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, 2008
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
No
(cid:0)
(cid:2)
.
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
(cid:0)
.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
(cid:2)
(cid:2)
(cid:0)
(cid:2)
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
(cid:0)
(cid:2)
No
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 $8.78 on May 31, 2008, was as follows:
Class of Voting Stock
4,940,667 shares; Common
Stock, $.01 par value
Market Value
$43,379,056
On February 25, 2009 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, 2008
Business
Property
3. Legal Proceedings
Legal Proceedings
4. Submission of Matters to a Vote of Security
Submission of Matters to a Vote of Security Holders
Holders
5. Market for Registrant’s Common Equity and
Related Stockholder Matters
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
Quantitative and Qualitative Disclosures about Market Risk
Market Risk
8. Financial Statements and Supplementary Data
Financial Statements and Supplementary Data
9. Changes In and Dis-agreements With
Accountants On Accounting and Financial
Disclosure
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
Directors and Executive Officers of the Registrant
Registrant
- ii -
Form 10-K
Item No.
Headings in this Form
10-K for Year Ended
November 30, 2008
11. Executive Compensation
Executive Compensation
12. Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters
13. Certain Relationships and Related Transactions
Certain Relationships and Related Transactions
14. Principal Accountant Fees and Services
Principal Accountant Fees and Services
15. Exhibits, Financial Statements, Schedules, and
Reports on Form 8-K
Exhibits, Financial Statements, Schedules, and Reports on Form
8-K
- iii -
TABLE OF CONTENTS
Page
Item
PART I
1. Business
2. Property
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
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
7A. Quantitative and Qualitative Disclosure About Market Risk
8. Financial Statements and Supplementary Data
9. Changes In and Disagreements with Accountants On Accounting and Financial Disclosure
9A. Controls and Procedures
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
13. Certain Relationships and Related Transactions
14. Principal Accountant Fees and Services
PART IV
15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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1
6
6
6
7
9
10
21
22
22
22
24
27
32
34
34
36
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), Pain Bust-R
(topical analgesic) 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. In addition, certain of the Company’s products are sold internationally, through
distributors or directly.
The Company recognizes sales at the time its products are shipped to customers. However, while sales are not formally
subject to any contract contingency, returns are accepted if it is in the best interests of the Company’s relationship with the
customer. 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 2008 were $ 56,741,133. Gross profits were $34,971,991. International sales accounted
for approximately 4 % of sales. The Company had a net profit of $1,412,886 for fiscal 2008. Net worth at November 30, 2008
was $ 28,253,879.
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Including the principal members of management (see Directors and Executive Officers), the Company, at November 30,
2008, had 152 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, warehouse clubs 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 250 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, 2008, the Company’s largest customers were Wal-Mart (approximately 44% of
net sales), Walgreens (approximately 10%), CVS (approximately 7%), Rite Aid (approximately 5%), and Target, (approximately
4%). 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.
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.
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The Company’s in-house advertising department is responsible for the selection of its media advertising. Placement is
accomplished either directly or 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 32.7%; Skin Care 29.3%; Oral
Care 24.6%; Nail Care 10.3%; Fragrance 2.7% and Hair Care and Miscellaneous 0.4%.
(f) License-Agreements Products
i. Alleghany Pharmacal
In 1986, the Company entered into a license agreement with Alleghany Pharmacal Corporation (the “Alleghany Pharmacal
License”). 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 Company accrued royalties totaling $82,541 to Alleghany Pharmacal for the fiscal year ended November 30, 2008.
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 of 5% on net sales of said licensed products until $1 million total royalties are paid. The Company accrued royalties of
$56,051 to Solar Sense, Inc. for the fiscal year ended November 30, 2008.
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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 5% of net sales of
all products sold under the license, by the Company. The Company accrued royalties totaling $37,071 to The Nail Consultants,
Ltd. for the fiscal year ended November 30, 2008.
iv. Dr. Stephen Hsu — Green Tea
Stephen Hsu, PhD., research faculty member of the Medical College of Georgia, entered into an agreement with the
Company on February 26, 2004, to create green tea skin care products based on his years of research related to the various uses
of green tea anti-oxidants for skin care problems.
Dr. Hsu collaborated with Drew Edell, Vice-President of Research and Development for the Company, to create and file a
patent application for a special anti-oxidant green tea serum to be used for topical skin application. The patent was filed in
November 2004, and is still in review with the U.S. Patent Office.
Dr. Hsu is entitled to a commission of 3% on the net factory sales of all of the Company’s products using the green tea
serum created exclusively for the Company. The Company accrued commissions totaling $240,215 to Dr. Hsu for the fiscal year
ended November 30, 2008.
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. The license agreement requires the Company to pay a royalty of 6%
of net sales for the products sold under the license agreement. There is a minimum annual royalty of $250,000 per annum, which
was waived by Tea-Guard, Inc. for the one year period ended 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. The Company accrued royalties to Tea-Guard, Inc. totaling $44,866 for the fiscal year ended
November 30, 2008.
vi. Pain Bust R
Effective November 3, 2008, the Company entered into an agreement with Continental Quest Corp., to purchase certain
United States trademarks and inventory relating to the Pain Bust R business for $285,106 paid at closing. In addition, the
Company agreed to pay a royalty equal to 2% of net sales of all Pain Bust R products, which are topical analgesics, until an
aggregate royalty of $1,250,000 is paid, at which time the royalty payments will cease.
- 4 -
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.
(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 such license-requirement circumstances should arise, delays inherent in any application-and-
approval process, as well as any refusal to approve, could have a material adverse affect upon existing operations (i.e.,
concerning in-the-market products) or planned operations.
(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.
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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.
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, 2008, CAM was estimated at $150,000.
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. For the year ended November 30, 2008, CAM was $28,150.
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 June 25, 2008, 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. The Class A Common Stock shareholders have the right to elect four members of the Board of Directors. 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.
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(3) The Board’s appointment of KGS LLP as the Company’s independent certified public accountants for the 2008 fiscal
year was approved.
The Company has not submitted any matter to a vote of security holders since the 2008 Annual Meeting.
PART II
Item 5. MARKET FOR THE COMPANY’S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company’s Common Stock is traded on the New York Stock Exchange Alternext US under the symbol “CAW.”
The range of high and low sales prices of the Common Stock during each quarter of its 2008, 2007 and 2006 fiscal years
was as follows:
Quarter Ended
February 29
May 31
August 31
November 30
2007
2008
$12.12 – $11.06 $11.45 – $7.80
$9.90 – $8.91
$9.65 – $8.53
$ 12.04 – $9.03 $11.10 – $9.95
$8.85 – $6.35 $ 10.60 – $8.94 $10.40 – $9.41
$6.40 – $3.60
$ 10.25 – $9.20 $11.73 – $9.49
2006
The high and low prices for the Company’s Common Stock, on February 2, 2009 were $3.11 to $3.02 per share.
As of November 30, 2008, there were approximately 141 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 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.
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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.
On December 5, 2007, the board of directors declared a $0.10 per share dividend for the first quarter ending February 29,
2008. The dividend was payable to all shareholders of record as of February 1, 2008, and was paid on March 1, 2008. On
February 25, 2008, the board of directors declared an $0.11 per share dividend for the second quarter ending May 31, 2008. The
dividend was payable to all shareholders of record as of May 1, 2008, and payable on June 1, 2008. On July 7, 2008, the board of
directors declared an $0.11 per share dividend for the third quarter ending August 31, 2008. The dividend was payable to all
shareholders of record as of August 1, 2008, and payable on September 1, 2008. On October 13, 2008, the board of directors
declared a $0.11 per share dividend for the fourth quarter ending November 30, 2008. The dividend was payable to all
shareholders of record as of November 1, 2008, and payable on December 1, 2008.
On January 28, 2009, the Board of Directors declared a $0.11 per share dividend for the first quarter of 2009 to all
shareholders of record as of February 3, 2009 and payable on March 3, 2009.
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Item 6. SELECTED FINANCIAL DATA
Statement of Income
Sales, Net (1)
Other income
Costs and Expenses (1)
Income before provision for
Income Taxes
Net Income
Earnings Per Share:
Basic
Diluted
Weighted Average Number of Shares
2008
Year Ended November 30,
2006
2005
2007
2004
$ 56,741,133
716,813
54,991,547
$ 59,832,157
1,045,710
51,283,141
$ 63,302,220
797,803
55,183,378
$ 61,181,344
572,909
54,646,715
$ 59,008,135
850,196
50,484,052
2,466,399
$ 1,412,886
9,594,726
$ 5,537,795
8,916,645
$ 5,604,251
7,107,528
$ 3,785,502
9,374,279
$ 5,796,663
$
$
.20
.20
$
$
.79
.78
$
$
.80
.79
$
$
.53
.52
$
$
.78*
.75*
Outstanding
7,054,442
7,029,611
7,034,276
7,145,297
7,399,472*
Weighted Average Number of Shares
and Common Stock Equivalents
Outstanding
7,061,646
7,058,889
7,133,332
7,317,994
7,680,781*
2008
2007
As At November 30,
2006
2005
2004
Balance Sheet Data:
Working Capital
$ 23,836,264
$ 24,922,016
$ 22,295,983
$ 18,602,107
$ 13,562,389
Total Assets
39,345,861
39,903,876
36,516,571
35,309,308
31,556,577
Total Liabilities
Total Shareholders’ Equity
11,091,982
28,253,879
9,153,558
30,750,318
9,131,780
27,284,791
9,309,652
25,999,656
8,034,530
23,522,047
(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, 2004
and 2005. The reclassification did not affect the net income for those years.
*
Adjusted for 2% stock dividend in 2004.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Except for historical information contained herein, this “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” contains forward-looking statements. These statements 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 2008 and 2007
The Company’s net sales decreased from $59,832,157 for the fiscal year ended November 30, 2007 to $56,741,133 for the
fiscal year ended November 30, 2008. Net sales reflected an adjustment after reclassifying certain advertising expenses from
selling expense to a reduction of net sales, which does not affect net income, and is more fully described in the footnotes to the
financial statements. During fiscal 2008, the amount of advertising expenses that were classified as a reduction of net sales was
$4,557,507, versus $5,184,112 in fiscal 2007, reflecting a decrease in the net sales reduction of $626,605. Gross sales were lower
primarily in the oral care and fragrance categories. Sales returns and allowances were 11.6% of gross sales for fiscal 2008 versus
9.6% in fiscal 2007. Sales returns were higher primarily due to a primary customer’s integration of a retail store chain that it had
acquired into its operations that resulted in some store closings. The Company also had $321,070 of returns, primarily in the first
three quarters of fiscal 2008, from the unsuccessful launch of Pound-X, a dietary supplement launched in the fourth quarter of
2006. In addition, the Company expanded its use of coupons resulting in an expense increase of $387,517 that was charged
against sales allowances. The Company continually has returns of products that have been phased out and replaced by new items
as part of its marketing plan. Gross profit margins declined from 63.6% in fiscal 2007 to 61.6% in fiscal 2008. The change in the
gross profit margin was primarily due to the higher returns and sales allowances in fiscal 2008. In addition, due to the
significantly higher fuel costs in 2008, there was an increase in the cost of goods including delivery charges.
The Company’s net sales, by category were: Dietary Supplement $18,531,613 or 33%, Skin Care $16,623,447 or 29%, Oral
Care $13,944,877 or 25%, Nail Care $5,816,461 or 10%, Fragrance $1,532,679 or 3%, and Hair Care and Miscellaneous
$292,056 or 0%.
Income before taxes was $2,466,399 for fiscal 2008 as compared to $9,594,726 for fiscal 2007, a decrease of $7,128,327.
The decrease was primarily due to a $3,684,860 increase in media and co-operative advertising in fiscal 2008 versus fiscal 2007.
In addition, for the reasons as previously noted, fiscal 2008 returns and allowances were higher by $1,106,135 as compared to
fiscal 2007. Other income declined $328,897, primarily due to lower interest rates. Cost of goods increased as a result of the
increased fuel costs, including delivery charges of raw materials and components and higher testing costs. Due to the
significantly increased fuel charges in 2008, the cost of freight out increased from 4.1% of gross sales in fiscal 2007 to 4.9% of
gross sales in fiscal 2008. In an effort to attract new customers, the Company increased its use of advertising in newspaper
inserts. Expenses were also higher due to increased donations of inventory in fiscal 2008; however that also resulted in an
increased tax benefit which offset the higher expense and created a deferred tax benefit that will be utilized in future periods.
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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 increased from $141,607 as of
November 30, 2007 to $154,290 as of November 30, 2008. The increase is directly attributable to a higher reserve 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 increased from
$1,696,961 as of November 30, 2007 to $2,112,426 as of November 30, 2008. Of this amount, allowances and reserves in the
amount of $1,443,688, which are anticipated to be deducted from future invoices, are included in accrued liabilities. The increase
is mainly due to the timing of the Company’s sales.
The reserve for inventory obsolescence is based on a detailed analysis of inventory movement. The reserve decreased from
$604,746 as of November 30, 2007 to $578,941 as of November 30, 2008.
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, which has no affect on the net income. 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 2008. The reclassification reflects a reduction
in sales for the fiscal years ended November 30, 2008 and 2007 by $4,557,507 and $5,184,112 respectively.
For the year ended November 30, 2008, the Company had revenues of $57,457,946, and net income of $1,412,886, after a
provision of $1,053,513 for taxes. 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. Fully diluted earnings per share for fiscal 2008 were $0.20 as
compared to $0.78 for fiscal 2007. 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 decreased
from $1,045,710 for fiscal 2007 to $716,813 in fiscal 2008, primarily due to the decrease in interest rates.
The effective tax rate for fiscal 2008 was 42.7% of income before tax as compared to 42.3% for fiscal 2007. The slight
increase in the tax rate was due to the timing of certain tax deductions in fiscal 2008 versus 2007, which resulted in a $321,855
increase in deferred tax assets.
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For fiscal 2008, advertising, cooperative and promotional expenses were $10,466,740 as compared to $6,956,407 for fiscal
2007, or an expense increase of $3,510,333. Advertising expenses were 18.4% of net sales for fiscal 2008 versus 11.6% for fiscal
2007. The increase in advertising expense was due to the Company supporting a new leading diet product.
Selling, general and administrative expenses increased from $21,266,327 in fiscal 2007 to $22,122,849 in fiscal 2008. The
increase was primarily due to higher freight out costs as a result of the significant increase in fuel costs, increased selling
expenses, and higher donations of inventory as earlier noted.
As of November 30, 2008, there was $1,286,692 of open cooperative advertising commitments, of which $748,082 is from
2008, $503,064 is from 2007 and $35,546 is from 2006. The Company’s total cooperative advertising commitment decreased
from $6,800,000 in fiscal 2007 to $6,264,562 in fiscal 2008. 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 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, which does
not affect the net income, and is 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 had 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 focused more on co-
operative advertising as noted above.
- 12 -
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 2008. 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.
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
$1,851,653 as of November 30, 2006 to $1,696,961 as of November 30, 2007. Of this amount, allowances and reserves in the
amount of $964,266, which are anticipated to be deducted from future invoices, are included in accrued liabilities. The decrease
is mainly due to the timing of the Company’s sales.
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, which has no affect on the net income. 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 2008. 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 was
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.
- 13 -
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 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.
Liquidity and Capital Resources
As of November 30, 2008, the Company had working capital of $23,836,264 as compared to $24,922,016 at November 30,
2007. The ratio of total current assets to current liabilities is 3.2 to 1 as compared to a ratio of 3.8 to 1 for the prior year.
Stockholders’ equity decreased to $28,253,879 in fiscal 2008 from $30,750,318 in fiscal 2007. The decrease was due to an
increase in dividends declared from $2,109,040 in fiscal 2007 to $3,033,411 in fiscal 2008, and an increase in unrealized losses
on marketable securities of $875,914. The Company did not purchase any treasury stock during fiscal 2008.
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The Company’s cash position and short-term investments at November 30, 2008 were $15,583,056, versus $14,747,784 as
at November 30, 2007. Non-current or long term investments were $2,945,740 at November 30, 2008 versus $4,801,504 as at
November 30, 2007. The Company paid cash dividends during fiscal 2008 in the amount of $2,892,322, representing the
dividends declared at the end of fiscal 2007 but not paid until fiscal 2008 of $634,900 and $2,257,422 in dividends declared and
paid for fiscal 2008. As of November 30, 2008, there were dividends declared but not paid of $775,989. The Board of Directors
increased the dividends declared during fiscal 2008 resulting in the larger amount of paid cash dividends in fiscal 2008 versus
fiscal 2007. The securities the Company purchased are all classified as “Available for Sale Securities”, and are reported at fair
market value as of November 30, 2008, with the resultant unrealized gains or losses reported as a separate component of
shareholders’ equity. Due to the current securities market conditions, the Company cannot ascertain the risk of any future change
in market 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 $7,932,798 and $7,857,322, as of November 30, 2008 and 2007 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 $604,746 to $578,941.
Accounts receivable as of November 30, 2008 and 2007 were $8,230,716 and $9,119,179 respectively. The decrease in
accounts receivable is due to the timing of the Company’s sales. Accounts Receivable allowances and reserves decreased in the
aggregate by $51,273 from November 30, 2007 to November 30, 2008. The reserves were higher as of November 30, 2007 due
to additional provisions for Pound-X, a dietary supplement product which was discontinued. The Company does not anticipate
any further Pound-X returns that would be material.
The amount of deferred income tax reflected as a current asset increased from $765,821 as of November 30, 2007 to
$973,732 as of November 30, 2008. The increase was mainly due to the increase of deferred tax credits for charitable
contributions during fiscal 2008. 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. The amount of non-current deferred tax increased from
$29,475 as of November 30, 2007 to $143,419 as of November 30, 2008. The increase was due to a portion of the charitable
contributions for which the benefit is estimated to be beyond the 2009 fiscal year, and thus has been classified as a long term
asset.
Current liabilities are $11,016,196 and $9,038,676, as of November 30, 2008 and 2007 respectively. Current liabilities at
November 30, 2008 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, 2008, the Company had long and short-term triple A investments and cash of $18,528,796 as
compared to $19,549,288 as of November 30, 2007. As of November 30, 2008, the Company was not utilizing any of the funds
available under its $20,000,000 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.
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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 further 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. As noted earlier, significantly higher fuel costs resulted in higher cost of goods and
freight out costs during fiscal 2008. On January 21, 2009, the Company filed Form 8-K with the United States Securities and
Exchange Commission advising that Wal-mart had informed the Company that starting in March 2009, due to the slowdown in
the economy, it will only carry the leading brands in their oral care sections. Therefore starting sometime in March, Wal-Mart
will no longer be purchasing the company’s Plus+White oral care products brand. In 2008 the company’s net sales of
Plus+White to Wal-Mart totaled $6 million.
- 16 -
Contractual Obligations
The following table sets forth the contractual obligations in total for each year of the next five years as at November 30,
2008. Such obligations include the current lease for the Company’s premises, written employment contracts and License
Agreements.
Lease on Premises (1)
Royalty Expense (2)
Employment Contracts (3)
Open Purchase Orders
Total Contractual Obligations
2009
751,421
25,000
2,733,050
3,727,992
7,227,463
2010
692,106
25,000
2,859,533
2011
665,323
25,000
1,907,994
2012
326,197
25,000
1,984,974
2013
—
25,000
1,441,572
3,700,155
2,619,348
2,343,463
1,466,572
(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 2008 is estimated at
$150,000. 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. 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 $28,150. 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 2008
sales. Royalty expense includes Alleghany Pharmacal, Solar Sense, Nail Consultants, Tea-Guard, Inc. and Stephen Hsu,
PhD.
(3) The Company had executed Employment Contracts on December 1, 1993, 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 the five years (plus the portion of the
bonus equal to 20% of the base salary), an adjustment for CPI, and without estimating the 2.5% bonus provision, as that
bonus is contingent upon future earnings, and also including most of the payments that would be due as consulting
payments upon expiration or retirement (the portion based on the 2.5% bonus provision is not calculated into the consulting
payment estimate). 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.
- 17 -
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 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 has not had a 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 has not had a material impact on the
Company’s financial position or results of operation.
- 18 -
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.
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3 (“FSP FAS 142-3”) which amends the factors that
should be considered in determining the useful life of a recognized intangible asset under FASB Statement of Financial
Accounting Standards No. 141 (“SFAS No. 141). FSP FAS 142-3 is effective for fiscal years beginning after December 15,
2008. The adoption of this staff position will have no material impact on the Company’s financial position or results of
operation.
In October 2008, the FASB issued FASB Staff Position No. FAS 157-3 (“FSP FAS 157-3”) which clarifies the application
of FASB Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”) in regard to fair value measurements of
financial assets in a market that is not active. FSP FAS 142-3 became effective October 10, 2008 for all subsequent reporting
periods. The adoption of this staff position has had no material impact on the Company’s financial position or results of
operation.
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.}
- 19 -
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 2008, net sales were $56,741,133. Net income was $1,412,886. There is no assurance that all of the Company’s
products will be successful. During 2008 consumer confidence was at a record low which had a general impact on retail sales.
Competition in the Cosmetic, Health and Beauty Aid Industry is Highly Competitive.
Reference is made to “Business ‘Sub-section’ of Competition.”
CLASS A Shareholders Retain Control of Board of Directors.
See “Voting” in the Proxy Statement dated May 15, 2008. 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.
- 20 -
The Company Relies On A Few Large Customers For A Significant Portion Of Its Sales.
In fiscal 2008, Wal-Mart Stores Inc. represented approximately 44% of the Company’s total revenues. The Company’s ten
largest customers accounted for 77% 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. On January 21, 2009, the
Company filed Form 8-K with the United States Securities and Exchange Commission that Wal-Mart had advised the Company,
that starting sometime in March, it would not be carrying the Company’s oral care product brand. The net sales of the oral care
products totaled approximately $6 million in fiscal 2008, or 24% of Wal-Mart net sales.
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, 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, general stock market conditions, and 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). $66,058 of the Company’s $9,594,097 portfolio of investments ( as at Nov. 30, 2008) is invested in the ”Common
Stock” and “Other Equity” category, and $1,930,046 are invested in Preferred Stock holdings. 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, however due to current securities market conditions, the Company cannot ascertain the risk of any future
change in the market value of its’ investments.
- 21 -
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, 2008 and 2007:
Fiscal 2008
Net Sales
Total Revenue
Cost of Products Sold
Net Income
Earnings Per Share:
Basic
Diluted
Fiscal 2007 **
Net Sales
Total Revenue
Cost of Products Sold
Net Income
Earnings Per Share:
Basic
Diluted
Feb. 28
May 31
Aug. 31
Nov. 30
Three Months Ended
$ 13,639,145
13,871,040
4,893,262
343,683
$ 17,258,060
17,389,985
6,335,298
790,692
$ 13,939,214
14,148,729
5,252,704
1,101,420
11,904,714
12,048,192
5,287,878
(822,909)
$
$
.05
.05
$
$
.11
.11
$
$
.16
.16
$
$
(.12)
(.12)
Feb. 28
May 31
Aug. 31
Nov. 30
Three Months Ended
$ 13,727,279
13,975,385
4,905,272
472,753
$ 18,227,413
18,457,562
6,662,077
1,292,921
$ 13,939,369
14,266,083
4,933,134
2,069,604
14,085,903
14,326,644
5,081,090
1,702,517
$
$
.07
.07
$
$
.18
.18
$
$
.29
.29
$
$
.25
.24
** 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
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.
The Company has engaged the services of CBIZ Risk & Advisory Services, LLC to assist in the development and
implementation of procedures to determine and test the effectiveness of the Company’s internal controls over financial reporting.
The filing of the Company’s November 30, 2010 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.
- 22 -
The Company continually takes 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.
Management’s Report on Internal Control Over Financial Reporting
Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to assess the effectiveness of the Company’s
internal control over financial reporting as of November 30, 2008 and report, based on that assessment, whether the Company’s
internal controls over financial reporting are effective.
Management of the Company is responsible for establishing and maintaining adequate internal controls over financial
reporting, as defined in Rules 13a-15f or 15d-15f under the Securities Exchange Act of 1934. The Company’s internal control
over reporting is designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial statements.
Internal control over reporting, because of its inherent limitations, may not prevent or detect misstatements. Projections of
any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management has assessed the effectiveness of its internal control over financial reporting as of
November 30, 2008 using the criteria as set forth in Internal Control – Integrated Framework by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s assessment included documenting, evaluating and testing of the
design and operating effectiveness of its internal control over financial reporting. Management of the Company has reviewed the
results with the Audit Committee of the Board of Directors.
Based on the Company’s assessment, management has concluded that, as of November 30, 2008, the Company’s internal
control over financial reporting was effective.
DAVID EDELL
/s/ David Edell
David Edell, Chief Executive Officer
STEPHEN A. HEIT
/s/ Stephen A. Heit
Stephen A. Heit, Chief Financial Officer
- 23 -
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
PART III
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
YEAR OF FIRST
POSITION
COMPANY SERVICE
David Edell
Chief Executive Officer, Director
Ira W. Berman
Chairman of the Board of Directors, Secretary, Executive Vice
President
Dunnan Edell
President, Chief Operating Officer and Director
Stephen Heit
Executive Vice President and Chief Financial Officer
Drew Edell
Executive Vice President- Product Development and Production
John Bingman
Vice President and Treasurer
Stanley Kreitman
Jack Polak
Robert Lage
Seth Hamot
Director
Director
Director
Director
1983
1983
1984
2005
1983
1986
1996
1983
2003
2007
David Edell, age 76, 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 77, 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 53 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.
- 24 -
Stephen Heit, age 54 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, 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 51 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 57, received a Bachelor of Science degree from Farleigh Dickenson University in 1973. He worked as a
Certified Public Accountant who practiced with the New Jersey accounting firm of Zarrow, Zarrow & Klein from 1976 to 1986.
Jack Polak, age 96, 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 76 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.
- 25 -
Robert Lage, age 72, 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.
Seth Hamot, age 46, 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 previously served as a director of Bradley Pharmaceuticals Inc and as a member of
their audit committee. Mr. Hamot currently serves as a director of Telos Corporation, Tech Team Global, Inc., and Orange 21,
Inc., all publicly traded companies.
Committees of the Board of Directors
The Board of Directors has established three committees. The audit committee is comprised of Robert Lage, who serves as
its’ Chairman, Stanley Kreitman and Jack Polak. Each member of the audit committee qualifies as a “financial expert” as defined
by the United States Securities and Exchange Commission 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, and are “independent” as that term is used in Section 10(m)(3)
of the Exchange Act. The compensation committee is comprised of Stanley Kreitman, Jack Polak, Seth Hamot and Robert Lage.
Each member of the compensation committee is “independent”. The investment committee is comprised of Ira Berman, Stanley
Kreitman and Jack Polak.
- 26 -
Item 11. EXECUTIVE COMPENSATION
i.
Summary Compensation Table
The following table summarizes compensation earned in the 2008, 2007 and 2006 fiscal years by the Chief Executive
Officer and Chief Financial Officer (the “Named Officers”), the three most highly compensated executive officers other than the
Named Officers, and the non-executive officer who would be among the three most highly compensated employees of the
Company other than the Named Officers.
Name and
Principal
Position
David Edell,
Chief Executive Officer
Ira W. Berman,
Secretary and
Executive Vice President
Dunnan Edell,
President, Chief Operating Officer
Stephen Heit
Executive Vice President,
Chief Financial Officer
Annual Compensation
Year
Salary Bonus(1)
$ 812,700
794,173
737,001
$ 422,285
532,807
556,410
Long-Term Compensation
Number
All
of Shares
Other
Covered
by Stock Long-Term
Annual
Compen-
Options
Compen-
sation(2) Granted(3)
sation
—
$ 43,639
—
44,155
—
41,193
Other
0 (4)
0 (4)
0 (4)
2008
2007
2006
2008
2007
2006
2008
2007
2006
2008
2007
2006
$ 812,700
794,173
737,001
$ 422,285
532,807
556,410
$ 45,443
40,699
31,718
$ 343,269
355,962
300,000
$ 96,000
120,000
120,000
$ 16,632
11,060
9,155
$ 234,615
229,327
211,538
$ 24,000
30,000
30,000
$
9,093
8,081
7,972
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0 (4)
0 (4)
0 (4)
0
0
0
0
0
0
0
0
0
0
0
0
Drew Edell
Executive Vice
President Product Development &
Production
2008
2007
$ 269,711
279,904
$ 48,000
60,000
$ 11,442
10,008
2006
250,000
60,000
9,188
Jon Denis
Senior Executive Vice President - Sales
2008
2007
2006
$ 318,750
331,250
248,750
$
6,250
50,000
75,000
$ 10,578
10,235
6,693
(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. For information in regard to stock appreciation rights, refer to Note 9 of the financial statements.
(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.
- 27 -
ii.
Fiscal 2008 Option Grants and Option Exercises, Year-End Option Valuation, Option Repricing
There were no option grants or option exercises during fiscal 2008.
The next table identifies 2008 fiscal-year option exercises by Named Officers and Directors, and reports a valuation of their
options.
David Edell
Ira Berman
Dunnan Edell
Drew Edell
John Bingman
Number of Shares
Number of
Covered by Un-
Shares
exercised Options
Acquired
On Exercise Realized (1) at November 30, 2008 at November 30, 2008(2)
Value of Unexercised
In-the-Money Options
Value
0
0
0
0
0
0
0
0
0
0
25,000 $
25,000
15,000
15,000
10,000
0.00
0.00
0.00
0.00
0.00
(1) Represents the difference between market price and the respective exercise price of the options as of the exercise date.
(2) Represents the difference between market price and the respective exercise prices of the options as of December 1, 2008.
The market price at December 1, 2008 was $3.52.
iii.
Compensation of Directors and Committees of the Board
Each outside director was paid $2,500 for a conference call meeting and $5,000 per meeting for attendance of board
meetings in fiscal 2008 (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 2008, for an
aggregate compensation of $70,000. No stock options were awarded.
- 28 -
iv.
Executive Compensation Principles 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:
Reward executives for long-term strategic management and the enhancement of shareholder value.
Integrate compensation programs with both the Company’s annual and long-term strategic planning.
Support a performance-oriented environment that rewards performance not only with respect to Company goals but also
Company performance as compared to industry performance levels.
The Compensation Committee has a charter, which was 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 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 employee’s performance during the 2008 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 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.
- 29 -
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 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.
- 30 -
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) 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, 2008, 126,000 stock options, yet exercisable, to purchase 126,000 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 2008. 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.
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.
- 31 -
CCA Industries — ASE
Copyright @ 2008 Dow Jones & Company. All rights reserved.
11/03
11/04
11/05
11/06
11/07
11/08
CCA Idustries, Inc.
Dow Jones US
Dow Jones US Personal Products
100.00
100.00
100.00
151.86
113.26
112.10
115.99
124.59
123.69
167.50
142.55
148.33
144.15
153.82
177.02
57.54
94.40
136.70
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER 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, 2008 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.
- 32 -
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.
Name and Address
David Edell
c/o CCA Industries, Inc.
200 Murray Hill Parkway
East Rutherford, NJ 07073
Ira W. Berman
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.
Jack Polak
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.
Officers and Directors
as a group (10 persons)
Number of
Shares Owned (1):
Common
Stock
Class A (2)
“Option
Shares” (1)
Ownership, As A
Percentage of
All Shares Out-
Standing/Assuming
Option Share Exercise (1)
146,609
484,615
25,000
8.9%
9.3%
160,533
483,087
25,000
574,300
15,000
—
97,158
98,108
—
1,111
—
—
—
—
—
—
—
—
—
—
—
—
15,000
15,000
10,000
—
9.1%
8.1%
0.2%
0.0%
0.8%
1.4%
1.4%
0.0%
0.0%
9.5%
8.1%
0.2%
0.0%
0.8%
1.6%
1.6%
0.1%
0.0%
1,146,073
967,702
90,000
30.0%
31.2%
- 33 -
c/o CCA Industries, Inc.
53,254
(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
(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.
(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 2008.
During fiscal 2008, several related parties provided services to the Company, which were deemed immaterial to the
financial statements.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
KGS LLP (“KGS”) served as the Company’s independent auditors for 2008 and 2007. 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.
- 34 -
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 $379,161 for the 2008 fiscal year and $251,363 for the 2007 fiscal year. The Company has paid and is
current on all billed fees.
Audit Related Fees
Audit related fees billed in Fiscal 2008 and 2007 by KGS were $45,515 and $98,015, 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.
Tax Fees
KGS’s fees for professional services rendered in connection with Federal and State tax return preparation and other tax
matters for the 2008 and 2007 fiscal years were $51,261 and $48,847, respectively.
All Other Fees
All other fees of $0 and $300 billed in Fiscal years 2008 and 2007, 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.
- 35 -
Item 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements:
PART IV
Table of Contents, Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets as of
November 30, 2008 and 2007, Consolidated Statements of Income for the years ended November 30, 2008, 2007 and 2006,
Consolidated Statements of Comprehensive Income, Consolidated Statements of Shareholders’ Equity for the years ended
November 30, 2008, 2007 and 2006, Consolidated Statements of Cash Flows for the years ended November 30, 2008, 2007
and 2006, Notes to Consolidated Financial Statements.
Financial Statement Supplementary Information:
Schedule II: Valuation Accounts; Years Ended Nov. 30, 2008, 2007 and 2006.
Exhibits: All Exhibits are incorporated by reference.
- 36 -
(1) The Indenture (and the Promissory note exhibited therewith) defining the rights of former shareholders who tendered
Common Stock to the Company for its $2 per share, five- year, 6% debenture, is incorporated by reference to the filing of
such documents with the Schedule TO filed with the SEC, on June 5, 2001.
(3) The Company’s Articles of Incorporation and Amendments thereof, and its By-Laws, are incorporated by reference to their
filing with the 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:
(1) The Forms 8K, filed on May 22, 2002 and November 20, 2002, are incorporated by reference to this 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.
(5) Form 8K, filed on January 21, 2009, is incorporated by reference to this 10K.
- 37 -
The following reports were filed with the Securities and Exchange Commission during the three months ended
November 30, 2008:
(1) Form 10-Q, filed on October 14, 2008, for the quarter ended August 31, 2008.
(2) Form 8-K, filed on November 4, 2008, announcing that the Company had purchased three Trademarks, the first joint
pain analgesic products it has ever marketed. The Trademarks are Pain Bust RI, Pain Bust RII, and Pain Bust R Ultra.
(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., Washington, D.C. 20549, and one is available at the
Commission’s Internet website (http://www.sec.gov).
- 38 -
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.
SIGNATURES
CCA INDUSTRIES, INC.
By: /s/ DUNNAN EDELL
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
/s/ DAVID EDELL
DAVID EDELL
/s/ IRA W. BERMAN
IRA W. BERMAN
/s/ DUNNAN EDELL
DUNNAN EDELL
/s/ STEPHEN HEIT
STEPHEN HEIT
/s/ DREW EDELL
DREW EDELL
/s/ STANLEY KREITMAN
STANLEY KREITMAN
/s/ ROBERT LAGE
ROBERT LAGE
/s/ JACK POLAK
JACK POLAK
/s/ SETH HAMOT
SETH HAMOT
Chief Executive Officer,
Director
Chairman of the Board of Directors,
Executive Vice President, Secretary
President, Chief Operating Officer,
Director
Executive Vice President,
Chief Financial Officer
Vice President ,
Research & Development
Director
Director
Director
Director
- 39 -
Date
February 27, 2009
February 27, 2009
February 27, 2009
February 27, 2009
February 28, 2009
February 27, 2009
February 27, 2009
February 27, 2009
February 27, 2009
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2008 AND 2007
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
C O N T E N T S
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTARY INFORMATION
SCHEDULE II — VALUATION ACCOUNTS
- 1 -
2
3-4
5
6
7
8
9-36
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
CCA Industries, Inc.
East Rutherford, New Jersey
We have audited the consolidated balance sheets of CCA Industries, Inc. and Subsidiaries as of November 30, 2008 and
2007, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of
the three fiscal years in the period ended November 30, 2008. 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. The company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
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, 2008 and 2007, and the consolidated
results of their operations and their cash flows for each of the three fiscal years in the period ended November 30, 2008, 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.
/s/ KGS LLP
CERTIFIED PUBLIC ACCOUNTANTS
February 27, 2009
Jericho, New York
- 2 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
November 30,
Current Assets
Cash and cash equivalents
Short-term investments and marketable securities (Notes 2 and 6)
Accounts receivable, net of allowances of $823,029 and $874,302, respectively
Inventories, net of reserve for inventory obsolescence of $578,941 and $604,746,
respectively (Notes 2 and 3)
Prepaid expenses and sundry receivables
Prepaid income taxes and refunds due (Note 8)
Deferred income taxes (Note 8)
Total Current Assets
2008
2007
$
8,934,699
6,648,357
8,230,716
$
6,743,960
8,003,824
9,119,179
7,932,798
578,000
1,554,158
973,732
7,857,322
630,893
839,693
765,821
34,852,460
33,960,692
Property and Equipment, net of accumulated depreciation and amortization
(Notes 2 and 4)
611,226
562,528
Intangible Assets, net of accumulated amortization (Notes 2 and 5)
727,716
484,377
Other Assets
Marketable securities (Notes 2 and 6)
Deferred taxes
Other
Total Other Assets
Total Assets
See Notes to Consolidated Financial Statements.
- 3 -
2,945,740
143,419
65,300
4,801,504
29,475
65,300
3,154,459
4,896,279
$ 39,345,861
$ 39,903,876
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
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 6,086,740 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)
Total Shareholders’ Equity
2008
2007
$ 10,182,510
57,697
775,989
$
8,354,458
49,318
634,900
11,016,196
9,038,676
75,786
114,882
11,091,982
9,153,558
—
—
60,867
60,867
9,677
2,329,049
26,920,561
(1,066,275)
9,677
2,329,049
28,541,086
(190,361)
28,253,879
30,750,318
Total Liabilities and Shareholders’ Equity
$ 39,345,861
$ 39,903,876
See Notes to Consolidated Financial Statements.
- 4 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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 (benefit from) doubtful accounts
Interest expense
Transaction Costs
Total Costs and Expenses
Years Ended November 30,
2007
2008
2006
$ 56,741,133
716,813
$ 59,832,157
1,045,710
$ 63,302,220
797,803
57,457,946
60,877,867
64,100,023
21,769,142
22,122,849
10,466,740
603,486
12,886
16,444
21,760,406
21,266,327
6,956,407
574,900
(21,839)
29,090
23,260,307
21,104,728
10,345,407
536,590
(73,657)
10,003
54,991,547
50,565,291
55,183,378
—
717,850
—
54,991,547
51,283,141
55,183,378
Income before Provision for Income Taxes
2,466,399
9,594,726
8,916,645
Provision for Income Tax
Net Income
Weighted Average Shares Outstanding
Basic
Diluted
Earnings Per Common Share (Note 2):
Basic
Diluted
See Notes to Consolidated Financial Statements.
1,053,513
4,056,931
3,312,394
$ 1,412,886
$ 5,537,795
$ 5,604,251
7,054,442
7,061,646
7,029,611
7,058,889
7,034,276
7,133,332
$
$
.20
.20
$
$
.79
.78
$
$
.80
.79
- 5 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended November 30,
2007
2008
2006
Net Income
$ 1,412,886
$ 5,537,795
$ 5,604,251
Other Comprehensive Income (Loss)
Unrealized holding gain (loss) on investments (Note 6)
(875,914)
(63,228)
251,206
Comprehensive Income
$
536,972
$ 5,474,567
$ 5,855,457
See Notes to Consolidated Financial Statements.
- 6 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2008, 2007 AND 2006
COMMON STOCK
ADDITIONAL
PAID IN
RETAINED MARKETABLE SHAREHOLDER’S
ON
TOTAL
SHARES
AMOUNT CAPITAL EARNINGS SECURITIES
EQUITY
UNREALIZED
GAIN (LOSS)
Balance — December 1,
2005
7,179,757
$
71,798 $
5,105,732 $ 21,200,465
($378,339) $
25,999,656
Issuance of common
stock
Net income for the year
Dividends declared
Unrealized gain on
marketable securities
Purchase and retirement
of common stock
Balance —
95,500
—
—
—
955
—
—
—
46,795
—
—
—
5,604,251
(1,692,385)
—
47,750
5,604,251
(1,692,385)
251,206
251,206
(272,904)
(2,730)
(2,822,957)
—
—
(2,825,687)
November 30, 2006
7,002,353
70,023
2,329,570
25,112,331
(127,133)
27,384,791
Issuance of common
stock
Net income for the year
Dividends declared
Unrealized (loss) on
marketable securities
Balance —
52,089
—
—
—
November 30, 2007
Net Income for the year
Dividends declared
Unrealized (loss) on
7,054,442
—
—
521
—
—
—
(521)
—
—
—
5,537,795
(2,109,040)
—
—
—
—
5,537,795
(2,109,040)
—
(63,228)
(63,228)
70,544
—
—
2,329,049
—
—
28,541,086
1,412,886
(3,033,411)
(190,361)
30,750,318
1,412,886
(3,033,411)
marketable securities
—
—
—
—
(875,914)
(875,914)
Balance —
November 30, 2008
7,054,442
$
70,544 $
2,329,049 $ 26,920,561
($1,066,275) $
28,253,879
See Notes to Consolidated Financial Statements.
- 7 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
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
(Increase) decrease in deferred income taxes
Decrease (increase)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
2008
2007
2006
$ 1,412,886
$ 5,537,795
$ 5,604,251
246,165
(88,096)
1,332
(321,855)
888,463
(75,476)
52,893
(714,465)
—
1,828,052
—
257,555
(60,697)
21,745
410,116
(1,930,982)
(1,507,309)
53,982
(839,693)
(17,800)
250,033
(413,869)
227,039
(62,012)
112,901
(363,045)
2,072,202
204,137
(158,741)
165,560
825
(629,667)
413,869
Net Cash Provided by Operating Activities
3,229,899
1,760,876
7,587,319
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
(289,533)
(250,000)
(22,016,587)
24,440,000
(260,453)
( 522)
(14,824,908)
17,605,791
(309,594)
(45,161)
(12,588,205)
10,636,835
Net Cash Provided by (Used in) Investing Activities
1,883,880
2,519,908
(2,306,125)
Cash Flows from Financing Activities:
Purchase of common shares
Proceeds from exercise of stock options
Increase in capital lease obligation
Payments for capital lease obligation
Dividends paid
—
—
20,814
(51,532)
(2,892,322)
—
—
80,036
(38,352)
(1,965,111)
(2,825,687)
47,749
151,407
(28,890)
(1,776,975)
Net Cash (Used in) Financing Activities
(2,923,040)
(1,923,427)
(4,432,396)
Net Increase In Cash
Cash at Beginning of Year
2,190,739
2,357,357
848,798
6,743,960
4,385,340
3,536,542
Cash and Cash Equivalents at End of Year
$ 8,934,699
$ 6,743,960
$ 4,385,340
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest
Income taxes
$
16,444
2,086,300
$
29,090
4,882,361
$
10,003
2,256,400
Supplemental Disclosure of Non-Cash Information:
Dividends declared and accrued
Retirement of -0-, - 0 -, and 272,904 shares of treasury stock,
respectively
$
775,989
$
634,900
$
490,970
—
—
2,825,687
See Notes to Consolidated Financial Statements.
- 8 -
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., and Nutra Care
Corporation, all of which are currently inactive. CCA has two active wholly-owned subsidiaries, CCA Online Industries,
Inc., and 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. Fair
value for Available-for-Sale securities is determined by reference to quoted market prices or other relevant information.
- 9 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 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, 2008, dividends declared but not yet due amounted to $ 775,989.
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.
- 10 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. The Company charges to expense repairs and maintenance items, while major
improvements and betterments are capitalized. When the Company sells or otherwise disposes of property and equipment
items, the cost and related accumulated depreciation are removed from the respective accounts and any gain or loss is
included in earnings.
Depreciation and amortization are provided on the straight-line method over the following estimated useful lives or lease
terms of the assets:
Machinery and equipment
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.
Web Site Costs:
Certain costs incurred in creating the graphics and content of the Company’s web site has been capitalized in accordance
with the Financial Accounting Standards Emerging Issue Task Force (“EITF”) No. 0-02, “Accounting for Web Site
Development Costs”. The Company has determined that these costs will be amortized over a two year period. Web site
design and conceptual costs are expensed as incurred.
Financial Instruments:
The carrying value of assets and liabilities considered financial instruments approximate their respective fair value.
Income Taxes:
Income tax expense includes federal and state taxes currently payable and deferred taxes arising from temporary differences
between income for financial reporting and income tax purposes.
- 11 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, returns are accepted if it is in the best interests of the Company’s relationship with the
customer. 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 2008, 2007 and 2006 would have been $61,298,640, $65,016,269, and $67,701,423 respectively.
Advertising Costs:
The Company’s policy is to charge advertising costs to expense as incurred.
Shipping Costs:
The Company’s policy for fiscal financial reporting is to charge shipping cost to selling, general and administrative expense
as incurred. For the years ended November 30, 2008, 2007 and 2006, included in selling, general and administrative
expenses are shipping costs amounting to $3,377,366, $2,962,754 and $2,542,685, respectively.
- 12 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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 has not had a material impact on the
Company’s financial position or results of operation.
In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110 (“SAB 110”). SAB
110 amends and replaces Question 6 of Section D.2 of Topic 14, Share-Based Payment of the Staff Accounting Bulletin
series. Question 6 of Section D.2 of Topic 14 expresses the views of the staff regarding the use of the “simplified” method
in developing an estimate of the expected term of “plain vanilla” share options and allows usage of that method for option
grants prior to December 31, 2007. SAB 110 allows public companies which do not have sufficient historical experience to
provide a reasonable estimate to continue the use of this method for estimating the expected term of “plain vanilla” share
option grants after December 31, 2007. The adoption of this statement has not had a material impact on the Company’s
financial position or results of operation.
- 13 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business
Combinations (“SFAS 141R”). SFAS 141R changes accounting for acquisitions that close beginning in 2009 in a number
of areas including the treatment of contingent consideration, contingencies, acquisition costs, In-process research &
development and restructuring costs. More transactions and events will qualify as business combinations and will be
accounted for at fair value under the new standard. SFAS 141R promotes greater use of fair values in financial reporting. In
addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a
business combination after the measurement period will impact income tax expense. Some of the changes will introduce
more volatility into earnings. SFAS 141R is effective for fiscal years beginning on or after December 15, 2008. SFAS 141R
will have an impact on accounting for any business acquired after the effective date of this pronouncement.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 will change the accounting
and reporting for minority interests, which will be recharacterized as noncontrolling interests (“NCI”) and classified as a
component of equity. This new consolidation method will significantly change the accounting for transactions with
minority interest holders. SFAS 160 is effective for fiscal years beginning after December 15, 2008. SFAS 160 would have
an impact on the presentation and disclosure of the noncontrolling interests of any non-wholly owned business acquired in
the future.
In April 2008, the FASB issued FASB Staff Position No. 142-3 (“FSP 142-3”), which amends the factors that must be
considered in developing renewal or extension assumptions used to determine the useful life over which to amortize the
cost of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The FSP
requires an entity to consider its own assumptions about renewal or extension of the term of the arrangement, consistent
with its expected use of the asset, and is an attempt to improve consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under
SFAS 141. The FSP is effective for fiscal years beginning after December 15, 2008, and the guidance for determining the
useful life of a recognized intangible asset must be applied prospectively to intangible assets acquired after the effective
date. The FSP is not expected to have a significant impact on the Company’s results of operations, financial condition or
liquidity.
- 14 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS
162”). The statement is intended to improve financial reporting by identifying a consistent hierarchy for selecting
accounting principles to be used in preparing financial statements that are prepared in conformance with generally accepted
accounting principles. Unlike Statement on Auditing Standards No. 69, “The Meaning of Present Fairly in Conformity With
GAAP” (“SAS 69”), SFAS 162 is directed to the entity rather than the auditor. The statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity with GAAP,” and is not expected to have any impact on the
Company’s results of operations, financial condition or liquidity.
In June 2008, FASB issued FSP Emerging Issues Task Force No. 03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities” (“EITF 03-6-1”). Under the FSP, unvested share-based
payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities,
and should be included in the two- class method of computing EPS. The FSP is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years, and is not expected to have a significant impact on the
Company’s results of operations, financial condition or liquidity.
In October 2008, the FASB issued FASB Staff Position No. FAS 157-3 (“FSP FAS 157-3”) which clarifies the application
of FASB Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”) in regard to fair value measurements of
financial assets in a market that is not active. FSP FAS 142-3 became effective October 10, 2008 for all subsequent
reporting periods. The adoption of this staff position has had no material impact on the Company’s financial position or
results of operation.
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted
would have a material effect on the accompanying financial statements.
- 15 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — INVENTORIES
At November 30, 2008 and 2007, inventories consist of the following:
Raw materials
Finished goods
2008
2007
$
4,880,267
3,052,531
$
4,717,225
3,140,097
$
7,932,798
$
7,857,322
At November 30, 2008 and 2007, the Company had a reserve for obsolete inventory of $578,941 and $604,746,
respectively.
NOTE 4 — PROPERTY AND EQUIPMENT
At November 30, 2008 and 2007, property and equipment consisted of the following:
Machinery and equipment
Office furniture and equipment
Transportation equipment
Tools, dies, and masters
Capitalized lease obligations
Web Site
Leasehold improvements
2008
2007
$
190,308
813,819
10,918
360,701
263,067
20,000
357,582
2,016,395
$
130,346
795,714
10,918
379,171
242,254
—
281,582
1,839,985
Less: Accumulated depreciation and amortization
1,405,169
1,277,457
Property and Equipment — Net
$
611,226
$
562,528
Depreciation expense for the years ended November 30, 2008, 2007 and 2006 amounted to $239,503, $250,307, and
$215,197, 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, 2008 and 2007 is as follows:
Trademarks and patents
Less: Accumulated amortization
Intangible Assets — Net
2008
2007
$
$
886,608
158,892
727,716
$
$
636,608
152,231
484,377
- 16 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 — INTANGIBLE ASSETS (CONTINUED)
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, 2008, 2007 and 2006
amounted to $ 6,661, $ 7,248 and $11,843, respectively. Estimated amortization expense for November 30, 2009, 2010,
2011, 2012 and 2013 will be $6,553, $6,553 and $6,288, $6,026 and $5,911 respectively.
NOTE 6 — SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
Short-term investments and marketable securities, which consist of stock and various corporate and government
obligations, are stated at market value. The Company has classified its investments as Available-for-Sale securities and
considers as current assets those investments which will mature or are likely to be sold in the next fiscal year. The
remaining investments are considered non-current assets. The cost and market values of the investments at November 30,
2008 and November 30, 2007 were as follows:
Current:
Corporate obligations
Government obligations (including mortgage backed
securities)
Preferred stock
Common Stock
Mutual funds
Other equity
Total
Non-Current:
Corporate obligations
Government obligations
Preferred stock
Other equity investments
Total
Total
November 30,
2008
November 30,
2007
COST
MARKET
COST
MARKET
$
200,000
$
197,714
$ 5,552,779
$ 5,555,917
6,200,029
50,000
51,648
215,274
70,206
6,248,363
21,640
44,628
114,582
21,430
2,335,358
50,000
51,649
215,274
70,206
2,140,921
38,760
58,860
151,989
57,377
6,787,157
6,648,357
8,275,266
8,003,824
598,370
500,000
2,774,845
—
577,334
460,000
1,908,406
—
400,000
3,445,577
774,845
100,000
400,000
3,626,508
674,996
100,000
3,873,215
2,945,740
4,720,422
4,801,504
$ 10,660,372
$ 9,594,097
$ 12,995,687
$ 12,805,328
- 17 -
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, 2008 was $ 9,594,097 as compared to $12,805,328 at November 30, 2007. The gross
unrealized gains and (losses) were $48,841 and ($1,115,116) for November 30, 2008 and $122,117 and ($312,478) for
November 30, 2007. The cost and market values of the investments at November 30, 2008 were as follows:
COL. A
COL. B
COL. C
COL.D
COL.E
Amount at
Which Each
Portfolio of
Equity Security
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
Issues and
Each Other
Security
Issue Carried
in Balance
Sheet
CORPORATE OBLIGATIONS:
Caterpillar Fin Service Corp
Merrill Lynch & Co
10/15/09
08/04/10
4.750%
4.790
200,000
200,000
$ 200,000
199,614
$
197,714
191,702
$
Morgan Stanley
Toyoto Motor
01/15/10
04/28/10
4.000
2.850
200,000
200,000
199,106
199,650
188,620
197,012
197,714
191,702
188,620
197,012
798,370
775,048
775,048
GOVERNMENT
OBLIGATIONS:
Goldman Sachs Group
NJ ST HGR ED
US Treasury Bill
US Treasury Bill
01/15/09
12/01/40
01/15/09
01/22/09
3.875
0.000
0.000
0.000
250,000
500,000
4,500,000
1,500,000
249,125
500,000
4,455,584
1,495,320
248,618
460,000
4,499,820
1,499,925
248,618
460,000
4,499,820
1,499,925
6,700,029
6,708,363
6,708,363
- 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
Number
of Units-
Principal
Amount of
Bonds and
Notes
Cost of
Each Issue
Maturity
Date
Interest
Rate
Name of Issuer and
Title of Each Issue
EQUITY:
Preferred Stock:
COL.D
COL.E
Amount at
Which Each
Portfolio of
Equity Security
Market Value
of Each Issue
at Balance
Sheet Date
Issues and
Each Other
Security Issue
Carried in
Balance Sheet
ABN Amro Cap Fund
Bank of America Ser H
Citigroup Dep Shs 1/1200th
Deutsche Bank Capital TR V
General Electric Cap Corp
JP Morgan Chase
Merrill Lynch Dep Shs 1/1200th
MetLife Floater
Morgan Stanley Cap Tr
Wells Fargo Cap Tr VIII
12/31/08
05/01/13
06/15/13
06/30/18
11/15/32
06/15/33
05/28/13
06/15/10
07/15/33
08/01/33
5.900
8.200
8.500
8.050
6.100
5.875
8.625
4.000
5.750
5.625
2,000
20,000
20,000
20,000
8,800
2,000
20,000
8,000
4,000
8,000
50,000
500,000
500,000
500,000
224,845
50,000
500,000
200,000
100,000
200,000
21,640
416,400
332,000
314,800
175,362
41,360
358,000
70,400
49,636
150,448
21,640
416,400
332,000
314,800
175,362
41,360
358,000
70,400
49,636
150,448
2,824,845
1,930,046
1,930,046
- 19 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)(3)
COL. A
COL. B
COL. C
COL. D
COL. E
Amount at
Which
Each Portfolio
of Equity
Security
Issues
and Each
Other Security
Issue Carried in
Balance Sheet
Number of
Units-Principal
Amount of
Bonds and
Notes
Cost of
Each Issue
Maturity
Interest
Date Rate
Name of Issuer and
Title of Each Issue
Common Stock:
Market Value of
Each Issue at
Balance
Sheet Date
DTE Energy Company
1,200
51,648
44,628
44,628
Mutual Funds:
Dreyfus Premier Ltd High Income
Other Equity Investments:
16,296.314
215,274
114,582
114,582
PIMCO Floating Rate Strategy
2,900
70,206
21,430
21,430
Totals
$10,660,372 $
9,594,097 $
9,594,097
- 20 -
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, 2008, 2007 and 2006, available-for-sale securities were liquidated and proceeds
amounting to $24,440,000, $17,605,791 and $10,636,835 were received, with resultant realized gains totaling $88,096,
$60,697, and $62,012, respectively. Cost of available-for-sale securities includes unamortized premium or discount.
The Company had, at November 30, 2008, an auction rate bond issued by the New Jersey State Higher Education
Assistance Authority (“NJHE”). The bond was recorded as non-current marketable securities. The NJHE bond has an
original par value of $500,000, a maturity date of December 1, 2040, a rating of AA by S&P, and has been placed on
negative watch. Fitch has withdrawn their rating. The current interest rate is 3.238% as of September 18, 2008. Beginning
in February 2008, more shares for sale were submitted in the regularly scheduled auctions for the NJHE auction rate bonds
than there were offers to buy. This meant that these auctions “failed to clear” and that many or all auction bond holders who
wanted to sell their shares in these auctions were unable to do so. The Company believes that no permanent impairment has
occurred as of November 30, 2008, as the Company has the ability and intent to hold these investments long enough to
avoid realizing any significant loss. The Company has recognized a temporary impairment charge of $40,000 against the
$500,000 par value of the bond. If uncertainties in the credit and capital markets continue, resulting in further market
deterioration, the Company may be required to recognize further impairment charges. In addition, if there are any further
ratings downgrades, or if the Company no longer has the ability to hold these investments, the Company may have further
impairment charges.
The Company adopted SFAS No. 157, Fair Value Measurements (“SFAS No. 157) as of December 1, 2007, which expands
disclosures about investments that are measured and reported at fair market value. SFAS No. 157 established a fair value
hierarchy that prioritizes the inputs to valuations techniques utilized to measure fair value into three broad levels as follows:
Level 1 – Quoted market prices in active markets for the identical asset or liability that the reporting entity has ability to
access at measurement date.
Level 2 – Quoted market prices for identical or similar assets or liabilities in markets that are not active, and where fair
value is determined through the use of models or other valuation methodologies.
Level 3 – Unobserved inputs for the asset or liability. Fair value is determined by the reporting entity’s own assumptions
utilizing the best information available, and includes situations where there is little market activity for the investment.
- 21 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
All of the Company’s investments as of November 30, 2008 would be categorized as Level 1 in respect to the methodology
utilized to determine fair market value, with the exception of the NJHE bond, referenced above, which is categorized as
Level 3.
The following table discloses a reconciliation of the NJHE bond Level 3 investment at measured fair value during the year
ended November 30, 2008:
Beginning Balance as of December 1, 2007
Unrealized (loss)
Ending Balance as of November 30, 2008
$
$
500,000
(40,000)
460,000
There was no realized income or loss from the Level 3 NJHE bond investment during the fiscal year ended November 30,
2008.
NOTE 7 — NOTES PAYABLE AND SUBORDINATED DEBENTURES
The Company has an available line of credit of $20,000,000. Interest is calculated at the Company’s option, either on the
outstanding balance at the prime rate plus 0.5% or Libor plus 175 basis points. The line of credit is unsecured as of
November 30, 2008 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, 2008 and 2007. The Company has extended the line
of credit through August 31, 2009. As of November 30, 2008 and for the year then ended November 30, 2008, the
Company was in compliance with all covenants under the line of credit agreement.
- 22 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2008 and 2007, respectively, the Company has temporary differences arising from the following:
Type
Depreciation
Reserve for bad debts
Reserve for returns
Reserve for obsolete inventory
Vacation accrual
Charitable contributions
Section 263A costs
Net deferred income tax
Type
Depreciation
Reserve for bad debts
Reserve for returns
Reserve for obsolete inventory
Vacation accrual
Section 263A costs
Net deferred income tax
$
$
November 30, 2008
Amount
Deferred
Tax
Classified As
Short-Term
Asset
Long- Term
(Liability)
$
$
74,244
154,290
668,738
578,941
501,096
572,568
250,000
29,623
61,562
266,827
230,997
199,937
228,455
99,750
$
—
61,562
266,827
230,997
199,937
114,659
99,750
29,623
—
—
—
—
113,796
—
$ 1,117,151
$
973,732
$
143,419
November 30, 2007
Deferred
Tax
Classified As
Short-Term
Asset
Long-Term
(Liability)
$
29,475
56,218
$
179,720
240,084
192,534
97,265
$
—
56,218
179,720
240,084
192,534
97,265
29,475
—
—
—
—
—
$
795,296
$
765,821
$
29,475
Amount
74,244
141,607
452,695
604,746
484,971
245,000
Income tax expense (benefit) is made up of the following components:
Current tax expense
Deferred tax (benefit)
Federal
$ 1,030,348
(241,116)
789,232
$
November 30, 2008
State & Local
345,020
$
(80,739)
264,281
$
Total
$ 1,375,368
(321,855)
$ 1,053,513
- 23 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — INCOME TAXES (Continued)
Current tax expense
Deferred tax expense
Current tax expense
Deferred tax (benefit)
Federal
$ 2,823,468
317,523
$ 3,140,991
November 30, 2007
State & Local
823,347
$
92,593
915,940
$
Total
$ 3,646,815
410,116
$ 4,056,931
Federal
$ 2,892,278
(331,944)
$ 2,560,334
November 30, 2006
State & Local
849,564
$
(97,504)
752,060
$
Total
$ 3,741,842
(429,448)
$ 3,312,394
Prepaid income taxes and refund due are made up of the following components:
November 30, 2008
November 30, 2007
Federal
State & Local
Total
$ 1,020,948
$
625,350
$
$
533,210
$ 1,554,158
214,343
$
839,693
- 24 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — INCOME TAXES (Continued)
A reconciliation of income tax expense computed at the statutory rate to income tax expense at the effective rate for each of
the three years ended November 30, 2008 is as follows:
2008
Percent
Of Pretax
Income
Amount
2007
Percent
Of Pretax
Income
2006
Percent
Of Pretax
Income
Amount
Amount
$ 838,576
34.00% $3,262,207
34.00%
$3,031,659
34.00%
Income tax expense at federal
statutory rate
Increases (decreases) in taxes
resulting from:
State income taxes, net of
federal income tax benefit
141,078
5.72
548,512
5.72
560,712
6.29
Non-deductible expenses and
other adjustments
Income tax expense at effective
rate
73,859
2.99
246,212
2.56
(279,977)
(3.14)
$1,053,513
42.71% $4,056,931
42.28%
$3,312,394
37.15%
- 25 -
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, no charge in fiscal 2008, and anticipates no charge in fiscal 2009
based on current value. 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 2009 year charges against earnings based on those factors
as of November 30, 2008.
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,
2008
2007
Net income
Add: Total stock-based employee compensation expense determined under fair value
based method for all awards net of related tax effects
$
1,412,886
$
5,537,795
—
1,280
Pro forma net earnings
$
1,412,886
$
5,539,075
- 26 -
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, 2008 and 2007:
Outstanding December 1, 2006
Granted
Exercised
Forfeited
Outstanding November 30, 2007
Granted
Exercised
Forfeited
Outstanding November 30, 2008
Number of
Shares
Weighted Average
exercise price of
Outstanding Options
Weighted Average
Remaining Life
Intrinsic
Value
181,000 $
—
(55,000) $
—
126,000
$
—
—
—
126,000
$
5.88
—
0.50
—
8.00
—
—
—
8.00
1.83
—
—
—
1.35
—
—
—
.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:
Coop advertising
Accrued returns
Accrued bonuses
Media
Vacation accrual
November 30,
2008
2007
(In Thousands)
849
1,443
—
1,326
—
3,618
$
$
1,214
964
841
—
485
3,504
$
$
All other liabilities were for trade payables or individually did not exceed 5% of total current liabilities.
- 27 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 — OTHER INCOME
Other income was comprised of the following:
Interest income
Dividend income
Realized gain (loss) on sale of Securities
Royalty income
Miscellaneous
NOTE 12 — COMMITMENTS AND CONTINGENCIES
Leases
2008
November 30,
2007
2006
$
$
$
340,795
94,775
88,096
755,569
33,697
60,697
169,482
23,665
716,813
125,158
70,589
$ 1,045,710
$
$
569,417
43,820
62,012
108,249
14,305
797,803
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. CAM was estimated at $150,000 for the fiscal year ended November 30,
2008. The lease expires on May 31, 2012 with a renewal option for an additional five years.
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 annual rent is $123,285. 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. For the fiscal
year ended November 30, 2008, CAM was $28,150.
- 28 -
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, 2008, 2007 and 2006 was $671,708, $704,050 and $605,893, 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,
2009
2010
2011
2012
2013
Royalty Agreements
751,421
692,106
665,323
326,197
—
In 1986, the Company entered into a license agreement with Alleghany Pharmacal Corporation (the “Alleghany Pharmacal
License”). 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 royalties accrued to Alleghany-Pharmacal under the license were $82,541 for the fiscal year ended
November 30, 2008.
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 of 5% on net sales of the licensed products. The royalty accrued to Solar Sense,
Inc. under the License Agreement was $56,051 for the fiscal year ended November 30, 2008.
- 29 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 — COMMITMENTS AND CONTINGENCIES (Continued)
Royalty Agreements (Continued)
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 pays a royalty of 5% of net
sales of all licensed product sold. Royalties accrued to The Nail Consultants, Ltd. under the License Agreement were
$37,071 for the fiscal year ended November 30, 2008.
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 Company pays a royalty of 6% of net sales of all products
sold under the license agreement. The license agreement requires the Company to pay a minimum annual royalty of
$250,000 per annum, which was waived by Tea-Guard, Inc.for the one year period ended 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
accrued royalties of $44,866 to Tea-Guard, Inc. for the fiscal year ended November 30, 2008.
On February 26, 2004, the Company entered into an agreement with Dr. Stephen Hsu. PhD. to create green tea skin care
products. Dr. Hsu is entitled to a commission of 3% of the net factory sales of all of the Company’s products using the
green tea serum created exclusively for the Company by Dr. Hsu. The Company accrued Dr. Hsu commissions of $240,215
for the fiscal year ended November 30, 2008.
Effective November 3, 2008, the Company entered into an agreement with Continental Quest Corp., to purchase certain
trademarks and inventory relating to the Pain Bust R business for $285,106 paid at closing. In addition, the Company
agreed to pay a royalty equal to 2% of net sales of all Pain Bust R products, which are topical analgesics, until an aggregate
royalty of $1,250,000 is paid, at which time the royalty payments will cease.
- 30 -
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 expensed by licensor for each fiscal year are as follows:
Summary
Licensor
A
B
C
D
E
F
G
H
I
J
K
L
M
N
$
2008
2007
2006
$
56,051
82,541
17,695
—
2
—
—
44,866
37,071
—
240,215
4,815
5,876
508
$
39,290
91,662
18,020
5,692
511
3570
—
196,683
33,283
—
195,839
50,216
—
—
43,367
92,630
11,892
(88)
3,237
1,054
—
74,148
81,363
(60,402)
37,939
—
—
—
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.
- 31 -
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 had five year employment contracts in the amounts of $270,000 and
$200,000 respectively, which were to 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 July 8, 2008, the Company signed a new collective bargaining agreement with Local 108, L.I.U. of N.A., AFL-CIO
with similar provisions of the one that expired on January 1, 2008. The new agreement is effective January 1, 2008. Other
than standard wage, holiday, vacation and sick day provisions, the agreement calls for CCA to contribute to the Recycling
and General Industrial Union Local 108 Welfare Fund (“Welfare Fund”) certain benefits costs. The Welfare Fund will be
providing medical, dental and life insurance for the Company’s employees covered under the collective bargaining
agreement. Previously, the Company provided the covered employees medical, dental and life insurance benefits directly.
The new collective bargaining agreement is in effect through December 31, 2010. This agreement pertains to 29% of the
CCA labor force.
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.
- 32 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 — COMMITMENTS AND CONTINGENCIES (Continued)
Dividends and Capital Transactions
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.
On December 5, 2007, the board of directors declared a $0.10 per share dividend for the first quarter ending February 29,
2008. The dividend was payable to all shareholders of record as of February 1, 2008, and was paid on March 1, 2008. On
February 25, 2008, the board of directors declared an $0.11 per share dividend for the second quarter ending May 31, 2008.
The dividend was payable to all shareholders of record as of May 1, 2008, and payable on June 1, 2008. On July 7, 2008,
the board of directors declared an $0.11 per share dividend for the third quarter ending August 31, 2008. The dividend was
payable to all shareholders of record as of August 1, 2008, and payable on September 1, 2008. On October 13, 2008, the
board of directors declared a $0.11 per share dividend for the fourth quarter ending November 30, 2008. The dividend was
payable to all shareholders of record as of November 1, 2008, and payable on December 1, 2008.
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.
- 33 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2008, 2007 and 2006, certain customers each accounted for more than 5% of the
Company’s net sales, as follows:
Customer
Walmart
Walgreen
Rite Aid
CVS
McLanes
Foreign Sales
*
under 5%
2008
2007
2006
44%
10%
5%
7%
*
4%
40%
8%
8%
6%
5%
3%
36%
12%
*
6%
6%
2%
The loss of any one of these customers could have a material adverse affect on the Company’s earnings and financial
position.
During the years November 30, 2008, 2007 and 2006, certain products within the Company’s product lines accounted for
more than 10% of the Company’s net sales as follows:
Category
Dietary Supplement
Skin Care
Oral Care
Nail Care
2008
2007
2006
33%
29%
25%
10%
31%
29%
25%
11%
31%
30%
24%
9%
- 34 -
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 — CONCENTRATION OF RISK (Continued)
The Company maintains cash balances at several banks. Accounts at each institution are insured by the Federal Deposit
Insurance Corporation for the full balance under the Temporary Liquidity Guarantee Program. 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 — TRANSACTION EXPENSES
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. On April 2, 2007, the Company received an
opinion from an investment banking company that from a financial point of view, the proposed transaction was 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 board of directors terminated all negotiations with Dubilier. For the year
ended November 30, 2007, costs associated with the proposed acquisition amounted to $717,850, and are included as
transaction costs in the statement of income.
NOTE 16 — SUBSEQUENT EVENTS
On January 21, 2009, the Company filed Form 8-K with the United States Securities and Exchange Commission advising
that Wal-mart had informed the Company that starting in March, due to the slowdown in the economy, it will only carry the
leading brands in their oral care sections. Therefore starting sometime in March, Wal-Mart will no longer be purchasing the
company’s Plus+White oral care products brand. In 2008 the company’s net sales of Plus+White to Wal-Mart totaled
$6 million.
On January 28, 2009, the Board of Directors declared a $0.11 per share dividend for the first quarter of 2009 to all
shareholders of record as of February 1, 2009 and payable on March 1, 2009.
- 35 -
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”.
Net income available for common shareholders, basic and diluted
2008
$ 1,412,886
Year Ended November 30,
2007
$ 5,537,795
2006
$ 5,604,251
Weighted average common stock outstanding- Basic
7,054,442
7,029,611
7,034,276
Net effect of dilutive stock options
7,204
29,278
99,056
Weighted average common stock and common stock equivalents —
Diluted
Basic earnings per share
Diluted earnings per share
7,061,646
7,058,889
7,133,332
$
$
.20
.20
$
$
.79
.78
$
$
.80
.79
- 36 -
SCHEDULE II
CCA INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
YEARS ENDED NOVEMBER 30, 2008, 2007 AND 2006
COL. A
Description
Year Ended November 30, 2008
Allowance for doubtful accounts
Reserve for returns and allowances
Reserve of inventory obsolescence
Year Ended November 30, 2007:
Allowance for doubtful accounts
Reserve for returns and allowances
Reserve of inventory obsolescence
Year Ended November 30, 2006:
Allowance for doubtful accounts
Reserve for returns and allowances
Reserve of inventory obsolescence
COL. B
Balance at
Beginning
Of Year
COL. C
Additions
Charged To
Costs and
Expenses
COL. D
COL. E
Deductions
Balance
At End
Of Year
$
$
$
$
141,607
732,695
$
12,684
2,118,593
$
—
2,182,550
874,302
$ 2,131,277
$ 2,182,550
604,746
$
173,715
$
199,520
185,779
840,418
$
(42,544)
6,039,823
$
1,628
6,147,545
$ 1,026,197
$ 5,997,279
$ 6,149,173
$
$
$
$
$
$
154,291
668,738
823,029
578,941
141,607
732,696
874,303
604,746
$
$
$
$
777,715
260,366
$
$
62,827
(73,657)
$
$
235,796
930
$
185,779
678,348
4,520,660
4,358,590
840,418
938,714
$ 4,447,003
$ 4,359,520
$ 1,026,197
854,764
$
625,743
$
702,792
$
777,715
- 37 -
Exhibit
Number
Description
EXHIBIT INDEX
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
- 38 -
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)
b)
c)
d)
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;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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
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 27, 2009
/s/ DAVID EDELL
David Edell
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Stephen A. Heit, certify that:
1.
2.
3.
I have reviewed this annual report on Form 10-K of CCA Industries, Inc.;
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;
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.
b.
c.
d.
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;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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
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
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 27, 2009
/s/ STEPHEN A. HEIT
Stephen A. Heit
Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of CCA Industries, Inc. (the “Registrant”) on Form 10-K for the annual period ended
November 30, 2008 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 27, 2009
/s/ DAVID EDELL
David Edell
Chief Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of CCA Industries, Inc. (the “Registrant”) on Form 10-K for the annual period ended
November 30, 2008 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 27, 2009
/s/ STEPHEN A. HEIT
Stephen A. Heit
Chief Financial Officer