending our third quarter ended August 31, 2005.

 

            ( 4) Form 10Q/A, filed on November 15, 2005, amending our third quarter ended August 31, 2005.

 

            (5) Form 13D, filed on November 17, 2005 by filing person, purchasing the subject class of securities at five percentof outstanding stock.

 

(11)      Statement re Per Share Earnings (included in Item 15, Financial Statements)

 

(14)      Code of Ethics for Chief Executive Officer and Senior Financial Officers are referenced

 

(31.1)    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) included herein

 

(31.2)    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) included herein

 

(32.1)    Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350 included herein

 

(32.2)    Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350 included herein

 

Shareholders may obtain a copy of any exhibit not filed herewith by writing to CCA Industries, Inc., 200 Murray Hill Parkway, East Rutherford, New Jersey 07073.  Moreover, exhibitsmay 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 NorthwesternAtrium 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, andone is available at the Commission’s Internet website (http://www.sec.gov).

 

 

35

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**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 theundersigned 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 datesindicated.

 

     Signature                                    Title                                                 Date

 

s/                                              Chief Executive Officer,               February 28, 2006   

    DAVID EDELL                  Director                                           

                                                                                        

s/                                             Chairman of the Board                February 28, 2006

    IRA W. BERMAN              of Directors, Executive

                                               VicePresident, Secretary

 

s/                                            President, Chief Operating             February 28, 2006

    DUNNAN EDELL              Officer, Director

 

s/                                            Vice President,                             February 28, 2006           

    STEPHEN HEIT                  Operations

 

s/                                            Vice President,                              February 28, 2006

    DREW EDELL                     Product Development

 

s/                                             Chief Financial Officer                   February 28, 2006

   JOHN BINGMAN

 

s/                                              Director                                      February 28, 2006

    STANLEY KREITMAN

 

s/                                             Director                                       February 28, 2006

    ROBERT LAGE

 

s/                                               Director                                     February 28, 2006

    JACK POLAK

 

s/                                               Director                                     February 28, 2006

    GIO BATTA GORI

 

36

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** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

**                                     CCAINDUSTRIES, INC. AND SUBSIDIARIES**

** **

** **

**                                    CONSOLIDATED FINANCIAL STATEMENTS**

** **

** **

**                                                 NOVEMBER 30, 2005 AND 2004**

 

 

----

 

 

 

 

 

 

 

 

 

 

 

 

                                                               C O N T E N T S

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.......................... 1

 

FINANCIAL STATEMENTS:

 

   CONSOLIDATED BALANCE SHEETS................................................................................. 2-3

 

   CONSOLIDATED STATEMENTS OF INCOME ..................................................................... 4

 

   CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ................................... 5

 

   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY....................................... 6

 

   CONSOLIDATED STATEMENTS OF CASH FLOWS............................................................. 7

 

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................. 8-34

 

SUPPLEMENTARY INFORMATION

 

   SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS........................................ 35

 

 

 

 

 

 

----

 

           **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Board of Directors and Shareholders

CCA Industries, Inc.

East Rutherford, New Jersey

 

            We have audited the consolidated balance sheets of CCA Industries, Inc. and Subsidiaries as of November 30, 2005 and 2004, and the related consolidatedstatements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended November 30, 2005.  These consolidated financial statements are the responsibility of the Company’s management.  Ourresponsibility 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 thatwe 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 financialstatements.  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 ouropinion.

 

            In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CCAIndustries, Inc. and Subsidiaries as of November 30, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 30, 2005, in conformity with accounting principles generally accepted inthe United States of America.

 

            As more fully discussed in Note 16, subsequent to the issuance of the Company’s 2004 financial statements and our report thereon dated January 30, 2005,we became aware that those financial statements reflected the Company’s issuance of a stock dividend as if it was a stock split.  In our original report, we expressed an unqualified opinion on the 2004 financial statements, and our opinion on the revisedstatements, as expressed herein, remains unqualified.

 

            Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole.  The schedule titled “Schedule II– Valuation and Qualifying Accounts” is presented for purposes of additional analysis and is not a required part of the basic financial statements.  This schedule has been subjected to the auditing procedures applied in the audit of the basicfinancial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

 

                                                           KGS LLP

                                                           CERTIFIED PUBLIC ACCOUNTANTS

February 3, 2006

Jericho, New York

                                                                           -1-

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                                     **CCAINDUSTRIES, INC. AND SUBSIDIARIES**

** **

**                                           CONSOLIDATED BALANCE SHEETS**

 

                                                                    A S S E T S

 

                                                                                                                    November 30,    

                                                                                                           2005                        2004             

           

 

Current Assets

    Cash and cash equivalents (Note14)                                        $    3,536,542            $  3,142,230

    Short-term investments andmarketable                                                                               

       securities (Notes 2 and6)                                                            7,050,026                1,952,738

    Accounts receivable, net of allowances of

       $938,712 and $517,634, respectively (Note2)                            9,260,399                8,677,984

    Inventories (Notes 2 and 3)                                                             6,554,150               6,048,000

    Prepaid expenses and sundry receivables                                            526,134                  695,653

    Prepaid income taxes and refunds due (Note8)                                  165,560                   418,651 

   Deferred  income taxes (Note8)                                                        818,948                   650,938  

 

                Total Current Assets                                                         27,911,759             21,586,194                                   

Property and Equipment, net of accumulated

     depreciation and amortization

         (Notes 2 and 4)                                                                            467,238                  569,745                                   

Intangible Assets, net of accumulated

     amortization (Notes 2 and5)                                                             583,177                  511,029                                   

Other Assets

     Marketable securities (Notes 2 and6)                                            6,275,390                8,852,198

     Deferred income taxes (Note8)                                                          23,419                               -     

    Other                                                                                                 48,325                     37,411                                     

         Total OtherAssets                                                                    6,347,134                8,889,609                                   

         TotalAssets                                                                          $35,309,308            $31,556,577

 

 

 

 

             

See Notes to Consolidated Financial Statements.

 

 

 

                                                                                   -2-

** **

----

**                                     CCAINDUSTRIES, INC. AND SUBSIDIARIES**

** **

**                                           CONSOLIDATED BALANCE SHEETS**

 

                                       LIABILITIES AND SHAREHOLDERS'EQUITY

 

                                                                                                                    November 30,

                                                                                                       2005                             2004               

Current Liabilities

    Accounts payable and accrued 

         liabilities (Note 10)                                                         $   8,734,092               $    6,982,835 

    Income tax payable                                                                                   -                        59,888 

    Dividends payable                                                                         575,560                        483,426

     Subordinated debentures (Note7)                                                           -                       497,656

      

         Total CurrentLiabilities                                                        9,309,652                    8,023,805                          

 

Deferred Income Taxes (Note8)                                                                 -                         10,725

 

Commitments and Contingencies (Note12)                                                   

 

Shareholders' Equity

     Preferred stock, $1.00 par; authorized

         20,000,000 shares; noneissued                                                          -                                  -      

     Common stock, $.01 par; authorized

         15,000,000 shares; issued and

         outstanding 6,212,055 and

         6,153,503 shares,respectively                                                  62,121                         61,535

     Class A common stock, $.01 par; authorized

         5,000,000 shares; issued and outstanding

          967,702 and 977,394 shares,respectively                                   9,677                          9,774

     Additional paid-incapital                                                          5,105,732                    5,094,660

     Retained earnings                                                                     21,200,465                18,734,693

      Unrealized (losses) on marketable securities                      (         378,339)             (        228,944)

                                                                                                  25,999,656                   23,671,718

       Less:  Treasury Stock

                 86,703 shares, atcost                                                                 -                       149,671                               

      

          Total Shareholders'Equity                                                 25,999,656                 23,522,047

 

          Total Liabilities and Shareholders'Equity                         $35,309,308                $31,556,577

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

 

                                                                           -3-

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                                     **CCAINDUSTRIES, INC. AND SUBSIDIARIES**

** **

**                                    CONSOLIDATEDSTATEMENTS OF INCOME**

**    **

** **

** **

                                                                                      Years Ended November 30,

                                                                             2005                        2004                    2003                    

Revenues

     Sales of health and beauty   

         aid products,net                                     $63,148,417         $60,667,562           $ 54,145,480  

     Otherincome                                                   572,909                 850,196                   591,271                                                                                                                     

                                                                        63,721,326            61,517,758             54,736,751                                   

Costs and Expenses

     Cost ofsales                                                22,363,653            20,520,857              18,168,528 

    Selling, general and

         administrativeexpenses                              20,548,971          17,577,032              16,753,269  

     Advertising, cooperative and

        promotions                                               12,706,771            13,118,784             10,328,695

    Research and development                                772,627                 876,665                 884,425

     Provision for doubtfulaccounts                          201,864                   18,675                   73,537 

     Interest expense                                                  19,912                   31,466                   31,399                                                                       

                                                                         56,613,798            52,143,479             46,239,853  

         Income before Provision

           for IncomeTaxes                                     7,107,528              9,374,279               8,496,898                                   

 

Provision for Income Tax                                      3,322,026             3,577,616                3,244,767  

 

         Net Income                                            $  3,785,502          $ 5,796,663            $  5,252,131

 

Weighted Average Shares

     Outstanding

        Basic                                                          7,145,297             7,399,472*              7,372,232*

        Diluted                                                       7,317,994               ,680,781*              7,768,361*           

 

Earnings Per Common Share

     (Note 2):

        Basic                                                                  $.53                      $.78*                        $.71*

        Diluted                                                                $.52                      $.75*                        $.68*

 

  * Adjusted for 2% stock dividend.

 

 

 

See Notes to Consolidated Financial Statements.

 

 

 

 -4-

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                                     **CCAINDUSTRIES, INC. AND SUBSIDIARIES**

** **

**                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

 

 

                                                                                         Years Ended November 30,

                                                                        2005                           2004                        2003       

** **

Net Income                                                 $3,785,502                    $5,796,663              $5,252,131

                          

Other Comprehensive Income

     (Loss)

       Unrealized holding gain (loss)

         oninvestments                                   (     149,395)                (       133,716)                    12,762                                     

 

Provision (Benefit) for Income Taxes          (       69,767)                (         51,032)                        4,874                               

 

Other Comprehensive Income

     (Loss) -Net                                          (       79,628)                (         82,684)                       7,888                               

 

Comprehensive Income                                 $3,705,874                    $5,713,979              $ 5,260,019  

 

Earnings Per Share:

   Basic                                                                  $.52                               $.77*                        $.71*

    Diluted                                                                 $.51                              $.74*                       $.68*                                                                       

 

    * Adjusted for 2% stock dividend.

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

 

 

 

 

 

 -5-

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**                                                                                                           **

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**                                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY**

** **

**                                                  FOR THE YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003**

 

 

                                                                                                                                                                                        Unrealized  

                                                                                                                         Additional                                          Gain(Loss) on 

                                                                                Common Stock (1)                Paid-In                 Retained            Marketable         Treasury

                                                                             Shares         Amount                 Capital                   Earnings             Securities              Stock

 

 

Balance - November 30, 2002                          7,562,014       $75,620            $3,831,313             $15,389,415         ($107,990)        ($352,935)

 

Issuance of commonstock                                   139,889           1,399            (        1,399)                             -                         -                       -

       

Net income for theyear                                                  -                   -                           -                  5,252,131                        -                        -      

 

Dividendsdeclared                                                         -                   -                           -             (       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 commonstock                                   131,825           1,318                     3,682                              -                       -                          -         

 

Net income for theyear                                                  -                   -                           -                 5,796,663                        -                         -     

 

Unrealized (loss) on marketable

 securities                                                                      -                    -                          -                               -          (  133,716)                       -     

 

Retirement of treasury stock                              (  192,849)     (    1,928)                       38          (       207,145)                       -             209,035  

 

Purchase and retirement of common

 stock                                                              (  510,000)      (    5,100)                    100          (    4,490,000)                       -                        -     

 

Stockdividend                                                               -                    -             1,260,926         (    1,260,926)                        -                         -

 

Dividendsdeclared                                                          -                    -                         -         (       995,440)                       -                          -

 

Balance - November 30, 2004, as revised         7,130,879           71,309           5,094,660             18,734,693          (  228,944)          (  149,671)

 

Issuance of commonstock                                  137,769             1,378                11,072                             -                         -                         -

 

Net income for theyear                                                  -                    -                          -              3,785,502                         -                          -    

 

Dividends declared                                                        -                   -                           -           (  1,151,411)                        -                         -

 

Unrealized (loss) on marketable

    securities                                                                    -                    -                         -                            -           (  149,395)                        -  

     

Purchase of 2,188 shares of common

    stock                                                                         -                   -                          -                           -                         -             (     19,537)

 

Retirement of treasury stock                           (     88,891)      (       889)                         -      (         168,319)                       -                169,208  

                                                                                                                                           

Balance - November 30, 2005                         7,179,757       $71,798            $5,105,732         $21,200,465          ($ 378,339)            $           -

                                                                                                                                             

 

 

See Notes to Consolidated Financial Statements.

                                                                                                         -6-

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**                                     CCAINDUSTRIES, INC. AND SUBSIDIARIES**

**    **

**                                CONSOLIDATED STATEMENTS OF CASHFLOWS**

** **

**                                        FOR THE YEARS ENDED NOVEMBER30,**

 

       

                                                                                             2005                        2004                       2003     

Cash Flows from Operating Activities:

     Net income                                                                 $3,785,502                $5,796,663            $5,252,131     

         Adjustments toreconcile net

                income to net cash provided by

              operating activities:

         Depreciation andamortization                                        329,278                     307,598                  361,730

          (Gain) on sale ofsecurities                                                        -               (    143,736)        (            9,518)

         Loss (gain) on sale or impairment of 

             intangibles                                                                   42,380               (       9,947)                            -       

         Decrease (increase) in deferred

           incometaxes                                                        (        202,154)                   308,600                  333,569

         (Increase) in accountsreceivable                            (       582,415)              ( 2,073,002)       (         339,027)  

         (Increase) decreasein inventory                             (       506,150)              (    735,301)        (     1,569,568) 

         (Increase)decrease in prepaid expenses

              and sundryreceivables                                               169,519              (    104,803)        (        227,393) 

          (Increase)decrease in prepaid income

               taxes and refundsdue                                               253,091               (    182,031)        (        234,917)

         (Increase) decrease in other assets                         (          10,914)                      1,727                    17,250

         Increase in accounts payable and accrued

             liabilities                                                                   1,751,257                 1,379,685                  319,041

         Increase (decrease) in income taxes payable         (          59,888)                     59,888          (     178,690)                              

 

          Net Cash Provided by Operating

                Activities                                                              4,969,506                  4,605,341             3,724,608  

 

Cash Flows from Investing Activities:

     Acquisition of property and equipment                         (       215,066)             (     140,674)        (       321,446)  

      Acquisition of intangibleassets                                   (        126,233)             (       27,036)        (          2,846) 

       Purchase of available for salesecurities                      (    4,616,689)             (  4,249,221)         (   9,888,309) 

       Proceeds from sale of availablefor

          salessecurities                                                             1,946,814                  7,078,164              6,485,792 

     Proceeds from sale of trademark                                                     -                       50,000                           -

 

              Net Cash (Used in) Provided by

                InvestingActivities                                            (   3,011,174)                  2,711,233          (  3,726,809)                                                                                                                        

Cash Flows from Financing Activities:

     Purchase and retirement of common shares                   (        19,537)             (   4,495,000)                           -       

      Repurchase of outstanding debentures                          (     497,656)                                -                            -  

     Proceeds from exercise of stock options                                12,450                          5,000                            -               

     Purchase of treasurystock                                                              -                                 -          (          5,771)

     Dividendspaid                                                             (   1,059,277)              (     891,131)         (       370,888)

 

              Net Cash (Used in) Financing Activities                (  1,564,020)              (  5,381,131)         (       376,659)   

    

Net Increase (Decrease) InCash                                              394,312                    1,935,443           (     378,860)       

 

Cash at Beginning ofYear                                                      3,142,230                    1,206,787               1,585,647                                                                                                                        

Cash at End ofYear                                                            $3,536,542                  $3,142,230             $1,206,787        

 

Supplemental Disclosures of Cash

  Flow Information:

    Cash paid during the year for:

        Interest                                                                        $     19,912                $       31,466             $    31,529 

         Income taxes                                                                  3,297,371                   3,382,450              3,322,700                                  

 

Supplemental Disclosure of Non-Cash

  Information:

     Dividends declared andaccrued                                     $    575,560                 $     483,426             $  379,117

         

     Retirement of 88,891 and 192,849 shares

          of treasury stock                                                       $   169,208                  $    209,035           $             -  

 

See Notes to Consolidated Financial Statements.

 

                                                                             -7-

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**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 beeneliminated.

 

Estimates and Assumptions:

 

The consolidated financial statements include the use of estimates, which management believes are reasonable.  The process of preparing financial statements in conformity with generally accepted accounting principlesrequires 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, uponsettlement, 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, suchinvestments are reported at fair market value, with the resultant unrealized gains and losses reported as a separate component of shareholders' equity.

 

Accounts Receivable

 

Accounts receivable consist of trade receivables recorded at original invoice amount, less an estimated allowance for uncollectible amounts.  Trade credit is generally extended on a short term basis; thus tradereceivables 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 uncollectibleaccounts.  The Company generally does not require collateral for trade receivables.

 

Statements of Cash Flows Disclosure:

 

For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of less than three months to be cash equivalents.

 

 

                                                                             -8-

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**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

 

 

 

NOTE 2 -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Statements of Cash Flows Disclosure (Continued):

 

 

During fiscal 2003, three officers/shareholders exercised in the aggregate 157,000 options (160,140 as adjusted for the 2% stock dividend) in exchange for 19,854 shares (20,251 as adjusted for the 2% stock dividend) ofpreviously 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 previouslyissued common stock.

 

During fiscal 2005, three officers/directors exercised in the aggregate 139,000 options, David Edell - 65,000, Ira Berman - 59,000 and Stanley Kreitman - 15,000.  In addition, 5,000 options were exercised by an outsideconsultant.

 

For the year ended November 30, 2005, dividends declared but not yet due amounted to $575,560.

 

Inventories:

 

Inventories are stated at the lower of cost (first-in, first-out) or market.

 

Product returns that are resalable are recorded in inventory when they are received at the lower of their original cost or market, as appropriate.  Obsolete inventory is written off and its value is removed from inventoryat 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 ofproperty 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 estimateduseful lives or lease terms of the assets:

 

                     Machinery andequipment                                   5-7 Years

                     Furniture andfixtures                                          3-10Years

                     Tools, dies andmasters                                      3  Years

                     Transportationequipment                                   5  Years

                     Leaseholdimprovements                                    Remaining life of the lease(ranging

                                                                                                from 1-9 years)

 

Intangible Assets:

 

Intangible assets are stated at cost.  Patents are amortized on the straight-line method over a period of 17 years.  Such intangible assets are reviewed for potential impairment whenever events or circumstancesindicate that carrying amounts may not be recoverable.

 

Financial Instruments:

 

The carrying value of assets and liabilities considered financial instruments approximate their respective fair value.

 

 

 

-9-

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**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 commonstock 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 usingthe “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 ofreturn 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 monthssales.

 

Sales Incentives

 

In accordance with EITF 00-14, the Company has accounted for certain sales incentives offered to customers by charging them directly to sales as opposed to “advertising and promotional” expense.  Had EITF00-14 not been adopted, net sales for the years ended November 2005, 2004 and 2003 would have been $65,352,334, $62,673,158, and $55,905,788, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-10-

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**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

 

NOTE 2 -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Advertising Costs:

 

The Company’s policy for fiscal financial reporting is to charge advertising cost to operations as incurred.  During the fiscal year, the Company changed its estimate of future benefits it derives from itsadvertising expenditures and the affect it has on its allocations of advertising expenses among the interim quarters.  Going forward the Company will expense its advertising based on when the advertising actually runs.  The Change in estimate affectsinterim reporting and has no effect on the Company’s earnings for the year end November 30, 2005.

 

Shipping Costs:

 

The Company’s policy for fiscal financial reporting is to charge shipping costs to operations as incurred.  For the years ended November 30, 2005, 2004 and 2003, included in selling, general and administrativeexpenses are shipping costs amounting to $3,601,322, $2,813,479, and $2,668,246, respectively.

                                                                                

Stock Options:

 

The Company accounts for its stock-based employee compensation under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and relatedinterpretations.  Under APB No. 25, when the exercise price of stock options equal the market price of the underlying stock on the date of grant, no compensation expense is recognized in the consolidated statement of operations.

 

Recent Accounting Pronouncements:

 

In December 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46R, “Consolidation of Variable Interest Entities (“FIN 46R”), which supercedes Interpretation No. 46,“Consolidation of Variable Interest Entities” issued in January 2003.  FIN 46R requires a company to consolidate a variable interest entity (“VIE”), as defined, when the company will absorb a majority of the VIE’s expected losses,receives a majority of the VIE’s expected residual returns or both.  FIN 46R also requires consolidation of existing, non-controlled affiliates if the VIE is unable to finance its operations without investor support, or where the other investors do nothave 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 periodbeginning after March 15, 2004.  Application of FIN 46R is also required in financial statements that have interests in structures that are commonly referred to as special-purpose entities for periods ending after December 15, 2003.  The adoption of FIN 46Rdid not have a material impact on our financial position, results of operations or cash flow.

 

In November 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs” (“SFAS 151”).  SFAS 151 amends the guidance in Accounting ResearchBulletin No. 43, Chapter 4, “Inventory Pricing”, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixedproduction overheads to inventory based on normal capacity of production facilities.  This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.  The adoption of SFAS 151 is not expected to have an impact onour 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 orDisposal 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 operationsof the entity focuses on whether continuing cash flows are direct or indirect cash flows.  The consensus should be applied to a component of an enterprise that is either disposed of or classified as held for sale in fiscal periods beginning after December 15,2004.  The adoption of EITF 03-13 did not have an impact on our financial position, results of operations or cash flows.

 

 

-11-

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**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

 

NOTE 2 -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

 

In December 2004, the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets” (“SFAS 153”).  SFAS 153 amends the guidance in APB Opinion No. 29, “Accounting for NonmonetaryTransactions” 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 andreplaces 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 notexpected to have an impact on our financial position, results of operations or cash flows.

 

In December 2004, the FASB issued SFAS 123R which replaces SFAS 123 and supersedes APB 25.   Under the new standard, companies will no longer be allowed to account for stock-based compensation transactions using theintrinsic value method in accordance with APB 25.  Instead, companies will be required to account for such transactions using a fair value method and to recognize the expense in the statement of operations.  The adoption of SFAS 123R will require additionalaccounting related to the income tax effects of share-based payment arrangements and additional disclosure of their cash flow impacts.  SFAS 123R also allows, but does not require companies to restate prior periods.  In April 2005, the SEC issued a finalrule that amended the effective date to the first annual reporting period that begins after December 15, 2005 (the Company’s first quarter ending February 28, 2007).  The impact of adoption is not anticipated to be material to our financial position,results of operations or cash flow.

 

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, “(“SFAS 154”).  SFAS No. 154 replaced APB No. 20, “Accounting Changes” and SFAS No. 3,“Reporting Accounting Changes in Interim Financial Statements” and establishes retrospective application as the required method for reporting a change in accounting.

 

 

NOTE 3 -     INVENTORIES

 

At November 30, 2005 and 2004, inventories consist of the following:

 

                                                                           2005                         2004  

 

Raw materials                                                $3,946,164              $3,764,473                               

Finished goods                                               2,607,986                2,283,527                               

                                                                     $6,554,150               $6,048,000

 

At November 30, 2005and 2004, the Company had a reserve for obsolete inventory of $854,764 and $871,488, respectively.

 

NOTE 4 -     PROPERTY AND EQUIPMENT                      

 

At November 30, 2005 and 2004, property and equipment consisted of the following:

 

                                                                                                            2005                         2004

                    

                     Machinery andequipment                                           $  125,788                 $   115,104   

                    Office furniture andequipment                                         793,937                      708,184    

                    Transportationequipment                                                  10,918                        10,918   

                    Tools, dies, andmasters                                                  548,846                      433,221    

                    Leaseholdimprovements                                                 294,067                     291,063     

                                                                                                       1,773,556                  1,558,490                                                           

                     Less:  Accumulated depreciation

                               andamortization                                                  1,306,318                     988,745                                            

            

         Property and Equipment -Net                                                 $  467,238                 $   569,745

             

Depreciation expense for the years ended November 30, 2005, 2004 and 2003 amounted to $317,573, $299,451, and $313,663, respectively.

 

 

 

-12-

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**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

NOTE 5 -  INTANGIBLE ASSETS

 

Intangible assets consist of owned trademarks and patents for ten product lines covering thirty countries.  The cost and accumulated amortization for November 30, 2005 and 2004 is as follows:

 

                                                                                                           2005                             2004  

 

                  Trademarks andpatents                                                       $741,427                       $678,124                    Less: Accumulated amortization                                             158,250                        167,095    

                   Intangible Assets -Net                                                        $583,177                       $511,029          

 

Patents are amortized on a straight-line basis over their legal life of 17 years and trademarks are adjusted to realizable value for each quarterly reporting period. Amortization expense for the years ended November 30, 2005,2004 and 2003 amounted to $11,705, $8,147, and $48,067, respectively.  Estimated amortization expense for each of the ensuing years through November 30, 2010 will remain approximately $12,000.  The Company determined that $42,380 and $40,053 of the netvalue of certain of its patents and trademarks had been impaired during fiscal years 2005 and 2004, respectively, and the corresponding cost and prior amortization were written off.

 

NOTE 6 -  SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES

 

Short-term investments and marketable securities, which consist of stock and various corporate and government obligations, are stated at market value.  The Company has classified its investments as Available-for-Salesecurities and considers as current assets those investments which will mature or are likely to be sold in the next fiscal year. The remaining investments are considered non-current assets.  The cost and market values of the investments at November 30, 2005 andNovember 30, 2004 were as follows:

 

                                                                      November 30,                              November30,       

                                                                           2005                                               2004                    

                                                                                

                 Current:                                       COST           MARKET              COST          MARKET        

 

                  Corporate obligations            $    4,169,918     $    4,080,882    $  1,475,000   $  1,470,690

                  Governmentobligations                                                                                 

                    (including mortgage                                 

                      backedsecurities)                   2,732,192           2,726,444           296,814           297,045

                  Commonstock                                51,649               52,368              51,649             52,656

                  Mutualfunds                                  198,305             136,191            188,247           132,347

                  Otherequity                                     60,335                54,141                      -                     -                    

                  

                       Total                                     7,212,399          7,050,026         2,011,710       1,952,738                                  

 

                  Non-Current:

 

                  Corporate obligations                 3,040,192           2,926,098          5,546,097       5,446,625

                  Government obli-

                   gations                                     2,526,319           2,456,724          2,751,228       2,689,721

                    Preferredstock                            824,845             792,568             624,845          615,852

                  Other equity

                   investments                                  100,000              100,000             100,000          100,000                                  

                     Total                                     6,491,356           6,275,390           9,022,170       8,852,198

 

                     Total                                  $13,703,755       $13,325,416      $11,033,880    $10,804,936

 

 

 

 

 

 

 

 

 

                                                                            -13-

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** **

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

**                 **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

NOTE 6-SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)

** **

The market value at November 30, 2005 was $13,325,416 as compared to $10,804,936 at November 30, 2004.  The gross unrealized gains and losses were $13,577 and ($391,896) for November 30, 2005 and $4,227 and ($233,171) for November 30, 2004.  The cost and market values of the investments at

November 30, 2005 were as follows:

 

                     COL. A                                                                      COL. B              COL. C                COL. D                     COL. E      

                                                                                                                                                                                      Amount at Which

                                                                                                                                                                                           Each Portfolio 

                                                                                                    Number of                                           Market           Of Equity Security

                                                                                                  Units-Principal                                       Valueof            Issues and Each

                                                                                                    Amountof                                           Each Issue        OtherSecurity 

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 Express Co                       11/20/07          3.750%           100,000       $     99,858           $     98,092              $    98,092

American General Fin Corp              09/15/06          2.500%           100,000            100,000                 98,168                    98,168

Banc One Corp Global Notes           06/30/08           2.625%          125,000            124,363               118,219                  118,219

Bank of America Corp                      01/15/08          3.875%          200,000            199,644               196,252                   196,252

Bank of America Corp                      01/15/08          3.875%            50,000              49,916                 49,063                      49,063

Bank of America Corp                      08/15/08          3.250%          200,000            199,630               191,942                   191,942

Bear Stearns                                    03/30/06           3.000%          200,000            199,272               199,004                   199,004

Bear Stearns                                    02/15/07           2.650%          100,000            100,000                 97,268                     97,268

BP Capital Markets                         12/29/06           2.750%          250,000           247,588               244,492                   244,492

BP Capital Markets                         12/29/06           2.750%            50,000             49,522                  48,898                      48,898

Caterpillar Finl Svcs Corp                 09/15/06          2.350%         100,000              99,717                  98,122                      98,122

CIT Group Inc.                                01/15/06           4.000%         200,000           200,000                199,748                   199,748

CITGROUP Global Markets            03/15/07           2.350%        150,000             150,000               145,064                   145,064

CITGROUP Global Markets            03/15/07           3.750%        150,000             150,000               147,817                    147,817

Ford Motor Credit                          10/20/06             4.250%        100,000            100,000                   93,148                     93,148

GE Capital Corp Internotes              10/15/06            2.250%        300,000            300,000                293,061                   293,061

GE Capital Corp Internotes              02/15/07            2.500%        200,000            200,000                194,152                   194,152

GE Capital Corp Internotes              02/15/06            2.450%        250,000            250,000                248,930                   248,930

GE Capital Corp Internotes              07/15/06            2.150%        200,000            200,000                196,666                    196,666

  

                                                                                                          -14-

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**                                                                                                              **

** **

**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                                       Valueof            Issues and Each

                                                                                                    Amountof                                           Each Issue        OtherSecurity 

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          $   147,135          $     147,135

GE Capital Corp Internotes             09/15/06             2.350%           300,000               300,000              294,177                294,177

GE Capital Corp Internotes             10/15/06             2.500%           400,000               400,000              391,508                391,508

GE Capital Corp Internotes             03/15/07             2.350%           250,000               250,000              241,500                 241,500

GE Capital Corp Medium                09/25/06             2.750%           175,000               173,840             172,251                 172,251

GE Capital Corp Medium                09/25/06             2.750%           200,000               197,644             196,858                 196,858

GE Capital Corp Medium                01/15/07             2.800%           250,000               247,270             244,638                 244,638

GE Capital Corp Medium                01/15/07             2.800%             50,000                 49,459               48,927                    48,927

General Dynamics                            05/15/06            2.125%            150,000               149,706            148,424                148,424

General Dynamics                            05/15/06            2.125%            100,000                 99,739              98,949                  98,949

GlaxosmithklineCAP PLC               04/16/07            2.375%            200,000               198,894             193,830                193,830

GMAC Smartnotes                          09/15/07            3.750%            200,000               200,000            171,722                171,722

GMAC Smartnotes                          12/15/06            3.400%            200,000               200,000            180,882                180,882

GMAC Smartnotes                          10/15/06            3.550%            250,000               250,000            231,050                231,050

GMAC Smartnotes                          05/15/06            4.050%            400,000               400,000            386,016                386,016

Household Finance Corp                  10/15/06             2.750%           100,000               100,000               98,025                  98,025

John Hancock Life Ins Co.               07/15/06             2.250%           200,000               200,000             196,842                196,842

John Hancock Life Ins Co.               10/15/06             2.450%           100,000               100,000               97,590                  97,590

John Hancock Life Ins Co.               03/15/07             2.350%           150,000               150,000             145,116                145,116

John Hancock Life Ins Co.               10/15/06             2.300%           200,000               200,000             195,210                195,210

United Healthcare Notes                  01/30/08             3.300%             75,000                 74,890               72,598                  72,598

Wells Fargo & Co.                           08/25/08            3.120%            100,000                99,158               95,626                   95,626

                                                                                                                                                            

                                                                                                                                   7,210,110          7,006,980              7,006,980

-15-

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** **

**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                                       Valueof            Issues and Each

                                                                                                    Amountof                                           Each Issue        OtherSecurity 

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:

 

CA Infrastructure & Econ.Dev         10/01/20       VARIABLE          300,000           $   300,000       $   300,000             $   300,000

Federal Home Loan Bank               06/19/06            2.260%             250,000                249,380            246,875                 246,875

Federal Home Loan Bank               07/28/06            2.189%             200,000                199,000            196,876                 196,876

Federal Home Loan Bank               08/21/06            2.590%             200,000                200,000           197,126                 197,126

Federal Home Loan Bank               07/24/08            2.125%             100,000                100,000             98,156                   98,156

FHLMC                                        11/15/09             3.250%             250,000               250,000           245,483                 245,483

FHLMC                                        11/15/17             4.500%             200,000               200,000           195,312                  195,312

FNMA                                          05/15/06             2.250%             200,000               198,772           198,062                  198,062

FNMA                                          09/24/07             3.000%             200,000               200,000           194,126                  194,126

FNMA                                          12/10/07             3.000%             150,000               150,000           147,141                  147,141

NJ State Turnpike Authority            01/01/30            1.050%             325,000                150,000           150,000                  150,000

Tennessee Valley Authority             05/01/29            6.500%               18,000                480,576           437,742                 437,742

PowerBonds                                                   

Tobacco Settlement Fin Corp.        06/01/15             5.000%            200,000                198,500           200,188                  200,188

US Treasury Bill                            01/19/06             0.000%             600,000               594,319            596,982                   596,982

US Treasury Bill                            01/26/06             3.528%             425,000               421,131            422,560                   422,560

US Treasury Bill                            01/26/06             0.000%             300,000               297,140            298,278                   298,278

US Treasury Note                         04/30/06             2.250%             175,000               174,003             173,591                  173,591

US Treasury Note                         06/30/06             2.750%             200,000               199,032           198,188                  198,188

US Treasury Note                         07/31/06             2.750%             200,000               199,415           197,906                  197,906

US Treasury Note                         05/15/07             3.125%             200,000               199,465           196,382                  196,382

US Treasury Note                         11/15/07             3.000%             250,000               248,109           243,495                 243,495

US Treasury Note                         11/15/07             3.000%               50,000                 49,669              48,699                   48,699

                                                                                                                                   5,258,511         5,183,168               5,183,168

-16-

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** **

** **

** **

** **

**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                                       Valueof            Issues and Each

                                                                                                    Amountof                                           Each Issue        OtherSecurity 

Name of Issuer and                        Maturity            Interest            Bonds and             Cost of               at Balance            Issue Carried in

Title of Each Issue                               Date               Rate                 Notes             Each Issue           Sheet Date              Balance Sheet 

 

EQUITY:

Preferred Stock:

ABN AMRO Cap Fund                    07/03/08            5.900%           2,000            $    50,000       $      46,760                $     46,760

General Electric Cap Corp                11/15/32            6.100%            8,800                224,845            219,208                    219,208

JP Morgan Chase Cap IX                 06/15/33            5.875%            2,000                 50,000              46,680                      46,680

MetLife Floater                                06/15010             4.000%           8,000               200,000             205,920                    205,920

Morgan Stanley Cap Tr                      07/15/33            5.750%           4,000               100,000              89,760                      89,760

Wells Fargo Cap Tr VIII                    08/01/33            5.625%           8,000                 200,000           184,240                    184,240

 

                                                                                                                                     824,845            792,568                     792,568

Common Stock:

    DTE Energy Co.                                                                             1,200                  51,649               52,368                     52,368

 

Mutual Funds:

  Dreyfus Premier Limited

    Term High Income CLB                                                         16,296.314                198,305             136,191                   136,191

 

-17-

** **

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** **

** **

** **

** **

** **

**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                                       Valueof            Issues and Each

                                                                                                    Amountof                                           Each Issue        OtherSecurity 

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 

 

Other Equity Investments:

  Aberdeen Asia Pacific

    IncomeFund                                                                                            4      $      100,000        $     100,000            $      100,000

  Pimco Floating rate StrategyFund                                                       2,900                 60,335                 54,141                     54,141

                                                                                                                                     160,335               154,141                   154,141

 

 

 Totals                                                                                                                   $13,703,755       $13,325,416            $13,325,416

                                                                                                                                   

 

 

 

 

 

 

-18-

 

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**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

NOTE 6 -     SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES(CONTINUED)

 

During the years ended November 30, 2005, 2004 and 2003,  available-for-sale securities were liquidated and proceeds amounting to $1,946,814, $7,078,164, and $6,485,792 were received, with resultant realizedgains/(losses) totaling $0.00, $143,736, and  $9,518, respectively.  Cost of available-for-sale securities includes unamortized premium or discount.

 

NOTE 7 -     NOTES PAYABLE AND SUBORDINATED DEBENTURES

 

The Company has an available line of credit of $10,000,000 which was increased from $7,000,000 on May 27, 2004.  Interest is calculated at the Company’s option, either on the outstanding balance at the prime rateminus 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 theiravailable credit line at November 30, 2005 and 2004.  The Company has extended the line of credit through May 31, 2006.

 

On August 1, 2000, the Company repurchased (pursuant to a tender offer) 278,328 shares of its outstanding common stock by issuing subordinated debentures equal to $2 per share, which accrued interest at 6% and have matured onAugust 1, 2005.  The interest was paid semi-annually.  The debentures and accrued interest paid in 2005 fully satisfied the Company’s obligations.

 

NOTE 8 -     INCOME TAXES

 

CCA and its subsidiaries file a consolidated federal income tax return.  The Company’s 2003 returns have been examined by the Internal Revenue Service.  The proposed assessment is immaterial with no effect onthe Company’s financial position.

 

At November 30, 2005 and 2004, respectively, the Company has temporary differences arising from the following:

 

 

                                                                                                            November 30, 2005

 

                                                                                                                                      Classified As   

                                                                                                     Deferred                Short-            Long-

                            Type                                           Amount                Tax                   Term            Term 

                                                                                                                                      Asset (Liability)    

                      Depreciation                                   $  62,631          $ 23,419           $          -        $23,419   

                       Reserve for baddebts                        260,366             97,172               97,172           -      

                       Reserve forreturns                             678,348           253,650             253,650           -      

                       Reserve forobsolete                                     

                        inventory                                          854,764          319,611              319,611           -      

                       Vacationaccrual                                337,181           126,080             126,080             -

                       Section 263A costs                            60,000              22,435              22,435             -       

 

                       Net deferred incometax                                           $842,367          $818,948     $23,419                 

                      

 

 

 

-19-

 

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**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

 

NOTE 8 -       INCOME TAXES (Continued)

                      

                                                                                                         November 30, 2004

 

                                                                                                                                      Classified As   

                                                                                                     Deferred                Short-            Long-

                            Type                                           Amount                Tax                   Term            Term 

                                                                                                                                      Asset (Liability)    

                      Depreciation                                  ($  26,714)      ($ 10,725)          $           -       ($10,725)

                       Reserve for baddebts                       111,078            44,595              44,595                    -      

                       Reserve forreturns                           406,558           163,221            163,221                    -      

                       Reserve forobsolete                                     

                        inventory                                        871,488          349,877             349,877                   -      

                       Section 263Acosts                          123,239             49,477              49,477                    -      

                       Charitablecontributions                    109,023             43,768              43,768                    -

 

                       Net deferred incometax                                         $640,213          $650,938       ($10,725)    

 

                                                                                                                                                                 

        Income tax expense (benefit) is made up of the following components:

 

                                                                                          November 30,2005               

                                                                                                         State &  

                                                                             Federal                    Local                   Total

 

                       Current taxexpense                     $2,563,858             $910,086         $3,473,944

                        Taxcredits                                (      40,000)           (     30,000)      (       70,000)

                       Deferred tax expense (benefit)    (     103,222)                21,304        (       81,918)

                                                                         $2,420,636              $901,390         $3,322,026 

                              

                                                                                            November 30, 2004              

                                                                                                         State &  

                                                                             Federal                    Local                   Total  

 

                       Current taxexpense                     $2,494,109             $768,251         $3,262,360

                        Taxcredits                                (      40,000)                          -       (        40,000)

                       Deferred taxexpense                        282,855                 72,401              355,256

                                                                         $2,736,964              $840,652         $3,577,616

 

 

 

 

 

                                                                             -20-

 

----

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

NOTE 8 -       INCOME TAXES (Continued)

 

                                                                                           November 30, 2003

                                                                                                       State &     

                                                                              Federal                 Local                     Total    

 

                       Current taxexpense                     $2,265,262           $690,924            $2,956,186

                        Taxcredits                                  (      44,988)                      -           (       44,988)

                       Deferred taxexpense                        257,604               75,965                 333,569     

                                                                        $2,477,878          $766,889             $3,244,767

 

 

                                                                                         

Prepaid income taxes and refund due are made up of the following components:

 

                                                                                                       State & 

                                                                              Federal                Local                       Total       

 

                       November 30,2005                       $  50,653           $114,907**              **$165,560

 

                       November 30,2004                       $315,670           $102,981               $418,651

 

 

                       Income taxes payable are made up of the following components:

 

                                                                                                             State & 

                                                                                  Federal                  Local                       Total       

 

                       November 30,2005                            $      -                 $      -                      $        -

 

                       November 30,2004                            $      -                 $  59,888                $59,888

 

 

 

 

 

 

 

 

 

 

 

                                                                             -21-

----

** **

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

NOTE 8 -       INCOME TAXES (Continued)

 

 

A reconciliation of income tax expense (benefit) computed at the statutory rate to income tax expense at the effective rate for each of the three years ended November 30, 2005 is as follows:                                        

                                                                                         

                                                                               2005                                            2004                                          2003           .              

                                                                                          Percent                                       Percent                                      Percent

                                                                                        of Pretax                                        ofPretax                                   of Pretax   

                                                                  Amount             Income                Amount             Income              Amount          Income

 

Income tax expense (benefit)

  at federal statutoryrate                              $2,416,559           34.00%        $3,187,255            34.00%           $2,888,945      34.00%                                             

Increases (decreases) intaxes                                     

    resulting from:

     State income taxes, net offederal                                                                                   

         income taxbenefit                                    594,911            8.40                554,830               5.92                 506,147          5.96      

                            

      Non-deductible expenses and

         otheradjustments                                    380,556             5.47        (      124,469)       (     1.32 )        (     105,337)      (   1.24    )                                                                                                         

      Utilization of taxcredits                         (       70,000)     (    1.13  )     (        40,000)        (       .43   )       (       44,988)       (   0.53   )                                                                                        

Income tax expense (benefit)

   at effectiverate                                         $3,322,026         46.74%        $3,577,616             38.17%          $3,244,767         38.19%

 

 

-22-

----

 

 

**                                        CCA INDUSTRIES, INC. ANDSUBSIDIARIES**

** **

**                              NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

                            

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 StockOption Plan authorizing the issuance of options up to 1,000,000 shares.  The following summarizes the stock options outstanding under these plans as of November 30, 2005:

 

                                                                                         Number            Per Share

                                                                                             Of                  Option 

                               Date Granted                                       Shares               Price         Expiration

 

                       June 16,1999                                              10,000              $2.50            2009

                       May 24, 2001                                          150,500              $  .50             2007

                       March 9,2004                                            50,000              $9.00             2009

                       March 9,2004                                            50,000              $8.25             2009

                       August 24,2004                                          25,000              $7.50             2009

                                                                                        285,500

 

The following table summarizes stock option activity for the two years ended November 30, 2005:

 

                                                                                   Number                Per Share

                                                                                        Of                     Option 

                                                                                     Shares                    Price                     Value

 

                       Balance - November 30, 2003              437,500                                         $  238,750

                         Granted                                               130,000           $7.50-9.00              1,091,250       

                         Exercised                                           (138,000)         (            .50)           (      69,000)

                       Balance - November 30,2004                429,500                                          1,261,000

                          Exercised                                          (144,000)          ($ .50-8.25)          (    110,750)

                       Balance - November 30,2005                285,500                                        $1,150,250

    

 

 

 

 

 

 

 

 

 

 

 

-23-

----

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

 

NOTE 9 - STOCK OPTIONS (Continued)

 

During the year 2004, the Company issued stock options to purchase 130,000 shares under the 2003 stock option plan.  Under the provisions of APB No. 25, no compensation expense has been, or will be, recognized in theconsolidated 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 proformaeffect of recognizing compensation expense in accordance with SFAS No. 123 is as follows:

 

                                                                                                         Year Ended November 30,       

                                                                                                     2005              2004*             2003*     

 

                      Net income asreported                                     $3,785,502     $5,796,663      $5,252,131

                      SFAS No. 123 basedcompensation                                  -    (     976,619)                     -      

                      Income taxbenefit                                                            -           390,648                     -

                      Net income -proforma                                      $3,785,502    $5,210,692       $5,252,131

                     

                      Basic net income per share - asreported                      $.53                $.78                 $.71

                      Basic net income per share -proforma                          $.53                $.76                 $.71

                      Diluted net income per share - asreported                    $.52                $.75                 $.68

                      Diluted net income per share -proforma                       $.52                $.73                 $.68

                      Weighted average shares used in

                        computing net income and proforma

                        net income per  share:

                     Basic                                                                 7,145,297        7,399,472        7,372,232

                     Diluted                                                               7,317,994        7,680,781        7,768,361       

** **

**                     ** * Adjusted for 2% stock dividend.

**                     **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

-24-

----

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

                                                                                                               

NOTE 9 -             STOCK OPTIONS

 

The Company used the Black-Scholes model to value stock options for pro forma presentation.  The assumptions used to estimate the value of the options included in the pro forma amounts and the weighted average estimatedfair value of options granted are as follows:

 

                                                                                         Stock Option Plan Shares    

                                                                                 2005               2004                2003  

 

                            Average expected life (years)          2.50                5.00                3.75                           

 

                             Expectedvolatility*                               -           237.35%                   -                                                                      

                             Risk-free interestrate*                          -              3.95%                   -                               

                            

                             Weighted average fair value

                               at grant - Exercise price

                               equal to marketprice*                        -              $8.22                      -

 

                             Weighted average remaining

                               Contractual life of options

                              Outstanding                                  3.20                4.10                 4.00

 

                             Weighted average exercise

                               Price of optionsoutstanding          $4.70              $3.30                $ .55

                     

*No options were granted during 2003 or 2005, therefore, these measures are not applicable for these periods.                                                                                                                      

- Average expected life is calculated based on thedifference between the expiration date of the options and the valuation date of the financial statements.  Expected volatility is calculated by using a logarithm of the average fluctuation of the stock price over the course of 36 months.

 - The Black-Scholes option valuation model was developedfor 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 andoption 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, inmanagement’s opinion, existing models do not necessarily provide a reliable measure of the fair value of its stock options granted to employees.  For purposes of this model, no dividends have been assumed.

** **

-25-

----

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

 

NOTE 10 -    ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE

 

The following items which exceeded 5% of total current liabilities are included in accounts payable and accrued liabilities as of:

 

                                                                                      November 30,

                                                                                 2005               2004 

                                                                                     (In Thousands)

 

                      Coopadvertising                                $1,372           $   932                       

                      Accruedreturns                                   1,489                 980                       

                      Accrued bonuses                                   784                 470                       

                                                                               $3,645            $2,382 

                            

All other liabilities were for trade payables or individually did not exceed 5% of total current liabilities.

 

NOTE 11 -    OTHER INCOME

 

Other income was comprised of the following:

 

                                                                                        November 30,

                                                                   2005                    2004                 2003               

Interestincome                                          $417,537            $442,936         $461,291

Dividendincome                                            32,182                44,756             17,693

Realized gain (loss) on sale of

   securities                                                            -               143,736               9,518               

Royaltyincome                                            109,274              138,313             97,271

Sale oftrademark                                                   -                 50,000                     -     

Miscellaneous                                                13,916                30,455               5,498                                                    

                                                                 $572,909            $850,196         $591,271                

 

 

26-

----

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

NOTE 12 -     COMMITMENTS AND CONTINGENCIES

 

 Leases

 

The Company currently occupies approximately 58,625 square feet of space used for warehousing and corporate offices.  The annual rental for this space is  $327,684, with an annual CPI increase not cumulativelyexceeding 15% in any consecutive five year period.  The lease requires the Company to pay for additional expenses “Expense Rent” (Common Area Maintenance “CAM”), which includes real estate taxes, common area expense, utility expense,repair and maintenance expense and insurance expense, which was $189,776 for the current year.  The lease expires on May 31, 2012 with a renewal option for an additional five years.

 

The Company entered into an additional lease on May 1, 2005 for warehouse space at 300-1(D), Route 17, Lodi, New Jersey for the 12 month period ending April 30, 2006.  The lease comprises 13,000 square feet forwarehousing.  The year end net rental expense including CAM was $80,070. The Company anticipates extending the lease for an additional one year period.

 

Rent expense for the years ended November 30, 2005, 2004 and 2003 was $597,530, $449,376, and $322,684, respectively.

 

In addition, the Company has entered into various property and equipment operating leases with expiration dates ranging through November 2006.    

 

Future commitments under noncancellable operating lease agreements having a remaining term in excess of one year for each of the next five (5) years and in the aggregate are as follows:

 

                       Year Ending

                       November 30,

 

                          2006                                                     $600,759

                          2007                                                       537,933

                          2008                                                       497,684

                          2009                                                       471,318

                          2010                                                       471,684

                      

Royalty Agreements

 

In 1986, the Company entered into a license agreement with Alleghany Pharmacal Corporation (the “Alleghany Pharmacal License”).  This license required the Company to pay 6% royalty on net sales but no lessthan $360,000 per annum to maintain its license.  The Company has expanded the lines licensed from Alleghany and pays only 1% royalty on various new products created by the Company.

 

The Alleghany Pharmacal License agreement provided that when, in the aggregate, $9,000,000 in royalties have been paid thereunder, the royalty rate for those products originally “charged” at 6% would be reduced to1%.  The Company paid an aggregate of $9,000,000 in royalties to Alleghany in April 2003.  Commencing May 1, 2004, the license royalty was reduced to 1%.

 

The products subject to the Alleghancy Pharmacal License accounted for $9,916,576 or 16% of total net sales in the fiscal year ended November 30, 2005.

 

-27-

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**                                        CCA INDUSTRIES, INC. ANDSUBSIDIARIES**

**                                                                                                                                  **

**                              NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

 

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 theexclusive 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 minimumper-annum royalties of $30,000. The Company paid out the minimum $30,000 for 2005, but has revised the contract omitting that minimum for the future.  The Company realized $348,354 in net sales of sun-care products in 2005.

 

In October of 1999, the Company entered into a License Agreement with The Nail Consultants, Ltd. for the use of an activator invented in connection with a method for applying a protective covering to fingernails.  TheCompany’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 royaltyof net sales of all licensed product sold by the Company.  Net sales were $1,939,508 in 2005.

 

In October 2002, the Company entered into a License Agreement with Hugger Corporation for use of its patented oral hygiene system to be used in conjunction with regular toothpaste.  The Company’s License Agreementis for the use of the product designated and referred to in the patent owned by Hugger Corporation.  The Company designed, marketed and distributed the patented product called “Booster” under its Plus+White brand.

 

The Company is required to pay a royalty of net sales payable quarterly.  During the first 18-month contract period ending June 30, 2004, the minimum royalty the Company was required to pay was $100,000 to maintain itsexclusive rights under the License Agreement.  Thereafter, the Company is required to pay a minimum royalty of $50,000 annually.  The royalty will continue until the Patent expires or an aggregate of $3,500,000 is paid to Licensor.  Until that time,Licensee has no liability to meet minimum royalty requirements except to maintain its rights under the License Agreement.  In fiscal 2005, the net sales were $88,479.  The company terminated the license agreement without any liability on June 29,2005. 

 

On May 18, 2004, the Company entered into a license agreement with Tea-Guard, Inc. to manufacture and distribute Mega-T Green Tea chewing gum and Mega-T Green Tea mints.  The license agreement requires the Company to paya minimum royalty after the first eighteen months of the license.  The minimum payments are required to maintain the Company’s exclusivity for the sale of the products and to continue marketing the products until royalties have aggregated to $10,000,000,at which time all royalty obligations cease.  Except as to maintaining its rights to “exclusivity”, the Company has no obligation to meet minimum royalty requirements.  In fiscal 2005, the net sales were $2,086,968.

 

 

 

 

 

 

 

 

 

                                                                             -28-

----

 

**                                      CCA INDUSTRIES, INC. ANDSUBSIDIARIES**

**                                                                                                                                  **

**                              NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

 

 

NOTE 12 -     COMMITMENTS AND CONTINGENCIES (Continued)

 

On February 26, 2004, the Company entered into an agreement with Dr. Stephen Hsu. PhD. to create green tea skin care products.  Dr. Hsu will be entitled to a commission on the net factory sales of all of theCompany’s products using the green tea serum created exclusively for the Company.  The special anti-oxidant green tea serum has been included in the Denise Austin “Skin Fit For Life” skin care line and Sudden Change product line.  Netsales of the products utilizing the green tea serum were $3,062,000 for the year ended November 30, 2005.

 

On July 14, 2004, the Company entered into a license agreement with Denise Austin.  The license agreement requires the Company to pay a minimum royalty in order to maintain the exclusive use of the name “DeniseAustin” to manufacture and sell a special line of skin care and cosmetic products.  The license will continue so long as minimum royalty payments are met.  The Company will not meet the minimum required royalty and may terminate the licenseagreement.  Net sales of the “Skin Fit For Life” skin care line were $3,062,000 for the fiscal year ended November 30, 2005.  The Company had returns of $1,803,794 for the fiscal year which includes a reserve of $937,671 for additional returns,credits and/or allowances. The Company will not continue with the license in March 2006.

 

The Company is not party to any other license agreement that is currently material to its operations.

 

Total royalty costs by licensor for each fiscal year is as follows:

 

                        Summary

                        Licensor                                                             2005                2004            2003                             

                       A                                                               $     45,116          $ 91,968     $  52,033       

                       B                                                                      99,166           109,035       427,419              

                       C                                                                      23,616               8,369           1,906

                       D                                                                (       3,497)         (      910)        12,555      

                       E                                                                        6,815                1,829           3,973 

                       F                                                                         4,424             69,714         40,782

                       G                                                                              0                   186               143

                       H                                                                   116,916              68,935                   0

                        I                                                                      96,975            86,611          70,362  

                       J                                                                   116,870                      0                    0

                        K                                                                   91,870                       0                   0

 

 

 

 

 

 

-29-

 

----

 

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

NOTE 12 -      COMMITMENTS AND CONTINGENCIES (Continued)

 

Employment Contracts

 

The Company has executed Employment Contracts with its Chief Executive Officer and its Chairman of the Board.  The contracts for both are exactly the same.  The contracts expire on December 31, 2010.  Thecontracts 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.  OnMay 24, 2001, the contract was amended increasing the base salary to $400,000.

 

Two officers of the Company, who are the two sons of the Chief Executive Officer of the Company, have five year contracts in the amounts of $270,000 and $200,000, which expire on November 30, 2007.  In July 2003 andJanuary 2004, such officers’ salaries were increased to $300,000 and $225,000, respectively. 

            **           **

Collective Bargaining Agreement

                       

On December 1, 2004, the Company signed a new collective bargaining agreement with Local 734, L.I.U. of N.A., AFL-CIO with similar provisions of the one that expired on November 30, 2004.  Other than standard wage,holiday, vacation and sick day provisions, the agreement calls for CCA to provide certain medical and dental benefits and to contribute to the Local 734 Educational Fund $.01 per hour for each hour the employees are paid.  The new collective bargaining agreementis in effect through January 1, 2008.  This agreement pertains to 29% of the CCA labor force.

 

Litigation

 

The only material legal proceedings sets forth the fact that there were originally 13 cases filed in which the Company was named along with other defendants as a result of their purchasing and ingesting our diet suppressantcontaining phenylpropanolamine (PPA), which the Company utilized as its active ingredient in its products prior to November 2000.  Eleven cases have been dismissed with prejudice.  These cases cannot be legally reinstated.  The one case in Philadelphiain 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 productwith 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 thestroke. 

 

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 causea jury to render a substantial judgment. Counsel evidently in discussing the matter with Phoenix

-30-

 

----

 

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

 

NOTE 12 -      COMMITMENTS AND CONTINGENCIES (Continued)

 

Litigation  (continued)

 

Insurance Company, has not made any substantial efforts to settle the case which we have been led to believe could be settled for under $250,000. 

 

We do not believe that any further litigations would be ensuing because the Statute of Limitations throughout the country provided that the case must be instituted within three to four years within the time frame in which aplaintiff 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 theCompany’s operations.

 

Dividends

 

CCA declared a dividend of $0.14 per share payable to all holders of the Company’s common stock, $0.07 to shareholders of record on May 1, 2004 payable on June 1, 2004 and $0.07 to shareholders of record on November 1,2004, payable on December 1, 2004.  On June 16, 2004, CCA declared a 2% stock dividend payable to all shareholders of record on November 1, 2004, payable December 1, 2004.  All references in the accompanying financial statements to the number of commonshares and per-share amounts for 2004 and 2003 have been restated to reflect the stock dividend.

 

On January 11, 2005, the Board of Directors declared a $0.16 per share dividend for fiscal 2005, $0.08 payable to all shareholders of record May 1, 2005 payable on June 1, 2005 and $0.08 payable to all shareholders of recordNovember 1, 2005 payable on December 1, 2005.

 

On November 15, 2005, the board of Directors declared a $0.05 per share dividend for shareholders of record on February 1, 2006 payable March 1, 2006.

 

NOTE 13 -      401 (K) PLAN

 

The Company has adopted a 401(K) Profit Sharing Plan that covers all employees with over one year of service and attained Age 21.  Employees may make salary reduction contributions up to twenty-five percent ofcompensation not to exceed the federal government limits. The Plan allows for the Company to make discretionary contributions.  For all fiscal years to date, the Company did not make any contributions.

 

NOTE 14 -      CONCENTRATION OF RISK

 

Most of the Company’s products are sold to major drug, food chains, mass- merchandisers, and wholesale beauty-aids distributors throughout the United States and Canada.

 

 

 

-31-

 

----

 

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

NOTE 14 -      CONCENTRATION OF RISK (Continued)

 

During the years ended November 30, 2005, 2004 and 2003, certain customers each accounted for more than 5% of the Company's net sales, as follows:

 

                        Customer                                                            2005                2004            2003                            

                         A                                                                       32%                 34%           34%                   

                         B                                                                         10                    11                13                        

                         C                                                                         12                      9                  8                       

                         D                                                                           8                      7                  7                              

                          E                                                                           5                      7                  6 

                       

                          F                                                                            *                      7                  *

                          ForeignSales                                                    1.98%               1.80%         2.10%    

 

                        * 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, 2005, 2004 and 2003, certain products within the Company’s product lines accounted for more than 10% of the Company’s net sales as follows:

 

                        Product                                                               2005                2004            2003

 

                        DietarySupplement                                              35%                 26%            10%

                        SkinCare                                                             31                    37               37   

                        OralCare                                                             17                    24               31            

                       Nail Care                                                                 9                     8             16

                       

 

                         The Company maintains cash balances at several banks.  Accounts at eachinstitution 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 alimit of $100,000 for cash) by the Securities Investor Protection Corporation (SIPC).  Each brokerage firm has substantial insurance beyond the $500,000 SIPC limit.

-32-

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

# **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

NOTE 15 -      EARNINGS PER SHARE

 

Basic earnings per share is calculated using the average number of common shares outstanding.  Diluted earnings per share is computed on the basis of the average number of common shares outstanding plus the effectof outstanding stock options using the “treasury stock method”.

 

                                                                                              Year Ended November 30, 

                                                                           2005                            2004*                          2003* 

 

Net income available for common

shareholders, basic anddiluted                       $3,785,502                  $5,796,663                  5,252,131                                                                                                                     

 

Weighted average common stock

outstanding- Basic                                           7,145,297                  7,399,472                   7,372,232 

 

Net effect of dilutive stockoptions                       172,697                      281,309                      396,129

 

Weighted average common stock and

common stock equivalents - Diluted                7,317,994                    7,680,781                   7,768,361                                                                                    

 

Basic earnings pershare                                          $.53                             $.78                            $.71

Diluted earnings pershare                                       $.52                             $.75                            $.68

 

*Adjusted for 2% stockdividend                                 

 

 

 

 

 

 

 

 

 

-33-

----

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

NOTE 16 -      REVISED FINANCIAL STATEMENTS

 

Subsequent to the issuance of the Company’s 2004 financial statements, management became aware that the Company recorded a 2% stock dividend as if it was a stock split.  The inclusion of this item in the revised2004 financial statements has the effect of increasing additional paid in capital by $1,260,926 with a corresponding reduction of retained earnings.  This change had no effect on the Company’s shareholders’ equity and net income.

 

NOTE 17 -      SUBSEQUENT EVENTS

 

On February 10, 2006 the Company, as authorized by the Board of Directors, purchased an aggregate of 225,000 shares of the Company's common stock: 100,000 shares from David Edell, an officer and director, 100,000shares from Ira Berman, an officer and director and 25,000 shares from Drew Edell, an officer of the company.  The purchase price was $10.50 discounted from $10.82, the closing price at the close of business on that date. The purchase decreased the numberof shares outstanding from 7,246,345 to 7,021,345, thus increasing earnings per share.  Also, on February 10, 2006, the Board of Directors voted to extend the employment contracts for Dunnan Edell and Drew Edell to December 31, 2010.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-34-

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SCHEDULE II

**CCA INDUSTRIES, INC. AND SUBSIDIARIES**

** **

**VALUATION AND QUALIFYING ACCOUNTS**

** **

**YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003**

 

           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, 2005**:

Allowance for doubtful accounts                   $   111,078       $  206,736      $       57,448      $   260,366

                                                                                                              

Reserve for returns and allowances               $   406,556       $6,240,837       $ 5,969,045      $   678,348     

 

Reserve of inventory obsolescence               $   871,488       $   265,032       $    281,756     $   854,764     

** **

**Year Ended November 30, 2004**:

Allowance for doubtful accounts                   $   549,851      ($  309,780)       $   128,993     $    111,078     

 

Reserve for returns and allowances               $   345,872       $4,282,250        $4,221,566     $   406,556

                                                                                     

Reserve for inventory obsolescence              $1,153,612        $     78,345       $   360,469     $    871,488     

  

**Year ended November 30,2003**:                                                         

Allowance for doubtful accounts                   $   695,824        $  188,347        $   334,320     $   549,851     

 

Reserve for returns and allowances               $   526,584       $3,444,804       $3,625,516     $   345,872     

 

Reserve for inventory obsolescence              $   976,788        $   408,993       $   232,169     $1,153,612     

**                                                                                                                                                              **        

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