FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended February 28, 2005 Commission File Number 1-31643 CCA INDUSTRIES, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 04-2795439 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification Number) 200 Murray Hill Parkway East Rutherford, NJ 07073 (Address of principal executive offices) (Zip Code) (201) 330-1400 Registrant's telephone number, including area code Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was re quired to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes______ No X Common Stock, $.01 Par Value - 6,156,803 shares of as February 28, 2005 Class A Common Stock, $.01 Par Value - 967,702 shares as of February 28, 2005 CCA INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page Number PART I FINANCIAL INFORMATION: Item1. Financial Statements: Consolidated Balance Sheets as of February 28, 2005 and November 30, 2004 1-2 Consolidated Statements of Operations for the three months ended February 28, 2005 and February 29, 2004 3 Consolidated Statements of Comprehensive Income for the three months ended February 28, 2005 and February 29, 2004 4 Consolidated Statements of Cash Flows for the three months ended February 28, 2005 and February 29, 2004 5 Notes to Consolidated Financial Statements 6-16 Item 2. Management Discussion and Analysis of Results of Operations and Financial Condition 17-19 Item 3. Quantitative and Qualitative Disclosures about Market Risk 19 Item 4. Controls and Procedures 19 PART II OTHER INFORMATION 20 Item 1. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES 21 CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
A S S E T S February 28, November 30, 2005 2004 (Unaudited) Current Assets Cash and cash equivalents $ 2,528,816 $ 3,142,230 Short-term investments and marketable securities 2,460,225 1,952,738 Accounts receivable, net of allowances of $666,743 and $517,634, respectively 9,629,747 8,677,984 Inventories 8,190,851 6,048,000 Prepaid expenses and sundry receivables 569,258 695,653 Deferred income taxes 633,565 650,938 Prepaid income taxes and refunds due 298,463 418,651 Deferred advertising 2,224,952 - Total Current Assets 26,535,877 21,586,194 Property and Equipment, net of accumulated depreciation and amortization 578,158 569,745 Intangible Assets, net of accumulated amortization 553,439 511,029 Other Assets Marketable securities 8,379,136 8,852,198 Deferred Income Taxes 897 - Other 36,963 37,411 Total Other Assets 8,416,996 8,889,609 Total Assets $36,084,470 $31,556,577
See Notes Consolidated to Financial Statements. -1- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY February 28, November 30, 2005 2004 (Unaudited) Current Liabilities Accounts payable and accrued liabilities $11,145,444 $ 6,982,835 Income tax payable - 59,888 Dividends payable - 483,426 Subordinated debentures 497,656 497,656 Total Current Liabilities 11,643,100 8,023,805 Deferred Income Taxes - 10,725 Shareholders' Equity Preferred stock, $1.00 par; authorized 20,000,000 shares; none issued Common stock, $.01 par; authorized 15,000,000 shares; 6,156,803 and 6,066,800 shares issued, respectively 61,578 61,535 Class A common stock, $.01 par; authorized 5,000,000 shares; 967,702 and 977,394 shares issued, respectively 9,677 9,774 Additional paid-in capital 5,093,847 5,094,660 Retained earnings 19,530,719 18,734,693 Unrealized gains (losses) on marketable securities ( 254,451) ( 228,944) 24,441,370 23,671,718 Less: Treasury Stock, 86,703 shares, at cost - ( 149,671) Total Shareholders' Equity 24,441,370 23,522,047 Total Liabilities and Shareholders' Equity $36,084,470 $31,556,577
See Notes to Consolidated Financial Statements. -2- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) Three Months Ended February 28, February 29, 2005 2004 Revenues Sales of health and beauty aid products - Net $14,688,237 $12,929,465 Other income 125,951 158,023 14,814,188 13,087,488 Costs and Expenses Costs of sales 5,445,359 4,849,247 Selling, general and administrative expenses 4,393,496 3,804,153 Advertising, cooperative and promotions 3,098,440 2,824,306 Research and development 231,528 233,846 Provision for doubtful accounts 113,981 9,460 Interest expense 7,471 7,923 13,290,275 11,728,935 Income before Provision for Income Taxes 1,523,913 1,358,553 Provision for Income Taxes 579,083 522,411 Net Income $ 944,830 $ 836,142 Earnings per Share: Basic $.13 $.11 Diluted $.13 $.11
See Notes to Consolidated Financial Statements. -3- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED) Three Months Ended February 28, February 29, 2005 2004 Net Income $944,830 $836,142 Other Comprehensive Income Unrealized holding (losses) gains on investments ( 25,507) 158,725 (Benefit) Provision for Income Taxes ( 3,683) 61,035 Other Comprehensive (Loss) Income - Net ( 21,824) 97,690 Comprehensive Income $923,006 $933,832 Earnings Per Share: Basic $.13 $.13 Diluted $.12 $.12
See Notes to Consolidated Financial Statements. -4- CCA INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED) Three Months Ended February 28, February 29, 2005 2004 Cash Flows from Operating Activities: Net income $ 944,830 $ 836,142 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 96,743 82,991 (Gain) on sale of marketable securities and repurchase of debentures - ( 1,081) Increase (decrease) in deferred income taxes 5,751 ( 11,076) (Increase) in accounts receivable ( 951,763) ( 2,075,865) (Increase) in inventory ( 2,142,851) ( 410,443) Decrease in prepaid expenses and miscellaneous receivables 126,396 33,347 (Increase) in deferred advertising ( 2,224,952) ( 3,722,909) Decrease in other assets 450 1,250 Increase in accounts payable and accrued liabilities 4,162,606 5,822,012 Decrease (increase) in prepaid income taxes 120,188 ( 18,508) (Decrease) in taxes payable ( 59,888) - (Decrease) in dividends payable - ( 379,117) Net Cash Provided by Operating Activities 77,510 156,743 Cash Flows from Investing Activities: Acquisition of property, plant and equipment ( 92,041) ( 23,414) Acquisition of intangible assets ( 55,525) - Purchase of marketable securities ( 59,932) ( 652,292) Proceeds from sale and maturity of investments - 1,126,941 Net Cash (Used in) Investing Activities ( 207,498) 451,235 Cash Flows from Financing Activities: Dividends Paid ( 483,426 - Net Increase (Decrease) in Cash ( 613,414) 607,978 Cash and Cash Equivalents at Beginning of Period 3,142,230 1,206,787 Cash and Cash Equivalents at End of Period $ 2,528,816 $1,814,765 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 14,936 $ 15,388 Income taxes 512,835 552,200 Schedule of Non Cash Financing Activities: Cancellation of Treasury Stock Common Stock $ 867 Retained Earnings 148,804 $ 149,671
See Notes to Consolidated Financial Statements. -5- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended February 28, 2005 are not necessarily indicative of the results that may be expected for the year ended November 30, 2005. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended November 30, 2004. NOTE 2 - ORGANIZATION AND DESCRIPTION OF BUSINESS CCA Industries, Inc. ("CCA") was incorporated in the State of Delaware on March 25, 1983. CCA manufactures and distributes health and beauty aid products. CCA has several wholly-owned subsidiaries, CCA Cosmetics, Inc., CCA Labs, Inc., Berdell, Inc., Nutra Care Corporation, CCA Online Industries, Inc., and CCA Industries Canada (2003) Inc., all of which are currently inactive. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of CCA and its wholly-owned subsidiaries (collectively the "Company"). -6- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates: The consolidated financial statements include the use of estimates, which management believes are reasonable. The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. Short-Term Investments and Marketable Securities: Short-term investments and marketable securities consist of corporate and government bonds and equity securities. The Company has classified its investments as Available- for-Sale securities. Accordingly, such investments are reported at fair market value, with the resultant unrealized gains and losses reported as a separate component of shareholders' equity. Statements of Cash Flows Disclosure: For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of less than three months to be cash equivalents. Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market. Product returns are recorded in inventory when they are received at the lower of their original cost or market, as appropriate. Obsolete inventory is written off and its value is removed from inventory at the time its obsolescence is determined. -7- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment and Depreciation and Amortization Property and equipment are stated at cost. The Company charges to expense repairs and maintenance items, while major improvements and betterments are capitalized. When the Company sells or otherwise disposes of property and equipment items, the cost and related accumulated depreciation are removed from the respective accounts and any gain or loss is included in earnings. Depreciation and amortization are provided on the straight-line method over the following estimated useful lives or lease terms of the assets: Machinery and equipment 5-7 Years Furniture and fixtures 3-10 Years Tools, dies and masters 3 Years Transportation equipment 5 Years Leasehold improvements Remaining life of the lease (ranging from 1-9 years) Intangible Assets: Intangible assets are stated at cost. Patents and trademarks are amortized on the straight-line method over a period of 15-17 years. Such intangible assets are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Financial Instruments: The carrying value of assets and liabilities considered financial instruments approximate their respective fair value. Income Taxes: Income tax expense includes federal and state taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Tax Credits: Tax credits, when present, are accounted for using the flow-through method as a reduction of income taxes in the years utilized. -8- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Earnings Per Common Share: Basic earnings per share is calculated using the average weighted number of shares of common stock outstanding during the year. Diluted earnings per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding stock options using the "treasury stock method" and convertible debentures using the "if-converted" method. Common stock equivalents consist of stock options. Revenue Recognition: The Company recognizes sales upon shipment of merchandise. Net sales are comprised of gross sales less expected returns, trade discounts, customer allowances and various sales incentives. Although no legal right of return exists between the customer and the Company, it is an industry-wide practice to accept returns from customers. The Company, therefore, records a reserve for returns equal to its gross profit on its historical percentage of returns on its last five months sales. Accounts Receivable: Accounts receivable consist of trade receivables recorded at original invoice amount, less an estimated allowance for uncollectible accounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest, although a finance charge may be applied to receivables that are past due. Trade receivables are periodically evaluated for collectibility based on past credit history with customers and their current financial condition. Changes in the estimated collectibility of trade receivables are recorded in the results of operations for the period in which the estimate is revised. Trade receivables that are deemed uncollectible are offset against the allowance for uncollectible accounts. The Company generally does not require collateral for trade receivables. Accounts receivable are presented net of an allowance for doubtful accounts of $223,316 and $111,078 as of February 28, 2005 and November 30, 2004, respectively. Shipping and Handling Costs: The Company presents shipping and handling costs as part of selling, general and administrative expense and not as part of cost of sales. Freight costs were $811,421 and $486,036 for the three months ended February 28, 2005 and February 29, 2004, respectively. Comprehensive Income: The Company adopted SFAS #130, Comprehensive Income, which considers the Company's financial performance in that it includes all changes in equity during the period from transactions and events from non-owner sources. Reclassifications: Certain prior year amounts have been reclassified to conform to the 2004 presentation. -9- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recent Accounting Pronouncements: In December 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46R, "Consolidation of Variable Interest Entities" ("FIN 46R"), which supercedes Interpretation No. 46, "Consolidation of Variable Interest Entities" issued in January 2003. FIN 46R requires a company to consolidate a variable interest entity ("VIE"), as defined, when the company will absorb a majority of the VIE's expected losses, receives a majority of the VIE's expected residual returns or both. FIN 46R also requires consolidation of existing, non-controlled affiliates if the VIE in unable to finance its operations without investor support, or where the other investors do not have exposure to the significant risks and rewards of ownership. FIN 46R applies immediately to a VIE created or acquired after January 31, 2003. For a VIE created before February 1, 2003, FIN 46R applies in the first fiscal year or interim period beginning after March 15, 2004, our third fiscal quarter beginning June 1, 2004. Application of FIN 46R is also required in financial statements that have interests in structures that are commonly referred to as special-purpose entities for periods after December 15, 2003. The adoption of FIN 46R did not have an impact on our financial position, results of operations or cash flows. In November 2004, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory Costs" ("SFAS 151"). SFAS 151 amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, "Inventory Pricing", to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges and required the allocation of fixed production overheads to inventory based on normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS 151 is not expected to have an impact on our financial position, results of operations or cash flows. In November 2004, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 03-13, "Applying the Conditions in Paragraph 42 of FASB Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" in Determining Whether to Report Discontinued Operations" (EITF 03-13"). Under the consensus, the approach for assessing whether cash flows of the component have been eliminated from the ongoing operations of the entity focuses on whether continuing cash flows are direct or indirect cash flows. Cash flows of the component would not be eliminated if the continuing cash flows to the entity are considered direct cash flows. The consensus should be applied to a component of an enterprise that is either disposed of or classified as held for sale in fiscal period beginning after December 15, 2004. The adoption of EITF 03-13 is not expected to have an impact on our financial position, results of operations or cash flows. In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS 123R supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees" and amends SFAS No. 95, "Statement of Cash Flows". SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions and requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Accordingly, the adoption of SFAS 123R's fair value method will have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of the adoption of SFAS 123R cannot be predicted at this time because it will depend on the levels of share-based payments granted in the future. However, had we adopted SFAS 123R in prior periods the impact of that standard would have approximated the impact of SFAS 123 as described n the disclosure of proforma net income and earnings per share in Note 5. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash -10- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recent Accounting Pronouncements (Continued): flow, rather than as an operating cash flow as required under current literature. This requirement would reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we cannot estimate what those amounts will be in the future (because they depend on, among other things, the issuance of future options and when they would be exercised), the amount of operating cash flows recognized in prior periods for such excess tax deductions were not material to our consolidated financial position or results of operations. This statement is effective for our interim periods beginning after June 15, 2005. In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary Assets" ("SFAS 153"). SFAS 153 amends the guidance in APB Opinion No. 29, "Accounting for Nonmonetary Transactions" to eliminate certain exceptions to the principle that exchanges of nonmonetary assets be measured based on the fair value of the assets exchanged. SFAS 153 eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. This statement is effective for nonmonetary asset exchanges in fiscal years beginning after June 15, 2005. The adoption of SFAS 153 is not expected to have an impact on our financial position, results of operations or cash flows. NOTE 4 - INVENTORIES The components of inventory consist of the following: February 28, November 30, 2005 2004 Raw materials $5,032,839 $3,764,473 Finished goods 3,158,012 2,283,527 $8,190,851 $6,048,000 At February 28, 2005 and November 30, 2004, the Company had a reserve for obsolescence of $696,171 and $871,488, respectively. NOTE 5 - PROPERTY AND EQUIPMENT The components of property and equipment consisted of the following: February 28, November 30, 2005 2004 Machinery and equipment $ 115,104 $ 115,104 Furniture and equipment 746,666 708,184 Transportation equipment 10,918 10,918 Tools, dies, and masters 483,776 433,221 Leasehold improvements 294,067 291,063 1,650,531 1,558,490 Less: Accumulated depreciation and amortization 1,072,373 988,745 Property and Equipment - Net $ 578,158 $ 569,745 -11- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5 - PROPERTY AND EQUIPMENT (Continued) Depreciation expense for the three months ended February 28, 2005 and February 28, 2004 amounted to $83,628 and $70,965, respectively. NOTE 6 - INTANGIBLE ASSETS Intangible assets consist of the following: February 28, November 30, 2005 2004 Patents and trademarks $841,955 $786,430 Less: Accumulated amortization 288,516 275,401 Intangible Assets - Net $553,439 $511,029 Amortization expense for the three months ended February 28, 2005 and February 29, 2004 amounted to $13,115 and $12,026, respectively. Estimated amortization expense for each quarter of the ensuing five years through February 28, 2009 is $12,000. NOTE 7 - DEFERRED ADVERTISING In accordance with APB 28, Interim Financial Reporting, the Company expenses its advertising and related costs over the interim periods based on its total expected costs per its various advertising programs. Consequently a deferral of $2,224,952 is accordingly reflected in the balance sheet for the interim period. This deferral is the result of the Company's $9 million media budget and $6 million co-op budget for the year which contemplates lower spending in the 3rd and 4th quarter than in the first two quarters. The table below sets forth the calculation: February February 2005 2004 (In Millions) (In Millions) Media advertising budget for the fiscal year $9.00 $9.00 Pro-rata portion for three months $2.25 $2.25 Media advertising spent 2.49 4.48 Accrual (deferral) ($0.24) ($2.23) Anticipated Co-op advertising commitments $6.00 $5.50 Pro-rata portion for three months $1.50 $1.38 Co-op advertising spent 3.48 2.87 Accrual (deferral) ($1.98) ($1.49) -12- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The following items which exceeded 5% of total current liabilities are included in accounts payable and accrued liabilities as of: February 28, November 30, 2005 2004 (In Thousands) (In Thousands) a)Media advertising $2,514 $ * b)Coop advertising 2,593 932 c)Accrued returns 915 980 d)Accrued bonuses * 470 $6,022 $2,382 * under 5% All other liabilities were for trade payables or individually did not exceed 5% of total current liabilities. NOTE 9 - OTHER INCOME Other income consists of the following: February 28, February 29, 2005 2004 Interest and dividend income $102,020 $137,066 Royalty income 23,766 17,933 Miscellaneous 165 3,024 $125,951 $158,023 NOTE 10 - NOTES PAYABLE AND SUBORDINATED DEBENTURES The Company has an available line of credit of $10,000,000. Interest is calculated at the Company's option, either on the outstanding balance at prime rate minus 1% or Libor plus 150 basis points. The line of credit is unsecured and the Company must adhere to certain financial covenants pertaining to net worth and debt coverage. The Company was not utilizing their available credit line at February 28, 2005 or November 30, 2004. On August 1, 2000, the Company repurchased (pursuant to a tender offer) 278,328 shares of its outstanding common stock by issuing subordinated debentures equal to $2 per share, which accrue interest at 6% and are due to mature on August 1, 2005. The interest is payable semi- annually. -13- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 11 - COMMITMENTS AND CONTINGENCIES Litigation The only material legal proceedings sets forth the fact that there were originally 13 cases filed in which the Company was named along with other defendants. Eleven cases have been dismissed with prejudice. These cases cannot be legally reinstated. The one case in Philadelphia in which one of the defendants filed for bankruptcy has been delayed. The court is rendering a decision on our motion to dismiss. We agree with independent counsel that, as concluded under the decision in Seattle, unless a plaintiff ingested a product with PPA within three days of a stroke, there can be no causation to prove that a product caused the stroke. We feel that the case should be dismissed inasmuch as plaintiff at the deposition deposed that she took our product months before the stroke. The remaining case in Louisiana is fully insured to the extent of $5,000,000. After reviewing the plaintiff's medical records, it does not appear that there is ongoing significant medical problems that would cause a jury to render a substantial judgment. Counsel evidently in discussing the matter with Phoenix Insurance Company has not made any substantial efforts to settle the case which we have been led to believe could be settled for under $250,000. We do not believe that any further litigations would be ensuing because the Statute of Limitations throughout the country provided that the case must be instituted within three to four years within the time frame in which a plaintiff had constructive notice of the product that proximately caused a stroke. The FDA put out a news release nationally in October 2000. However, there can be no assurance that the current PPA litigation will not have a material adverse effect upon the Company's operations. Dividends CCA declared a dividend of $0.16 per share payable to all holders of the Company's common stock, $0.08 to shareholders of record on May 1, 2005 payable on June 1, 2005 and $0.08 to shareholders of record on November 1, 2005, payable on December 1, 2005. NOTE 12 - PENSION PLANS The Company has adopted a 401(K) Profit Sharing Plan that covers union and non-union employees with over one year of service and attained age 21. Employees may make salary reduction contributions up to twenty-five percent of compensation not to exceed the federal government limits. The Company is not required to match any employee contributions but may make a voluntary Company contribution at the discretion of the Board of Directors. -14- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 13 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES Short-term investments and marketable securities, which consist of stock and various corporate and government obligations, are stated at market value. The Company has classified its investments as Available-for-Sale securities and considers as current assets those investments which will mature or are likely to be sold in the next fiscal year. The remaining investments are considered non-current assets. The cost and market values of the investments at February 28, 2005 and November 30, 2004 were as follows: February 28, 2005 November 30, 2004 Current: COST MARKET COST MARKET Corporate obligations $ 1,925,000 $ 1,915,869 $ 1,475,000 $ 1,470,690 Government obligations (including mortgage backed securities) 296,814 298,586 296,814 297,045 Common stock 51,649 53,064 51,649 52,656 Mutual funds 190,606 135,766 188,247 132,347 Other equity investments 57,576 56,940 - - Total 2,521,645 2,460,225 2,011,710 1,952,738 Non-Current: Corporate obligations 5,096,097 4,965,354 5,546,097 5,446,625 Government obli- gations 2,751,228 2,694,410 2,751,228 2,689,721 Preferred stock 624,845 619,372 624,845 615,852 Other equity invest- ments 100,000 100,000 100,000 100,000 Total 8,572,170 8,379,136 9,022,170 8,852,198 Total $11,093,815 $10,839,361 $11,033,880 $10,804,936 -15- CCA INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 -SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED) The market value at February 28, 2005 was $10,839,361 as compared to $10,804,936 at November 30, 2004. The gross unrealized gains and losses were $4,064 and ($258,515) for February 28, 2005 and $4,227 and ($233,171) for November 30, 2004. -16- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) Except for historical information contained herein, this "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements. These statements involve known and unknown risks and uncertainties that may cause actual results or outcomes to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements, and statements which explicitly describe such issues. Investors are urged to consider any statement labeled with the terms "believes," "expects," "intends'" or "anticipates" to be uncertain and forward-looking. On March 3, 1986, the Company entered into a License Agreement with Alleghany Pharmacal Corporation under the terms of which the Company was granted the exclusive right to use the licensed products and trademarks for the manufacture and distribution of the products subject to the License Agreement. Under the terms of the Alleghany Pharmacal License (see "Business-License Agreements"), the royalty-rate for those Alleghany Pharmacal License products previously 'charged' at 6% will be reduced to 1% now that the sum of $9,000,000 in royalties has been paid thereunder. In April 2003, the Company concluded payment of an aggregate of $9,000,000. Therefore, all royalty payments were reduced to 1% on all future orders. The Company's net sales increased from $12,929,465 for quarter ending February 29, 2004 to $14,688,237, primarily because of the increased sales of the Company's Mega - T appetite suppressant product and Mega T chewing gum and the introduction of the Denise Austin Product line. Sales returns and allowances decreased to 8.5% of gross sales from 9.7% last year. Gross profit margins increased to 62.93% for quarter ending February 28, 2005 compared to 62.49% for the same quarter in the prior year. The Company's gross revenues by category were: Cosmetics and Fragrances $1,482,706, 9.52%; Health and Beauty Aids $8,874,574, 57.01%; and miscellaneous over-the-counter $5,210,391, 33.47% for an aggregate total of $15,567,670. The Company's gross revenues for the prior year by category were: Cosmetics and Fragrances $1,694,927, 12.37%; Health and Beauty Aids $9,024,875, 65.87%; and miscellaneous over-the-counter $2,981,517, 21.76% for an aggregate total of $13,701,319. The Company makes every effort to control the cost of manufacturing and has had no substantial cost increases. Net income was $944,830 as compared to $836,142 for the same quarter in 2004. The 13% increase in net income was a result of an increase of $1,758,772 in net sales. In accordance with GAAP, the Company reclassified certain advertising expenditures as a reduction of sales rather than report them as advertising expenses. The reclassification is the adoption by the Company of the EITF 00- 14 GAAP standard. The reclassification reflects a reduction in sales for the quarters ending February 28, 2005, and 2004 by $601,783 and $625,226. The reclassification reduces the gross profit margin but does not affect the net income. For the three-month period ending February 28, 2005, the Company had revenues of $14,814,188 and net income of $944,830 after a provision for taxes of $579,083. For the same quarter in 2004, revenues were $13,087,488 and net income of $836,142 after a provision for taxes of $522,411. Earnings per share was $0.13 for the first quarter 2005 as compared to earnings per share of $0.11 for the first quarter 2004. For the current first quarter, advertising, cooperative and promotional allowance expenses were $3,098,440 as compared to $2,824,306 in same quarter in 2004, increasing only $274,134. A portion of that was that commercial costs increased by $63,973 for the shooting of many new commercials. The balance was due to the increased co-op advertising budget over the prior year. Advertising expenditures were 21.1% of sales vs. 21.8% last year. The SG&A expenses increased 15% or $589,343 to $4,393,496 from $3,804,153 in 2004. -17- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) The increase was due mainly to those SG&A expenses which vary in relation to additional sales volume. Freight out, in particular, increased by $329,197 from 2004 to 2005. That increase is due to three factors. Those factors are increased sales overall, the increase of oil prices passed on to CCA, and immediate ship dates of our Denise Austin Product line. To promote sales, CCA has offered IRC coupons in skus which increased expenses $55,656. Additionally, royalty expenses increased by $61,670 due to the new royalty licenses. Consulting expense increased to $122,188 due to the marketing of new products, as well. Research and development expenses stayed about the same from the quarter last year to this year. Both media and co-op commitments have a material effect on the Company's operations. The Company attempts to anticipate its advertising and promotional commitments as a percentage of gross sales in order to control its effect on net income. In accordance with APB No. 28, Interim Financial Reporting, the Company expenses its advertising and related costs over the interim periods based on its total expected expenses for its various advertising programs. The total advertising programs for the year are budgeted at $9 million for media and $6 million for co-op advertising up from $9 million for media and $5.5 million for the prior year. The Company's co-op budget for the quarter is $1,500,000. Research of prior year's show that the entire amount of the budgeted co-op has never been fully utilized by the Company's accounts as a result of merchandising changes and cancelled promotions. Reduction of $207,921 to co-op expense is due to this reserve placed on co-op commitments. The reduction is based on an estimate of co-op commitments that will not be utilized based on the historical facts. Of the remaining $1,292,079, $601,783 was offset against net sales in accordance with EITF 00-14. The remaining $690,296 was expensed for co-op for the quarter and is reflected as part of the total advertising expense of $3,098,441. Since the actual co- op commitments for the quarter were $3,480,566, a deferral of $1,980,566 for co-op advertising is reflected on the balance sheet. This deferral will be fully expensed by year-end. The deferral is primarily a result of the Company's current $6,000,000 co-op advertising budget, which is predicated on substantially lower spending in the third and fourth quarters. The Company expensed $2,249,304 for its media advertising for the current quarter and deferred $244,396 based on actual spending of $2,493,700. For the period ended February 28 2005, there was approximately $919,178 of unclaimed co-op commitments from the prior years. If it becomes apparent that this co-op will not be utilized, the unclaimed co-op will be offset against the expense during the rest of the fiscal year. This procedure is consistent with prior years' methodology with regard to the unclaimed co-op expenses. The Company's financial position as at February 28, 2005 consists of current assets of $26,535,877 and current liabilities of $11,643,100, or a current ratio of 2.3:1. In addition, shareholders' equity increased from $23,522,047 to $24,441,370 primarily due to net income earned during the current quarter. All of the Company's investments are classified as available for sale. Investments with a maturity date greater than one year from February 28, 2005 are presented as long-term investments. Assuming these long-term investments can be sold and turned into liquid assets at any time, it would result in a current ratio of 3.0:1. -18- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) Accounts receivable were $9,629,747 vs. $8,677,984 for periods ending February 28, 2005 and November 30, 2004, respectively. The increase in accounts receivable is predominately due to large sales increases late in the first Quarter. Inventories increased to $8,190,851 from $6,048,000, due to the addition of the Mega -T and Denise Austin products. Current liabilities are $11,643,100 for period ending February 28, 2005 vs. $8,023,805 as of November 30, 2004. Accounts payable and accrued expenses increased primarily due to the large amount of advertising incurred for the period but remaining unpaid. Liabilities also increased somewhat in order to carry an increase in inventory of $2,142,851. As of February 28, 2005, the Company was not utilizing any of the funds available under its $10,000,000 unsecured credit line. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's financial statements record the Company's investments under the "mark to market" method (i.e., at date-of- statement market value). The investments are, categorically listed, in "Common Stock", "Mutual Funds", "Other Equity", "Preferred Stock", "Government Obligations" and "Corporate Obligations." $210,004 of the Company's $10,839,364 portfolio of investments (approximate, as at Feb. 28, 2005) is invested in the "Common Stock" and "Other Equity" categories, and approximately $619,372 in that category are Preferred Stock holdings. Whereas the Company does not take positions or engage in transactions in risk-sensitive market instruments in any substantial degree, nor as defined by SEC rules and instructions; therefore, the Company does not believe that its investment-market risk is material. ITEM 4. CONTROLS AND PROCEDURES With the participation of our Chief Executive Officer and Chief Financial Officer, management has carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of February 28, 2005. There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) subsequent to the date the controls were evaluated that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting. -19- CCA INDUSTRIES, INC. PART II OTHER INFORMATION Item 1. Legal Proceedings: See Part I - Note 11 of the Financial Statements regarding litigation. Item 4. Submission of Matters to a Vote of Security Holders: None. Item 5. Other Information: The Company plans to hold its Annual Meeting of Shareholders on June 15, 2005 with proxy materials mailed to shareholders of record on May 1, 2005 prior to the proposed meeting date. Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits (31.1) Certification of Chief Executive Officer pursuant to Rule 13a-14(a)* (31.2) Certification of Chief Financial Officer pursuant to Rule 13a-14(a)* (32.1) Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350* (32.2) Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350* * Filed herewith. (b) Reports on Form 8-K. There were no Form 8-K's filed during the first quarter ended February 28, 2005. On April 11, 2005, Form 8-K was filed announcing the technical change of our auditors from Sheft Kahn & Company LLP to KGS LLP (a "spin-off" of Sheft Kahn). -20- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 13, 2004 CCA INDUSTRIES, INC. By: David Edell, Chief Executive Officer By: Ira W. Berman, Chairman of the Board -21- Exhibit 11 CCA INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (UNAUDITED) Three Months Ended February 28, February 29, 2005 2004 Item 6. Weighted average shares outstanding - Basic 7,093,730 7,289,255 Net effect of dilutive stock options--based on the treasury stock method using average market price 241,353 363,000 Weighted average shares outstanding - Diluted 7,335,083 7,652,255 Net income $ 944,830 $ 836,142 Per share amount Basic $.13 $.11 Diluted $.13 $.11 Exhibit 31.1 CERTIFICATION I, David Edell, Chief Executive Officer of the Registrant, certify that: 1. I have reviewed this quarterly report on Form 10-Q of CCA Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report. 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relation to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: April 13, 2005 /s/ ----------------------------------- David Edell Chief Executive Officer Exhibit 31.2 CERTIFICATION I, John Bingman, Chief Financial Officer of the Registrant, certify that: 1. I have reviewed this quarterly report on Form 10-Q of CCA Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report. 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relation to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: April 13, 2005 /s/------------------------------------ John Bingman Chief Financial Officer Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of CCA Industries, Inc. (the "Registrant") on Form 10-Q for the quarterly period ended February 29, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David Edell, Chief Executive Officer of the Registrant, certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report, to which this certification is attached, fully complies with the requirements of section 13(a) of the Securities Exchange Action of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: April 13, 2005 /s/-------------------------------- David Edell Chief Executive Officer Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of CCA Industries, Inc. (the "Registrant") on Form 10-Q for the quarterly period ended February 29, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Bingman, Chief Financial Officer of the Registrant, certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report, to which this certification is attached, fully complies with the requirements of section 13(a) of the Securities Exchange Action of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: April 13, 2005 /s/-------------------------------- John Bingman Chief Financial Officer