SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended
November 30, 2007
Commission File Number
001-31643
CCA INDUSTRIES, INC.
(Exact Name of Registrant as specified in Charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
04-2795439
(I.R.S. Employer
Identification No.)
200 Murray Hill Parkway, East Rutherford, New Jersey 07073
(Address of principal executive offices, including zip code)
(201) 330-1400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Class A Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X].
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes No [X].
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes No [X].
The aggregate market value of the voting stock held by non-affiliates of the Registrant (i.e., by
persons other than officers and directors of the Registrant), at the closing sales price $9.20 on May
31, 2007, was as follows:
Class of Voting Stock
Market Value
4,939,078 .shares; Common
Stock, $.01 par value
$45,439,518
On February 25, 2008 there was an aggregate of 7,054,442 shares of Common Stock and
Class A Common Stock of the Registrant outstanding.
Form 10-K
Item No.
1. Business
2. Property
CROSS REFERENCE SHEET
Headings in this Form
10-K for Year Ended
November 30, 2007
Business
Property
3. Legal Proceedings
Legal Proceedings
4. Submission of Matters
to a Vote of Security
Holders
5. Market for Registrant's
Common Equity and
Related Stockholder
Matters
Submission of Matters to a
Vote of Security Holders
Market for the Company's
Common Stock and Related
Shareholder Matters
6. Selected Financial Data
Selected Financial Data
7. Management's Discussion
and Analysis of Financial
Condition and Results
of Operations
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
7A. Quantitative and Qualitative
Disclosures about Market Risk
Quantitative and Qualitative
Disclosures about Market Risk
8. Financial Statements
and Supplementary Data
9. Changes In and Dis-
agreements With
Accountants On Accounting
and Financial Disclosure
Financial Statements
and Supplementary Data
Changes In and Dis-
agreements With
Accountants On Accounting
and Financial Disclosure
9A. Controls and Procedures
Controls and Procedures
10. Directors and
Executive Officers
of the Registrant
Directors and Executive
Officers of the Registrant
- iii-
Form 10-K
Item No.
Headings in this Form
10-K for Year Ended
November 30, 2007
11. Executive Compensation
Executive Compensation
12. Security Ownership
of Certain Beneficial
Owners and Management
and Related Stockholder Matters Stockholder Matters
Security Ownership
of Certain Beneficial
Owners and Management and Related
13. Certain Relationships
and Related Transactions
14. Principal Accountant Fees
and Services
15. Exhibits, Financial
Statements, Schedules,
and Reports on Form
8-K
Certain Relationships
and Related Transactions
Principal Accountant Fees
and Services
Exhibits, Financial
Statements, Schedules,
and Reports on Form
8-K
- iv-
Item
PART I
TABLE OF CONTENTS
Page
1. Business.............................................................................................
2. Property.............................................................................................
3. Legal Proceedings..............................................................................
4. Submission of Matters to a Vote of Security Holders..........................
1
6
7
7
PART II
5. Market for the Company's Common Stock and Related
Shareholder Matters...........................................................................
6. Selected Financial Data......................................................................
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................
11
7A. Quantitative And Qualitative Disclosure About Market Risk............ 23
8. Financial Statements and Supplementary Data.................................... 23
9. Changes In and Disagreements with Accountants On Accounting
and Financial Disclosure....................................................................
9A.Controls and Procedures……………………………………………
24
24
8
10
PART III
10. Directors and Executive Officers of the Registrant............................... 25
28
11. Executive Compensation..................................................................
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matter………………………. 37
13. Certain Relationships and Related Transactions................................. 39
39
14. Principal Accountant Fees and Services…………………………….
PART IV
15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 41
- v-
Item 1. BUSINESS
(a) General
PART I
CCA INDUSTRIES, INC. (hereinafter, “CCA” or the “Company”) was incorporated in
Delaware in 1983.
The Company operates in one industry segment, in what may be generally described as the
health-and-beauty aids business, selling numerous products in several health-and-beauty aids and
cosmeceutical categories. All of the Company’s products are manufactured by contract
manufacturers, pursuant to the Company's specifications and formulations.
The Company owns registered trademarks, or exclusive licenses to use registered trademarks,
that identify its products by brand-name. Under most of the brand names, the Company markets
several different but categorically-related products. The principal brand and trademark names
include “Plus+White” (oral health-care products), “Sudden Change” (skin-care products), “Nutra
Nail” and “Power Gel” (nail treatments), “Bikini Zone” (pre and after-shave products), “Mega - T”
Green Tea (dietary products), “Mega – T” chewing gum (anti-oxidant dietary product), “Hair Off”
(depilatories), “IPR” (foot-care products), “Solar Sense” (sun-care products), “Wash 'N Curl”
(shampoos), “Cherry Vanilla” and other Vanilla fragrances (perfumes), and “Scar Zone” (scar
diminishing cream).
All Company products are marketed and sold to major drug and food chains, mass
merchandisers, and wholesale beauty-aids distributors throughout the United States and Canada. In
addition, certain of the Company’s products are sold internationally.
The Company recognizes sales at the time its products are shipped to customers. However,
while sales are not formally subject to any contract contingency, the acceptance of returns is an
industry-wide practice. The Company thus estimates ‘unit returns’ based upon a review of the
market’s recent-historical acceptance of subject products as well as current market-expectations, and
equates its reserves for estimated returns in the sum of the gross profits, in the five preceding
months, realized upon an equivalent number of subject-product sales. (See Item 15, Financial
Statements, Note 2). Of course, there can be no precise going-forward assurance in respect to return
rates and gross margins, and in the event of a significant increase in the rate of returns, the
circumstance could have a materially adverse affect upon the Company’s operations.
The Company's net sales in fiscal 2007 were $ 59,832,157. Gross profits were $38,071,751.
International sales accounted for approximately 3 % of sales. The Company had a net profit of
$5,537,795 for fiscal 2007. Net worth at November 30, 2007 was $ 30,750,318.
1
Including the principal members of management (see Directors and Executive Officers), the
Company, at November 30, 2007, had 150 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 Company
specifications. Manufacturing and component-supply arrangements are maintained with various
manufacturers and suppliers. All orders and other product shipments are delivered from the
Company's own warehouse facilities, which results in more effective inventory control, more
efficient shipping procedures, and the realization of related economies.
(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 independent sales
representatives throughout the United States.
The Company sells its products to approximately 300 accounts, most of which have
numerous outlets. Approximately 40,000 stores carry at least one Company product (SKU).
During the fiscal year ended November 30, 2007, the Company's largest customers were
Wal-Mart (approximately 40% of net sales), Walgreens (approximately 8%), Rite Aid
(approximately 8%), CVS (approximately 6%), and McLanes, (approximately 5%). The loss of any
of these principal customers, or substantial reduction of sales revenues realized from their business,
could materially and negatively affect the Company's earnings.
Most of the Company's products are not particularly susceptible to seasonal-sales fluctuation.
However, sales of depilatory, sun-care and diet-aids products customarily peak in the spring and
summer months, while fragrance-product sales customarily peak in the Fall and Winter months.
The Company employs brand managers who are responsible for the marketing of CCA’s
brands. These managers work with the Company’s in-house advertising and art departments to
create media advertising, packaging and point - of - purchase displays.
The Company primarily utilizes local and national television advertisements to promote its
leading brands. On occasion, print and radio advertisements are engaged. In addition, and
more-or-less continuously, store-centered product promotions are co-operatively undertaken with
customers.
2
Each of the Company's brand-name products is intended to attract a particular demographic
segment of the consumer market, and advertising campaigns are directed to the respective
market-segments.
The Company's in-house advertising department is responsible for the selection of its media
advertising. Placement is accomplished either directly or through media-service companies.
(d) "Wholly-Owned" Products
The majority of the Company's sales revenues are from sales of the Company's
"wholly-owned" product lines (i.e., products sold under trademark names owned by the Company,
and not subject to any other party’s interest or license), which include 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
31.1%; Skin Care 28.8%; Oral Care 25.0%; Nail Care 10.7%; Fragrance 3.4% and Hair Care and
Miscellaneous 1%.
(f) License-Agreements Products
i. Alleghany Pharmacal
In 1986, the Company entered into a license agreement with Alleghany Pharmacal
Corporation (the "Alleghany Pharmacal License"). Under the terms of the Alleghany Pharmacal
License, the Company was granted, and yet retains, the exclusive right to manufacture and market
certain products, and to use their associated trademarks, including "Nutra Nail," "Nutra Nail 60,"
"Pro Perm," "Hair Off," "Permathene" and "IPR".
The Alleghany Pharmacal License required the Company (a) to pay royalties of 6% per
annum on net sales of “Pro-Perm” hair-care products, the PPA-based and now discontinued dietary-
product "Permathene", “IPR” foot-care products, "Nutra-Nail" nail-enamel products, and "Hair-Off"
depilatories; and (b) to pay 1% royalties on net sales of a “Hair-Off” mitten that is a
depilatory-product accessory, and “Nutra Nail 60", a fast-acting nail enamel, and “Nutra Nail Power
Gel.”
3
The Company had been required to pay not less than $360,000 per annum in order to
maintain exclusive rights under the Alleghany Pharmacal License. (Royalties have always exceeded
the minimum; but, if they did not, the Company would be entitled to maintain exclusive license
rights by electing to pay the 'difference.' At the same time, the Company would not be required to
pay any fee in excess of royalties payable in respect of realized sales if sales did not yield 'minimum
royalties' and the Company chose in such circumstance to concede the license rights.)
The Alleghany Pharmacal License agreement provides that if, and when, in the aggregate,
$9,000,000 in royalties had been paid thereunder, the royalty-rate for those products 'charged' at 6%
would be reduced to 1%. The Company paid an aggregate of $9,000,000 in royalties to Allegheny
as of April 2003. Commencing May 1, 2003, the license royalty was reduced to 1%.
The products subject to the Alleghany-Pharmacal License accounted for $9,166,219 or 15.3
% of total net sales in the fiscal year ended November 30, 2007. “Nutra Nail” and the “Hair-Off”
depilatory were the leaders among all of the Alleghany license-agreement products, producing
approximately 10.7% and 2.9%, respectively, of net sales.
ii. Solar Sense, Inc.
CCA commenced the marketing of its sun-care products line following a May 1998 License
Agreement with Solar Sense, Inc. (the “Solar Sense License”), pursuant to which it acquired the
exclusive right to use the trademark names "Solar Sense" and "Kids Sense” and the exclusive right
to market mark-associated products. The Solar Sense License requires the Company to pay a royalty
on net sales of said licensed products until $1 million total royalties are paid. CCA realized
$785,792 in net sales of sun-care products in 2007.
iii. The Nail Consultants Ltd.
In October of 1999, the Company entered into a License Agreement with The Nail
Consultants, Ltd. for the use of an activator invented in connection with a method for applying a
protective covering to fingernails. The Company’s License Agreement with The Nail Consultants,
Ltd. is for the use of the method and its composition in a new product kit packaged and marketed by
CCA under its own name, “Nutra Nail Power Gel”. The Company is required to pay a royalty of net
sales of all products sold under the license, by the Company. Net sales for products sold under the
License Agreement with Nail Consultants, Ltd. were $705,643 in 2007.
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.
4
Dr. Hsu collaborated with Drew Edell, Vice-President of Research and Development for the
Company, to create and file a patent application for a special anti-oxidant green tea serum to be used
for topical skin application. The patent was filed in November 2004.
Dr. Hsu is entitled to a commission on the net factory sales of all of the Company’s products
using the green tea serum created exclusively for the Company. Net sales of the products utilizing
the green tea serum were $6,527,969 for the fiscal year ended November 30, 2007.
v. Mega -T Green Tea Chewing Gum and Mints
On May 18, 2004, The Company entered into a license agreement with Tea-Guard, Inc. to
manufacture and distribute Mega -T Green Tea chewing gum and Mega -T Green Tea mints. Dr.
Stephen Hsu created both formulations under special arrangements with Tea-Guard, Inc. (not related
to the Company).
The license agreement requires the Company to pay a minimum annual royalty of $250,000
commencing with the period beginning March 1, 2007 to February 28, 2008. The minimum
payments are required to maintain the Company’s exclusivity for the sale of the products and to
continue marketing the products and until royalties have aggregated to $10,000,000, at which time
all royalty obligations cease. Except as to maintain its rights to “exclusivity”, the Company has no
obligation to meet minimum royalty requirements.
The Company commenced sales of the Mega -T Green Tea Chewing Gum in July 2004. Net
sales of the Mega-T Green Tea chewing gum for the fiscal year ended November 30, 2007 were
$1,131,511.
vii. Other Licenses
The Company is not party to any other license agreement that is currently material to its
operations.
(g) Trademarks
The Company's own trademarks and licensed-use trademarks serve to identify its products
and proprietary interests. The Company considers these marks to be valuable assets. However,
there can be no assurance, as a practical matter, that trademark registration results in marketplace
advantages, or that the presumptive rights acquired by registration will necessarily and precisely
protect the presumed exclusivity and asset value of the marks.
5
(h) Competition
The market for cosmetics and perfumes, and health-and-beauty aids products in general,
including patent medicines, is characterized by vigorous competition among producers, many of
whom have substantially greater financial, technological and marketing resources than the Company.
Major competitors such as Revlon, L'Oreal, Colgate, Coty, Unilever, and Procter & Gamble have
Fortune 500 status, and the broadest-based public recognition of their products. Moreover, a
substantial number of other health-and-beauty aids manufacturers and distributors may also have
greater resources than the Company.
(i) Government Regulation
All of the products that the Company markets are subject or potentially subject to particular
regulation by government agencies, such as the U.S. Food and Drug Administration, the Federal
Trade Commission, and various state and/or local regulatory bodies. In the event that any future
regulations were to require new approval for any in-the-market products, or should require approval
for any planned product, the Company would attempt to obtain the necessary approval and/or
license, assuming reasonable and sufficient market expectations for the subject product. However,
there can be no assurance, in the absence of particular circumstances that Company efforts in respect
of any future regulatory requirements would result in approvals and issuance of licenses. Moreover,
if
in any
application-and-approval process, as well as any refusal to approve, could have a material adverse
affect upon existing operations (i.e., concerning in-the-market products) or planned operations.
license-requirement circumstances
should arise, delays
inherent
such
(j) Dubilier Transaction
On November 1, 2006, the Company entered into a letter of intent with Dubilier and
Company (“Dubilier”) relating to a proposed acquisition of the Company by Dubilier to take the
Company private. Dubilier did not arrange the necessary financing and the acquisition was
terminated on April 10, 2007. The Company incurred $717,850 of expenses directly related to the
proposed transaction that were charged on its 2007 Statement of Operations.
Item 2. PROPERTY
The principal executive offices of the Company are located at 200 Murray Hill Parkway, East
Rutherford, New Jersey. Under a net lease, the Company occupies approximately 58,625 square feet
of space. Approximately 43,598 square feet in such premises is used for warehousing and 15,027
square feet for offices. The annual rental is $327,684, with an annual CPI increase not cumulatively
exceeding 15% in any consecutive five year period. The lease expires on May 31, 2012 with a
renewal option for an additional five years.
6
The lease requires the Company to pay for additional expenses, Common Area Maintenance
(“CAM”), which includes real estate taxes, common area expense, utility expense, repair and
maintenance expense and insurance expense. For the year ended November 30, 2007, CAM was
estimated at $164,880.
The Company entered into a warehouse lease on May 1, 2005 at 300-1(D), Route 17, Lodi,
New Jersey for the 12 month period ending April 30, 2006. The lease was extended to April 30,
2008. The lease comprises 13,000 square feet for warehousing. The year end net rental expense
including CAM was $147,895. The Company is not renewing the lease.
On September 26, 2007, the Company entered into an additional lease for warehouse space
with Ninth Avenue Equities Co., Inc. for four and a half years commencing November 1, 2007. The
premises comprise 16,438 square feet of space. The Company is obligated to pay maintenance
which includes but is not limited to real estate taxes and all other common area expenses. The
annual rental is $123,285. Year end rental expense including CAM was $13,258.
Item 3. LEGAL PROCEEDINGS
All of the 13 legal proceedings against the Company related to the Company’s dietary
suppressant products that contained phenylpropanolamine (“PPA”) and were previously sold, were
dismissed with prejudice.
There is no significant litigation presently outstanding against the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 31, 2007, the Company held its annual meeting of shareholders. The actions taken,
and the voting results thereupon, were as follows:
(1) David Edell, Ira W. Berman, Jack Polak, and Stanley Kreitman were elected as directors
by the holders of Class A Common Stock. (No proxy was solicited therefore, whereas Messrs.
Berman and Edell own 100% of the Class A Common Stock, and they proposed themselves, Mr.
Polak and Mr. Kreitman.)
(2) As proposed by Management, Dunnan Edell, Robert Lage and Seth Hamot 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 2007 fiscal year was approved.
The Company has not submitted any matter to a vote of security holders since the 2007
Annual Meeting.
7
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
PART II
The Company's Common Stock is traded on the American Stock Exchange under the symbol
“CAW.”
The range of high and low sales prices of the Common Stock during each quarter of its 2007,
2006 and 2005 fiscal years was as follows:
Quarter Ended 2007
$12.12 - $11.06
February 28
$12.04 - $ 9.03
May 31
August 31
$10.60 - $ 8.94
November 30 $10.25 - $ 9.20
2006
$11.45 - $7.80
$11.10 - $9.95
$10.40 - $9.41
$11.73 - $9.49
2005
$10.75 - $13.80
$12.56 - $ 9.45
$11.40 - $ 8.85
$ 9.90 - $ 7.00
The high and low prices for the Company’s Common Stock, on February 1, 2008 were $9.18
to $9.07 per share.
As of November 30, 2007, there were approximately 157 individual shareholders of record of
the Company’s common stock. (There are a substantial number of shares held of record in various
street and depository trust accounts, which represent approximately 1,000 additional shareholders.)
The dividend policy is at the discretion of the Board of Directors and will depend on
numerous factors, including earnings, financial requirements and general business conditions.
On January 11, 2005, the Board of Directors declared a $0.16 per share dividend for fiscal
2005, $0.08 payable to all shareholders of record as of May 1, 2005 and payable on June 1, 2005,
and $0.08 payable to all shareholders of record as of November 1, 2005 and payable on December 1,
2005.
On November 15, 2005, the Board of Directors declared a $0.05 per share dividend for the
first quarter ended February 28, 2006, payable to all shareholders of record as of February 1, 2006
and payable on March 1, 2006. On March 14, 2006, the Board of Directors declared a $0.05 per
share dividend for the second quarter ended May 31, 2006, payable to all shareholders of record as
of May 1, 2006 and payable on June 1, 2006. On June 29, 2006, the Board of Directors declared a
$0.07 per share dividend for the third quarter ended August 31, 2006, payable to all shareholders of
record as of August 1, 2006 and payable on September 1, 2006. On October 5, 2006, the Board of
Directors declared a $0.07 per share dividend for the fourth quarter ended November 30, 2006, to all
shareholders of record as of November 1, 2006 and payable on December 1, 2006.
8
On December 28, 2006, the Board of Directors declared a $0.07 per share dividend for the
first quarter ended February 28, 2007, payable to all shareholders of record as of February 1, 2007
and payable on March 1, 2007. On April 12, 2007, the Board of Directors declared a $0.07 per
share dividend for the second quarter ended May 31, 2007, payable to all shareholders of record as
of May 1, 2007 and payable on June 1, 2007. On June 22, 2007, the Board of Directors declared a
$0.07 per share dividend for the third quarter ended August 31, 2007, payable to all shareholders of
record as of August 1, 2007 and payable on September 1, 2007. On September 26, 2007, the Board
of Directors declared a $0.09 per share dividend for the fourth quarter ended November 30, 2007,
payable to all shareholders of record as of November 1, 2007 and payable on December 1, 2007.
On December 5, 2007, the Board of Directors declared a $0.10 per share dividend for the
first quarter ending February 29, 2008, payable to all shareholders of record as of February 1, 2008
and payable on March 1, 2008.
On February 14, 2008, the Board of Directors declared a $0.11 per share dividend for the
second quarter ending May 31, 2008, payable to all shareholders of record as of May 1, 2008 and
payable on June 1, 2008.
9
Item 6. SELECTED FINANCIAL DATA
Statement of Income
Sales, Net
Other income
Costs and Expenses
Income before provision for
Income Taxes
Net Income
Earnings Per Share:
Basic
Diluted
Weighted Average Number
of Shares Outstanding
Weighted Average Number
of Shares and Common Stock
Equivalents Outstanding
2007
2006
2005
2004
2003
Year Ended November 30,
$59,832,157
1,045,710
$63,302,220
797,803
$61,181,344
572,909
$59,008,135
850,196
$53,388,602
591,271
51,283,141
55,183,378
54,646,715
50,484,052
45,482,975
9,594,726
$ 5,537,795
8,916,645
$ 5,604,251
7,107,528
$ 3,785,502
9,374,279
$ 5,796,663
8,496,898
$ 5,252,131
$ .79
$ .78
$ .80
$ .79
$ .53
$ .52
$ .78*
$ .75*
$ .71*
$ .68*
7,029,611
7,034,276
7,145,297
7,399,472*
7,372,232*
7,058,889
7,133,332
7,317,994
7,680,781*
7,768,361*
Balance Sheet Data:
2007
2006
As At November 30,
2005
2004
Working Capital
Total Assets
$24,922,016
39,903,876
$22,295,983
36,516,571
$18,602,107
35,309,308
Total Liabilities
Total Shareholders’ Equity (1)
9,153,558
30,750,318
9,131,780
27,284,791
9,309,652
25,999,656
$13,562,389
31,556,577
8,034,530
23,522,047
2003
$11,565,685
29,839,216
6,494,676
23,344,540
(1) Certain additional promotional expenses were re-classified during 2006 from an expense to a reduction of net sales. In order to have an accurate
comparison, the same expenses were re-classified accordingly for the years ended November 30, 2003 – 2005.
*Adjusted for 2% stock dividend in 2004.
10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for historical information contained herein, this “Management's Discussion and
Analysis of Financial Condition and Results of Operations” contains forward-looking statements.
These statements involve known and unknown risks and uncertainties that may cause actual results or
outcomes to be materially different from any future results, performances or achievements expressed
or implied by such forward-looking statements, and statements which explicitly describe such issues.
Investors are urged to consider any statement labeled with the terms “believes,” “expects,” “intends”
or “anticipates” to be uncertain and forward-looking.
Comparison of Results for Fiscal Years 2007 and 2006
The Company’s net sales decreased from $63,302,220 in the 2006 fiscal year to $59,832,157
in the 2007 fiscal year. Net sales were adjusted after reclassifying certain advertising expenses from
selling expense to a reduction of net sales as more fully described in the footnotes to the financial
statements for fiscal 2007. During fiscal 2007, the amount of advertising expenses that were classified
as a reduction of net sales was $5,184,112, versus $4,013,619 in fiscal 2006, reflecting an increased
net sales reduction of $1,170,493. The Company has been working to adjust its business model by
decreasing the amount of its media advertising and focusing more on co-operative advertising with its
retail partners. A major portion of the Company’s co-operative advertising is reclassified as a
reduction of net sales. The decrease in net sales is attributable to the higher sales incentives,
discontinued products and higher sales returns. Sales returns and allowances were 9.6% of gross sales
for fiscal 2007 versus 8.7% in fiscal 2006. Sales returns were higher due to the Company’s
unsuccessful launch of Pound-X, a dietary supplement launched in the fourth quarter of 2006, and the
returns of other products that were phased out and replaced by new items. Gross profit margins
increased slightly from 63.3% in fiscal 2006 to 63.6% in fiscal 2007.
The Company’s gross sales net of returns and allowances, but before promotional charges, by
category were: Dietary Supplement $20,351,748 or 31% of sales, Skin Care $18,862,125 or 29% of
sales, Oral Care $16,375,634 or 25% of sales, Nail Care $6,977,616 or 11% of sales, Fragrance
$2,259,648 or 3% of sales, and Hair Care and Miscellaneous $686,142 or 1% of sales.
Income before taxes was $9,594,726 for fiscal 2007 as compared to $8,916,645 for fiscal 2006,
an increase of $678,081. The increase was primarily due to a decrease in media advertising in 2007
versus 2006 as the Company focuses more on co-operative advertising as noted above.
On November 1, 2006 the Company entered into a letter of intent with Dubilier and Company
relating to a proposed acquisition of the Company by Dubilier, and as more fully described in Note 15
of the financial statements for fiscal 2007. The proposed transaction was formally terminated by the
Company on April 10, 2007. During fiscal 2007, the Company incurred expenses related to the
proposed transaction of $717,850, which is reflected on the financial statements as a special
transaction expense.
11
The allowance for doubtful accounts is a combination of specific and general reserve amounts
relating to accounts receivable. The general reserve is calculated based on historical percentages
applied to aged accounts receivable and the specific reserve is established and revised based on
individual customer circumstances. This allowance decreased from $185,779 as of November 30,
2006 to $141,607 as of November 30, 2007. The decrease is directly attributable to the reduction of
reserves for specific disputes.
The reserve for returns and allowances is based on a reserve for returns equal to its gross profit
on its historical percentage of returns on its last five month’s sales, and a specific reserve based on
customer circumstances. This allowance decreased from $840,418 as of November 30, 2006 to
$732,695 as of November 30, 2007. The reserve was higher as of November 30, 2006 due to
additional reserves at that time for the Pound-X brand which has been discontinued. No additional
reserves were required for Pound-X as of November 30, 2007.
The reserve for inventory obsolescence is based on a detailed analysis of inventory movement.
The reserve decreased from $777,715 as of November 30, 2006 to $604,746 as of November 30,
2007.
In accordance with GAAP (generally accepted accounting principles), the Company
reclassified certain advertising and promotional expenditures as a reduction of sales rather than report
them as expenses. This reclassification is the adoption by the Company of EITF 00-14 “Accounting
for Certain Sales Incentives” (codified by EITF 01-9 “Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor’s Products”), as more fully described in
footnote 2 (“Sales Incentives”), of the financial statements for fiscal 2007. The reclassification
reflects a reduction in sales for the fiscal years ended November 30, 2007 and 2006 by $5,184,112 and
$4,013,619 respectively. The increase is due to the Company focusing more on co-operative
advertising, most of which is reclassified as a reduction of sales.
For the year ended November 30, 2007, the Company had revenues of $60,877,867, and net
income of $5,537,795, after a provision of $4,056,931 for taxes. For the year ended November 30,
2006, the Company had revenues of $64,100,023, and net income of $5,604,251, after a provision of
$3,312,394 for taxes. Fully diluted earnings per share for fiscal 2007 were $0.78 as compared to $0.79
for fiscal 2006. As noted earlier, earnings in fiscal 2007 were impacted by the recording of $717,850
of transaction expenses related to the proposed acquisition of the Company by Dubilier and Company.
Other income increased from $797,803 for fiscal 2006 to $1,045,710 in fiscal 2007, primarily due to
higher interest income.
The effective tax rate for fiscal 2007 was 42.3% of income before tax as compared to 37.1%
for fiscal 2006. The income tax rate in 2006 was lower in part due to an over accrual of the actual tax
due for 2005 due to certain deductions and credits that the Company was able to utilize in the final
preparation of the 2005 income tax return that were not anticipated at the time of making the accrual
for financial reporting. These items resulted in an over accrual of $200,000 for fiscal 2005, which was
adjusted by reducing the provision for fiscal 2006. Had that adjustment not been made, the effective
12
tax rate for fiscal 2006 would have been 39.4%. In addition, during fiscal 2006 there was a larger
deduction for donations of certain of our inventory as compared to fiscal 2007, which resulted in
reducing the effective tax rate for fiscal 2006 further.
For fiscal 2007, advertising, cooperative and promotional expenses were $6,956,407 as
compared to $10,345,407 for fiscal 2006, or an expense reduction of $3,389,000. Advertising
expenses were 11.6% of net sales for fiscal 2007 versus 16.3% for fiscal 2006. The reduction in
advertising expense was due to the Company focusing more on cooperative advertising with its retail
partners and less on media advertising. Most of the Company’s cooperative advertising is reflected as
a reduction of net sales in accordance with GAAP.
Selling, general and administrative expenses increased slightly from $21,104,728 in fiscal 2006
to $21,266,327 in fiscal 2007. The increase was primarily due to increased compensation and related
benefit costs as a result of hiring additional marketing personnel, as well as salary increases in the
normal course of business.
As of November 30, 2007, there was $1,839,016 of open cooperative advertising
commitments, of which $1,241,482 is from 2007, $226,427 is from 2006 and $371,107 is from 2005.
The Company’s total cooperative advertising commitment increased from $6,484,840 in fiscal 2006 to
$6,800,000 in fiscal 2007. Cooperative advertising is advertising that is run by the retailers in which
the Company shares in part of the cost. If it becomes apparent that this cooperative advertising was
not utilized, the unclaimed cooperative advertising will be offset against the expense during the fiscal
year in which it is determined that it did not run. This procedure is consistent with the prior year’s
methodology with regard to the accrual of unsupported cooperative advertising commitments.
Comparison of Results for Fiscal Years 2006 and 2005
The Company’s net sales increased from $61,181,334 (after reclassifying certain advertising
expenses from selling expense to a reduction of net sales as more fully described in the footnotes to
the financial statements) to $63,302,220 for the current fiscal year. Gross profit margins increased
from 62.8% to 63.3%. The increase in net sales is principally due to increased sales in Oral Care.
The Company’s gross sales net of returns and allowances by category were: Dietary
Supplement $21,055,278 or 31% of sales, Skin Care $20,347,016 or 30% of sales, Oral Care
$16,025,534 or 24% of sales, Nail Care $6,003,041 or 9% of sales, Hair Care $2,285,329 or 3% of
sales, and Fragrance and Miscellaneous $2,382,240 or 3% of sales.
Income before taxes was $8,916,645 as compared to $7,107,528 for fiscal 2005. The increase
in income before taxes for fiscal 2006 is principally the result of higher gross sales and less returns
than in 2005. Returns were higher in 2005 primarily due to the return of product from the launch of
the Denise Austin skin care line in 2005.
13
The allowance for doubtful accounts is a combination of specific and general reserve amounts
relating to accounts receivable. The general reserve is calculated based on historical percentages
applied to aged accounts receivable and the specific reserve is established and revised based on
individual customer circumstances. This allowance decreased from $260,366 as of November 30,
2005 to $185,779 as of November 30, 2006. The decrease is directly attributable to the reduction of
reserves for specific disputes.
The reserve for returns and allowances is based on a reserve for returns equal to its gross profit
on its historical percentage of returns on its last five month’s sales, and a specific reserve based on
customer circumstances. This reserve increased from $678,346 as of November 30, 2005 to $840,418
as of November 30, 2006 primarily from additional reserves for the Pound –X brand which was
launched in the fourth quarter of 2006.
The reserve for inventory obsolescence is based on a detailed analysis of inventory movement.
The reserve decreased from $854,764 as of November 30, 2005 to $ 777,715 as of November 30,
2006.
In accordance with GAAP, the Company reclassified certain advertising and promotional
expenditures as a reduction of sales rather than report them as expenses. This reclassification is the
adoption by the Company of the EITF 00-14 GAAP standard. The reclassification reflects a reduction
in the sales for the fiscal years ended November 30, 2006 and 2005 by $4,013,619 and $4,007,051
respectively.
For the year ended November 30, 2006, the Company had revenues of $64,100,023, and net
income of $5,604,251, after a provision of $3,312,394 for taxes. For the year ended November 30,
2005, the Company had revenues of $61,754,243 (after reclassification) and net income of $3,785,502,
after a provision of $3,322,026 for taxes. Fully diluted earnings per share for fiscal 2006 were $.79
compared to $.52 in fiscal 2005.
The effective tax rate in Fiscal 2006 was significantly lower than Fiscal 2005 due to the
effect of permanent tax adjustments and certain over accruals affecting the tax due for the periods.
In Fiscal 2005, the company accrued for additional taxes due based on audits in progress for the
previous three years. The actual settlement of the audits in 2006 was less than anticipated which
resulted in smaller than estimated adjustments. The favorable outcome of some of the calculations
in the audit also resulted in an over accrual of the actual tax due for 2005, which were originally
accrued for based on the proposed change to some of our methods of calculating certain
adjustments. There were also certain deductions and credits which we were able to avail ourselves
of in our final preparation of our 2005 return that we had not anticipated at the time of making the
accrual for financial reporting. These items resulted in an over accrual of our taxes in 2005 by
approximately $200,000. The reversal of the over accrual in 2005 results in showing $200,000 less
in 2006 (a $400,000 adjustment in the tax provision). We also had a larger deduction for donations
of certain of our inventory in 2006 which resulted in a lower effective tax rate for 2006 versus
14
2005. The combination of the prior year’s over accrual and the larger “permanent” differences
resulted in a significantly lower effective tax rate for Fiscal 2006.
For fiscal 2006, advertising, cooperative and promotional expenses were $10,345,407 as
compared to $10,671,906 in the same period for fiscal 2005. Advertising expenses were 16.3% of
sales in fiscal 2006 versus 17.4% for fiscal 2005. The reduction in advertising expense was due to the
change in the overall budget for the year.
SG&A expenses increased from $20,246,344 in fiscal 2005 to $21,104,728 in fiscal 2006.
This was primarily due to increased compensation and related benefit costs as a result of hiring
additional sales and marketing personnel.
At year’s end, there were approximately $2,053,946 of open co-op commitments, of which
$1,172,057 is from 2006, $673,378 is from 2005 and 208,511 is from 2004. The Company’s total co-
op commitment increased from $6,000,000 in fiscal 2005 to $6,484,840 in fiscal 2006. Co-op is
advertising that is run by the retailers in which the Company shares in part of the cost. If it becomes
apparent that this co-op was not utilized, the unclaimed co-op will be offset against the expense during
the fiscal year in which it is determined that it did not run. This procedure is consistent with the prior
year’s methodology with regard to the accrual of unsupported co-op commitments.
Liquidity and Capital Resources
As of November 30, 2007, the Company had working capital of $24,922,016 as compared to
$22,295,983 at November 30, 2006. The ratio of total current assets to current liabilities is 3.8 to 1 as
compared to a ratio of 3.5 to 1 for the prior year. The working capital and the current ratio in 2006
were reduced by the Company’s purchase of an aggregate of 253,304 shares of the Company’s
common stock for $2,653,867 from current and past officers/directors. The company also purchased
during fiscal 2006 19,600 shares under Rule 144 for an aggregate of $171,738. Stockholders’ equity
increased to $30,750,319 from $27,284,791. The Company did not purchase any treasury stock during
fiscal 2007.
The Company’s cash position and short-term investments at November 30, 2007 were
$14,747,784, versus $15,901,689 as at November 30, 2006. Non-current or long term investments
were $4,801,504 at November 30, 2007 versus $4,073,656 as at November 30, 2006. The Company
paid cash dividends during fiscal 2007 in the amount of $1,965,111, representing the dividends
declared at the end of fiscal 2006 but not paid until fiscal 2007 of $490,970 and $1,474,945 in
dividends declared and paid for fiscal 2007. As of November 30, 2007, there were dividends declared
but not paid of $634,900. The Company paid cash dividends during fiscal 2006 totaling $1,776,975.
The Board of Directors increased the dividends declared during fiscal 2007 resulting in the larger
amount of paid cash dividends in fiscal 2007 versus fiscal 2006. The securities the Company
purchased are all of an investment grade rating of Triple A. Because of the rating of the securities
15
purchased, the Company believes that there is very little risk with regard to the investments since,
although they are all classified as “Available for Sale Securities”, the Company could hold them all to
maturity and realize their full value. Our investments are spread among many different Obligors and
Municipalities to decrease the risk due to any specific concentrations.
The Company’s investment in property and equipment consisted mostly of computer hardware
and software, racking for our warehouse facilities, leasehold improvements and furniture to
accommodate our personnel in addition to tools and dies used in the manufacturing process.
Inventories were $7,857,322 and $6,350,013, as of November 30, 2007 and 2006 respectively.
The Company increased the amount of inventory on hand in order to accommodate its customer’s
needs for just in time inventory shipments. In addition, the inventory obsolescence reserve was
reduced from $777,715 to $604,746. The inventory obsolescence reserve as of November 30, 2006
had been increased due to a specific reserve for Pound-X, a dietary supplement product that was
launched in the fourth quarter of 2006. The product has since been discontinued.
Accounts receivable as of November 30, 2007 and 2006 were $9,119,179 and $7,188,197
respectively. A large part of the increase was due to increased gross sales during October and
November 2007 versus the same periods in fiscal 2006. The increased gross sales were $1,317,490,
most of which would not have been collected by November 30, 2007 resulting in a higher outstanding
accounts receivable. Accounts Receivable allowances and reserves decreased in the aggregate by
$151,895 from November 30, 2006 to November 30, 2007, which would affect the net balance.
The amount of deferred income tax reflected as a current asset decreased from $1,180,472 as of
November 30, 2006 to $765,821 as of November 30, 2007. The decrease was mainly due to the
utilization of deferred tax credits for charitable contributions during fiscal 2007. Other material
components of the deferred tax asset are the timing differences caused by changes in the reserve for
returns, inventory and bad debt, as well as the accrual for unused vacation pay. The Company
anticipates that these amounts will be deductible in future tax years.
Current liabilities are $9,038,676 and $9,009,263, as of November 30, 2007 and 2006
respectively. Current liabilities at November 30, 2007 consisted of accounts payable, accrued
liabilities, short term capital lease obligations and dividends payable. The Company’s only long term
obligation is for a portion of its capitalized leases, which is for certain office and warehouse
equipment. At November 30, 2007, the Company had long and short-term triple A investments and
cash of $19,549,288 as compared to $19,975,345 as of November 30, 2006. As of November 30,
2007, the Company was not utilizing any of the funds available under its $25,000,000 unsecured credit
line. During fiscal 2007, 52,089 shares of Company Common Stock were issued to Dunnan Edell, the
Company’s President, upon his exercise of stock options for 55,000 shares.
16
Inventory, Seasonality, Inflation and General Economic Factors
The Company attempts to keep its inventory for every product at levels that will enable
shipment against orders within a three-week period. However, certain components must be
inventoried well in advance of actual orders because of time-to-acquire circumstances. For the most
part, purchases are based upon projected quarterly requirements, which are projected based upon sales
indications received by the sales and marketing departments, and general business factors. All of the
Company's contract-manufacture products and components are purchased from non-affiliated entities.
Warehousing is provided at Company facilities, and all products are shipped from the Company's
warehouse facilities.
The Company does not have any products that are particularly seasonal, but sales of its sun-
care, depilatory and diet-aid products usually peak during the spring and summer seasons, and
perfume sales usually peak in fall and winter. The Company does not have a product that can be
identified as a ‘Christmas item’.
The Company plans to continue to promote its sales through an advertising program consisting
of a combination of media and co-op advertising. We continue to invest money into research and
development to build our core products to become leaders in their respective categories. We are trying
to decrease the amount of “on hand” inventory we stock however to better service our customers we
often find it difficult to reduce our “safety stock”. We continue to evaluate our sales staff and to try to
attract aggressive salespeople to increase the distribution of our current product line. We are also
continuing to look for additional businesses or product lines which we think will help the company to
grow and are also reviewing possible acquisitions or any other offers which we feel will enhance
shareholders’ value.
Because our products are sold to retail stores (throughout the United States and, in small part,
abroad), sales are particularly affected by general economic conditions. Accordingly, any adverse
change in the economic climate can have an adverse impact on the Company's sales and financial
condition. The Company does not believe that inflation or other general economic circumstance that
would negatively affect operations can be predicted at present, but if such circumstances should occur,
they could have material and negative impact on the Company's net sales and revenues, unless the
Company was able to pass along related cost increases to its customers. There was no significant
impact on operations as a result of inflation during the current fiscal year.
Contractual Obligations
The following table sets forth the contractual obligations in total for each year of the next five
years as at November 30, 2007. Such obligations include the current lease for the Company’s
premises, written employment contracts and License Agreements.
17
2008
701,144
Lease on Premises (1)
Royalty Expense (2)
255,000
Employment Contracts (3) 2,501,156
Open Purchase Orders
3,846,791
Total Contractual Obligations 7,421,903
2010
2009
2012
639,969 639,969 639,969 319,985
275,000
275,000
1,742,266
2,613,726
275,000
1,679,025
275,000
2,733,049
2011
3,528,695
3,648,018
2,593,994
2,337,151
(1) The major lease is a net, net lease requiring a yearly rental of $327,684 plus Common Area
Maintenance “CAM”. See Section Part I, Item 2. The rental provided above is the base rental and
estimated CAM. CAM for 2007 is estimated at $164,880. The figures above do not include
adjustments for the CPI. The lease has an annual CPI adjustment, not to cumulatively exceed 15%
in any consecutive five year period. The lease expires on May 31, 2012 with a renewal option for
an additional five years. The Lodi lease requires a yearly rental of $97,500 plus CAM. The lease
is a 12-month lease which commenced in May 2005. The Company extended the lease to April 30,
2008. The Company did not renew the lease, due to signing a lease with Ninth Avenue Equities.
On September 26, 2007, the Company entered into a warehouse lease with Ninth Avenue Equities
Co., Inc. to lease 16,438 square feet of space known as Unit B located at Murray Hill Industrial
Center in East Rutherford, New Jersey for a four and a half year period. The year end net rental
expense including CAM was $13,258. The annual rental is $123,285 plus CPI adjustments, real
estate taxes and common area maintenance expenses.
(2) See Section Part I, Item 1(f). The Company is not required to pay any royalty in excess of realized
sales if the Company chooses not to continue under the license. The figures set forth above reflect
estimates of the royalty expense anticipated minimum requirements to maintain the licenses under
the various contracts for the licensed products based on fiscal 2007 sales. Royalty expense
includes Alleghany Pharmacal, Solar Sense, Nail Consultants, Tea-Guard, Inc. and Stephen Hsu,
PhD.
(3) The Company has executed Employment Contracts with its CEO, David Edell, and its Chairman
of the Board, Ira W. Berman. The contracts for both are exactly the same. The contracts expire on
December 31, 2010. The contracts provide for a base salary which commenced in 1994 in the
amount of $300,000 (plus a bonus of 20% of the base salary), with a year-to-year CPI or 6%
increase, plus 2.5% of the Company’s pre-tax income less depreciation and amortization
(EBITDA) plus certain fringe benefits including the cost of certain life insurance, auto expenses,
and health insurance. (The 2.5% measure in the bonus provision of the Edell/Berman contracts
was amended on November 3, 1998 so as to calculate it against earnings before income taxes, less
depreciation, amortization and expenditures for media and cooperative advertising in excess of
$8,000,000.) On May 24, 2001, the contract was amended increasing the base salary then in effect
by $100,000 per annum. The contracts also provide that at the end of the term or upon retirement,
Edell/Berman shall be retained by the Company as consultants at the consideration equal to 50%
of the prior year’s salary and bonus for a five year period. The figures above include only the base
salaries for
18
the five years (plus 20% of the base salary), an adjustment for CPI, and without estimating
bonuses, as the bonus is contingent upon future earnings, and also including payments that would
be due as consulting payments upon expiration or retirement. On June 1, 2001, the Company
added a provision to the Contracts stating that in the event of death within the employment and
consulting periods, the Company would be obligated for two successive years to pay the
executive’s estate an amount equal to the annual base salary and bonus.
David Edell’s sons, Dunnan Edell and Drew Edell have five-year employment contracts in the
amounts of $270,000 and $200,000 respectively, which expire on November 30, 2007 (See Item
11, Summary Compensation Table). In July 2003, Dunnan Edell’s salary was increased to
$300,000 and in January 2004, Drew Edell’s salary was increased to $225,000. In fiscal 2005,
Drew Edell’s salary was increased to $250,000. Dunnan Edell is a director and during fiscal 2003
was appointed President of the Company and Chief Operating Officer. Drew Edell is the Vice
President of Research, and Product Development.
On February 10, 2006, the Board of Directors extended the employment contracts for Dunnan
Edell and Drew Edell to December 31, 2010. On May 17, 2007, the employment contracts for
Dunnan Edell and Drew Edell were amended by the Board of Directors, extending the contracts to
November 30, 2012, and increasing Dunnan Edell’s base salary to $350,000 and Drew Edell’s
base salary to $275,000.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issue FASB Interpretation
No. 48 (“FIN No. 48”) “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB No.
109”. FIN No. No. 48 established a recognition threshold and measurement for income tax positions
recognizes in an enterprise’s financial statements in accordance with FASB No. 109, “Accounting for
Income Taxes”. FIN No. 48 also prescribes a two-step evaluation process for tax positions. The first
step is recognition and the second is measurement. FIN No. 48 is effective for fiscal years beginning
after December 15, 2006. Accordingly, the Company plans to adopt FIN No. 48 on December 1,
2007. The adoption of FIN No. 48 will have no material impact on the Company’s financial position
or results of operation.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,
“Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, established a
framework for measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements, the FASB previously concluded in
those accounting pronouncements that fair value is the relevant measurement attribute. SFAS No. 157
is effective for financial statements issued for fiscal years beginning after November 15, 2007, and
interim periods in those fiscal years. The adoption of SFAS No .157 will have no material impact on
the Company’s financial position or results of operation.
19
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of SFAS Statements Nos. 87, 88,106
and 132R. SFAS No. 158, requires an employer to recognize the over-funded or under-funded status
of a defined benefit postretirement plan as an asset or liability in its statement of financial position,
measure a plan’s assets and obligations as of the end of the employer’s fiscal year-end and recognize
changes in the funded status in the year in which the changes occur through comprehensive income.
SFAS No. 158 is effective as of the end of the fiscal year ending after December 15, 2007. Since the
Company does not have a defined benefit plan, the adoption will not have an impact on the
Company’s financial statements.
In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 108 (“SAB 108”) which provides interpretive guidance on how the effects of
the carryover or reversal of prior year misstatements should be considered in quantifying a current
year misstatement. SAB 108 is effective for the first fiscal year ending after November 15, 2006
which was the fiscal year ending November 30, 2006. The adoption of this statement had no material
impact on the Company’s financial position or results of operations.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159
(“SFAS No. 159”). SFAS No. 159 which amends SFAS No. 115 allows certain financial assets and
liabilities to be recognized, at the Company’s election, at fair market value, with any gains or losses
for the period recorded in the statement of income. SFAS No. 159 included available-for-sale
securities in the assets eligible for this treatment. Currently, the Company records the gains or losses
for the period in the statement of comprehensive income and in the equity section of the balance sheet.
SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and interim periods in
those fiscal years. The Company, at this time, has not elected to recognize any gains or losses for its
available-for-sale securities in the statement of income, and accordingly there will be no impact on the
Company’s financial position or results of operations.
In November 2007, the SEC issued Staff Accounting Bulletin No. 109 (“SAB 109”) which
provides interpretive guidance regarding written derivative loan commitments that are accounted for at
fair value through earnings. SAB 109 is effective for fiscal quarters beginning after December 15,
2007. The adoption of this statement will have no material impact on the Company’s financial
position or results of operation.
In December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”) which
provides interpretive guidance regarding the use of a “simplified” method in estimating the expected
term of “plain vanilla” share options in accordance with FASB No. 123. SAB 110 is effective as of
January 1, 2007. The adoption of this statement will have no material impact on the Company’s
financial position or results of operation.
20
In December 2007, the FASB issued a revised Statement of Financial Accounting Standards
No. 141 (“SFAS No. 141 revised”) which establishes the methods for accounting for business
combinations. SFAS No. 141 revised defines the acquirer and the acquisition date. SFAS No. 141
revised is effective for acquisition dates on or after December 15, 2008. The adoption of this
statement will have no material impact on the Company’s financial position or results of operation.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160
(“SFAS No. 160) which establishes accounting and reporting standards for the non-controlling interest
in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years
beginning after December 15, 2008. The Company has not determined the impact, if any, of the
adoption of SFAS No. 160.
Cautionary Statements Regarding Forward-Looking Statements
This annual report contains forward-looking statements based upon current expectations of
management that involve risks and uncertainty. Actual risks could differ materially from those
anticipated. Additional risks and uncertainties not presently known may possibly impair business
operations. If any of these risks actually occur, the business, financial conditions and operating results
could be materially adversely affected. The cautionary statements made in this Annual Report on
Form 10K should be read as being applicable to all forward-looking statements whenever they appear
in this Annual Report.
Concentration of Risk
The Company relies on mass merchandisers and major food and drug chains for the sales of its
products. The loss of any one of those accounts could have a substantive negative impact upon its
financial operations. All of the Company’s products have independent competition and must be able to
compete in order to maintain its position on the retail merchandisers’ shelves. {See Business -
General, Item 1(c) i Marketing.}
The Company does not manufacture any of its products. All of the products are manufactured
for the Company by independent contract manufacturers. There can be no assurance that the failure of
a supplier to deliver the products ordered by the Company when requested will not cause burdensome
delays in the Company’s shipments to accounts. The Company does constantly seek alternative
suppliers should a major supplier fail to deliver as contracted. A failure of the Company to ship as
ordered by its accounts could cause penalties and/or cancellations of our customers’ orders.
There is No Assurance That The Business Will Continue to Operate Profitably.
In fiscal 2007, net sales were $59,832,157. Almost all of the products were able to maintain
the projected gross profit margins. Net income was $5,537,795. There is no assurance that all of the
Company’s products will be successful.
21
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 June 6, 2007. Class A Shareholders, David Edell,
CEO and Ira W. Berman, Chairman of the Board of Directors, have the right to elect four members to
the Board of Directors. Common stockholders have the right to elect three members to the Board of
Directors.
Future Success Depends on Continued Success of the Company’s Current Products and
New Product Development.
The Company is not financially as strong as the major companies against whom it competes.
The ability to successfully introduce new niche products and increase the growth and profitability of
its current and new 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.
Future Possible Litigation
Although there is no substantial litigation pending against the Company, there is always the
possibility that one of the Company’s products could cause litigation by a consumer over and above
the Company’s Product Liability Insurance. There are no such cases currently against the Company.
All of the company’s product must be in compliance with all FDA and states regulations and
all products which are being manufactured for the Company by outside suppliers must conform to the
FDA’s Good Manufacturing Practices requirements. It is the Company’s responsibility to ascertain
that the suppliers do conform.
The Company Relies On A Few Large Customers For A Significant Portion Of Its Sales.
In fiscal 2007, Wal-Mart Stores Inc. represented approximately 40% of the Company’s total
revenues. The Company’s ten largest customers accounted for 80% of the Company’s total revenues.
The Company has no agreement with any of its customers to stock its products. The Company’s
business would suffer materially if it lost Wal-Mart Stores, Inc. The loss of any of the Company’s 10
top customers could have an adverse effect on the Company’s financial results.
22
The Company’s Dietary Supplement Business Could Be Adversely Affected By
Unfavorable Scientific Studies Or Negative Press.
The Company’s dietary supplement, Mega -T (Green Tea), to some extent is dependent on
consumers’ perceptions, the discussions of scientific evidence and the benefit and integrity of the
dietary supplement business. Any safety alert on any dietary supplement for weight loss may
negatively affect the consumers’ perceptions of the product category.
The Price of the Company’s Stock May Be Volatile
The Company’s stock could fluctuate substantially. There is a limited float of shares tradable.
There are factors beyond the Company’s control, including by not limited to variations in the
Company’s operating revenues and profits, the timing of advertising commitments, the volatility of
small cap stock in general and the general stock market conditions, quarter to quarter variations.
Item 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
The Company’s financial statements (See Item 15) record the Company’s investments under
the “mark to market” method (i.e., at date-of-statement market value). The investments are,
categorically listed, in “Common Stock”, “Mutual Funds”, “Other Equity”, “Preferred Stock”,
“Government Obligations” and “Corporate Obligations” (which, primarily, are intended to be held to
maturity). $216,237 of the Company’s $12,805,323 portfolio of investments ( as at Nov. 30, 2007) is
invested in the ”Common Stock” and “Other Equity” category, and $713,756 are invested in Preferred
Stock holdings. Whereas the Company does not take positions or engage in transactions in
risk-sensitive market instruments in any substantial degree, nor as defined by SEC rules and
instructions, thus the Company does not believe that its investment-market risk is material.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are listed under Item 15 in this Form 10-K. The following financial
data is a summary of the quarterly results of operations (unaudited) during and for the years ended
November 30, 2007 and 2006:
Fiscal 2007 **
Feb. 28
May 31
Aug. 31
Nov. 30
Three Months Ended
Net Sales
Total Revenue
Cost of Products Sold
Net Income
Earnings Per Share:
Basic
Diluted
$13,579,472 $18,227,413 $13,939,369
18,457,562
6,662,077
1,292,921 2,069,604
14,085,903
14,266,083 14,326,644
4,933,134 5,081,090
1,702,517
13,827,578
5,084,105
472,753
$.07
$.07
23
$.18
$.18
$.29
$.29
$.25
$.24
Fiscal 2006 **
Feb. 28
Three Months Ended
Aug. 31
May 31
Nov. 30
Net Sales
Total Revenue
Cost of Products Sold
Net Income
Earnings Per Share:
Basic
Diluted
$14,562,927 $18,558,174 $15,788,172 $14,392,947
15,996,688 14,597,050
4,993,420 6,252,283
900,889
18,773,398
6,109,857
1,705,108 1,927,476
14,732,887
5,904,747
1,070,778
$.15
$.15
$.24
$.24
$.28
$.27
$.13
$.13
** After reclassification of certain additional promotional expenses from expense to a reduction of net
sales.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company did not change its accountants within the twenty-four months prior to the date of
the most recent financial statements (nor since), and had no reported disagreement with its accountants
on any matter of accounting principles or practices.
Item 9A. CONTROLS AND PROCEDURES
With the participation of our Chief Executive Officer and Chief Financial Officer, management
has carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of November 30, 2007.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-
15(f) under the Securities Exchange Act of 1934) pursuant to preliminary evaluations that the
Company believes will materially affect, or are reasonably likely to materially affect, internal control
over financial reporting.
Under Section 404 of the Sarbanes-Oxley Act of 2002, The Company’s fiscal 2008 annual
report is required to be accompanied by a “Section 404 Formal Report” by management on the
effectiveness of internal controls over financial reporting. Management has commenced preparing a
report and reviewing the internal controls in each of the Company’s departments. The Company has
engaged the services of CBIZ Risk & Advisory Services, LLC to assist in the development and
implementation of procedures to determine the effectiveness of the Company’s internal controls over
24
financial reporting. The filing of the Company’s November 30, 2009 annual report must contain an
opinion by the Company’s independent accounting firm on the effectiveness of the Company’s
internal controls. The Company’s officers are continually working to evaluate and confirm that the
Company’s automated data processing software systems and other procedures are effective and that
the information created by the Company’s systems adequately confirm the validity of the information
upon which the Company relies.
The Company is continuing to take a thorough review of the effectiveness of its internal
controls and procedures, including financial reporting. It is working to strengthen all of its procedures
wherever necessary.
The Company’s preliminary review has not identified or required any changes over its internal
controls that have materially affected, or are reasonably likely to materially affect internal controls
over financial reporting.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We have a code of ethics that applies to the Chairman of the Board, Directors, Officers and
Employees, including our Chief Executive Officer and Chief Financial Officer. You can find our code
of ethics in Exhibit 14.
The Executive Officers and Directors of the Company are as follows:
NAME POSITION
COMPANY SERVICE
YEAR OF FIRST
David Edell
Ira W. Berman
Chief
Executive Officer,
Director
Chairman of the Board
of Directors, Secretary,
Executive Vice President
Dunnan Edell
President, Chief Operating Officer
and Director
Stephen Heit
Drew Edell
Executive Vice President and
Chief Financial Officer
Executive Vice President-
Product Development and Production 1983
25
1983
1983
1984
2005
John Bingman
Vice President and Treasurer
1986
Jon Denis
Senior Executive Vice President –
Sales
2006
Jim Gonedes
Executive Vice President – Marketing 2006
Stanley Kreitman
Director
Jack Polak
Director
Robert Lage
Director
Seth Hamot
Director
1996
1983
2003
2007
Gio Batta Gori
Director (retired effective 7/31/07) 2004
David Edell, age 75, is a director, and the Company's Chief Executive Officer. Prior to his
association with the Company, he was a marketing and financial consultant; and, by 1983, he had
extensive experience in the health and beauty aids field as an executive director and/or officer of
Hazel Bishop, Lanolin Plus and Vitamin Corporation of America. In 1954, David Edell received a
Bachelor of Arts degree from Syracuse University.
Ira W. Berman, age 76, is the Company's Executive Vice President and Corporate Secretary.
He is also Chairman of the Board of Directors. Mr. Berman is an attorney who has been engaged in
the practice of law since 1955. He received a Bachelor of Arts Degree (1953) and Bachelor of Law
Degree (1955) from Cornell University, and is a member of the American Bar Association.
Dunnan Edell is the 52 year-old son of David Edell. He is a graduate of George Washington
University. He has been a director since 1994, and in fiscal 2003, he was promoted to position of
President of the Company and Chief Operating Officer. He joined the Company in 1984 and was
appointed Divisional Vice-President in 1986. He was employed by Alleghany Pharmacal Corporation
from 1982 to 1984 and by Hazel Bishop from 1977 to 1981.
Stephen Heit, age 53 joined CCA in May 2005 as Executive Vice President – Operations, and
was appointed Chief Financial Officer in March 2006. Prior to that he was Vice President – Business
Strategies for Del Laboratories, Inc., a consumer products company that was listed on the American
stock exchange, from 2003 to 2005. Mr. Heit served as President of AM Cosmetics, Inc. from 2001 to
2003, as Chief Financial Officer from 1998 to 2003, and Corporate Secretary to the Board of Directors
from 1999 to 2003. From 1986 to 1997 he was the Chief Financial Officer of Pavion Limited, and
also served on the Board of Directors. He also served as a Director of Loeb House, Inc., a non-profit
organization serving mentally handicapped adults from 1987 to 1995, and Director of Nyack Hospital
Foundation from 1993 to 1995. He received a Bachelor of Science from Dominican College in 1976,
26
with additional graduate work in Professional Accounting at Fordham University from 1976 – 1978,
and is a MBA Candidate at the University of Connecticut Graduate Business School.
Drew Edell, the 50 year-old son of David Edell, is a graduate of Pratt Institute, where he
received a Bachelor's degree in Industrial Design. He joined the Company in 1983, and in 1985, he
was appointed Vice President of Product Development and Production.
John Bingman, age 56, received a Bachelor of Science degree from Farleigh Dickenson
University in 1973. He worked as a Certified Public Accountant who practiced with the New Jersey
accounting firm of Zarrow, Zarrow & Klein from 1976 to 1986.
Jon Denis, age 60, joined the Company as Senior Executive Vice President of Sales in
February 2006. From 1997 to 2006, he was Corporate Vice President of Sales for Natrol, Inc. Prior to
that, he was Vice President of Sales and Marketing for Conair Corporation from 1984 to 1997. He
received a B.A. in Business Administration from the University of Maryland in 1971, and attended the
Master of Business and Marketing program of Fairleigh Dickinson University from 1973 to 1974.
Jim Gonedes, age 56, joined the Company as Executive Vice President of Marketing in July
2006. From 2001 to 2006, he was Vice President of skin care for the Alberto Culver Company. Prior
to that, he was Senior Vice President of strategic marketing for Phillips Lighting North America from
1997 to 2001. He has a BS and MBA in marketing from St. John’s University, and has been in
consumer products marketing since 1974 when he started his career with Scott Paper Company.
Jack Polak, age 95, has been a private investment consultant and a banker since April 1982.
He is a certified Dutch Tax Consultant and a member of The Netherlands Federation of Certified Tax
Consultants. He was knighted on his 80th birthday by Queen Beatrix of the Netherlands for his
untiring efforts on behalf of the Anne Frank Center USA for which he is still actively working as the
“Chairman-Emeritus.” On May 23, 2004, Hofstra University in Long Island, NY awarded him with an
honorary doctorate in humane letters.
Stanley Kreitman, age 75 has been Vice Chairman of Manhattan Associates an equity
investment firm since 1994. He is a director of Medallion Financial Corp. (NASDAQ), Capital Lease
Financial Corp.(NYSE), KSW Corp., Geneva Mortgage Corp., and Century Bank. He also serves as
Chairman of the New York City Board of Corrections, Nassau County Crime Stoppers, and serves on
the board of the Police Athletic League. From 1975 to 1993 he was President of United States
Banknote Corp.(NYSE) a securities printer.
Robert Lage, age 71, is a retired CPA. He became a director in fiscal 2003. He was a partner
at Price WaterhouseCoopers Management Consulting Service prior to his retirement in 1997. He has
been engaged in the practice of public accounting and management consulting since 1959. He
received a BBA from Bernard Baruch College of the City University of New York in 1958.
27
Seth Hamot, age 45, is a graduate of Princeton University with a degree in Economics. Since
1997, Mr. Hamot has been the Managing Member of Roark, Rearden & Hamot Capital Management,
LLC (“RRHCM”) and the owner of its corporate predecessor, Roark, Rearden & Hamot, Inc. RRHCM
is the investment manager to Costa Brava partnership III L.P. (“Costa Brava”), a private investment
fund that owns 549,300 common shares of the Company. Mr. Hamot is also President of Roark,
Rearden & Hamot Capital Management, LLC, the general partner of Costa Brava. Prior to 1997, Mr.
Hamot was one of the partners of the Actionvest entities. Mr. Hamot is currently a director of Bradley
Pharmaceuticals Inc and serves as a member of their audit committee.
Dr. Gio Batta Gori, 77, voluntarily withdrew as a director during 2007 to become a consultant
for the Company. He had been a director of the Company since 2004. He is president of the Health
Policy Center, Bethesda, Maryland, a consulting group in toxicology, epidemiology, nutrition, and
related scientific, industrial, and regulatory issues. Advisor to major corporations worldwide, his
previous experiences include directing the Franklin Institute Policy Analysis Center, and executive
positions at the National Cancer Institute as Deputy Director of the Division of Cancer Causes and
Prevention, Director of the Smoking and Health Program, Director of the Diet, Nutrition and Cancer
Program. He held earlier positions in the pharmaceutical and biologics industry, and in academia.
Recipient of the U.S. Department of Health Education and Welfare Superior Service Award, he is
active in toxicology, carcinogenesis, nutrition, tobacco, and environmental issues. He has been a two-
term President of the International Society of Regulatory Toxicology and Pharmacology, is a member
of scientific societies, fellow of the Academy of Toxicological Sciences, funding and former editor of
the journal Nutrition and Cancer, and editor of the journal Regulatory Toxicology and Pharmacology. .
Item 11. EXECUTIVE COMPENSATION
i. Summary Compensation Table
The following table summarizes compensation earned in the 2007, 2006 and 2005 fiscal years
by all of the executive officers whose fiscal 2007 compensation exceeded $100,000, including the
Chief Executive Officer (the "Named Officers").
28
Annual Compensation
Long-Term Compensation
Number
of Shares
All
Covered Other
Other
by Stock Long-Term
Annual
Options Compen-
Compen-
sation(2) Granted(3) sation
Year
Salary
Bonus(1)
2007
2006
2005
$794,173
737,001
695,738
$532,807
556,410
510,857
$44,155
41,193
28,976
-
-
-
-
-
-
0 (4)
0 (4)
0 (4)
0 (4)
0 (4)
0 (4)
$794,173
737,001
695,738
$532,807
556,410
510,857
$40,699
31,718
30,256
$355,962
300,000
$120,000
120,000
$11,060
9,155
-
-
300,000
120,000
12,317
-
$229,327
211,538
110,000
$ 30,000
30,000
15,000
$ 8,081
7,972
3,721
-
-
-
Name and
Principal
Position
David Edell,
Chief
Executive
Officer
Ira W. Berman,
Secretary and
Executive
Vice President
2007
2006
2005
Dunnan Edell,
2007
President, Chief 2006
Operating
Officer
2005
2007
Stephen Heit
Executive
2006
Vice President, 2005
Chief Financial
Officer
Drew Edell
Vice President
Product
Development
and
Production
Jon Denis
Senior
Executive
Vice President
– Sales
2007
2006
2005
$279,904
250,000
243,269
$ 60,000
60,000
60,000
$10,008
9,188
8,861
-
-
-
2007
$331,250
$ 50,000
$10,235
10,000
2006
248,750
75,000
6,693
-
2005
0
0
0
-
29
0
0
0
0
0
0
0
0
0
0
0
0
(1) Bonus amounts represents amounts earned in each respective fiscal year, not necessarily paid in
each year.
(2) Includes the personal-use value of Company-leased automobiles, the value of Company-provided
life insurance, and health insurance that is made available to all employees. The Employment
Agreement of Edell/Berman provides that they may receive an additional reimbursement for a
complete physical examination and reimbursement of up to $5,000 of medical expenses for each
employment or consulting period. The Company also pays for a life insurance policy owned by
Edell/Berman, with a face value of $750,000 for each policy, as per their respective Employment
Agreements.
(3) Information in respect of stock option plans appears below in the sub-topic, Employment
Contracts/Executive Compensation Program.
(4) The employment of Edell/Berman provides that in the event of death within the employment and
consulting periods, the Company is obligated for two successive years to pay the executive’s estate an
amount equal to the annual base salary and bonus.
ii. Fiscal 2007 Option Grants and Option Exercises,
Year-End Option Valuation, Option Repricing
Ten thousand (10,000) Stock Appreciation Rights were issued to Jon Denis, Senior Executive
Vice President of Sales. The option was based upon the price of the stock on the day of grant,
September 27, 2007 at $9.40 per share. The option expires on September 25, 2012. The employee has
the right to sell the Options back to the Company commencing 2 years from September 26, 2007, so
long as he is still employed by the Company.
The value of the Option shall be computed by the difference in the share price of the stock on
the date of grant ($9.40) and the price on the exercise date. The Option shall be exercisable to
purchase the Company’s common stock at the price of the stock on the date of exercise.
The next table identifies 2007 fiscal-year option exercises by Named Officers and Directors,
and reports a valuation of their options.
Number of
Shares
Acquired Value
On Exercise Realized (1) at November 30, 2007 at November 30, 2007(2)
Number of Shares
Covered by Un-
Value of Unexercised
exercised Options In-the-Money Options
0
David Edell
Ira Berman
0
Dunnan Edell 55,000
0
Drew Edell
John Bingman
0
--------------------
0
0
$486,750
0
0
25,000
25,000
15,000
15,000
10,000
30
$18,500
18,500
22,350
22,350
14,900
(1) Represents the difference between market price and the respective exercise price of the
options as of the exercise date. The market price at May 24, 2007 was $9.35.
(2) Represents the difference between market price and the respective exercise prices of the
options as of December 1, 2007. The market price at December 1, 2007 was $9.74.
iii. Compensation of Directors
Each outside director was paid $2,500 for a conference call meeting and $5,000 per meeting
for attendance of board meetings in fiscal 2007 (without additional compensation for committee
meetings, other than as noted below). Mr. Lage received an additional $30,000 as chairman of the
audit committee. The full Board of Directors met four times in fiscal 2007, for an aggregate
compensation of $75,000. No stock options were awarded. A special committee of the board of
directors was formed to consider the proposed Dubilier transaction (see Part I, item 1 (j). The special
committee was comprised of Dr. Gio Batta Gori, Stanley Kreitman, Robert Lage and Jack Polak.
Each member of the special committee received compensation of $25,000 in addition to the
compensation above.
iv. Executive Compensation Principles
Audit and Compensation Committee
The Company's Executive Compensation Program is based on guiding principles designed to
align executive compensation with Company values and objectives, business strategy, management
initiatives, and financial performance. In applying these principles the Compensation Committee of
the Board of Directors, comprised of Stanley Kreitman, Jack Polak, Seth Hamot and Robert Lage, has
established a program to:
(cid:31) Reward executives for long-term strategic management and the enhancement of
shareholder value.
(cid:31)
(cid:31)
Integrate compensation programs with both the Company's annual and long-term strategic
planning.
Support a performance-oriented environment that rewards performance not only with respect
to Company goals but also Company performance as compared to industry performance levels.
Stanley Kreitman, former president of a national bank, qualifies as a “financial expert” as
defined by the SEC in Instruction 1 to proposed Item 309 of Regulation S-K, which is set forth in
the SEC Release No. 34 - 46701 dated October 22, 2003. Mr. Kreitman is an “independent” as
that term is used in Section 10A(m)(3) of the Exchange Act.
Jack Polak was knighted by the Dutch government in 1993. He is a certified Dutch tax
consultant and a member of the association of certified tax accountants. The Board has deemed that
he is both “independent” and qualifies as a “financial expert.”
31
Robert A. Lage, Chairman of the Audit Committee and a retired CPA, was a partner at
PriceWaterhouseCoopers Management Consulting Service prior to his retirement in 1997. He has
been engaged in the practice of public accounting and management consulting since 1959. He
received a BBA from Bernard Baruch College of the City University of New York in 1958. The Board
has deemed that he is both “independent” and qualifies as a “financial expert”.
Seth Hamot is a graduate of Princeton University with a degree in Economics. Since 1997, Mr.
Hamot has been the Managing Member of Roark, Rearden & Hamot Capital Management, LLC
(“RRHCM”) and the owner of its corporate predecessor, Roark, Rearden & Hamot, Inc. RRHCM is
the investment manager to Costa Brava partnership III L.P. (“Costa Brava”), a private investment fund
that owns 549,300 common shares of the Company. Mr. Hamot is also President of Roark, Rearden &
Hamot Capital Management, LLC, the general partner of Costa Brava. Mr. Hamot is currently a
director of Bradley Pharmaceuticals Inc and serves as a member of the company’s audit committee.
The Board has deemed that he is “independent”.
The Compensation Committee has a charter, which will be published with the proxy statement
for the 2008 annual meeting of shareholders. Compensation, including annual bonus amounts, for the
executive officers named in the Summary Compensation Table (other than David Edell and Ira
Berman, whose compensation and bonus are determined in accordance with their employment
agreement) are recommended by David Edell, Chief Executive Officer, and approved by the
Compensation Committee.
v. Employment Contracts/Compensation Program
The total compensation program consists of both cash and equity based compensation. The
Audit and Compensation Committee (the "Committee") determines the level of salary and bonuses, if
any, for key executive officers of the Company. The Committee determines the salary or salary range
based upon competitive norms. Actual salary changes are based upon performance, and bonuses were
awarded by the Committee in consideration of the Company's performance during the 2007 fiscal year.
The Company has executed Employment Contracts with its CEO, David Edell, and its
Chairman of the Board, Ira W. Berman. The contracts for both are exactly the same. The contracts
expire on December 31, 2010. The contracts provide for a base salary which commenced in 1994 in
the amount of $300,000 (plus a bonus of 20% of the base salary), with a year-to-year CPI or 6%
increase, plus 2.5% of the Company’s pre-tax income less depreciation and amortization (EBITDA).
(The 2.5% measure in the bonus provision of the Edell/Berman contracts was amended on November
3, 1998 so as to calculate it against earnings before income taxes, less depreciation, amortization and
expenditures for media and cooperative advertising in excess of $8,000,000.) On May 24, 2001, the
contract was amended increasing the base salary then in effect by $100,000 per annum (See Item 11,
Summary Compensation Table). The contracts also provide that at the end of the term or upon
retirement, Edell/Berman shall be retained by the Company as consultants at the consideration equal to
50% of the prior year’s salary and bonus for a five year period. The contracts also provide that in the
32
event of the death of Edell/Berman within the employment and consulting periods, the Company is
obligated for two successive years to pay the executive’s estate an amount equal to the annual base
salary and bonus. The Company, per the Employment Agreement, pays for life insurance policies
owned by Edell/Berman with a face value of $750,000 each. Edell/Berman are entitled to have the
Company pay for a complete physical examination and reimbursement of up to $5,000 of medical
expenses during each benefit year.
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. Dunnan Edell is a director and President of the Company. Drew Edell is the
Vice President of Product Development and Production. On July 1 2003, Dunnan Edell’s salary was
increased to $300,000, and on January 5, 2004, Drew Edell’s salary was increased to $225,000 and in
2005, it was increased to $250,000.
On May 17, 2007, the employment contracts for Dunnan Edell and Drew Edell were extended
to November 30, 2012 (See Item 11, Summary Compensation Table). Dunnan Edell’s salary was
increased to $350,000 and Drew Edell’s salary was increased to $275,000.
vi. Stock Option Plans
Long-term incentives are provided through the issuance of stock options.
(The 1984 Stock Option Plan covered 1,500,000 shares of its Common Stock, and the 1986
Stock Option Plan covered 1,500,000 shares of its Common Stock.) On July 9, 2003, the Company’s
Stock Option Plan was approved by the shareholders authorizing the issuance of options to issue up to
1,000,000 shares.
The Company's 2003 Stock Option Plan covers 1,000,000 shares of its Common Stock.
The 2003 Option Plan provides (as had the 1984, 1986 and the 1994 plans) for the granting of
two (2) types of options: "Incentive Stock Options" and "Nonqualified Stock Options". The Incentive
Stock Options (but not the Nonqualified Stock Options) are intended to qualify as "Incentive Stock
Options" as defined in Section 422(a) of The Internal Revenue Code. The Plans are not qualified
under Section 401(a) of the Code, nor subject to the provisions of the Employee Retirement Income
Security Act of 1974.
Options may be granted under the Options Plans to employees (including officers and directors
who are also employees) and consultants of the Company provided, however, that Incentive Stock
Options may not be granted to any non-employee director or consultant.
Option Plans are administered and interpreted by the Board of Directors. (Where issuance to a
Board member is under consideration, that member must abstain.) The Board has the power, subject
to plan provisions, to determine the persons to whom and the dates on which options will be
granted, the number of shares subject to each option, the time or times during the term of each when
33
options may be exercised, and other terms. The Board has the power to delegate administration to a
Committee of not less than two (2) Board members, each of whom must be disinterested within the
meaning of Rule 16b-3 under the Securities Exchange Act, and ineligible to participate in the option
plan or in any other stock purchase, option or appreciation right under plan of the Company or any
affiliate. Members of the Board receive no compensation for their services in connection with the
administration of option plans.
Option Plans permit the exercise of options for cash, other property acceptable to the Board or
pursuant to a deferred payment arrangement. The 1994 Plan specifically authorizes that payment may
be made for stock issuable upon exercise by tender of Common Stock of the Company; and the
Executive Committee is authorized to make loans to option exercisers to finance optionee
tax-consequences in respect of option exercise, but such loans must be personally guaranteed and
secured by the issued stock.
The maximum term of each option is ten (10) years. No option granted is transferable by the
optionee other than upon death.
On June 15, 2005, the shareholders approved an amended and Restated Stock Option Plan
amending the 2003 Stock Option Plan.
The Plan provides that the stock option committee may make awards in the form of (a)
incentive stock options, (b) non-qualified stock options, (c) stock appreciation rights, (d) restricted
stock, and (e) performance shares.
One new award was made by the committee in fiscal 2007. (See Executive Compensation in
Fiscal 2007 Option Grants)
Under the plans, options will terminate three (3) months after the optionee ceases to be
employed by the Company or a parent or subsidiary of the Company unless (i) the termination of
employment is due to such person's permanent and total disability, in which case the option may, but
need not, provide that it may be exercised at any time within one (1) year of such termination (to the
extent the option was vested at the time of such termination); or (ii) the optionee dies while employed
by the Company or a parent or subsidiary of the Company or within three (3) months after termination
of such employment, in which case the option may, but need not provide that it may be exercised (to
the extent the option was vested at the time of the optionee's death) within eighteen (18) months of the
optionee's death by the person or persons to whom the rights under such option pass by will or by the
laws of descent or distribution; or (iii) the option by its terms specifically provides otherwise.
The exercise price of all nonqualified stock options must be at least equal to 85% of the fair
market value of the underlying stock on the date of grant. The exercise price of all Incentive Stock
Options must be at least equal to the fair market value of the underlying stock on the date of grant.
The aggregate fair market value of stock of the Company (determined at the date of the option grant)
34
for which any employee may be granted Incentive Stock Options in any calendar year may not exceed
$100,000, plus certain carryover allowances. The exercise price of an Incentive Stock Option granted
to any participant who owns stock possessing more than ten (10%) of the voting rights of the
Company's outstanding capital stock must be at least 110% of the fair market value on the date of
grant. As at November 30, 2006, 181,000 stock options, yet exercisable, to purchase 181,000 shares of
the Company's Common Stock, were outstanding.
The Company has adopted Stock Appreciation Rights incentives and Restricted Stock grants in
the 2005 Amended Stock Option Plan. No such grants were issued in fiscal 2006. One grant was
issued in 2007. (See Fiscal 2007 Option Grants and Option Exercises) All of the terms and conditions
of the Plan were included in the June 15, 2005 Proxy, which Plan was approved by the shareholders at
the annual meeting. The Proxy was incorporated by reference to the 10K Annual Report for fiscal
2005.
35
vii. Performance Graph
Set forth below is a line graph comparing cumulative total shareholder return on the Company's
Common Stock, with the cumulative total return of companies in the NASDAQ Stock Market (U.S.)
and the cumulative total return of Dow Jones's TMI/Personal Products Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among CCA Industries, Inc., The Dow Jones US Index
And The Dow Jones US Personal Products Index
$800
$700
$600
$500
$400
$300
$200
$100
$0
11/02
11/03
11/04
11/05
11/06
11/07
CCA Industries, Inc.
Dow Jones US
Dow Jones US Personal Products
* $100 invested on 11/30/02 in stock or index-including reinvestment of dividends.
Fiscal year ending November 30.
CCA Industries - ASE
11/02
11/03
Cumulative Total Return
11/05
11/04
11/06
11/07
CCA Industries, Inc.
Dow Jones US
Dow Jones US Personal Products
100.00
100.00
100.00
444.49
117.68
115.20
674.98
133.28
129.14
515.55
146.61
142.49
744.50
167.75
170.87
640.74
181.01
203.93
36
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, 2007 by (i) all those known by
the Company to be owners of more than five percent of the outstanding shares of Common Stock or
Class A Common Stock; (ii) each officer and director; and (iii) all officers and directors as a group.
Unless otherwise indicated, each of the shareholders has sole voting and investment power
with respect to the shares owned (subject to community property laws, where applicable), and is
beneficial owner of them.
Number of
Name and Address
Shares Owned (1):
Common
Stock Class A (2)
Ownership, As A
Percentage of
All Shares Out-
“Option Standing/Assuming
Shares” (1) Option Share Exercise (1)
David Edell
c/o CCA Industries, Inc.
200 Murray Hill Parkway
East Rutherford, NJ 07073
Ira W. Berman
c/o CCA Industries, Inc.
Gio Batta Gori, PhD
c/o CCA Industries, Inc.
Seth Hamot (3)(4)
c/o Costa Brava
Partnership III LP
Stanley Kreitman
c/o CCA Industries, Inc.
Robert Lage
c/o CCA Industries, Inc.
146,609
484,615
25,000
8.9%
9.3%
160,533
483,087
25,000
9.1%
9.5%
-
-
-
0.0%
0.0%
574,300
-
-
8.1%
8.1%
15,000
-
-
0.2%
0.2%
-
-
-
0.0%
0.0%
37
Jack Polak
c/o CCA Industries, Inc.
Dunnan Edell
c/o CCA Industries, Inc.
Drew Edell
c/o CCA Industries, Inc.
John Bingman
c/o CCA Industries, Inc.
Stephen A. Heit
c/o CCA Industries, Inc.
Jon Denis
c/o CCA Industries, Inc.
Officers and Directors
as a group (10 persons)
_______________________
53,254
-
-
0.8%
0.8%
97,158
-
15,000
1.4%
1.6%
98,108
-
15,000
1.4% 1.6%
-
-
10,000
0.0% 0.1%
1,000
-
-
0.0%
0.0%
-
-
-
0.0%
0.0%
1,145,962
967,702
90,000
30.0% 31.2%
(1) The number of “Option Shares” represents the number of shares that could be purchased by, and
upon exercise of unexercised options, exercisable within 90 days; and the percentage ownership figure
denominated “Assuming Option Share Exercise” assumes, per person, that unexercised options have
been exercised and, thus, that subject shares have been purchased and are actually owned. In turn, the
“assumed” percentage ownership figure is measured, for each owner, as if each had exercised such
options, and purchased subject ‘option shares,’ and thus increased total shares actually outstanding,
but that no other option owner had ‘exercised and purchased.’
(2) David Edell and Ira Berman own 100% of the outstanding shares of Class A Common Stock.
Messrs. David Edell, Dunnan Edell, and Ira Berman are officers and directors. Messrs. Stephen Heit,
John Bingman and Drew Edell are officers. Messrs. Hamot, Lage, Kreitman and Polak are
independent, outside directors. Dr. Gori served as an independent outside director until July 1, 2007.
Dr. Gori had requested to not be re-nominated for another term as director.
(3) Includes 574,300 shares beneficially owned by Costa Brava Partnership III L.P. Seth W. Hamot is
the president of Roark, Reardon & Hamot, LLC, which is the general partner of Costa Brava
Partnership III L.P.
38
(4) The principal business of Costa Brava Partnership III L.P. is to make investments in, buy, sell,
hold, pledge and assign securities. The principal business of Roark, Rearden and Hamot, LLC is to
act as general partner of Costa Brava Partnership III L.P. The principal business address is 420
Boylston Street, Boston, MA 02116. Seth W. Hamot is the president of Roark, Rearden & Hamot,
LLC, which is the general partner of Costa Brava Partnership III L.P.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company did not purchase any shares of common stock from officers, directors or
affiliates in fiscal 2007.
During fiscal 2007, several related parties provided services to the Company, which were
deemed immaterial to the financial statements.
During fiscal 2006 the Company purchased and retired an aggregate of 225,000 shares of
common stock from three officers/directors, David Edell-100,000, Ira Berman-100,000 and Drew
Edell-25,000. The purchase price was $10.50 per share discounted from $10.82 per share, the
closing price at the close of business on the transaction date. The Company purchased 9,392
shares from Stanley Kreitman, a director, and 15,000 shares from Rami Abada, a former director,
for $10.50 per share discounted from $10.70 per share, the closing price at the close of business on
the transaction date.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
KGS LLP (“KGS”) served as the Company’s independent auditors for 2007 and 2006. The
services performed by KGS in this capacity included conducting an audit in accordance with generally
accepted auditing standards of, and expressing an opinion on, the Company’s consolidated financial
statements.
Audit Fees
KGS’s fees for professional services rendered in connection with the audit and review of
Forms 10-K and all other SEC regulatory filings were $251,363 for the 2007 fiscal year and $216,725
for the 2006 fiscal year. The Company has paid and is current on all billed fees.
Audit Related Fees
Audit related fees billed in Fiscal 2007 and 2006 by KGS were $98,015 and $39,012,
respectively. Audit related fees consist primarily of fees billed for professional services rendered
by KGS for accounting consultations and services related to business acquisitions and dispositions,
responses to SEC correspondence, and readiness consultations for Section 404 of the Sarbanes
Oxley Act of 2002.
39
Tax Fees
KGS’s fees for professional services rendered in connection with Federal and State tax return
preparation and other tax matters for the 2007 and 2006 fiscal years were $48,847 and $58,100,
respectively.
All Other Fees
All other fees of $300 and $140 billed in Fiscal years 2007 and 2006, respectively,
represent fees for miscellaneous services other than those described above.
Engagements Subject to Approval
Under its charter, the Audit Committee must pre-approve all subsequent engagements of our
independent auditor unless an exception to such pre-approval exists under the Securities Exchange Act
of 1934 or the rules of the Securities and Exchange Commission. Each year, the independent auditor’s
retention to audit our financial statements, including the associated fee, is approved by the committee
before the filing of the preceding year’s annual report on form 10-K. At the beginning of the fiscal
year, the Audit Committee will evaluate other known potential engagements of the independent
auditor, including the scope of the work proposed to be performed and the proposed fees, and approve
or reject each service, taking into account whether the services are permissible under applicable law
and the possible impact of each non-audit service on the independent auditor’s independence from
management. At each subsequent committee meeting, the committee will receive updates on the
services actually provided by the independent auditor, and management may present additional
services for approval. The committee has delegated to the Chairman of the committee the authority to
evaluate and approve engagements on behalf of the committee in the event that a need arises for pre-
approval between committee meetings. If the Chairman so approves any such engagements, he will
report that approval to the full committee at the next committee meeting.
Since the May 6, 2003 effective date of the Securities and Exchange Commission rules stating
that an auditor is not independent of an audit client if the services it provides to the client are not
appropriately approved, each new engagement of KGS LLP was approved in advance by the Audit
Committee, and none of those engagements made use of the de minimus exception to pre-approval
contained in the Commission’s rules.
40
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENTS,
SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements:
Table of Contents, Report of Independent Registered Public Accounting Firm, Consolidated
Balance Sheets as of November 30, 2007 and 2006, Consolidated Statements of Income for the
years ended November 30, 2007, 2006 and 2005, Consolidated Statements of Comprehensive
Income (Loss), Consolidated Statements of Shareholders' Equity for the years ended
November 30, 2007, 2006 and 2005, Consolidated Statements of Cash Flows for the years
ended November 30, 2007, 2006 and 2005, Notes to Consolidated Financial Statements.
Financial Statement Supplementary Information:
Schedule II: Valuation Accounts; Years Ended Nov. 30, 2007, 2006 and 2005.
Exhibits: All Exhibits are incorporated by reference.
(1)
(3)
The Indenture (and the Promissory note exhibited therewith) defining the rights of former
shareholders who tendered Common Stock to the Company for its $2 per share, five- year, 6%
debenture, is incorporated by reference to the filing of such documents with the Schedule TO
filed with the SEC, on June 5, 2001.
The Company's Articles of Incorporation and Amendments thereof, and its By-Laws, are
incorporated by reference to their filing with the Form 10-K/A filed April 5, 1995. (Exhibit
pages 000001-23).
(10.1) The Following Material Contracts are incorporated by reference to their filing with the Form
10-K/A filed April 5, 1995: Amended and Restated Employment Agreements of 1994, with
David Edell and Ira Berman; License Agreement made February 12, 1986 with Alleghany
Pharmacal Corporation.
(10.2) The February 1999 Amendments to the Amended and Restated Employment Agreements of
David Edell and Ira Berman (1994) are incorporated by reference to the 1998 10-K. (Exhibit
pages 00001-00002). The May 29, 2001 Amended and Restated Employment Agreements of
David Edell and Ira Berman are incorporated by reference herein.
Previously filed as an exhibit to and incorporated by reference from the indicated report filed
with the Securities and Exchange Commission:
41
(1) The Forms 8K, filed on May 22, 2002 and November 20, 2002, are incorporated by
reference to this 2006 10K. Three 8Ks are referenced, October 29, 2003, November 24,
2003 and December 11, 2003. Three additional 8Ks are referenced, one on April 7, 2004,
one on August 3, 2004 and the last on October 6, 2004.
(2) Forms 8K filed on April 11, 2005, June 27, 2005, and July 15, 2005 are incorporated by
reference to this 10K
(3) The Company’s 2003 Stock Option Plan was filed with the 2003 Proxy and is incorporated
by reference to this 10K.
(4) The Company’s 2005 Amended and Restated Stock Option Plan and the 2005 Proxy are
incorporated by reference herein.
The following reports were filed with the Securities and Exchange Commission during the
three months ended November 30, 2007:
(1) Form 10-Q, filed on October 11, 2007, for the quarter ended August 31, 2007.
(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, exhibits may be
inspected and copied at prescribed rates at the Commission’s public reference facilities at Judiciary
Plaza, 450 Fifth Street, NW, Washington, D.C. 20549; Jacob K. Javits Federal Building, 26 Federal
Plaza, New York, New York 10278; and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such materials may also be obtained by mail at
prescribed rates from the Public Reference Branch of the Commission at 450 Fifth Street, N.W.,
the Commission’s Internet website
is available at
Washington, D.C. 20549, and one
(http://www.sec.gov).
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(A) of the Securities Exchange Act of 1934,
the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned
thereunto duly authorized.
CCA INDUSTRIES, INC.
s/
By:
DUNNAN EDELL, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has
been signed below by the following persons in the capacities and on the dates indicated.
Signature
Title
Date
s/ Chief Executive Officer, February 28, 2008
DAVID EDELL
Director
s/ Chairman of the Board
of Directors, Executive
IRA W. BERMAN
Vice President, Secretary
February 28, 2008
s/ President, Chief Operating
DUNNAN EDELL
Officer, Director
February 28, 2008
s/
STEPHEN HEIT
Executive Vice President,
February 28, 2008
Chief Financial Officer
s/ Vice President ,
DREW EDELL
Research & Development
February 28, 2008
s/ Director
STANLEY KREITMAN
February 28, 2008
s/
ROBERT LAGE
s/
JACK POLAK
s/
SETH HAMOT
Director
February 28, 2008
Director
February 28, 2008
Director
February 28, 2008
43
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2007 AND 2006
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 ........................................... 8-35
SUPPLEMENTARY INFORMATION
SCHEDULE II – VALUATION ACCOUNTS……………………………………………...36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
CCA Industries, Inc.
East Rutherford, New Jersey
We have audited the consolidated balance sheets of CCA Industries, Inc. and Subsidiaries
as of November 30, 2007 and 2006, and the related consolidated statements of income,
comprehensive income, shareholders’ equity and cash flows for each of the three years in the
period ended November 30, 2007. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CCA Industries, Inc. and Subsidiaries
as of November 30, 2007 and 2006, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended November 30, 2007, in conformity
with accounting principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule titled “Schedule II – Valuation and Qualifying
Accounts” is presented for purposes of additional analysis and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, is fairly stated in all material respects
in relation to the basic financials statements taken as a whole.
KGS LLP
CERTIFIED PUBLIC ACCOUNTANTS
February 26, 2008
Jericho, New York
-1-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
November 30,
2007
2006
Current Assets
Cash and cash equivalents
Short-term investments and marketable
securities (Notes 2 and 6)
Accounts receivable, net of allowances of
$874,302 and $1,026,197, respectively
Inventories, net of reserve for inventory
obsolescence of $604,746 and $777,715,
respectively (Notes 2 and 3)
Prepaid expenses and sundry receivables
Prepaid income taxes and refunds due (Note 8)
Deferred income taxes (Note 8)
$ 6,743,960
$ 4,385,340
8,003,824
9,119,179
7,857,322
630,893
839,693
765,821
11,516,349
7,188,197
6,350,013
684,875
1,180,472
Total Current Assets
33,960,692
31,305,246
Property and Equipment, net of accumulated
depreciation and amortization
(Notes 2 and 4)
Intangible Assets, net of accumulated
amortization (Notes 2 and 5)
Other Assets
Marketable securities (Notes 2 and 6)
Deferred taxes
Other
Total Other Assets
Total Assets
See Notes to Consolidated Financial Statements.
-2-
562,528
561,634
484,377
503,595
4,801,504
29,475
65,300
4,073,656
24,940
47,500
4,896,279
4,146,096
$39,903,876
$36,516,571
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
November 30,
Current Liabilities
Accounts payable and accrued liabilities (Note 10)
Short term capital lease
Income tax payable
Dividends payable (Note 12)
Total Current Liabilities
Capitalized lease obligations
Total Liabilities
Commitments and Contingencies (Note 12)
Shareholders' Equity
Preferred stock, $1.00 par; authorized
20,000,000 shares; none issued
Common stock, $.01 par; authorized
15,000,000 shares; issued and
outstanding 6,086,740 and
6,034,651 shares, respectively
Class A common stock, $.01 par; authorized
5,000,000 shares; issued and outstanding
967,702 and 967,702 shares, respectively
Additional paid-in capital
Retained earnings
Unrealized (losses) on marketable securities (Note 2)
2007
2006
$ 8,354,458
49,318
-
634,900
$ 8,104,424
-
413,869
490,970
9,038,676
9,009,263
114,882
122,517
9,153,558
9,131,780
60,867
60,346
9,677
2,329,049
28,541,086
( 190,361)
9,677
2,329,570
25,112,331
( 127,133)
Total Shareholders' Equity
30,750,318
27,284,791
Total Liabilities and Shareholders' Equity
$39,903,876
$36,516,571
See Notes to Consolidated Financial Statements.
-3-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended November 30,
2007
2006
2005
Revenues
Sales of health and beauty
aid products, net
Other income
Costs and Expenses
Cost of sales
Selling, general and
administrative expenses
Advertising, cooperative and
promotions
Research and development
Provision for doubtful accounts
Interest expense
$59,832,157
1,045,710
$63,302,220
797,803
$61,181,334
572,909
60,877,867
64,100,023
61,754,243
21,760,406
23,260,307
22,734,062
21,266,327
21,104,728
20,246,344
6,956,407
574,900
( 21,839)
29,090
10,345,407
536,590
( 73,657)
10,003
10,671,906
772,627
201,864
19,912
50,565,291
55,183,378
54,646,715
Transaction Costs
717,850
-
-
Total Costs and Expenses
51,283,141
55,183,378
54,646,715
Income before Provision
for Income Taxes
9,594,726
8,916,645
7,107,528
Provision for Income Tax
4,056,931
3,312,394
3,322,026
Net Income
$ 5,537,795
$ 5,604,251
$ 3,785,502
Weighted Average Shares Outstanding
Basic
Diluted
Earnings Per Common Share (Note 2):
Basic
Diluted
7,029,611
7,058,889
7,034,276
7,133,332
7,145,297
7,317,994
$.79
$.78
$.80
$.79
$.53
$.52
See Notes to Consolidated Financial Statements.
-4-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended November 30,
2007
2006
2005
Net Income
$5,537,795
$5,604,251
$3,785,502
Other Comprehensive Income (Loss)
Unrealized holding gain (loss)
on investments
( 63,228)
251,206
( 149,395)
Comprehensive Income
$5,474,567
$5,855,457
$3,636,107
See Notes to Consolidated Financial Statements.
-5-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2007, 2006 AND 2005
COMMON STOCK (1)
SHARES AMOUNT
ADDITIONAL
PAID IN
CAPITAL
RETAINED
EARNINGS
UNREALIZED
GAIN (LOSS)
ON
MARKETABLE
SECURITIES
TREASURY
STOCK
Balance – December 1, 2004 as revised
Issuance of common stock
Net income for the year
Dividends declared
Unrealized (loss) on marketable securities
Purchase of 2,188 shares of common stock
Retirement of treasury stock
Balance – November 30, 2005
Issuance of common stock
Net income for the year
Dividends declared
Unrealized (loss) on marketable securities
Purchase and retirement of common stock
Balance – November 30, 2006
Issuance of common stock
Net income for the year
Dividends declared
Unrealized (loss) on marketable securities
Balance – November 30, 2007
7,130,879
137,769
-
-
-
-
( 88,891)
7,179,757
95,500
-
-
-
( 272,904)
7,002,353
52,089
-
-
-
7,054,442
$71,309
1,378
-
-
-
-
( 889)
71,798
955
-
-
-
( 2,730)
70,023
521
-
-
-
$70,544
$5,904,660
11,072
-
-
-
-
-
5,105,732
46,795
-
-
-
( 2,822,957)
2,329,570
( 521)
-
-
-
$2,329,049
$18,734,693
-
3,785,502
( 1,151,411)
-
-
( 168,319)
21,200,465
-
5,604,251
( 1,692,385)
-
-
25,112,331
-
5,537,795
( 2,109,040)
-
$28,541,086
($228,944)
-
-
-
( 149,395)
-
-
( 378,339)
-
-
-
251,206
-
( 127,133)
-
-
-
( 63,228)
($190,361)
($149,671)
-
-
-
-
( 19,537)
169,208
-
-
-
-
-
-
-
-
-
-
-
$ -
See Notes to Consolidated Financial Statements.
-6-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
2007
2006
2005
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization
(Gain) on sale of securities
Loss on sale or impairment
of intangible assets
Decrease (increase) in deferred
income taxes
(Increase) decrease in accounts receivable
(Increase) decrease in inventory
Decrease (increase) in prepaid expenses
and sundry receivables
(Increase) decrease in prepaid income
taxes and refunds due
(Increase) decrease in other assets
Increase (decrease) in accounts payable and
accrued liabilities
(Decrease) increase in income taxes payable
Net Cash Provided by Operating
Activities
Cash Flows from Investing Activities:
Acquisition of property and equipment
Acquisition of intangible assets
Purchase of available for sale securities
Proceeds from sale of available for
sales securities
Proceeds from sale of trademark
Net Cash Provided by (Used in)
Investing Activities
Cash Flows from Financing Activities:
Purchase of common shares
Repurchase of outstanding debentures
Proceeds from exercise of stock options
Increase in capital lease obligation
Payments in capital lease obligation
Purchase of treasury stock
Dividends paid
$ 5,537,795
$ 5,604,251
$3,785,502
257,555
( 60,697)
227,039
( 62,012)
329,278
-
21,745
112,901
42,380
410,116
( 1,930,982)
( 1,507,309)
( 363,045)
2,072,202
204,137
( 202,154)
( 582,415)
( 506,150)
53,982
( 158,741)
169,519
( 839,693)
( 17,800)
165,560
825
253,091
( 10,914)
250,033
( 413,869)
( 629,667)
413,869
1,751,257
( 59,888)
1,760,876
7,587,319
4,969,506
( 260,453)
( 522)
( 14,824,908)
( 309,594)
( 45,161)
( 12,588,205)
( 215,066)
( 126,233)
( 4,616,689)
17,605,791
-
10,636,835
-
1,946,814
-
2,519,908
( 2,306,125)
( 3,011,174)
-
-
-
80,036
( 38,352)
-
( 1,965,111)
( 2,825,687)
-
47,749
151,407
( 28,890)
-
( 1,776,975)
594
( 497,656)
( 8,548)
-
-
867
( 1,059,277)
Net Cash (Used in) Financing Activities
( 1,923,427)
( 4,432,396)
( 1,564,020)
Net Increase In Cash
Cash at Beginning of Year
Cash and Cash Equivalents at End of Year
Supplemental Disclosures of Cash
Flow Information
Cash paid during the year for:
Interest
Income taxes
Supplemental Disclosure of Non-Cash
Information:
Dividends declared and accrued
Retirement of -0-, 272,904, and 88,891 shares of
treasury stock, respectively
See Notes to Consolidated Financial Statements.
-7-
2,357,357
848,798
394,312
4,385,340
3,536,542
3,142,230
$ 6,743,960
$ 4,385,340
$ 3,536,542
$ 29,090
4,882,361
$ 10,003 $ 19,912
2,256,400
3,297,371
$ 634,900
$ 490,970
$ 575,560
-
2,825,687
169,208
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. CCA has an active wholly-owned subsidiary, CCA IND., S.A.
DE C.V., a Variable Capital Corporation organized pursuant to the law of Mexico.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of CCA and its wholly-
owned subsidiaries (collectively the “Company”). All significant inter-company
accounts and transactions have been eliminated.
Estimates and Assumptions:
The consolidated financial statements include the use of estimates, which management
believes are reasonable. The process of preparing financial statements in conformity
with generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date of the
financial statements. Accordingly, upon settlement, actual results may differ from
estimated amounts.
Other Comprehensive Income:
Total comprehensive income includes changes in equity that are excluded from the
consolidated statements of operations and are recorded directly into a separate section
of consolidated statements of comprehensive income. The Company’s accumulated
other comprehensive income shown on the consolidated balance sheet consist of
unrealized gains and losses on investment holdings.
Short-Term Investments and Marketable Securities:
Short-term investments and marketable securities consist of corporate and government
bonds and equity securities. The Company has classified its investments as Available-
for-Sale securities. Accordingly, such investments are reported at fair market value,
with the resultant unrealized gains and losses reported as a separate component of
shareholders' equity.
Accounts Receivable
Accounts receivable consist of trade receivables recorded at original invoice amount,
less an estimated allowance for uncollectible amounts. The accounts receivable balance
is further reduced by allowances for coop advertising and reserves for returns which
are anticipated to be taken as credits against the balances as of November 30th. The
allowances and reserves which are anticipated to be deducted from future invoices are
included in accrued liabilities. Trade credit is generally extended on a short term basis;
thus trade receivables do not bear interest, although a finance charge may be applied to
receivables that are past due. Trade receivables are periodically evaluated for
collectibility based on past credit history with customers and their current financial
condition. Changes in the estimate collectibility of trade receivables are recorded in
the results of operations for the period in which the estimate is revised. Trade
receivables that are deemed uncollectible are offset against the allowance for
uncollectible accounts. The Company generally does not require collateral for trade
receivables.
-8-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Statements of Cash Flows Disclosure:
For purposes of the statement of cash flows, the Company considers all highly liquid
instruments purchased with an original maturity of less than three months to be cash
equivalents.
During fiscal 2005, three officers/shareholders exercised in the aggregate 139,000
options, David Edell with 65,000, Ira Berman with 59,000 and Stanley Kreitman with
15,000. In addition, 5,000 options were exercised by Aimee Boutcher.
During fiscal 2006, four officers/directors exercised in the aggregate 95,500 options,
David Edell with 22,500, Ira Berman with 28,000, Dunnan Edell with 20,000 and Jack
Pollack with 25,000.
In addition, during fiscal 2006 the Company purchased and retired an aggregate of
225,000 shares of common stock from three officers/directors, David Edell-100,000,
Ira Berman-100,000 and Drew Edell-25,000. The purchase price was $10.50 per share
discounted from $10.82 per share, the closing price at the close of business on the
transaction date. The Company purchased 9,392 shares from Stanley Kreitman, a
director, and 15,000 shares from Rami Abada, a former director, for $10.50 per share
discounted from $10.70 per share, the closing price at the close of business on the
transaction date.
For the year ended November 30, 2007, dividends declared but not yet due amounted
to $ 634,900.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Product returns are recorded in inventory when they are received at the lower of their
original cost or market, as appropriate. Obsolete inventory is written off and its value
is removed from inventory at the time its obsolescence is determined.
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. The Company charges to expense repairs
and maintenance items, while major improvements and betterments are capitalized.
When the Company sells or otherwise disposes of property and equipment items, the
cost and related accumulated depreciation are removed from the respective accounts
and any gain or loss is included in earnings.
Depreciation and amortization are provided on the straight-line method over the
following estimated useful lives or lease terms of the assets:
Machinery and equipment
Furniture and fixtures
Tools, dies and masters
Transportation equipment
Leasehold improvements
Intangible Assets:
5-7 Years
3-10 Years
3 Years
5 Years
Remaining life of the
lease (ranging from
1-9 years)
Intangible assets are stated at cost. Patents are amortized on the straight-line method
over a period of 17 years. Such intangible assets are reviewed for potential
impairment whenever events or circumstances indicate that carrying amounts may not
be recoverable.
Financial Instruments:
The carrying value of assets and liabilities considered financial instruments
approximate their respective fair value.
-9-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes:
Income tax expense includes federal and state taxes currently payable and deferred
taxes arising from temporary differences between income for financial reporting and
income tax purposes.
Tax Credits:
Tax credits, when present, are accounted for using the flow-through method as a
reduction of income taxes in the years utilized.
Earnings Per Common Share:
The Company adopted Statement of Financial Accounting Standards (“SFAS”) No.
128, “Earnings Per Share” in 1998. Basic earnings per share is calculated using the
average number of shares of common stock outstanding during the year. Diluted
earnings per share is computed on the basis of the average number of common shares
outstanding plus the effect of outstanding stock options using the “treasury stock
method” and convertible debentures using the “if-converted” method. Common stock
equivalents consist of stock options.
Revenue Recognition:
The Company recognizes sales upon shipment of merchandise. Net sales comprise
gross revenues less expected returns, trade discounts, customer allowances and various
sales incentives. Although no legal right of return exists between the customer and the
Company, it is an industry-wide practice to accept returns from customers. The
Company, therefore, records a reserve for returns equal to its gross profit on its
historical percentage of returns on its last five months sales. Those returns which are
anticipated to be taken as credits against the balances as of November 30th are offset
against the accounts receivable. The reserves which are anticipated to be deducted
from future invoices are included in accrued liabilities.
Sales Incentives
In accordance with EITF 00-14, the Company has accounted for certain sales
incentives offered to customers by charging them directly to sales as opposed to
“advertising and promotional” expense. Had EITF 00-14 not been adopted, net sales
for the years ended November 2007, 2006 and 2005 would have been $65,016,269,
$67,701,423, and $65,352,334 respectively. In the fourth quarter of 2006, the
Company reclassified certain promotional expenses from sales expense to a charge
against sales for fiscal 2006. For comparison purposes, those same expenses were
reclassified for fiscal year 2005. None of these changes affected net income reported
for the interim periods or fiscal years ended November 30, 2005 and 2006.
-10-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising Costs:
The Company’s policy is to charge advertising costs to expense as incurred. During
fiscal 2005, the Company changed its estimate of future benefits it derives from
advertising expenditures and the effect it has on its allocation among the interim
quarters. Effective June 1, 2005, the Company expensed its advertising based on when
the advertising ran. The change in estimate affected interim reporting in fiscal 2005
and had no effect on the Company’s year-end earnings for fiscal 2005.
Shipping Costs:
The Company’s policy for fiscal financial reporting is to charge shipping cost to
operations as incurred. For the years ended November 30, 2007, 2006 and 2005,
included in selling, general and administrative expenses are shipping costs amounting
to $2,962,754, $2,542,685, and $3,601,322, respectively.
Stock Options:
In December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Accounting for
Share-Based Compensation” which is a revision of SFAS No. 123. Effective for
annual or interim periods beginning after December 15, 2005, SFAS No. 123R
requires stock grants to employees to be recognized in the income statement based on
their fair values. The adoption of SFAS No. 123R did not have any impact on the
Company’s financial position, results of operations or cash flow.
Reclassifications
Certain prior years amounts have been reclassified to conform with the current years
presentation.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issue FASB
Interpretation No. 48 (“FIN No. 48”) “Accounting for Uncertainty in Income Taxes –
an Interpretation of FASB No. 109”. FIN No. No. 48 established a recognition
threshold and measurement for income tax positions recognizes in an enterprise’s
financial statements in accordance with FASB No. 109, “Accounting for Income
Taxes”. FIN No. 48 also prescribes a two-step evaluation process for tax positions.
The first step is recognition and the second is measurement. FIN No. 48 is effective
for fiscal years beginning after December 15, 2006. Accordingly, the Company plans
to adopt FIN No. 48 on December 1, 2007. The adoption of FIN No. 48 will have no
material impact on the Company’s financial position or results of operation.
In September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value,
established a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. SFAS No. 157
applies under other accounting pronouncements that require or permit fair value
measurements, the FASB previously concluded in those accounting pronouncements
that fair value is the relevant measurement attribute. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007, and
interim periods in those fiscal years. The adoption of SFAS No .157 will have no
material impact on the Company’s financial position or results of operation.
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of SFAS
Statements Nos. 87, 88,106 and 132R. SFAS No. 158, requires an employer to
recognize the over-funded or under-funded status of a defined benefit postretirement
plan as an asset or liability in its statement of financial position, measure a plan’s
assets and obligations as of the end of the employer’s fiscal year-end and recognize
changes in the funded status in the year in which the changes occur through
comprehensive income. SFAS No. 158 is effective as of the end of the fiscal year
ending after December 15, 2007. Since the Company does not have a defined benefit
plan, the adoption will not have an impact on the Company’s financial statements.
- 11 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 108 (“SAB 108”) which provides interpretive guidance on
how the effects of the carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. SAB 108 is effective for the
first fiscal year ending after November 15, 2006 which was fiscal year ending
November 30, 2006. The adoption of this statement had no material impact on the
Company’s financial position or results of operations.
In February 2007, the FASB issued Statement of Financial Accounting Standards No.
159 (“SFAS No. 159”). SFAS No. 159 which amends SFAS No. 115 allows certain
financial assets and liabilities to be recognized, at the Company’s election, at fair
market value, with any gains or losses for the period recorded in the statement of
income. SFAS No. 159 included available-for-sale securities in the assets eligible for
this treatment. Currently, the Company records the gains or losses for the period in the
statement of comprehensive income and in the equity section of the balance sheet.
SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and
interim periods in those fiscal years. The Company, at this time, has not elected to
recognize any gains or losses for its available-for-sale securities in the statement of
income, and accordingly there will be no impact on the Company’s financial position or
results of operations.
In November 2007, the SEC issued Staff Accounting Bulletin No. 109 (“SAB 109”)
which provides interpretive guidance regarding written derivative loan commitments
that are accounted for at fair value through earnings. SAB 109 is effective for fiscal
quarters beginning after December 15, 2007. The adoption of this statement will have
no material impact on the Company’s financial position or results of operation.
In December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”)
which provides interpretive guidance regarding the use of a “simplified” method in
estimating the expected term of “plain vanilla” share options in accordance with FASB
No. 123. SAB 110 is effective as of January 1, 2007. The adoption of this statement
will have no material impact on the Company’s financial position or results of
operation.
In December 2007, the FASB issued a revised Statement of Financial Accounting
Standards No. 141 (“SFAS No. 141 (revised)”) which establishes the methods for
accounting for business combinations. SFAS No. 141 (revised) defines the acquirer
and the acquisition date. SFAS No. 141 revised is effective for acquisition dates on or
after December 15, 2008. The adoption of this statement will have no material impact
on the Company’s financial position or results of operation.
In December 2007, the FASB issued Statement of Financial Accounting Standards No.
160 (“SFAS No. 160) which establishes accounting and reporting standards for the non-
controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS
No. 160 is effective for fiscal years beginning after December 15, 2008. The Company
has not determined the impact, if any, of the adoption of SFAS No. 160.
NOTE 3 -
INVENTORIES
At November 30, 2007 and 2006, inventories consist of the following:
Raw materials
Finished goods
2007
2006
$4,717,225
3,140,097
$7,857,322
$3,822,073
2,527,940
$6,350,013
At November 30, 2007 and 2006, the Company had a reserve for obsolete inventory of
$ 604,746 and $777,715, respectively.
- 12 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
At November 30, 2007 and 2006, property and equipment consisted of the following:
Machinery and equipment
Office furniture and equipment
Transportation equipment
Tools, dies, and masters
Capitalized lease obligations
Leasehold improvements
2007
2006
$ 130,346
795,714
10,918
379,171
242,254
281,582
1,839,985
$ 125,788
825,928
10,918
426,470
162,218
300,402
1,851,724
Less: Accumulated depreciation
and amortization
1,277,457
1,290,090
Property and Equipment – Net
$ 562,528
$ 561,634
Depreciation expense for the years ended November 30, 2007, 2006 and 2005 amounted
to $250,307, $215,197, and $317,573, respectively.
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, 2007 and
2006 is as follows:
2007
2006
Trademarks and patents
Less: Accumulated amortization
Intangible Assets – Net
$636,608
152,231
$484,377
$650,274
146,679
$503,595
Patents are amortized on a straight-line basis over their legal life of 17 years and
trademarks are adjusted to realizable value for each quarterly reporting period. During
2007, $14,190 (including $1,696 of accumulated amortization) of intangibles were
deemed to be impaired and written off. Amortization expense for the years ended
November 30, 2007, 2006 and 2005 amounted to $ 7,248, $11,843 and $54,085,
respectively. Estimated amortization expense for November 30, 2008, 2009, 2010, 2011
and 2012 will be $6,661, $6,661, $6,661, $6,396 and $6,134, respectively.
-13-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
Short-term investments and marketable securities, which consist of stock and various
corporate and government obligations, are stated at market value. The Company has
classified its investments as Available-for-Sale securities and considers as current assets
those investments which will mature or are likely to be sold in the next fiscal year. The
remaining investments are considered non-current assets. The cost and market values of
the investments at November 30, 2007 and November 30, 2006 were as follows:
November 30,
2007
November 30,
2006
Current:
COST
MARKET
COST
MARKET
Corporate obligations
Government obligations
(including mortgage
backed securities)
Preferred stock
Common stock
Mutual funds
Other equity
$ 5,552,779
$5,555,917
$ 4,725,545 $ 4,712,154
2,335,358
50,000
51,649
215,274
2,140,921
38,760
58,860
151,989
70,206 57,377
6,519,395
-
51,649
208,955
64,881
6,536,115
-
56,508
148,464
63,108
Total
8,275,266
8,003,824
11,570,425
11,516,349
Non-Current:
Corporate obligations
Government obligations
Preferred stock
Other equity investments
400,000
3,445,577
774,845
100,000
400,000
3,626,508
674,996
100,000
1,591,292
1,630,576
824,845
100,000
1,571,928
1,583,524
818,204
100,000
Total
Total
4,720,422
4,801,504
4,146,713
4,073,656
$12,995,687
$12,805,328
$15,717,138 $15,590,005
- 14 -
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, 2007 was $ 12,805,323 as compared to $15,590,005 at November 30,
2006. The gross unrealized gains and losses were $122,117 and ($312,478) for November 30, 2007 and
$47,504 and ($174,637) for November 30, 2006. The cost and market values of the investments at
November 30, 2007 were as follows:
COL. A
COL. B
COL. C
COL.D
Name of Issuer and
Title of Each Issue
Maturity
Date
Interest
Rate
CORPORATE OBLIGATIONS:
American Intl Group Inc.
American Express Co
Banc One Global Notes
Bank of America Corp
Bank of America Corp
Bristol-Myers Squibb
Capmark BK Midvalue
Caterpillar Fin Service Corp
Citigroup Global Markets
Citigroup Global Markets
Consolidated Edison Inc.
Firstbank PR Santurce
General Electric Capital Corp
General Electric Capital Corp
General Electric Capital Corp
General Electric Capital Corp
Goldman Sachs Group
IBM
JP Morgan Chase & Co.
Kayne Anderson MLP
Lehman Brothers
05/15/08
05/16/08
06/30/08
01/15/08
08/15/08
08/15/08
01/18/08
10/15/09
12/20/07
01/31/08
08/01/08
01/18/08
12/05/07
01/15/08
03/04/08
05/01/08
01/15/08
02/01/08
02/01/08
12/21/45
01/22/08
2.875%
3.000
2.625
3.875
3.250
4.000
5.150
4.750
4.200
4.000
3.625
5.150
3.500
4.250
4.125
3.500
4.125
3.800
4.000
5.150
4.000
Number of
Units-
Principal
Amount of
Bonds and
Notes
250,000
100,000
125,000
250,000
200,000
250,000
100,000
200,000
200,000
550,000
250,000
100,000
100,000
200,000
400,000
250,000
400,000
100,000
325,000
400,000
325,000
-15-
Cost of
Each Issue
$ 245,100
98,152
124,363
249,560
199,630
246,023
100,000
200,000
199,442
544,627
245,150
100,000
99,215
199,050
397,726
246,168
398,262
99,251
322,995
400,000
321,156
Market Value
of Each Issue
at Balance
Sheet Date
$ 248,750
99,400
123,159
250,080
196,938
248,528
99,993
202,029
199,862
547,921
247,758
99,993
98,000
199,760
388,000
245,000
399,216
97,000
322,156
400,000
323,983
COL.E
Amount at
Which Each
Portfolio of
Equity Security
Issues and
Each Other
Security
Issue Carried in
Balance Sheet
$ 248,750
99,400
123,159
250,080
196,938
248,528
99,993
202,024
199,862
547,921
247,758
99,993
98,000
199.760
388,000
245,000
399,216
97,000
322,156
400,000
323,983
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
Number of
Units-
Principal
Amount of
Bonds and
Notes
Market Value
of Each Issue
at Balance
Sheet Date
Cost of
Each Issue
Amount at
Which Each
Portfolio of
Equity Security
Issues and
Each Other
Security Issue
Carried in
Balance Sheet
Name of Issuer and
Title of Each Issue
Maturity
Date
Interest
Rate
CORPORATE OBLIGATIONS
(Continued):
Merrill Lynch & Co
Morgan Stanley
United Healthcare Notes
Washington Mutual
Wells Fargo & Co
04/21/08
04/01/08
1/30/08
1/15/08
8/25/08
3.700%
3.625
3.300
4.375
3.120
$ 247,635
250,000
247,123
250,000
74,890
75,000
250,000
248,103
100,000 99,158
$ 249,374
248,358
74,753
247,620
98,286
$ 249,375
248,358
74,753
247,620
98,286
5,952,779
5,955,917
5,955,912
-16-
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
Name of Issuer and
Title of Each Issue
Maturity
Date
Interest
Rate
Number of
Units-Principal
Amount of
Bonds and
Notes
Market Value of
Each Issue at
Balance
Sheet Date
Cost of
Each Issue
Amount at
Which
Each Portfolio of
Equity Security
Issues and
Each
Other Security
Issue Carried in
Balance Sheet
GOVERNMENT OBLIGATIONS:
Federal Home Loan Bank
FHLMC
FHLMC
FNMA
NJ ECN DEVLP
NJ ECN DEVLP
NJ ECN DEVLP
NJ ST HGR ED
NJ TRANS TR
SALEM CNTY NJ POLLUTN
Tennessee Valley
Tennessee Valley
Tennessee Valley
US TREASURY BILL
US TREASURY BILL
US TREASURY BILL
7/24/08
11/15/09
11/15/17
12/10/07
05/19/19
09/01/27
06/01/31
12/01/40
12/15/18
10/01/29
05/01/29
05/01/29
05/01/29
12/06/07
01/10/08
01/17/08
2.13%
3.25
4.50
3.00
3.60
0.00
0.00
0.00
3.60
0.00
6.50
6.50
6.50
0.00
0.00
0.00
-17-
100,000 $ 100,000
250,000
250,000
200,000
200,000
150,000
150,000
150,000
150,000
1,015,000
1,015,000
425,000
425,000
500,000
500,000
150,000
150,000
500,000
500,000
106,688
4,000
251,065
9,300
122,820
4,700
197,861
200,000
292,704
300,000
243,911
250,000
$ 100,125
250,008
200,000
150,000
150,000
1,015,000
425,000
500,000
150,000
500,000
97,000
225,525
113,975
199,950
299,063
249,068
$ 100,000
250,008
200,000
150,000
150,000
1,015,000
425,000
500,000
150,000
500,000
97,000
251,068
113,975
199,950
299,064
249,068
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
Name of Issuer and
Title of Each Issue
Maturity
Date
Interest
Rate
Number of
Units-
Principal
Amount of
Bonds and
Notes
US TREASURY BILL
US TREASURY BILL
US TREASURY BILL
US TREASURY BILL
US TREASURY NOTE
02/07/08
02/28/08
03/06/08
03/13/08
12/31/07
0.000%
0.000
0.000
0.000
4.250
400,000
300,000
150,000
200,000
100,000
Cost of
Each Issue
$ 390,495
293,099
146,739
195,995
99,558
Market Value of
Each Issue at
Balance
Sheet Date
$ 397,780
297,768
148,838
198,282
100,047
Amount at Which
Each Portfolio Of
Equity Security
Issues and Each
Other Security Issue
Carried in
Balance Sheet
$ 397,780
297,768
148,838
198,282
100,047
5,780,935
5,767,429
5,792,848
EQUITY:
Preferred Stock:
General Electric Cap Corp
MetLife Floater
ABN AMRO Cap Fund
JP Morgan Chase Cap IX
Morgan Stanley Cap Tr
Wells Fargo Cap Tr VIII
11/15/32
6/15/10
07/03/08
06/15/33
07/15/33
08/01/33
6.100
4.000
5.900
5.875
5.750
5.625
8,800
8,000
2,000
2,000
4,000
8,000
224,845
200,000
50,000
50,000
100,000
200,000
824,845
216,656
176,000
38,760
41,500
77,240
163,600
713,756
216,656
176,000
38,760
41,500
77,240
163,600
713,756
-18-
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
Name of Issuer and
Title of Each Issue
Maturity
Date
Interest
Rate
Common Stock:
DTE Energy Company
Mutual Funds:
Dreyfus Premier Ltd High
Income
Other Equity Investments:
Aberdeen Asia Pacific Fund
PIMCO Floating Rate Strategy
Number of
Units-Principal
Amount of
Bonds and
Notes
Cost of
Each Issue
Market Value
of Each
Issue at
Balance
Sheet Date
Amount at Which
Each Portfolio
Of Equity
Security Issues
and Each Other
Security Issue
Carried in
Balance Sheet
1,200 $ 51,649
$ 58,860
$ 58,860
16,296.314
215,274
151,989
151,989
4
2,900
100,000
70,206
100,000
57,377
100,000
57,377
Totals
$12,995,688
$12,805,328
$12,805,328
-19-
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, 2007, 2006 and 2005, available-for-sale
securities were liquidated and proceeds amounting to $17,605,791, $10,636,835 and
$1,946,814 were received, with resultant realized gains/(losses) totaling $60,697,
$62,012, and $0, respectively. Cost of available-for-sale securities includes
unamortized premium or discount.
NOTE 7 - NOTES PAYABLE AND SUBORDINATED DEBENTURES
The Company has an available line of credit of $25,000,000. Interest is calculated at
the Company’s option, either on the outstanding balance at the prime rate minus 1% or
Libor plus 150 basis points at the Company’s option. The line of credit is unsecured as
of November 30, 2007 and must adhere to certain financial covenants pertaining to net
worth and debt coverage. The Company was not utilizing their available credit line at
November 30, 2007 and 2006. The Company has extended the line of credit through
August 31, 2008.
On August 1, 2000, the Company repurchased (pursuant to a tender offer) 278,328
shares of its outstanding common stock by issuing subordinated debentures equal to $2
per share, which accrued interest at 6% and have matured on August 1, 2005. The
interest was paid semi-annually. The debentures and any accrued interest were paid in
2005 and fully satisfied the Company’s obligations.
NOTE 8 -
INCOME TAXES
CCA and its subsidiaries file a consolidated federal income tax return. The Company’s
2004 returns have been examined by the Internal Revenue Service.
At November 30, 2007 and 2006, respectively, the Company has temporary differences
arising from the following:
November 30, 2007___________
Type
Depreciation
Reserve for bad debts
Reserve for returns
Reserve for obsolete inventory
Vacation accrual
Section 263A costs
Amount
$ 74,244
141,607
452,695
604,746
484,971
245,000
Deferred
Tax
$ 29,475
56,218
179,720
240,084
192,534
97,265
Classified As
Short-Term
Asset
Long- Term
(Liability)
$ -
56,218
179,720
240,084
192,534
97,265
$ 29,475
-
-
-
-
-
Net deferred income tax
$ 795,296
$ 765,821
$ 29,475
-20-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -
INCOME TAXES (Continued)
November 30, 2006___________
Type
Amount
Deferred
Tax
Classified As
Short-Term
Long-Term
Asset (Liability)
Depreciation
185,779
Reserve for bad debts
443,418
Reserve for returns
777,715
Reserve for obsolete inventory
Vacation accrual
344,031
Charitable contributions 1,047,761
153,000
Section 263A Costs
$ 62,361 $ 24,940
74,298
177,336
311,031
137,588
419,030
61,189
$ -
74,298
177,336
311,031
137,588
419,030
61,189
$24,940
-
-
-
-
-
-
Net deferred income tax
$1,205,412
$1,180,472
$24,940
Income tax expense (benefit) is made up of the following components:
Current tax expense
Tax credits
Deferred tax expense
November 30, 2007
Federal
$2,823,468
State & Local
$823,347
Total
$3,646,815
317,523
$3,140,991
92,593
$915,940
410,116
$4,056,931
Current tax expense
Tax credits
Deferred tax (benefit)
November 30, 2006
Federal
$2,892,278
-
( 331,944)
$2,560,334
$849,564
-
( 97,504)
$752,060
State & Local
Total
$3,741,842
-
( 429,448)
$3,312,394
-21-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -
INCOME TAXES (Continued)
November 30, 2005
Current tax expense
Tax credits
Deferred tax (benefit)
expense
Federal
$2,563,858
( 40,000)
State &
Local
$910,086
( 30,000)
Total
$3,473,944
( 70,000)
( 103,222)
$2,420,636
21,304
$901,390
81,918
$3,322,026
Prepaid income taxes and refund due are made up of the following components:
Federal
State &
Local
Total
November 30, 2007
$625,350
$214,343
$839,693
November 30, 2006
$ -
$ -
$ -
November 30, 2005
$ 50,653
$114,907
$165,560
Income taxes payable are made up of the following components:
Federal
State &
Local
Total
November 30, 2007
$ -
$ -
$ -
November 30, 2006
$182,404
$231,465
$413,869
November 30, 2005
$ -
$ -
$ -
-22-
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, 2007 is as follows:
Income tax expense (benefit)
at federal statutory rate
Increases (decreases) in taxes
resulting from:
State income taxes, net of federal
income tax benefit
Non-deductible expenses and
other adjustments
Utilization of tax credits
Income tax expense (benefit)
at effective rate
2007
2006
2005
Percent
Percent
Percent
Amount
Of Pretax
Income
Amount
Of Pretax
Income
Amount
Of Pretax
Income
$3,262,207
34.00%
$3,031,659
34.00%
$2,416,559
34.00%
548,512
5.72
560,712
6.29
594,911
8.40
246,212
-
2.56
-
( 279,977)
-
( 3.14)
-
380,556
( 70,000)
5.47
( 1.13 )
$4,056,931
42.28%
$3,312,394
37.15%
$3,322,026
46.74%
-23-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -
STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R,
“Share-Based Payment” (“SFAS No. 123R”) which requires an entity to recognize the grant-date fair
value of stock options and other equity-based compensation issued to employees in the financial
statements. Accordingly, the Company applied the provisions of SFAS No. 123R to all awards granted
subsequent to December 31, 2005 and will apply the provisions to the extent that these awards are
subsequently modified, repurchased or cancelled.
Prior to January 1, 2006, the Company accounted for stock based compensation plans under the intrinsic
value method of accounting as defined by Accounting Principles Board Opinion No. 25, “Accounting for
Stock-Based Compensation”, as amended. Under Opinion No. 25, no compensation expense was
recognized for employee share option grants because the exercise price of the options granted equaled the
market price of the underlying shares on the date of grant. SFAS No. 123, required that the Company
provide pro forma information regarding net earnings as if compensation cost for the Company’s stock-
based awards had been determined in accordance with the fair value prescribed therein.
On September 27, 2007, the Company granted stock appreciation rights for 10,000 shares to its Executive
Vice President of Sales. The stock appreciation rights granted do not vest until two years after the grant
date and expire five years after the grant date. Upon exercise, the option value would be paid through the
issuance of Company stock. The Company had a charge against earnings during fiscal 2007 of $1,280,
and anticipates a charge against earnings for the stock appreciation rights of 10,000 shares in fiscal 2008
and 2009 of $7,680 and $6,399 respectively. The amounts for future years can change, as the valuation of
the fair value, as required by SFAS No. 123R, involves factors such as the Company’s dividend yield,
interest rates, and share price volatility, all of which are subject to change. The Company has made its
estimate of fiscal 2007, 2008 and 2009 year charges against earnings based on those factors as of
November 30, 2007.
The following table illustrated the effect on net earning if the Company had not applied the fair value
recognition of SFAS No. 123R to stock-based employee compensation.
Year Ended November 30,
2006
2007
Net income
Add: Total stock-based employee
compensation expense determined
under fair value based method for
all awards net of related tax effects
$5,537,795
$5,797,272
1,280
-
Pro forma net earnings
$5,539,075
$5,797,272
-24-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -
STOCK-BASED COMPENSATION (Continued)
The following summarizes stock option activity for the two years ended November 30, 2007 and 2006:
Number of
Shares
Weighted Average
exercise price of
Outstanding Options
Weighted Average
Remaining Life
Intrinsic
Value
Outstanding December 1, 2005
Granted
Exercised
Forfeited
Outstanding November 30, 2006
Granted
Exercised
Forfeited
Outstanding November 30, 2007
285,500
-
(95,500)
( 9,000)
181,000
-
(55,000)
-
126,000
$4.70
-
$0.50
$7.50
$5.88
-
$0.50
-
$8.00
3.20
-
-
-
1.83
-
-
-
1.35
-
-
-
-
-
-
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,
Coop advertising
Accrued returns
Accrued bonuses
Vacation accrual
2007
2006
(In Thousands)
$1,214
964
841
485
$3,504
$1,356
1,011
777
-
$3,144
All other liabilities were for trade payables or individually did not exceed 5% of total current
liabilities.
-25-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - OTHER INCOME
Other income was comprised of the following:
November 30,
2007
2006
2005
Interest income
Dividend income
Realized gain (loss) on sale of
Securities
Royalty income
Sale of trademark
Miscellaneous
$ 794,456
33,697
21,810
125,158
-
70,589
$1,045,710
$582,149
43,820
$417,537
32,182
49,280
108,249
-
14,305
$797,803
-
109,274
-
13,916
$572,909
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Leases
The Company currently occupies approximately 58,625 square feet of space used for
warehousing and corporate offices. The annual rental for this space is $327,684, with an
annual CPI increase of 3%, but shall not cumulatively exceed 15% in any consecutive five
year period. The lease requires the Company to pay for additional expenses “Expense
Rent” (Common Area Maintenance “CAM”), which includes real estate taxes, common area
expense, utility expense, repair and maintenance expense and insurance expense, which was
$164,880 for the current year. The lease expires on May 31, 2012 with a renewal option for
an additional five years.
The Company entered into an additional lease on May 1, 2005 for warehouse space at 300-
1(D), Route 17, Lodi, New Jersey for the 12 month period ending April 30, 2006. The lease
comprises 13,000 square feet for warehousing. The year end net rental expense including
CAM was $147,895. The Company has extended the lease for an additional one year period
ending April 30, 2008. The Company is not renewing the lease.
On September 26, 2007 the Company entered into an additional lease for warehouse space
at 99 Murray Hill Parkway, East Rutherford, New Jersey for a term commencing November
1, 2007 and ending on May 31, 2012. The premise comprises 16,438 square feet of space to
be used for warehousing and storage. The lease requires the Company to pay for additional
expenses “Expense Rent” (Common Area Maintenance “CAM), which includes real estate
taxes, common area expense, certain utility expense, repair and maintenance expense and
insurance expense. The year end net rental expense including CAM was $13,258.
-26-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Leases (Continued)
Rent expense for the years ended November 30, 2007, 2006 and 2005 was $704,050,
$605,893 and $597,530, respectively.
In addition, the Company has entered into various property and equipment operating leases
with expiration dates ranging through November 2011.
Future commitments under non cancelable operating lease agreements having a remaining
term in excess of one year for each of the next five (5) years and in the aggregate are as
follows:
Year Ending
November 30,
2008
2009
2010
2011
2012
Royalty Agreements
$810,831
724,216
664,901
642,127
321,063
In 1986, the Company entered into a license agreement with Alleghany Pharmacal
Corporation (the “Alleghany Pharmacal License”). This license required the Company to
pay 6% royalty on net sales but no less than $360,000 per annum to maintain its license.
The Company has expanded the lines licensed from Alleghany and pays only 1% royalty on
various new products created by the Company.
The Alleghany Pharmacal License agreement provided that when, in the aggregate,
$9,000,000 in royalties have been paid thereunder, the royalty rate for those products
originally “charged” at 6% will be reduced to 1%. The Company paid an aggregate of
$9,000,000 in royalties to Alleghany as of April 2003. Commencing May 1, 2004, the
license royalty was reduced to 1%.
The products subject to the Alleghany Pharmacal License accounted for $9,166,219 or
15.3% of total net sales in the fiscal year ended November 30, 2007.
-27-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Royalty Agreements (Continued)
In May of 1998, the Company entered into a License Agreement with Solar Sense, Inc. for
the marketing of sun care products under trademark names. The Company’s License
Agreement with Solar Sense, Inc. is for the exclusive use of the trademark names “Solar
Sense” and “Kids Sense”, in connection with the commercial exploitation of sun care
products. The Company is required to pay a royalty on net sales of the licensed products;
with minimum per-annum royalties of $30,000. The Company paid out the minimum
$30,000 for 2005, but has revised the contract omitting that minimum for the future. The
Company realized $785,792 in net sales of sun-care products in 2007.
In October of 1999, the Company entered into a License Agreement with The Nail
Consultants, Ltd. for the use of an activator invented in connection with a method for
applying a protective covering to fingernails. The Company’s License Agreement with The
Nail Consultants, Ltd. is for the exclusive use of the method and its composition in a new
product kit packaged and marketed by CCA under its own name, “Nutra Nail Power Gel”.
The Company will pay a royalty of 5% of net sales of all licensed product sold by the
Company. Net sales for products subject to the Nail Consultants, Ltd. License were
$705,643 in fiscal 2007.
On May 18, 2004, the Company entered into a license agreement with Tea-Guard, Inc. to
manufacture and distribute Mega-T Green Tea chewing gum and Mega-T Green Tea mints.
The license agreement requires the Company to pay a minimum royalty in order to maintain
its exclusivity for the sale of the products and to continue marketing the products so long as
the minimum requirements are met and until royalties have aggregated to $10,000,000. The
Company is required to pay a royalty of net sales payable quarterly. In fiscal 2007, the net
sales were $1,131,511.
On February 26, 2004, the Company entered into an agreement with Dr. Stephen Hsu.
PhD. to create green tea skin care products. Dr. Hsu will be entitled to a commission on
the net factory sales of all of the Company’s products using the green tea serum created
exclusively for the Company. The net sales for products subject to a commission under the
agreement was $6,527,969 in 2007.
On July 14, 2004, the Company entered into a license agreement with Denise Austin. The
license agreement requires the Company to pay a minimum royalty in order to maintain the
exclusive use of the name, “Denise Austin” to manufacture and sell a special line of skin
care and cosmetic products. The license agreement was not renewed and expired on July
13, 2006.
-28-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Royalty Agreements (Continued)
The Company is not party to any other license agreement that is currently material to its
operations.
Total royalty costs by licensor for each fiscal year are as follows:
Summary
Licensor
2007
2006
2005
A
B
C
D
E
F
G
H
I
J
K
L
$ 39,290
91,662
18,020
5,692
511
3570
-
196,683
33,283
-
195,839
84,732
$43,367
92,630
11,892
( 88)
3,237
1,054
-
74,148
81,363
( 60,402)
37,939
-
$ 45,116
99,166
23,616
( 3,497)
6,815
4,424
-
116,916
96,975
116,870
91,870
-
Employment Contracts
The Company has executed Employment Contracts with its Chief Executive Officer and its
Chairman of the Board. The contracts for both are exactly the same. The contracts expire on
December 31, 2010. The contracts provide for a base salary which commenced in 1994 in the
amount of $300,000, with a year-to-year CPI or 6% plus 2.5% of the Company’s pre-tax income
less depreciation and amortization (EBITDA), plus 20% of the base salary for the fiscal year plus
fringes. The “2.5% measure” in the bonus provision of the two contracts was amended on
November 3, 1998 so as to calculate it against earnings before income taxes, less depreciation,
amortization and expenditures for media and cooperative advertising in excess of $8,000,000.
On May 24, 2001, the contract was amended increasing the base salary then in effect by
$100,000 per annum. Upon expiration of the employment contracts, the agreement provides that
the executives will serve as consultants to the Company for an additional five years. For the
consulting services provided, the executives will be paid fifty percent (50%) of their annual base
salary plus bonus. The Employment Contracts also provide that upon the death of the Chief
Executive Officer and its Chairman of the Board within the employment and consulting period,
the Company is obligated for two successive years to pay their respective estate an amount equal
to their total compensation at that time.
-29-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Employment Contracts (Continued)
David Edell’s sons, Dunnan Edell and Drew Edell have five year employment contracts in the
amounts of $270,000 and $200,000 respectively, which expire on November 2007. On February
10, 2006, the Board of Directors extended the contracts for Dunnan Edell and Drew Edell to
December 31, 2010. Dunnan Edell is a director and President of the Company. Drew Edell is
the Vice President of Product Development and Production. On July 1, 2003, Dunnan Edell’s
salary was increased to $300,000, and on January 5, 2004 Drew Edell’s salary was increased to
$225,000 and in 2005, it was increased to $250,000. On May 17, 2007 the Board of Directors
amended the contracts for Dunnan Edell and Drew Edell, extending the contracts to November
30, 2012, and increasing the base salary to $350,000 and $275,000 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 agreement is in effect through January 1, 2008. This agreement pertains to 29% of
the CCA labor force. During 2007, Local 734 was taken over by Local 108 of Laborer’s
International Union, which had no impact on the Company. On December 12, 2007, the
Company and Local 108 agreed to extend the collective bargaining agreement that had been in
effect until January 31, 2008. On January 31, 2008, the Company and Local 108 agreed to
further extend the collective bargaining agreement until February 29, 2008. The Company is in
discussions with Local 108 to further extend the collective bargaining agreement until March 31,
2008. If the new collective bargaining agreement is not signed by that date, the Company does
not believe that there will be any material effect on the Company’s financial position or results
of operations.
Litigation
All of the Company’s litigation other than in the ordinary course of business has been dismissed.
Refer to Form 8-K, filed on May 8, 2007 with the United States Securities and Exchange
Commission for further information.
-30-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Dividends and Capital Transactions
On January 11, 2005, the Board of Directors declared a $0.16 per share dividend for fiscal
2005, $0.08 payable to all shareholders of record May 1, 2005 payable on June 1, 2005 and
$0.08 payable to all shareholders of record November 1, 2005 payable on December 1,
2005.
On November 15, 2005 the Board of Directors declared a $0.05 per share dividend for the
first quarter ending February 28, 2006. The dividend was paid on March 1, 2006 to all
shareholders of record as of February 1, 2006. On March 14, 2006, the Board of Directors
declared another $0.05 per share dividend for the second quarter ending May 31, 2006.
The dividend was paid on June 1, 2006 to all shareholders of record as of May 31, 2006.
On June 29, 2006, the Board of Directors declared a $0.07 per share dividend for the third
quarter ending August 31, 2006. The dividend was paid to all shareholders of record as of
August 1, 2006 and payable on September 1, 2006. On October 5, 2006 the Board of
Directors declared a $0.07 per share dividend for the fourth quarter ending November 30,
2006. The dividend was paid to shareholders of record as of November 1, 2006 and
payable on December 1, 2006.
On December 28, 2006, the Board of Directors declared a $0.07 per share dividend for the
first quarter ended February 28, 2007. The dividend was payable to all shareholders of
record as of February 1, 2007 and payable on March 1, 2007. On April 12, 2007, the
Board of Directors declared a $0.07 per share dividend for the second quarter ended May
31, 2007. The dividend was payable to all shareholders of record as of May 1, 2007 and
payable on June 1, 2007. On June 22, 2007, the Board of Directors declared a $0.07 per
share dividend for the third quarter ended August 31, 2007. The dividend was payable to
all shareholders of record as of August 1, 2007 and payable on September 1, 2007. On
September 26, 2007, the Board of Directors declared a $0.09 dividend for the fourth
quarter ended November 30, 2007. The dividend was payable to all shareholders of record
as of November 1, 2007 and payable on December 1, 2007.
During fiscal 2006, three officer/directors and one director exercised in the aggregate
95,500 options, the officers/directors David Edell-22,500, Ira Berman-28,000, Dunnan
Edell-20,000 and the director Jack Polak-25,000. In addition, the Company purchased and
retired an aggregate of 225,000 shares of common stock from three officer/directors, David
Edell100,000, Ira Berman-100,000 and Drew Edell-25,000. The purchase price was
$10.50 per share discounted from $10.82 per share, the closing price at the close of
business on the transaction date. The Company purchased 9,392 shares from Stanley
Kreitman, a director, and 15,000 shares from Rami Abada, a former director, for $10.50 per
share discounted from $10.70, the closing price at the close of business on the transaction
date.
-31-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 -
401 (K) PLAN
The Company has adopted a 401(K) Profit Sharing Plan that covers all employees with
over one year of service and attained Age 21. Employees may make salary reduction
contributions up to twenty-five percent of compensation not to exceed the federal
government limits. The Plan allows for the Company to make discretionary contributions.
For all Fiscal periods 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 and food chains merchandisers,
and wholesale beauty-aids distributors throughout the United States and Canada.
During the years ended November 30, 2007, 2006 and 2005, certain customers each
accounted for more than 5% of the Company's net sales, as follows:
Customer
2007
2006
2005
Walmart
Walgreen
Rite Aid
CVS
McLanes
Foreign Sales
* under 5%
40%
8%
8%
6%
5%
3%
36%
12%
*
6%
6%
2%
34%
10%
*
7%
13%
2%
The loss of any one of these customers could have a material adverse affect on the
Company’s earnings and financial position.
-32-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - CONCENTRATION OF RISK (Continued)
During the years November 30, 2007, 2006 and 2005, certain products within the
Company’s product lines accounted for more than 10% of the Company’s net sales as
follows:
Category
2007
2006
2005
Dietary Supplement
Skin Care
Oral Care
Nail Care
31%
29%
25%
11%
31%
30%
24%
9%
26%
37%
24%
8%
The Company maintains cash balances at several banks. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to $100,000. In addition, the
Company maintains accounts with several brokerage firms. The accounts contain cash and
securities. Balances are insured up to $500,000 (with a limit of $100,000 for cash) by the
Securities Investor Protection Corporation (SIPC). Each brokerage firm has substantial
insurance beyond the $500,000 SIPC limit.
NOTE 15 - OTHER EVENTS
On November 1, 2006 the Company entered into a letter of intent with Dubilier and
Company relating to a proposed acquisition of the Company by Dubilier. A copy of the
letter of intent was included as an exhibit to the Company’s 8K filed Report with the
Securities and Exchange Commission on November 2, 2006. The Company and Dubilier
had reached an agreement in principle on a transaction pursuant to which Dubilier would
acquire all of the outstanding common stock and Class A common stock of the Company at
a price per share of $12.25. The transaction was subject to, among other matters, the
execution and delivery of a definitive merger agreement, approval of the transaction by
CCA’s board of directors and shareholders, receipt of an opinion from an independent
investment banking firm to the effect that the consideration to be paid by Dubilier is fair,
from a financial point of view, to the public holders of the Company’s common stock, and
Dubilier’s ability to obtain financing for the transaction. On April 2, 2007, the Company
received an opinion from an investment banking company that from a financial point of
view, the proposed transaction is fair to all shareholders. On April 10, 2007 the Company
was advised by Dubilier that it was unable to obtain its’ financing, despite the fact that the
Company had met all of its financial requirements of earnings before income tax,
depreciation, and amortization, as well as net working capital. The proposed transaction
was formally terminated by the Company on April 10, 2007.
NOTE 16 - SUBSEQUENT EVENT
On December 5, 2007, the Board of Directors declared a $0.10 per share dividend to all
shareholders of record as of February 1, 2008 and payable on March 1, 2008.
-33-
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - EARNINGS PER SHARE
Basic earnings per share is calculated using the average number of common shares outstanding. Diluted earnings per share is
computed on the basis of the average number of common shares outstanding plus the effect of outstanding stock options using
the “treasury stock method”.
Year Ended November 30,
Net income available for common
shareholders, basic and diluted
Weighted average common stock
outstanding- Basic
Net effect of dilutive stock options
Weighted average common stock and
common stock equivalents - Diluted
Basic earnings per share
Diluted earnings per share
2007
2006
2005
$5,537,795
$5,604,251
$3,785,502
7,029,611
7,034,276
7,145,297
29,278
99,056
172,697
7,058,889
7,133,332
7,317,994
$.79
$.78
$.80
$.79
$.53
$.52
-34-
SCHEDULE II
COL. A
Description
Year Ended November 30, 2007:
Allowance for doubtful accounts
Reserve for returns and allowances
CCA INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
YEARS ENDED NOVEMBER 30, 2007, 2006 AND 2005
COL. B
Balance at
Beginning
Of Year
COL. C
Additions
Charged To
Costs and
Expenses
COL. D
COL. E
Balance
At End
Deductions Of Year
$ 185,779
840,418
($ 42,544)
6,039,823
($ 1,628) $ 141,607
732,696
( 6,147,545)
$1,026,197
$5,997,279
($6,149,173) $ 874,303
Reserve of inventory obsolescence
$ 777,715
$ 62,827
($ 235,796) $ 604,746
Year Ended November 30, 2006:
Allowance for doubtful accounts
$ 260,366
($ 73,657)
($ 930) $ 185,779
Reserve for returns and allowances
678,348
4,520,660
( 4,358,590)
840,418
$ 938,714
$4,447,003
($ 4,359,520) $1,026,197
Reserve of inventory obsolescence
$ 854,764
$ 625,743
($ 702,792) $ 777,715
Year Ended November 30, 2005:
Allowance for doubtful accounts
$ 111,078
$ 206,736
($ 57,448) $ 260,366
Reserve for returns and allowances
406,556
6,240,837
( 5,969,045)
678,348
$ 517,634
$6,447,573
($6,026,493) $ 938,714
Reserve for inventory obsolescence
$ 871,488
$ 265,032
($ 281,756) $ 854,764
Exhibit 31.1
CERTIFICATION
I, David Edell, certify that:
1. I have reviewed this annual report on Form 10-K of CCA Industries, Inc.;
2. To the best of my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. To the best of my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this report.
4. The Registrant’s other certifying officer, Stephen A. Heit, and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relation to the Registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the Registrant’s internal control over financial reporting that
occurred during the Registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to affect, the Registrant’s
internal control over financial reporting; and
5. The Registrant’s other certifying officer, Stephen A. Heit, and I have disclosed, based on our most recent
evaluation of internal controls over financial reporting, to the Registrant’s auditors and the audit committee
of the Registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Registrant’s internal control over financial reporting.
Date: February 28, 2008 /s/ DAVID EDELL
David Edell
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Stephen A. Heit, certify that:
1. I have reviewed this annual report on Form 10-K of CCA Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this report.
4. The Registrant’s other certifying officer, David Edell, and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relation to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b)
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c)
Disclosed in this report any change in the Registrant’s internal control over financial reporting that
occurred during the Registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to affect, the Registrant’s internal control over
financial reporting; and
5. The Registrant’s other certifying officer, David Edell, and I have disclosed, based on our most recent
evaluation of internal controls over financial reporting, to the Registrant’s auditors and the audit committee
of the Registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
(b)
significant role in the Registrant’s internal control over financial reporting.
Date: February 28, 2008
/s/ STEPHEN A. HEIT
Stephen A. Heit
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CCA Industries, Inc. (the “Registrant”) on Form 10-K for the annual
period ended November 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, David Edell, Chief Executive Officer of the Registrant, certify, in accordance with 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
(1) The Report, to which this certification is attached, fully complies with the requirements of section 13(a) of
the Securities Exchange Action of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant.
Date: February 28, 2008 /s/ DAVID EDELL
David Edell
Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CCA Industries, Inc. (the “Registrant”) on Form 10-K for the annual
period ended November 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Stephen A. Heit, Chief Financial Officer of the Registrant, certify, in accordance with 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
(1) The Report, to which this certification is attached, fully complies with the requirements of section 13(a) of
the Securities Exchange Action of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant.
Date: February 28, 2008 /s/ STEPHEN A. HEIT
Stephen A. Heit
Chief Financial Officer