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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, 2009
Commission File Number 001-31643
CCA INDUSTRIES, INC.
(Exact Name of Registrant as specified in Charter)
     
DELAWARE   04-2795439
     
(State or other jurisdiction of
incorporation or organization)
  (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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ
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 þ. No o.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
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. o.
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):
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ
        (Do not check if a 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 o No þ.
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 $3.05 on May 29, 2009, was as follows:
     
Class of Voting Stock   Market Value
     
5,514,866 shares; Common Stock, $.01 par value   $16,820,341
On February 25, 2010 there was an aggregate of 7,054,442 shares of Common Stock and Class A Common Stock of the Registrant outstanding.
 
 

 

 


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CROSS REFERENCE SHEET
     
    Headings in this Form
Form 10-K   10-K for Year Ended
Item No.   November 30, 2009
 
   
1. Business
  Business
 
   
2. Properties
  Property
 
   
3. Legal Proceedings
  Legal Proceedings
 
   
4. Submission of Matters to a Vote of Security Holders
  Submission of Matters to a Vote of Security Holders
 
   
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  Market for the Company’s Common Stock and Related Shareholder Matters
 
   
6. Selected Financial Data
  Selected Financial Data
 
   
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
   
7A. Quantitative and Qualitative Disclosures about Market Risk
  Quantitative and Qualitative Disclosures about Market Risk
 
   
8. Financial Statements and Supplementary Data
  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, Executive Officers and Corporate Governance
  Directors and Executive Officers of the Registrant

 

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    Headings in this Form
Form 10-K   10-K for Year Ended
Item No.   November 30, 2009
 
   
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, and Director Independence
  Certain Relationships and Related Transactions
 
   
14. Principal Accounting Fees and Services
  Principal Accountant Fees and Services
 
   
15. Exhibits, Financial Statements Schedules
  Exhibits, Financial Statements, Schedules, and Reports on Form 8-K

 

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 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2

 

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PART I
Item 1. BUSINESS
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.
(a) General
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 II (topical analgesic) and “Scar Zone” (scar diminishing cream).
All Company products are marketed and sold to major drug, 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 based on the historical returns as a percentage of sales in the five preceding months, adjusting for returns that can be put back into inventory, and a specific reserve based on customer circumstances, (See Revenue Recognition in Note 2 of the Financial Statements). 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.

 

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The Company’s net sales in fiscal 2009 were $ 57,001,999. Gross profits were $35,151,424. International sales accounted for approximately 5.6 % of sales. The Company had a net profit of $3,431,644 for fiscal 2009. Net worth at November 30, 2009 was $ 30,219,848.
Including the principal members of management (see Directors and Executive Officers), the Company, at November 30, 2009, had 140 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, and through distributors internationally.
The Company sells its products to approximately 420 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, 2009, the Company’s largest customers were Wal-Mart (approximately 36% of net sales), Walgreens (approximately 14%), CVS (approximately 7%), Rite Aid (approximately 6%), and Dolgencorp (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.

 

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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.
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”, “Mega -T”, “Cherry Vanilla”, and “Scar Zone”.
(e) All Products
The Company’s gross sales net of returns by category percentage were: Dietary Supplements 42%; Skin Care 28%; Oral Care 16%; Nail Care 10%; Fragrance 3%, Analgesic 1%; and Hair Care and Miscellaneous 0%.
(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 incurred royalties totaling $96,769 to Alleghany Pharmacal for the fiscal year ended November 30, 2009.

 

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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, at which time the royalty rate will be reduced to 1% for a period of twenty-five years. The Company incurred royalties of $38,607 to Solar Sense, Inc. for the fiscal year ended November 30, 2009.
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 incurred royalties totaling $7,280 to The Nail Consultants, Ltd. for the fiscal year ended November 30, 2009.
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 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 incurred commissions totaling $80,832 to Dr. Hsu for the fiscal year ended November 30, 2009.
v. Tea-Guard Inc.
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 required the Company to pay a royalty of 6% of net sales for the products sold under the license agreement. The license agreement was amended on March 31, 2009, granting the Company a non-exclusive license, with no minimum royalty required. The royalty rate of 6% of net sales will remain unchanged during the term, including any renewal terms, of the amended license agreement. The Company commenced sales of the Mega -T Green Tea Chewing Gum in July 2004. The Company incurred royalties to Tea-Guard, Inc. totaling $36,586 for the fiscal year ended November 30, 2009.

 

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vi. Continental Quest Corp.
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 II 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 II products, which are topical analgesics, until an aggregate royalty of $1,250,000 is paid, at which time the royalty payments will cease. The Company incurred royalties to Continental Quest Corp. totaling $12,301 for the fiscal year ended November 30, 2009.
vii. Joann Bradvica
On March 22, 2002, the Company entered into an agreement with Joann Bradvica, granting the Company an exclusive license to manufacture and sell an Earlobe Patch Support for Earrings. The agreement provided for a royalty of 10% of net sales of the licensed product. A new agreement was entered into and effective on June 8, 2009 at the same royalty rate, and provides for a minimum royalty of $40,000 for annual periods beginning July 1, 2009 in order to maintain the license. The Company incurred royalties of $37,392 to Joann Bradvica for the fiscal year ended November 30, 2009.
viii. LaRosa Innovations, LLC
On March 14, 2009, the Company entered into an agreement with LaRosa Innovation, LLC, granting the Company an exclusive license to manufacture and sell Instant Arm Lifts and Instant Thigh Lifts. The agreement provides for a royalty of 5% of net sales until the Licensor receives $5,000,000 in aggregate royalties, at which time the royalty rate shall be reduced to 1% of net sales. The license agreement provides for a minimum royalty of $150,000 for the first eighteen month period of the agreement, and $150,000 per year thereafter in order to maintain the license. The Company incurred royalties of $21,026 to LaRosa Innovations, LLC for the fiscal year ended November 30, 2009, representing a portion of the initial eighteen-month minimum royalty period.
ix. 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.

 

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(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.
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 $390,835, 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 at fair market value 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, 2009, 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, 2009, CAM was $29,988.

 

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Item 3. LEGAL PROCEEDINGS
On September 30, 2009 the Company was served with a class action suit Denise Wally v. CCA Industries, Inc. The claim, which did not specify any damages, was filed in the Superior Court, State of California, County of Los Angeles, alleging false and misleading claims about the Company’s weight loss dietary supplement products sold in California in violation of the California Business and Professional Code. The Company believes that the allegations are without any merit and intends to vigorously defend the case. However, there can be no assurance that our position will be upheld.
There is no other significant litigation presently outstanding against the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 24, 2009, the Company held its annual meeting of shareholders. The actions taken, and the voting resulting thereupon, were as follows:
  (1)  
David Edell, Ira W. Berman, Jack Polak and Stanley Kreitman were elected as directors by the holders of the 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, James P. Mastrian and Robert Lage were elected as directors by the holders of the Common stock.
 
  (3)  
The Board of Director’s appointment of KGS LLP as the Company’s independent registered public accounting firm for the fiscal year ending November 30, 2009 was approved.
 
     
The Company has not submitted any matter to a vote of security holders since the 2009 Annual Meeting.

 

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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 Amex under the symbol “CAW”.
The range of high and low sales prices of the Common Stock during each quarter of its 2009, 2008 and 2007 fiscal years were as follows:
                         
Quarter Ended   2009     2008     2007  
February 28/29
  $ 2.55 - $4.24     $ 9.90 - $8.91     $ 12.12 - $11.06  
May 31
  $ 2.05 - $3.40     $ 9.65 - $8.53     $ 12.04 - $9.03  
August 31
  $ 2.74 - $4.20     $ 8.85 - $6.35     $ 10.60 - $8.94  
November 30
  $ 5.50 - $3.81     $ 6.40 - $3.60     $ 10.25 - $9.20  
The high and low prices for the Company’s Common Stock, on February 2, 2010 were $5.40 to $5.39 per share.
As of November 30, 2009, there were approximately 138 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 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 paid to all shareholders of record as of February 1, 2007 and paid 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 paid to all shareholders of record as of May 1, 2007 and paid 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 paid to all shareholders of record as of August 1, 2007 and paid 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 paid to all shareholders of record as of November 1, 2007 and paid on December 1, 2007.

 

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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 paid 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 paid to all shareholders of record as of May 1, 2008, and paid 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 paid to all shareholders of record as of August 1, 2008, and paid 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 paid to all shareholders of record as of November 1, 2008, and paid on December 1, 2008.
On January 28, 2009, the board of directors declared a $0.11 per share dividend for the 1st quarter ending February 28, 2009. The dividend was payable to all shareholders of record as of February 3, 2009 and was paid on March 3, 2009. On April 8, 2009 the board of directors declared a $0.07 per share dividend for the second quarter of 2009. The dividend was payable to all shareholders of record as of May 1, 2009 and was paid on June 1, 2009. On June 29, 2009, the board of directors declared a $0.07 dividend for the third quarter of 2009. The dividend was payable to all shareholders of record as of August 3, 2009 and was paid on September 3, 2009. On October 12, 2009, the board of directors declared a $0.07 dividend for the fourth quarter of 2009. The dividend was payable to all shareholders of record as of November 2, 2009 and was paid on December 2, 2009.

 

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Item 6. SELECTED FINANCIAL DATA
                                         
    Year Ended November 30,  
    2009     2008     2007     2006     2005  
Statement of Income
                                       
Sales, Net (1)
  $ 57,001,999     $ 56,741,133     $ 59,832,157     $ 63,302,220     $ 61,181,344  
Other income
    670,165       716,813       1,045,710       797,803       572,909  
Costs and Expenses (1)
    52,062,040       54,991,547       51,283,141       55,183,378       54,646,715  
Income before provision for Income Taxes
    5,610,124       2,466,399       9,594,726       8,916,645       7,107,528  
Net Income
  $ 3,431,644     $ 1,412,886     $ 5,537,795     $ 5,604,251     $ 3,785,502  
 
                                       
Earnings Per Share:
                                       
Basic
  $ 0.49     $ 0.20     $ 0.79     $ 0.80     $ 0.53  
Diluted
  $ 0.49     $ 0.20     $ 0.78     $ 0.79     $ 0.52  
Weighted Average Number of Shares Outstanding — Basic
    7,054,442       7,054,442       7,029,611       7,034,276       7,145,297  
Weighted Average Number of Shares Outstanding — Diluted
    7,054,442       7,061,646       7,058,889       7,133,332       7,317,994  
                                         
    As At November 30,  
Balance Sheet Data:   2009     2008     2007     2006     2005  
Working Capital
  $ 25,973,568     $ 23,836,264     $ 24,922,016     $ 22,295,983     $ 18,602,107  
Total Assets
    39,789,203       39,345,861       39,903,876       36,516,571       35,309,308  
 
                                       
Total Liabilities
    9,569,355       11,091,982       9,153,558       9,131,780       9,309,652  
Total Shareholders’ Equity
    30,219,848       28,253,879       30,750,318       27,284,791       25,999,656  
 
                                       
Cash Dividends Declared per Common Share
  $ 0.32     $ 0.43     $ 0.30     $ 0.24     $ 0.16  
     
(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 year ended November 30, 2005. The reclassification did not affect the net income for that year.

 

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial statements and the notes to those statements and other financial information appearing elsewhere in this report.
Except for historical information contained herein, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934, including without limitation, statements regarding our expectations, beliefs, intentions or future strategies. 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. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statements. Investors are urged to consider any statement labeled with the terms “believes,” “expects,” “intends” or “anticipates” to be uncertain and forward-looking.
Overview
Net Income for the year ended November 30, 2009 was $3,431,644, an increase of $2,018,758 or 142.9% over the net income of $1,412,886 for the year ended November 30, 2008. Earnings per share, fully diluted were $0.49 for the year ended November 30, 2009 as compared to $0.20 for the year ended November 30, 2008. The Company had net cash provided by operations of $3,905,182 for the year ended November 30, 2009 versus $3,229,899 for the year ended November 30, 2008. Comprehensive income was $4,223,391 for fiscal 2009 as opposed to $536,972 for fiscal 2008. The Company had current assets of $35,443,441 and current liabilities of $9,469,873 at November 30, 2009. Retained earnings increased to $28,094,783 at November 30, 2009 from $26,920,561 at November 30, 2008. There was no change in the number of outstanding shares at November 30, 2009 as compared to November 30, 2008.
Comparison of Results for Fiscal Years 2009 and 2008
For the year ended November 30, 2009, the Company had revenues of $57,672,164, and net income of $3,431,644, after a provision of $2,178,480 for taxes. 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. Other income declined $46,648, primarily due to lower interest rates, partially offset by higher dividend income and realized gains on the sales of investments. Fully diluted earnings per share for fiscal 2009 were $0.49 as compared to $0.20 for fiscal 2008.

 

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The Company’s net sales increased to $57,001,999 for the fiscal year ended November 30, 2009 from $56,741,133 for the fiscal year ended November 30, 2008. Gross sales were higher primarily in the diet and fragrance categories, and lower primarily in the oral care category. Sales returns and allowances were 11.6% of gross sales for fiscal 2009 versus 11.4% in fiscal 2008. In 2008 the Company had $321,070 of returns, primarily in the first three quarters of fiscal 2008, due to the discontinuance of Pound-X, a dietary supplement launched in the fourth quarter of 2006. Sales returns and allowances were higher in 2009 in part due to the Company’s continued expanded use of coupons. The coupon expense, charged against sales allowances, increased to $1,346,737 in fiscal 2009 from $884,161 in fiscal 2008. The Company, on an ongoing basis, has returns of products that have been phased out and replaced by new items as part of its marketing plan. Gross profit margins increased slightly to 61.7% in fiscal 2009 from 61.6% in fiscal 2008. The Company continually works to control its manufacturing costs.
In accordance with Generally Accepted Accounting Principles (“GAAP”), 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 ASC Topic 605-10-S99, “Revenue Recognition” (previously reported as EITF 01-9) as more fully described in Note 2 (“Sales Incentives”), of the consolidated financial statements for fiscal 2009. The reclassification reflects a reduction in sales for the fiscal years ended November 30, 2009 and 2008 by $4,889,941 and $4,557,507 respectively, an increase in the net sales reduction of $332,434.
The Company’s net sales, by category were: Dietary Supplements $24,243,598 or 42%, Skin Care $15,807,074 or 28%, Oral Care $8,859,354 or 16%, Nail Care $5,529,822 or 10%, Fragrance $1,938,084 or 3%, Analgesic $617,554 or 1%, and Hair Care and Miscellaneous $6,513 or 0%.
Income before taxes was $5,610,124 for fiscal 2009 as compared to $2,466,399 for fiscal 2008, an increase of $3,143,725. The increase was due to a reduction of expenses in both media and selling, general and administrative costs. For fiscal 2009, advertising, cooperative and promotional expenses were $9,667,446 as compared to $10,466,740 for fiscal 2008, or an expense decrease of $799,294. Advertising expenses were 17.0% of net sales for fiscal 2009 versus 18.4% for fiscal 2008. Included in advertising expense is media advertising, which decreased to $6,641,461 in fiscal 2009 from $8,051,849 in fiscal 2008. The Company increased its cooperative advertising in fiscal 2009, however a large portion of the increase in expense was offset by a decrease in the use of advertising in newspaper inserts.
Cost of goods remained stable despite increases in resin prices during fiscal 2009. Selling, general and administrative expenses decreased to $20,037,352 in fiscal 2009 from $22,122,849 in fiscal 2008. The decrease was primarily due to lower freight out costs as a result of the decrease in fuel costs and renegotiation of some carrier rates, decreased selling expenses, lower personnel costs and decreased donations of the Company’s inventory.
Shipping costs to the Company’s customers, reported as part of selling, general and administrative costs, decreased in fiscal 2009 by $556,051 from fiscal 2008. Shipping costs as a percentage of gross sales decreased to 4.0% in fiscal 2009 from 4.9% of gross sales in fiscal 2008. This was due to lower fuel costs during fiscal 2009, and a renegotiation of rates with some of the Company’s carriers. The Company also had a decrease in personnel costs and other costs because of management’s cost control initiatives. The Company significantly decreased its donations of inventory during fiscal 2009, resulting in an expense that was $392,805 lower then fiscal 2008. Donations of inventory can result in an increased tax benefit, the unused portion of which creates a deferred tax benefit that may be utilized in future periods.

 

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The effective tax rate for fiscal 2009 was 38.8% of income before tax as compared to 42.7% for fiscal 2008. The United States Internal Revenue Service completed an examination of the Company’s U.S. tax return for fiscal 2006. As a result of that examination, the Company received a refund of $94,195 in federal taxes for the 2006 fiscal year. The audit adjustments resulted in refunds from amended state tax returns for 2006 of $28,145, and an additional $196,335 in refunds from federal and state amended returns for fiscal 2007. The refunds resulted in the decreased effective tax rate for fiscal 2009. The State of New Jersey, Department of The Treasury, Division of Taxation is currently examining state income and sales tax returns filed for the fiscal years 2004 — 2008. As of February 25, 2010, no adjustments have been proposed. No other state has notified the Company of its intent to conduct an examination of tax returns filed in their jurisdictions. The Company had $747,668 of officer salaries during fiscal 2009 that were not deductible for tax purposes in calculating the income tax provision. As of November 30, 2009, the Company has unrealized losses on its investments of $314,428, which would have a tax benefit of $125,457. This tax benefit has been reduced by a valuation allowance of $85,557. The valuation allowance is based on an estimate of the losses, which if realized, could not be utilized to offset any corresponding capital gains. The tax benefit of the unrealized losses, net of valuation allowances, is $39,900 as of November 30, 2009.
Comprehensive income increased to $4,223,391 for the year ended November 30, 2009 from $536,972 for the year ended November 30, 2008. This reflects the increase in the Company’s net income together with other comprehensive income, net of income tax benefits, of $791,747. The tax benefit of the unrealized losses, net of valuation allowances, is $39,900 as of November 30, 2009. The other comprehensive income is as a result of the increase in the market value of the Company’s investments. Further information regarding the Company’s investments can be found in Note 6 of the consolidated financial statements.
Comparison of Results for Fiscal Years 2008 and 2007
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 in Note 15 of the consolidated financial statements, 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.

 

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The Company’s net sales decreased to $56,741,133 for the fiscal year ended November 30, 2008 from $59,832,157 for the fiscal year ended November 30, 2007. 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 notes to the consolidated 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 to 61.6% in fiscal 2008 from 63.6% in fiscal 2007. 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.
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 ASC Topic 605-10-S99, “Revenue Recognition” (previously reported as EITF 01-9) as more fully described in Note 2 (“Sales Incentives”), of the consolidated 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.
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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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 to $22,122,849 in fiscal 2008 from $21,266,327 in fiscal 2007. 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.
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.
Liquidity and Capital Resources
As of November 30, 2009, the Company had working capital of $25,973,568 as compared to $23,836,264 at November 30, 2008. The ratio of total current assets to current liabilities is 3.7 to 1 as compared to a ratio of 3.2 to 1 for the prior year. Stockholders’ equity increased to $30,219,848 in fiscal 2009 from $28,253,879 in fiscal 2008. The increase was due to increases in retained earnings and lower unrealized losses on marketable securities. Retained earnings increased to $28,094,783 at November 30, 2009 from $26,920,561 at November 30, 2008. The increase was due to earnings of $3,431,644 during fiscal 2009, less dividends declared of $2,257,421. Unrealized losses on marketable securities were $274,528 at November 30, 2009 as compared to unrealized losses of $1,066,275 at November 30, 2008. Unrealized gains or losses reflect the difference between the cost and market price of the Company’s marketable securities as of the date of the financial statements, net of any tax expense or benefit. See Note 6 of the consolidated financial statements for further information regarding the Company’s marketable securities. The Company did not purchase any treasury stock during fiscal 2009. There were no common or preferred stock shares issued during fiscal 2009.
The Company’s cash position and short-term investments at November 30, 2009 were $17,480,472, versus $15,583,056 as at November 30, 2008. Non-current or long term investments were $2,900,035 at November 30, 2009 versus $2,945,740 at November 30, 2008. At November 30, 2009, the Company had long and short-term triple A investments and cash of $20,380,507 as compared to $18,528,796 as of November 30, 2008. The Company paid cash dividends during fiscal 2009 in the amount of $2,539,599, including the dividends declared at the end of fiscal 2008 but not paid until fiscal 2009 of $775,988 and $1,763,611 in dividends declared and paid for fiscal 2009. As of November 30, 2009, there were dividends declared but not paid of $493,811. The investment securities the Company purchased are all classified as “Available for Sale Securities”, and are reported at fair market value as of November 30, 2009, 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.

 

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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.
Accounts receivable as of November 30, 2009 and 2008 were $7,613,273 and $8,230,716 respectively. The gross accounts receivable was $144,341 higher as of November 30, 2009 versus November 30, 2008, however the net receivables decreased due to an increase in the reserve for returns and allowances. Accounts receivable allowances and reserves increased in the aggregate by $761,785 at November 30, 2009 as compared to November 30, 2008. The reserves were higher as of November 30, 2009 due to additional provisions for the Company’s Instant Lift product, an account that filed for bankruptcy protection and markdown allowances given to certain accounts.
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 to $131,223 as of November 30, 2009 from $154,290 as of November 30, 2008.
The reserve for returns and allowances is based on the historical returns as a percentage of sales in the five preceding months, adjusting for returns that can be put back into inventory, and a specific reserve based on customer circumstances. This allowance increased to $2,660,469 as of November 30, 2009 from $2,112,426 as of November 30, 2008. Of this amount, allowances and reserves in the amount of $1,206,878, which are anticipated to be deducted from future invoices, are included in accrued liabilities. The increase in the reserve for returns and allowances is due in part to the timing of the Company’s sales and a reserve in the amount of $82,362 for an account that filed for bankruptcy. This amount, including the reserve, would be included in accounts receivable until a final order is entered by the bankruptcy court at which time the amount will be charged against the allowance for doubtful accounts. Also included in the reserve is a provision of $293,845 for the Company’s Instant Lift product which was launched during fiscal 2009.
Inventories were $8,327,277 and $7,932,798, as of November 30, 2009 and 2008 respectively. The Company increased the amount of inventory on hand in order to accommodate its customer’s needs for just in time inventory shipments. Inventory was also increased due to promotional sales that were shipped in December 2009. The reserve for inventory obsolescence is based on a detailed analysis of inventory movement. The inventory obsolescence reserve was increased to $760,001 as of November 30, 2009 from $578,941 as of November 30, 2008. The increase in the reserve was primarily for the Company’s Instant Lift Products.
The amount of deferred income tax reflected as a current asset increased to $1,193,745 as of November 30, 2009 from $973,732 as of November 30, 2008. The increase of deferred tax credits was mainly as a result of the increased reserves for returns and inventory obsolescence. The increase was partially offset by a reduction in the accrual for unused vacation pay and a reduction in charitable contributions that could not be deducted in the current tax year and were carried forward. Also included is a deferred income tax benefit of $39,900 as a result of the unrealized losses on the Company’s marketable securities. This amount is also reflected as an offset against unrealized losses in the equity section of the balance sheet. The Company anticipates that these amounts will be deductible in future tax years. The amount of non-current deferred tax decreased to $0 as of November 30, 2009 from $143,419 as of November 30, 2008. The decrease was due to a portion of the charitable contributions for which the benefit was estimated to be beyond the 2009 fiscal year, and thus had been classified as a long term asset at November 30, 2008. However, the Company anticipates that the carry forward amount as of November 30, 2009 will be utilized in fiscal 2010, and accordingly has classified the entire carry forward amount as a current deferred tax asset.

 

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Current liabilities are $9,469,873 and $11,016,196, as of November 30, 2009 and 2008 respectively. Current liabilities at November 30, 2009 consisted of accounts payable, accrued liabilities, short-term capital lease obligations, income taxes payable and dividends payable.
As of November 30, 2009, there was $1,845,583 of open cooperative advertising commitments, of which $1,313,903 is from 2009, $203,395 is from 2008, $292,726 is from 2007 and $35,559 is from 2006. The Company’s total cooperative advertising commitment increased slightly to $6,271,303 in fiscal 2009 from $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.
The Company’s long term obligations are for a portion of its capitalized leases, which is for certain office and warehouse equipment and deferred tax liabilities.
The Company generated cash flow of $3,905,182 from operating activities during fiscal 2009, as compared to $3,229,899 in fiscal 2008. The increase in operating cash flow was mainly due to the increase in net income, decrease in prepaid income taxes and accounts receivable, partially offset by an increase in inventory and a decrease in accounts payable. Net cash provided by investing activities was $967,783 during fiscal 2009, generated by the excess of the proceeds from the sale of some of the Company’s investments less securities purchased and the acquisition of equipment. The acquisition of equipment was mainly for the improvement of the Company’s computer systems. The Company’s cash balance increased by $2,275,670 during fiscal 2009, net of $2,539,599 in dividends paid to the shareholders.
Inventory, Seasonality, Inflation and General Economic Factors
The Company attempts to keep its inventory for its 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 anticipated 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 manufactured 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.

 

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The Company’s products are not 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 circumstances 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. 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 and therefore will no longer be purchasing the Company’s Plus+White oral care products brand. In 2009, the Company’s net sales of Plus+White to Wal-Mart totaled approximately $1.2 million versus approximately $6 million during fiscal 2008.

 

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Contractual Obligations
The following table sets forth the contractual obligations as of November 30, 2009. Such obligations include the current lease for the Company’s premises, written employment contracts and License Agreements.
                                 
    Less than                     More than  
    1 Year     1-3 Years     3-5 Years     5 years  
Leases on Premises (1)
  $ 694,120     $ 1,041,180     $     $  
Royalty Expense (2)
    152,500       570,000       570,000       190,000  
Employment Contracts (3)
    2,234,533       3,556,928       2,741,205        
Capital Lease Obligations
    53,233       20,929              
Open Purchase Orders
    3,441,971                    
 
                       
Total Contractual Obligations
  $ 6,576,357     $ 5,189,037     $ 3,311,205     $ 190,000  
 
                       
     
(1)  
The major lease is a net lease requiring a yearly rental of $390,835 plus Common Area Maintenance “CAM”. See Section Part I, Item 2. The rental provided above is the base rental and estimated CAM. CAM for future years is estimated at $150,000. 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 annual rental is $123,285 plus CPI adjustments, real estate taxes and common area maintenance expenses. CAM is estimated at $30,000 per year for future years. The figures for both leases above do not include adjustments for future CPI.
 
(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 2009 sales. The more than 5 years column only reflects one year of minimum payments; the payments can continue in perpetuity in order to maintain the license. Royalty expense noted includes Joann Bradvica and LaRosa Innovations, LLC.
 
(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 plus depreciation and amortization 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, plus 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.

 

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David Edell’s sons, Dunnan Edell and Drew Edell have five-year employment contracts in the amounts of $270,000 and $200,000 respectively, which expired 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 December 2007, the Financial Accounting Standards Board (“FASB”) amended certain provisions of Accounting Standard Codification (“ASC”) Topic 805, “Business Combinations” (previously reported as SFAS No. 141R, “Business Combinations”). This amendment 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. This amendment promotes greater use of fair values in financial reporting. In addition, under Topic 805, 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. Topic 805 became effective for fiscal years beginning on or after December 15, 2008. Topic 805 will have an impact on accounting for any business acquired after the effective date of this pronouncement.
In December 2007, the FASB issued ASC Topic 810, “Consolidation” (previously reported as SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements”). Topic 810 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. Topic 810 became effective for fiscal years beginning after December 15, 2008. Topic 810 will have an impact on the presentation and disclosure of the noncontrolling interests of any non-wholly owned business acquired in the future.

 

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In April 2008, the FASB amended certain provisions of ASC Topic 350, “Intangibles-Goodwill and Other”, (previously reported as FASB Staff Position No. 142-3). Topic 350 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. It further 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 and the period of expected cash flows used to measure the fair value of the asset. Topic 350 became 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. Topic 350 will not have a significant impact on the Company’s results of operations, financial condition or liquidity.
In April 2009, the SEC issued Staff Accounting Bulletin No. 111 (“SAB No. 111”). SAB No. 111 amends Topic 5.M. in regard to other than temporary impairment of certain investments in debt and equity securities. SAB No. 111 confirms the establishment of the “other than temporary” category of investment impairment. The adoption of SAB No. 111 became effective upon issuance and did not have any material impact on the Company’s financial position or results of operation.
In April 2009, the FASB issued an amendment to ASC Topic 825, “Financial Instruments” (previously reported as FASB Staff Position No. FAS 107-1 and APB 28-1, “Disclosures about Fair Value of Financial Instruments”). The amendment requires disclosure of the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The amendment to Topic 825 became effective for interim reporting periods ending after June 15, 2009. The adoption of this topic had no impact on the Company’s financial position or results of operation.
In April 2009, the FASB issued additional guidance under ASC Topic 820, “Fair Value Measurements and Disclosures” (previously reported as FASB Staff Position No. FAS 157-4). Topic 820 provides additional guidance for estimating the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly decreased, and identifying circumstances in which a transaction may not be orderly. The adoption of this topic became effective for all interim and annual reporting periods ending after June 15, 2009. The adoption of the additional guidance provided by Topic 820 did not have any material impact on the Company’s financial position or results of operation.
In April 2009, the FASB issued an amendment to ASC Topic 320, “Investments — Debt and Equity” (previously reported as FASB Staff Position No. 115-2 and 124-2) which amends the guidance in regard to other-than-temporary impairments on debt and equity securities in the financial statements. Topic 320 also requires additional disclosures in the financial statements that enable users to understand the types of debt and equity securities held, including those investments in an unrealized loss position for which an other-than-temporary impairment has or has not been recognized. The adoption of the amendment to Topic 320 became effective for all interim and annual reporting periods ending after June 15, 2009. The adoption of this amended topic did not have any material impact on the Company’s financial position or results of operation.

 

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In May 2009, the FASB issued ASC Topic 855, “Subsequent Events” (previously reported as SFAS No. 165, “Subsequent Events”). The statement establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Topic 855 became effective June 15, 2009 for all subsequent reporting periods. The adoption of Topic 855 did not have any material impact on the Company’s financial position or results of operation.
In June 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-01, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (previously SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”). This update identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States. This update is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of ASU 2009-01 did not have any material impact on the Company’s financial position or results of operation.
In August 2009, the FASB issued ASU 2009-05, which is an update to Topic 820, “Fair Value Measurements and Disclosures”. The update provides clarification in regard to the estimation of the fair value of a liability. In addition, it also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. This update became effective for all interim and annual reporting periods ending after August 31, 2009. The adoption of ASU 2009-05 did not have a material impact on the Company’s financial position or results of operation.
In January 2010, the FASB issued ASU 2010-06, which is an update to Topic 820, “Fair Value Measurement and Disclosures”. This update establishes further disclosure requirements regarding transfers in and out of levels 1 and 2, and activity in level 3 fair value measurements. The update also provides clarification as to the level of disaggregation for each class of assets and liabilities, requires disclosures about inputs and valuation techniques, and also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 will be effective for all interim and annual reporting periods beginning after December 15, 2010. ASU 2010-06 is not expected to have a 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.

 

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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 our financial operations. All of the Company’s products have independent competition and must be able to compete in order to maintain our position on the retail merchandisers’ shelves. {See Business - General, Item 1(c) i Marketing.}
The Company does not manufacture any of its products. All of the products are manufactured for the Company by independent contract manufacturers. There can be no assurance that the failure of a supplier to deliver the products ordered by the Company, when requested, will not cause burdensome delays in the Company’s shipments to accounts. The Company does constantly seek alternative suppliers should a major supplier fail to deliver as contracted. A failure of the Company to ship as ordered by its accounts could cause penalties and/or cancellations of our customers’ orders.
There is No Assurance That The Business Will Continue to Operate Profitably.
In fiscal 2009, net sales were $57,001,999. Net income was $3,431,644. There is no assurance that all of the Company’s products will be successful. During 2009 consumer confidence was at a record low which had a general impact on the industry and 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, 2009. 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.

 

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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.
On September 30, 2009 the Company was served with a class action suit Denise Wally v. CCA Industries, Inc. The claim, which did not specify any damages, was filed in the Superior Court, State of California, County of Los Angeles, alleging false and misleading claims about the Company’s weight loss dietary supplement products sold in California in violation of the California Business and Professional Code. The Company believes that the allegations are without any merit and intends to vigorously defend the case. However, there can be no assurance that our position will be upheld.
All of the Company’s product must be in compliance with all FDA and states regulations and all products which are being manufactured for the Company by outside suppliers must conform to the FDA’s Good Manufacturing Practices requirements. It is the Company’s responsibility to ascertain that the suppliers do conform.
The Company Relies On A Few Large Customers For A Significant Portion Of Its Sales.
In fiscal 2009, Wal-Mart Stores Inc. represented approximately 36% of the Company’s total revenues. The Company’s ten largest customers accounted for 79% 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. In 2009, the Company’s net sales of Plus+White to Wal-Mart totaled approximately $1.2 million versus approximately $6 million during fiscal 2008.
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. Please see the Litigation section for information regarding the class action suit Denise Wally v. CCA Industries, Inc.

 

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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 but 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). $233,001 of the Company’s $12,536,138 portfolio of investments ( as at Nov. 30, 2009) is invested in the ”Common Stock” and “Other Equity” category, and $2,064,208 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.
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, 2009 and 2008:
                                 
    Three Months Ended  
Fiscal 2009   Feb. 28     May 31     Aug. 31     Nov. 30  
 
                               
Net Sales
  $ 14,758,850     $ 14,609,686     $ 15,139,754     $ 12,493,709  
Total Revenue
    14,944,466       14,748,329       15,344,595       12,634,774  
 
                               
Cost of Products Sold
    5,616,212       5,527,838       5,616,335       5,090,190  
Gross Profit
    9,142,638       9,081,848       9,523,419       7,403,519  
 
                               
Net Income
  $ 124,366     $ 694,136     $ 1,599,346     $ 1,013,796  
 
                               
Earnings Per Share:
                               
Basic
  $ 0.02     $ 0.10     $ 0.23     $ 0.14  
Diluted
  $ 0.02     $ 0.10     $ 0.23     $ 0.14  

 

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Three Months Ended                        
Fiscal 2008   Feb. 29     May 31     Aug. 31     Nov. 30  
 
                               
Net Sales
  $ 13,639,145     $ 17,258,060     $ 13,939,214     $ 11,904,714  
Total Revenue
    13,871,040       17,389,985       14,148,729       12,048,192  
 
                               
Cost of Products Sold
    4,893,262       6,335,298       5,252,704       5,287,878  
Gross Profit
    8,745,883       10,922,762       8,686,510       6,616,836  
 
                               
Net Income
  $ 343,683     $ 790,692     $ 1,101,420     $ (822,909 )
 
                               
Earnings Per Share:
                               
Basic
  $ 0.05     $ 0.11     $ 0.16     $ (0.12 )
Diluted
  $ 0.05     $ 0.11     $ 0.16     $ (0.12 )
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 2009 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 registered public 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 data processing software systems and other procedures are effective and that the information created by the Company’s systems adequately confirm the validity of the information upon which the Company relies.
The Company 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, our management, including our Chief Executive Officer and Chief Financial Officer, are required to assess the effectiveness of the Company’s internal control over financial reporting as of November 30, 2009 and report, based on that assessment, whether the Company’s internal controls over financial reporting are effective.

 

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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, 2009 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, 2009, the Company’s internal control over financial reporting was effective.
         
 
       
 
  /s/ DAVID EDELL
 
David Edell, Chief Executive Officer
   
 
       
 
  /s/ STEPHEN A. HEIT
 
Stephen A. Heit, Chief Financial Officer
   

 

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PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We have a code of ethics that applies to the Chairman of the Board, Directors, Officers and Employees, including our Chief Executive Officer and Chief Financial Officer. You can find our code of ethics in Exhibit 14.
The Executive Officers and Directors of the Company are as follows:
             
        YEAR OF FIRST
NAME   POSITION   COMPANY SERVICE
 
           
David Edell
  Chief Executive Officer, Director     1983  
 
           
Ira W. Berman
  Chairman of the Board of Directors, Secretary, Executive Vice President     1983  
 
           
Dunnan Edell
  President, Chief Operating Officer and Director     1984  
 
           
Stephen Heit
  Executive Vice President and Chief Financial Officer     2005  
 
           
Drew Edell
  Executive Vice President- Product Development and Production     1983  
 
           
John Bingman
  Vice President and Treasurer     1986  
 
           
Stanley Kreitman
  Director     1996  
 
           
Jack Polak
  Director     1983  
 
           
Robert Lage
  Director     2003  
 
           
Seth Hamot
  Director (Retired June 24, 2009)     2007  
 
           
James Mastrian
  Director     2009  
David Edell, age 77, 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.

 

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Ira W. Berman, age 78, 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 54 year-old son of David Edell. He is a graduate of George Washington University. He has been a director since 1994, and in fiscal 2003, he was promoted to position of President of the Company and Chief Operating Officer. He joined the Company in 1984 and was appointed Divisional Vice-President in 1986. He was employed by Alleghany Pharmacal Corporation from 1982 to 1984 and by Hazel Bishop from 1977 to 1981.
Stephen Heit, age 55 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 52 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 58, 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 97, 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 77 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.

 

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Robert Lage, age 73, is a retired CPA. He became a director in fiscal 2003. He was a partner at Pricewaterhouse Coopers 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.
James P. Mastrian, age 66, retired from the Rite Aid Corp. in August 2008. He was the special advisor to the Chairman and Chief Executive Officer. Prior to that, he was the Chief Operating Officer of Rite Aid Corp. from October 2005 to August 2007. He had been Senior Executive Vice President, Marketing, Logistics and Pharmacy Services from November 2002 to October 2005, and was Senior Executive Vice President, Marketing and Logistics of Rite Aid from October 2000 until November 2002. Prior to that he was Executive Vice President, Marketing from November 1999 to October 2000. Mr. Mastrian was also Executive Vice President, Category Management of Rite Aid from July 1998 to November 1999. Mr. Mastrian was Senior Executive Vice President, Merchandising and Marketing of OfficeMax, Inc. from June 1997 to July 1998 and Executive Vice President, Marketing of Revco D.S., Inc. from July 1994 to June 1997, and served in other positions from September 1990. Mr. Mastrian also serves on the National Board of the Boys Hope Girls Hope, an international educational and residential program for academically capable abused, neglected and abandoned children. Mr. Mastrian received a B.S. Pharmacy from the University of Pittsburgh in 1965.
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. Robert Lage, Chairman of the 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. Robert Lage, Stanley Kreitman, and Jack Polak 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, James P. Mastrian and Robert Lage. Each member of the compensation committee is “independent”. The investment committee is comprised of Ira Berman, Stanley Kreitman and Jack Polak.
Item 11. EXECUTIVE COMPENSATION
i. Summary Compensation Table
The following table summarizes compensation earned in the 2009, 2008 and 2007 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.

 

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                            Long-Term Compensation  
                                    Number        
                            All     of Shares        
                            Other     Covered     Other  
Name and                           Annual     by Stock     Long-Term  
Principal           Annual Compensation     Compen-     Options     Compen-  
Position   Year     Salary     Bonus(1)     sation(2)     Granted(3)     sation  
 
                                               
David Edell,
    2009     $ 878,354     $ 513,328     $ 43,652             0 (4)
Chief Executive Officer
    2008       812,700       422,285       43,639             0 (4)
 
    2007       794,173       532,807       44,155             0 (4)
 
                                               
 
                                               
Ira W. Berman,
    2009     $ 878,354     $ 513,328     $ 45,552             0 (4)
Secretary and Executive Vice President
    2008       812,700       422,285       45,443             0 (4)
 
    2007       794,173       532,807       40,699             0 (4)
 
                                               
 
                                               
Dunnan Edell,
    2009     $ 350,000     $ 96,000     $ 17,909             0  
President, Chief Operating Officer
    2008       343,269       96,000       16,632             0  
 
    2007       355,962       120,000       11,060             0  
 
                                               
Stephen Heit,
    2009     $ 250,000     $ 35,000     $ 10,370             0  
Executive Vice President,
    2008       234,615       24,000       9,093             0  
Chief Financial Officer
    2007       229,327       30,000       8,081             0  
 
                                               
 
                                               
Drew Edell,
    2009     $ 275,000     $ 48,000     $ 12,620             0  
Executive Vice President
    2008       269,711       48,000       11,442             0  
Product Development & Production
    2007       279,904       60,000       10,008             0  
 
                                               
 
                                               
Jon Denis,
    2009     $ 325,000     $ 15,000     $ 13,252             0  
Senior Executive
    2008       318,750       6,250       10,578             0  
Vice President – Sales
    2007       331,250       50,000       10,235             0  
 
                                               

 

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(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.
ii. Fiscal 2009 Option Grants and Option Exercises, Year-End Option Valuation, Option Repricing
On September 27, 2007, the Company granted stock appreciation rights for 10,000 shares to its Executive Vice President of Sales, at $9.40 per share, which was the price of the stock on the day of the grant. The stock appreciation rights granted did not vest until two years after the grant date and expire five years after the grant date. Upon exercise, the value would be computed by the difference in the share price of the stock on the date of grant ($9.40) and the price on the exercise date. The stock appreciation rights would be exercisable to purchase the Company’s common stock at the price of the stock on the date of exercise.
There were no stock options granted or options exercised during fiscal 2009. All outstanding options expired during fiscal 2009.
iii. Compensation of Directors and Committees of the Board
         
    Year Ended  
Director   Nov. 30, 2009  
Stanley Kreitman
  $ 15,000  
Robert Lage
    45,000  
James Mastrian
    7,500  
Jack Polak
    15,000  
Seth Hamot (Retired June 24, 2009)
    7,500  
 
     
 
       
Total
  $ 90,000  
 
     

 

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Each outside director was paid $2,500 for a conference call meeting and $5,000 per meeting for attendance of board meetings in fiscal 2009 (without additional compensation for committee meetings, other than as noted below). The full Board of Directors met four times in fiscal 2009, for an aggregate compensation of $60,000, not including Mr. Lage’s additional compensation of $30,000 as chairman of the audit committee. No stock options were awarded.
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, James P. Mastrian 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 2009 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 2009 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 plus depreciation and amortization. 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 income before income taxes, plus 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.

 

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David Edell’s sons, Dunnan Edell and Drew Edell have five-year employment contracts in the amounts of $270,000 and $200,000 respectively, which were to 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.

 

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Option Plans permit the exercise of options for cash, other property acceptable to the Board or pursuant to a deferred payment arrangement. The 1994 Plan specifically 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, other than officers, to finance optionee tax-consequences in respect of option exercise, but such loans must be personally guaranteed and secured by the issued stock.
The maximum term of each option is ten (10) years. No option granted is transferable by the optionee other than upon death.
On June 15, 2005, the shareholders approved an amended and Restated Stock Option Plan amending the 2003 Stock Option Plan.
The Plan provides that the stock option committee may make awards in the form of (a) incentive stock options, (b) non-qualified stock options, (c) stock appreciation rights, (d) restricted stock, and (e) performance shares.
One new award was made by the committee in fiscal 2007 (See Executive Compensation in Fiscal 2007 Option Grants).
Under the plans, options will terminate three (3) months after the optionee ceases to be employed by the Company or a parent or subsidiary of the Company unless (i) the termination of employment is due to such person’s permanent and total disability, in which case the option may, but need not, provide that it may be exercised at any time within one (1) year of such termination (to the extent the option was vested at the time of such termination); or (ii) the optionee dies while employed by the Company or a parent or subsidiary of the Company or within three (3) months after termination of such employment, in which case the option may, but need not provide that it may be exercised (to the extent the option was vested at the time of the optionee’s death) within eighteen (18) months of the optionee’s death by the person or persons to whom the rights under such option pass by will or by the laws of descent or distribution; or (iii) the option by its terms specifically provides otherwise.
The exercise price of all nonqualified stock options must be at least equal to 85% of the fair market value of the underlying stock on the date of grant. The exercise price of all Incentive Stock Options must be at least equal to the fair market value of the underlying stock on the date of grant. The aggregate fair market value of stock of the Company (determined at the date of the option grant) 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 of November 30, 2009, there were no outstanding stock options.

 

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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 2009. 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 Dow Jones US Index and the cumulative total return of Dow Jones’s Personal Products Index.
CCA Industries — ASE
(LINE GRAPH)

 

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Copyrights 2009 Dow Jones & Company. All rights reserved.
                                                 
    11/04     11/05     11/06     11/07     11/08     11/09  
 
                                               
CCA Industries, Inc.
    100.00       76.38       110.30       94.93       37.89       47.81  
Dow Jones US
    100.00       110.01       125.86       135.82       83.35       106.41  
Dow Jones US Personal Products
    100.00       110.34       132.32       157.92       121.95       162.95  
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, 2009 by (i) all those known by the Company to be owners of more than five percent of the outstanding shares of Common Stock or Class A Common Stock; (ii) each officer and director; and (iii) all officers and directors as a group.
Unless otherwise indicated, each of the shareholders has sole voting and investment power with respect to the shares owned (subject to community property laws, where applicable), and is beneficial owner of them.
                                 
                            Ownership, As A  
    Number of             Percentage of  
    Shares Owned (1):             All Shares Out-  
    Common             “Option     Standing/Assuming  
Name and Address   Stock     Class A (2)     Shares”(1)     Option Share Exercise (1)  
David Edell
c/o CCA Industries, Inc.
    146,609       484,615             8.9 %
200 Murray Hill Parkway
East Rutherford, NJ 07073
                               
 
                               
Ira W. Berman
c/o CCA Industries, Inc.
    160,533       483,087             9.1 %
 
                               
Stanley Kreitman
c/o CCA Industries, Inc.
    15,000                   0.2 %
 
                               
Robert Lage
c/o CCA Industries, Inc.
                      0.0 %
 
                               
James P. Mastrian
c/o CCA Industries, Inc.
                      0.0 %
 
                               
Jack Polak
c/o CCA Industries, Inc.
    53,254                   0.8 %
 
                               

 

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                            Ownership, As A  
    Number of             Percentage of  
    Shares Owned (1):             All Shares Out-  
    Common             “Option     Standing/Assuming  
Name and Address   Stock     Class A (2)     Shares”(1)     Option Share Exercise (1)  
Dunnan Edell
c/o CCA Industries, Inc.
    97,158                   1.4 %
 
                               
Drew Edell
c/o CCA Industries, Inc.
    98,108                   1.4 %
 
                               
John Bingman
c/o CCA Industries, Inc.
                      0.0 %
 
                               
Stephen A. Heit c/o CCA Industries, Inc.
    1,212                   0.0 %
 
                               
 
                       
All Officers and Directors as a group (10 persons)
    571,874       967,702             21.8 %
 
                       
 
     
(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. Lage, Mastrian, Kreitman and Polak are independent, outside directors.
There were no other shareholders who owned more than five percent of the outstanding Common Stock or Class A Common Stock of the Company.

 

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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company did not purchase any shares of common stock from officers, directors or affiliates in fiscal 2009.
During fiscal 2009, 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 registered public accounting firm for 2009 and 2008. The services performed by KGS in this capacity included conducting an audit in accordance with generally accepted auditing standards of, and expressing an opinion on, the Company’s consolidated financial statements.
Audit Fees
KGS’s fees for professional services rendered in connection with the audit and review of Forms 10-K and all other SEC regulatory filings were $340,000 for the 2009 fiscal year and $379,000 for the 2008 fiscal year. The Company has paid and is current on all billed fees.
Audit Related Fees
Audit related fees billed in Fiscal 2009 and 2008 by KGS were $4,000 and $46,000 respectively. Audit related fees consist primarily of fees billed for professional services rendered by KGS for accounting consultations 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 2009 and 2008 fiscal years were $55,000 and $51,000, respectively.
All Other Fees
All other fees of $0 and $0 billed in Fiscal years 2009 and 2008, respectively, represent fees for miscellaneous services other than those described above.

 

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Engagements Subject to Approval
Under its charter, the Audit Committee must pre-approve all subsequent engagements of our independent registered public accounting firm 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 registered public accounting firm’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 registered public accounting firm, 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 registered public accounting firm’s independence from management. At each subsequent committee meeting, the committee will receive updates on the services actually provided by the independent registered public accounting firm, 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.

 

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PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENTS,
SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements:
Table of Contents, Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets as of November 30, 2009 and 2008, Consolidated Statements of Income for the years ended November 30, 2009, 2008 and 2007, Consolidated Statements of Comprehensive Income, Consolidated Statements of Shareholders’ Equity for the years ended November 30, 2009, 2008 and 2007, Consolidated Statements of Cash Flows for the years ended November 30, 2009, 2008 and 2007, Notes to Consolidated Financial Statements.
Financial Statement Supplementary Information:
Schedule II: Valuation Accounts; Years Ended Nov. 30, 2009, 2008 and 2007.
Exhibits: All Exhibits are incorporated by reference.
(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.

 

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Previously filed as an exhibit to and incorporated by reference from the indicated report filed with the Securities and Exchange Commission:
(1) The Company’s 2003 Stock Option Plan was filed with the 2003 Proxy and is incorporated by reference to this 10K.
(2) The Company’s 2005 Amended and Restated Stock Option Plan and the 2005 Proxy are incorporated by reference herein.
(3) Form 8K, filed on January 21, 2009, is incorporated by reference to this 10K.
The following reports were filed with the Securities and Exchange Commission during the three months ended November 30, 2009:
  (1)  
Form 8-K, filed on October 2, 2009, announcing that the Company was served on September 30, 2009 with a class action suit, Denise Wally vs. CCA Industries, Inc . The claim, which did not specify any damages, was filed in the Superior Court, State of California, County of Los Angeles, and Central Civil West, alleging false and misleading claims about one of our products sold in California, that violated the California Business and Professional Code.
 
  (2)  
Form 10-Q, filed on October 14, 2009, for the quarter ended August 31, 2009.
(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).

 

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(A) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  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   Date
 
       
/s/ DAVID EDELL
 
DAVID EDELL
  Chief Executive Officer, Director    February 25, 2010
 
       
/s/ IRA BERMAN
 
IRA W. BERMAN
  Chairman of the Board of Directors,
Executive Vice President, Secretary
  February 25, 2010
 
       
/s/ DUNNAN EDELL
 
DUNNAN EDELL
  President, Chief Operating Officer, Director   February 25, 2010
 
       
/s/ STEPHEN HEIT
 
STEPHEN HEIT
  Executive Vice President,
Chief Financial Officer
  February 25, 2010
 
       
/s/ DREW EDELL
 
DREW EDELL
  Executive Vice President,
Research & Development
  February 25, 2010
 
       
/s/ STANLEY KREITMAN
 
STANLEY KREITMAN
  Director    February 25, 2010
 
       
/s/ ROBERT LAGE
 
ROBERT LAGE
  Director    February 25, 2010
 
       
/s/ JACK POLAK
 
JACK POLAK
  Director    February 25, 2010
 
       
/s/ JAMES P. MASTRIAN
 
JAMES P. MASTRIAN
  Director    February 25, 2010

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2009 AND 2008

 

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CONTENTS
         
    46  
 
       
FINANCIAL STATEMENTS:
       
 
       
    47-48  
 
       
    49  
 
       
    50  
 
       
    51  
 
       
    52  
 
       
    53-84  
 
       
SUPPLEMENTARY INFORMATION
       
 
       
    85  
 
       
    43  

 

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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, 2009 and 2008, 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, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CCA Industries, Inc. and Subsidiaries as of November 30, 2009 and 2008, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended November 30, 2009, 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 financial statements taken as a whole.
/s/ KGS LLP
February 25, 2010
Jericho, New York

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
                 
    NOVEMBER 30,  
    2009     2008  
 
               
Current Assets
               
Cash and cash equivalents
  $ 7,844,369     $ 5,568,699  
Short-term investments and marketable securities (Notes 2 and 6)
    9,636,103       10,014,357  
Accounts receivable, net of allowances of $1,584,814 and $823,029, respectively
    7,613,273       8,230,716  
Inventories, net of reserve for inventory obsolescence of $760,001 and $578,941, respectively (Notes 2 and 3)
    8,327,277       7,932,798  
Prepaid expenses and sundry receivables
    739,139       578,000  
Prepaid and refundable income taxes (Note 8)
    89,535       1,554,158  
Deferred income taxes (Note 8)
    1,193,745       973,732  
 
           
 
               
Total Current Assets
    35,443,441       34,852,460  
 
           
 
               
Property and equipment, net of accumulated depreciation and amortization (Notes 2 and 4)
    682,921       611,226  
 
           
 
               
Intangible assets, net of accumulated amortization (Notes 2 and 5)
    697,506       727,716  
 
           
 
               
Other assets
               
Marketable securities (Notes 2 and 6)
    2,900,035       2,945,740  
Deferred income taxes (Note 8)
          143,419  
Other
    65,300       65,300  
 
           
 
               
Total Other Assets
    2,965,335       3,154,459  
 
           
 
               
Total Assets
  $ 39,789,203     $ 39,345,861  
 
           
See Notes to Consolidated Financial Statements.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
                 
    NOVEMBER 30,  
    2009     2008  
Current Liabilities
               
Accounts payable and accrued liabilities (Note 10)
  $ 8,775,676     $ 10,182,510  
Capitalized lease obligations
    53,233       57,697  
Income taxes payable (Note 8)
    147,153        
Dividends payable (Note 12)
    493,811       775,989  
 
           
 
               
Total Current Liabilities
    9,469,873       11,016,196  
 
               
Deferred income tax liability (Note 8)
    76,929        
Capitalized lease obligations — long term
    22,553       75,786  
 
           
 
       
Total Liabilities
    9,569,355       11,091,982  
 
           
 
               
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
    60,867       60,867  
Class A common stock, $.01 par; authorized 5,000,000 shares; issued and outstanding 967,702 and 967,702 shares, respectively
    9,677       9,677  
Additional paid-in capital
    2,329,049       2,329,049  
Retained earnings
    28,094,783       26,920,561  
Unrealized (losses) on marketable securities (Note 2)
    (274,528 )     (1,066,275 )
 
           
 
               
Total Shareholders’ Equity
    30,219,848       28,253,879  
 
           
 
               
Total Liabilities and Shareholders’ Equity
  $ 39,789,203     $ 39,345,861  
 
           
See Notes to Consolidated Financial Statements.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
                         
    Years Ended November 30,  
    2009     2008     2007  
 
                       
Revenues
                       
Sales of health and beauty aid products, net
  $ 57,001,999     $ 56,741,133     $ 59,832,157  
Other income
    670,165       716,813       1,045,710  
 
                 
 
    57,672,164       57,457,946       60,877,867  
 
                 
 
                       
Costs and Expenses
                       
Cost of sales
    21,850,575       21,769,142       21,760,406  
Selling, general and administrative expenses
    20,037,352       22,122,849       21,266,327  
Advertising, cooperative and promotions
    9,667,446       10,466,740       6,956,407  
Research and development
    499,636       603,486       574,900  
(Benefit from) provision for doubtful accounts
    (4,901 )     12,886       (21,839 )
Interest expense
    11,932       16,444       29,090  
 
                 
 
    52,062,040       54,991,547       50,565,291  
 
                       
Transaction Costs
                717,850  
 
                 
 
                       
Total Costs and Expenses
    52,062,040       54,991,547       51,283,141  
 
                 
 
                       
Income before Provision for Income Taxes
    5,610,124       2,466,399       9,594,726  
 
                       
Provision for income taxes
    2,178,480       1,053,513       4,056,931  
 
                 
 
                       
Net Income
  $ 3,431,644     $ 1,412,886     $ 5,537,795  
 
                 
 
                       
Weighted Average Shares Outstanding
                       
Basic
    7,054,442       7,054,442       7,029,611  
 
                 
Diluted
    7,054,442       7,061,646       7,058,889  
 
                 
 
                       
Earnings Per Common Share (Note 2):
                       
Basic
  $ 0.49     $ 0.20     $ 0.79  
 
                 
Diluted
  $ 0.49     $ 0.20     $ 0.78  
 
                 
See Notes to Consolidated Financial Statements.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                         
    Years Ended November 30,  
    2009     2008     2007  
 
                       
Net Income
  $ 3,431,644     $ 1,412,886     $ 5,537,795  
 
                       
Other Comprehensive Income (Loss)
                       
Unrealized holding gain (loss) on investments, net of tax* (Note 6, Note 8)
    791,747       (875,914 )     (63,228 )
 
                 
 
                       
Comprehensive Income
  $ 4,223,391     $ 536,972     $ 5,474,567  
 
                 
     
*  
Unrealized holding gain is net of a deferred tax benefit from unrealized losses of $39,900
See Notes to Consolidated Financial Statements.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2009, 2008 AND 2007
                                                 
                                    UNREALIZED        
                                    GAIN (LOSS)        
                    ADDITIONAL             ON     TOTAL  
    COMMON STOCK     PAID IN     RETAINED     MARKETABLE     SHAREHOLDERS’  
    SHARES     AMOUNT     CAPITAL     EARNINGS     SECURITIES     EQUITY  
 
                                               
Balance — December 1, 2006
    7,002,353     $ 70,023     $ 2,329,570     $ 25,112,331     $ (127,133 )   $ 27,384,791  
Issuance of common stock
    52,089       521       (521 )                  
Net income for the year
                      5,537,795             5,537,795  
Dividends declared
                      (2,109,040 )           (2,109,040 )
Unrealized (loss) on marketable securities
                            (63,228 )     (63,228 )
 
                                   
Balance — November 30, 2007
    7,054,442       70,544       2,329,049       28,541,086       (190,361 )     30,750,318  
Net Income for the year
                      1,412,886             1,412,886  
Dividends declared
                      (3,033,411 )           (3,033,411 )
Unrealized (loss) on 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  
Net Income for the year
                      3,431,644             3,431,644  
Dividends declared
                      (2,257,422 )           (2,257,422 )
Unrealized gain on marketable securities, net of tax
                            791,747       791,747  
 
                                   
Balance — November 30, 2009
    7,054,442     $ 70,544     $ 2,329,049     $ 28,094,783     $ (274,528 )   $ 30,219,848  
 
                                   
See Notes to Consolidated Financial Statements.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
                         
    For the years ended November 30,  
    2009     2008*     2007  
Cash Flows from Operating Activities:
                       
Net income
  $ 3,431,644     $ 1,412,886     $ 5,537,795  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
    252,998       246,165       257,555  
(Gain) on sale of securities
    (113,272 )     (88,096 )     (60,697 )
Loss on write off of fixed assets
    3,262              
Loss on sale or impairment of intangible assets
    23,548       1,332       21,745  
Decrease (increase) in deferred income taxes
    40,235       (321,855 )     410,116  
Decrease (increase)in accounts receivable
    617,444       888,463       (1,930,982 )
(Increase) in inventory
    (394,479 )     (75,476 )     (1,507,309 )
(Increase) decrease in prepaid expenses and sundry receivables
    (161,139 )     52,893       53,982  
Decrease (increase) in prepaid and refundable income taxes
    1,464,623       (714,465 )     (839,693 )
(Increase) in other assets
                (17,800 )
(Decrease) increase in accounts payable and accrued liabilities
    (1,406,835 )     1,828,052       250,033  
Increase (decrease) in income taxes payable
    147,153             (413,869 )
 
                 
 
                       
Net Cash Provided by Operating Activities
    3,905,182       3,229,899       1,760,876  
 
                 
 
                       
Cash Flows from Investing Activities:
                       
Acquisition of property and equipment
    (321,293 )     (289,533 )     (260,453 )
Acquisition of intangible assets
          (250,000 )     (522 )
Purchase of available for sale securities
    (20,239,331 )     (25,382,587 )     (14,824,908 )
Proceeds from sale of available for sales securities
    21,528,407       24,440,000       17,605,791  
 
                 
 
                       
Net Cash Provided by (Used in) Investing Activities
    967,783       (1,482,120 )     2,519,908  
 
                 
 
                       
Cash Flows from Financing Activities:
                       
Increase in capital lease obligation
          20,814       80,036  
Payments for capital lease obligation
    (57,696 )     (51,532 )     (38,352 )
Dividends paid
    (2,539,599 )     (2,892,322 )     (1,965,111 )
 
                 
 
                       
Net Cash (Used in) Financing Activities
    (2,597,295 )     (2,923,040 )     (1,923,427 )
 
                 
 
                       
Net Increase (Decrease) In Cash and Cash Equivalents
    2,275,670       (1,175,261 )     2,357,357  
 
                       
Cash and Cash Equivalents at Beginning of Year
    5,568,699       6,743,960       4,385,340  
 
                 
 
                       
Cash and Cash Equivalents at End of Year
  $ 7,844,369     $ 5,568,699     $ 6,743,960  
 
                 
 
                       
Supplemental Disclosures of Cash
                       
Flow Information
                       
Cash paid during the year for:
                       
Interest
  $ 11,932     $ 16,444     $ 29,090  
Income taxes
    667,945       2,086,300       4,882,361  
 
                       
Supplemental Disclosure of Non-Cash
                       
Information:
                       
Dividends declared and accrued
  $ 493,811     $ 775,989     $ 634,900  
     
*  
Reclassified for comparative purposes.
See Notes to Consolidated Financial Statements.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS
CCA Industries, Inc. (“CCA”) was incorporated in the State of Delaware on March 25, 1983.
CCA manufactures and distributes health and beauty aid products.
CCA has several wholly-owned subsidiaries, CCA Cosmetics, Inc., CCA Labs, Inc., and Berdell, Inc, 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 laws 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 (“GAAP”), requires management to make 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. Accounting estimates and assumptions are those that management considers to be most critical to the financial statements because they inherently involve significant judgment and uncertainties. All of these estimates and assumptions reflect management’s best judgment about current economic and market conditions and their effects on the information available as of the date of the consolidated 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 income 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 sheets consist of unrealized gains and losses on investment holdings, net of tax.
Short-Term Investments and Marketable Securities:
Short-term investments and marketable securities consist of certificates of deposits, 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.

 

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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 cooperative 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 collectability based on past credit history with customers and their current financial condition. Changes in the estimated collectability 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.
Cash and Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of less than three months to be cash equivalents.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Product returns are recorded in inventory when they are received at the lower of their original cost or market, as appropriate. Obsolete inventory is written off and its value is removed from inventory at the time its obsolescence is determined.
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.

 

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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 (Continued)
When the Company sells or otherwise disposes of property and equipment items, the cost and related accumulated depreciation are removed from the respective accounts
and any gain or loss is included in earnings.
Depreciation and amortization are provided on the straight-line method over the following estimated useful lives or lease terms of the assets:
     
Machinery and equipment
  5-7 Years
Furniture and fixtures
  3-10 Years
Tools, dies and masters
  3 Years
Transportation equipment
  5 Years
Leasehold improvements
  Remaining life of the lease (ranging from 1-9 years)
Intangible Assets:
Intangible assets are stated at cost. Patents 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 have been capitalized in accordance with the Accounting Standards Codification (“ASC”) Topic 350, “Intangible — Goodwill and Other” (previously reported as SFAS 142), issued by the Financial Accounting Standards Board (“FASB”). 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.

 

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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:
Basic earnings per share is calculated in accordance with ASC Topic 260, “Earnings Per Share” (previously reported as SFAS 128), which requires 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 any 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 based on the historical returns as a percentage of sales in the five preceding months, adjusting for returns that can be put back into inventory, and a specific reserve based on customer circumstances. 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 ASC Topic 605-10-S99, “Revenue Recognition” (previously reported as EITF 01-9), the Company has accounted sales incentives offered to customers by charging them directly to sales as opposed to advertising and promotional expense. Had ASC Topic 605-10-S99 not been adopted, net sales for the years ended November 2009, 2008 and 2007 would have been $61,891,940, $61,298,640, and $65,016,269 respectively.
Advertising Costs:
The Company’s policy is to charge advertising costs to expense as incurred. Advertising, cooperative and promotional expense for the years ended November 30, 2009, 2008 and 2007 were $9,667,446, $10,466,740 and $6,956,407, respectively.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Shipping Costs:
The Company charges shipping cost to selling, general and administrative expense as incurred. For the years ended November 30, 2009, 2008 and 2007, included in selling, general and administrative expenses are shipping costs amounting to $2,821,315, $3,377,366 and $2,962,754, respectively.
Research and Development Costs:
The Company’s policy is to charge research and development costs to expense as incurred. Research and development costs for the years ended November 30, 2009, 2008 and 2007 were $499,636, $603,486 and $574,900, respectively.
Stock Options:
In December 2004, the FASB issued ASC Topic 718, “Stock Compensation” (previously reported as Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Accounting for Share-Based Compensation”). ASC Topic 718 requires stock grants to employees to be recognized in the income statement based on their fair values.
Reclassifications
Certain prior years amounts have been reclassified to conform with the current years presentation.
Recent Accounting Pronouncements
In December 2007, the FASB amended certain provisions of Accounting Standard Codification (“ASC”) Topic 805, “Business Combinations” (previously reported as SFAS No. 141R, “Business Combinations”). This amendment 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. This amendment promotes greater use of fair values in financial reporting. In addition, under Topic 805, 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. Topic 805 became effective for fiscal years beginning on or after December 15, 2008. Topic 805 will have an impact on accounting for any business acquired after the effective date of this pronouncement.

 

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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 ASC Topic 810, “Consolidation” (previously reported as SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements”). Topic 810 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. Topic 810 became effective for fiscal years beginning after December 15, 2008. Topic 810 will 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 amended certain provisions of ASC Topic 350, “Intangibles-Goodwill and Other” (previously reported as FASB Staff Position No. 142-3). Topic 350 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. It further 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 and the period of expected cash flows used to measure the fair value of the asset. Topic 350 became 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. Topic 350 is not expected to have a significant impact on the Company’s results of operations, financial condition or liquidity.
In June 2008, FASB issued ASC Topic 260, “Earnings Per Share” (previously known as FSP Emerging Issues Task Force No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”). Topic 260 provides that unvested share-based payment awards which contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two- class method of computing earnings per share. Topic 260 became effective for fiscal years beginning after December 15, 2008, and interim periods within those years, and did not have a significant impact on the Company’s results of operations, financial condition or liquidity.
In April 2009, the SEC issued Staff Accounting Bulletin No. 111 (“SAB No. 111”). SAB No. 111 amends Topic 5.M. in regard to other than temporary impairment of certain investments in debt and equity securities. SAB No. 111 confirms the establishment of the “other than temporary” category of investment impairment. The adoption of SAB No. 111 became effective upon issuance and did not have any material impact on the Company’s financial position or results of operation.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
In April 2009, the FASB issued an amendment to ASC Topic 825, “Financial Instruments” (previously reported as FASB Staff Position No. FAS 107-1 and APB 28-1, “Disclosures about Fair Value of Financial Instruments”). The amendment requires disclosure of the fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. The amendment to Topic 825 became effective for interim reporting periods ending after June 15, 2009. The adoption of this topic had no impact on the Company’s financial position or results of operation.
In April 2009, the FASB issued additional guidance under ASC Topic 820, “Fair Value Measurements and Disclosures” (previously reported as FASB Staff Position No. FAS 157-4). Topic 820 provides additional guidance for estimating the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly decreased, and identifying circumstances in which a transaction may not be orderly. The adoption of this topic became effective for all interim and annual reporting periods ending after June 15, 2009. The adoption of the additional guidance provided by Topic 820 did not have any material impact on the Company’s financial position or results of operation.
In April 2009, the FASB issued an amendment to ASC Topic 320, “Investments — Debt and Equity” (previously reported as FASB Staff Position No. 115-2 and 124-2) which amends the guidance in regard to other-than-temporary impairments on debt and equity securities in the financial statements. Topic 320 also requires additional disclosures in the financial statements that enable users to understand the types of debt and equity securities held, including those investments in an unrealized loss position for which an other-than-temporary impairment has or has not been recognized. The adoption of the amendment to Topic 320 became effective for all interim and annual reporting periods ending after June 15, 2009. The adoption of this amended topic did not have any material impact on the Company’s financial position or results of operation.
In May 2009, the FASB issued ASC Topic 855, “Subsequent Events” (previously reported as SFAS No. 165, “Subsequent Events”). The statement is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Topic 855 became effective June 15, 2009 for all subsequent reporting periods. The adoption of Topic 855 did not have any material impact on the Company’s financial position or results of operation.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
In June 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-01, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (previously SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”). This update identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States. This update is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of ASU 2009-01 did not have any material impact on the Company’s financial position or results of operation.
In August 2009, the FASB issued ASU 2009-05, which is an update to Topic 820, “Fair Value Measurements and Disclosures”. The update provides clarification in regard to the estimation of the fair value of a liability. In addition, it also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. This update became effective for all interim and annual reporting periods ending after August 31, 2009. The adoption of ASU 2009-05 did not have a material impact on the Company’s financial position or results of operation.
In January 2010, the FASB issued ASU 2010-06, which is an update to Topic 820, “Fair Value Measurement and Disclosures”. This update establishes further disclosure requirements regarding transfers in and out of levels 1 and 2, and activity in level 3 fair value measurements. The update also provides clarification as to the level of disaggregation for each class of assets and liabilities, requires disclosures about inputs and valuation techniques, and also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 will be effective for all interim and annual reporting periods beginning after December 15, 2010. ASU 2010-06 is not expected to have a 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.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — INVENTORIES
At November 30, 2009 and 2008, inventories consist of the following:
                 
    2009     2008  
 
               
Raw materials
  $ 5,246,185     $ 4,880,267  
Finished goods
    3,081,092       3,052,531  
 
           
 
  $ 8,327,277     $ 7,932,798  
 
           
At November 30, 2009 and 2008, the Company had a reserve for obsolete inventory of $760,001 and $578,941, respectively.
NOTE 4 — PROPERTY AND EQUIPMENT
At November 30, 2009 and 2008, property and equipment consisted of the following
                 
    2009     2008  
 
               
Machinery and equipment
  $ 217,323     $ 190,308  
Office furniture and equipment
    953,208       813,819  
Transportation equipment
          10,918  
Tools, dies, and masters
    335,716       360,701  
Capitalized lease obligations
    263,067       263,067  
Web Site
    20,000       20,000  
Leasehold improvements
    402,785       357,582  
 
           
 
    2,192,099       2,016,395  
 
               
Less: Accumulated depreciation and amortization
    1,509,178       1,405,169  
 
           
 
               
Property and Equipment — Net
  $ 682,921     $ 611,226  
 
           
Depreciation expense for the years ended November 30, 2009, 2008, and 2007 amounted to $246,337, $239,504, and $250,307, respectively.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 — INTANGIBLE ASSETS
Intangible assets consist of Company owned trademarks and patents for ten product lines covering twenty-four countries. The cost and accumulated amortization at November 30, 2009 and 2008 are as follows:
                 
    2009     2008  
Trademarks and patents
  $ 856,005     $ 886,608  
Less: Accumulated amortization
    158,499       158,892  
 
           
Intangible Assets — Net
  $ 697,506     $ 727,716  
 
           
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 2009, $23,548 (including $7,054 of accumulated amortization) of intangibles were deemed to be impaired and written off. Amortization expense for the years ended November 30, 2009, 2008 and 2007 amounted to $6,661, $6,661 and $7,248, respectively. Estimated amortization expense for November 30, 2010, 2011, 2012, 2013 and 2014 is $2,185, $2,185, $2,185, $2,163 and $2,122 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, 2009 and November 30, 2008 are as follows:
                                 
    November 30,     November 30,  
    2009     2008  
    COST     MARKET     COST     MARKET  
 
                               
Current:
                               
Guaranteed bank
                               
Certificates of deposit
  $ 942,000     $ 944,910     $ 3,366,000     $ 3,366,000  
Corporate obligations
    598,370       607,189       200,000       197,714  
Government obligations (including mortgage backed securities)
    7,494,318       7,497,900       6,200,029       6,248,363  
Preferred stock
    250,000       187,720       50,000       21,640  
Common Stock
    189,552       196,873       51,648       44,628  
Mutual funds
    215,274       165,383       215,274       114,582  
Other equity
    70,206       36,128       70,206       21,430  
 
                       
 
                               
Total
    9,759,720       9,636,103       10,153,157       10,014,357  
 
                       
 
                               
Non-Current:
                               
Guaranteed bank
                               
Certificates of deposit
    816,000       818,250              
Corporate obligations
    200,000       205,297       598,370       577,334  
Government obligations
                500,000       460,000  
Preferred stock
    2,074,845       1,876,488       2,774,845       1,908,406  
 
                       
Total
    3,090,845       2,900,035       3,873,215       2,945,740  
 
                       
 
                               
Total
  $ 12,850,565     $ 12,536,138     $ 14,026,372     $ 12,960,097  
 
                       

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
   
The market value at November 30, 2009 was $12,536,138 as compared to $12,960,097 at November 30, 2008. The gross unrealized gains and (losses) were $35,640 and $(350,068) for November 30, 2009 and $48,841 and $(1,115,116) for November 30, 2008. The cost and market values of the investments at November 30, 2009 were as follows:
                                                 
COL. A                   COL. B     COL. C     COL. D     COL. E  
                                            Amount at  
                                        Which Each  
                    Number of                     Portfolio of  
                    Units-                 Equity Security  
                    Principal             Market Value of     Issue and Each  
                  Amount of         Each Issue     Other Security  
Name of Issuer and   Maturity     Interest     Bonds and     Cost of     at Balance     Issue Carried in  
Title of Each Issue   Date     Rate     Notes     Each Issue     Sheet Date     Balance Sheet  
 
                                               
CERTIFICATES OF DEPOSITS
                                               
 
                                               
American Express Bank
    5/13/11       2.050 %     96,000     $ 96,000     $ 96,758     $ 96,758  
Bank of the Cascades
    12/21/09       1.650       200,000       200,000       200,132       200,132  
Beal Bank TX
    02/17/10       0.800       96,000       96,000       96,042       96,042  
Capmark Bank
    04/29/11       2.350       96,000       96,000       96,804       96,804  
Citi Bank — UT
    04/29/11       2.250       96,000       96,000       96,670       96,670  
Discover Bank — DE
    04/29/11       2.300       96,000       96,000       96,737       96,737  
Doral Bank Catano
    04/22/10       4.250       100,000       100,000       101,322       101,322  
GE Capital
    02/16/10       0.700       96,000       96,000       96,020       96,020  
GE Money Bank
    07/25/11       1.750       240,000       240,000       238,051       238,051  
Keybank Nat’l Assoc
    04/29/11       2.050       96,000       96,000       96,401       96,401  
Sallie Mae
    05/13/11       2.350       96,000       96,000       96,828       96,828  
Signature Bank
    11/19/10       2.180       250,000       250,000       250,000       250,000  
Southern B&T
    12/23/09       1.600       100,000       100,000       100,070       100,070  
Westernbank PR CTF
    04/22/10       4.250       100,000       100,000       101,322       101,322  
 
                                       
 
                                               
 
                            1,758,000       1,763,157       1,763,157  
 
                                       

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
                                                 
COL. A                   COL. B     COL. C     COL. D     COL. E  
                                            Amount at  
                                            Which Each  
                    Number of                     Portfolio of  
                    Units-                     Equity Security  
                    Principal             Market Value     Issue and Each  
                    Amount of             of Each Issue     Other Security  
Name of Issuer and   Maturity     Interest     Bonds and     Cost of     at Balance     Issue Carried in  
Title of Each Issue   Date     Rate     Notes     Each Issue     Sheet Date     Balance Sheet  
 
                                               
CORPORATE OBLIGATIONS:
                                               
Caterpillar Fin Service Corp
    05/15/11       3.900 %     200,000       200,000       205,302       205,302  
Merrill Lynch & Co
    08/04/10       4.790       200,000       199,614       204,552       204,552  
Morgan Stanley
    01/15/10       4.000       200,000       199,106       200,658       200,658  
Toyota Motor
    04/28/10       2.850       200,000       199,650       201,978       201,978  
 
                                         
 
                                               
 
                            798,370       812,490       812,490  
 
                                         
 
                                               
GOVERNMENT OBLIGATIONS:
                                               
NJ ST HGR ED
    12/01/40       0.000       500,000       500,000       500,000       500,000  
US Treasury Bill
    12/17/09       0.000       1,000,000       997,192       999,970       999,970  
US Treasury Bill
    02/11/10       0.000       3,000,000       2,999,568       2,999,820       2,999,820  
US Treasury Bill
    05/13/10       0.000       3,000,000       2,997,557       2,998,110       2,998,110  
 
                                         
 
                                               
 
                            7,494,317       7,497,900       7,497,900  
 
                                         

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
                                                 
                                            Amount at  
                                            Which Each  
                    Number                     Portfolio of  
                    of Units-                     Equity Security  
                    Principal             Market Value     Issue and Each  
                    Amount of             of Each Issue     Other Security  
Name of Issuer and   Maturity     Interest     Bonds and     Cost of     at Balance     Issue Carried in  
Title of Each Issue   Date     Rate     Notes     Each Issue     Sheet Date     Balance Sheet  
Preferred Stock:
                                               
 
                                               
Bank of America Ser H
    05/01/13       8.200       20,000       500,000       440,000       440,000  
Bank of America
    05/28/13       8.625       20,000       500,000       452,200       452,200  
Deutsche Bank Capital TR V
    06/30/18       8.050       20,000       500,000       491,800       491,800  
General Electric Cap Corp
    11/15/32       6.100       8,800       224,845       211,728       211,728  
JP Morgan Chase
    06/15/33       5.875       2,000       50,000       43,120       43,120  
MetLife Floater
    06/15/10       4.000       8,000       200,000       167,200       167,200  
Morgan Stanley Cap Tr
    07/15/33       5.750       4,000       100,000       75,800       75,800  
RBS Capital Funding
    07/03/08       5.900       2,000       50,000       20,520       20,520  
Wells Fargo Cap Tr VIII
    08/01/33       5.625       8,000       200,000       161,840       161,840  
 
                                         
 
                                               
 
                            2,324,845       2,064,208       2,064,208  
 
                                         

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
                                                 
COL. A                   COL. B     COL. C     COL. D     COL. E  
                                      Amount at  
                                      Which  
                                      Each Portfolio  
                                      of Equity  
                    Number of                 Security  
                    Units-Principal           Market Value of     Issue and Each  
                    Amount of           Each Issue at     Other Security  
Name of Issuer and   Maturity     Interest     Bonds and     Cost of Each     Balance     Issue Carried in  
Title of Each Issue   Date     Rate     Notes     Issue     Sheet Date     Balance Sheet  
 
                                               
Common Stock:
                                               
 
                                               
Consolidate Edison Inc.
                    2,000       76,381       85,820       85,820  
DTE Energy Company
                    1,200       51,648       48,132       48,132  
Verizon Communications
                    2,000       61,523       62,920       62,920  
 
                                         
 
                                               
Mutual Funds:
                            189,552       196,872       196,872  
 
                                         
Dreyfus Premier Ltd High Income
                    16,296.314       215,275       165,383       165,383  
 
                                               
Other Equity Investments:
                                               
 
                                               
PIMCO Floating Rate Strategy
                    2,900       70,206       36,128       36,128  
 
                                         
 
                                               
Totals
                          $ 12,850,565     $ 12,536,138     $ 12,536,138  
 
                                         

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
   
During the years ended November 30, 2009, 2008 and 2007, available-for-sale securities were liquidated and proceeds amounting to $21,528,407, $24,440,000 and $17,605,791 were received, with resultant realized gains totaling $113,272, $88,096, and $60,697, respectively. Cost of available-for-sale securities includes unamortized premium or discount.
   
The Company had, at November 30, 2009, an auction rate bond issued by the New Jersey State Higher Education Assistance Authority (“NJHE”). The bond was recorded as a non-current marketable security. 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 Ratings had withdrawn their rating. The current interest rate is 0.578% as set on January 5, 2010. 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 was notified by Wells Fargo Securities, LLC on February 11, 2010 that they will be repurchasing the NJHE bond from the Company at the original par value (See Note 16, Subsequent Events for further information). The Company had recognized a temporary impairment charge of $40,000 against the $500,000 par value of the bond in fiscal 2008. The Company recognized an additional impairment charge of $60,000 in the second quarter of 2009, for a total impairment charge of $100,000. Due to the notification by Wells Fargo Investments of its intent to repurchase the NJHE bond, the Company believes that there is no impairment as of November 30, 2009 and accordingly has reversed the impairment charges previously recognized.
   
The Company adopted ASC Topic 820, “Fair Value Measurements and Disclosures” (previously reported as SFAS No. 157, Fair Value Measurements) as of December 1, 2007, which expands disclosures about investments that are measured and reported at fair market value. ASC Topic 820 established a fair value hierarchy that prioritizes the inputs to valuation 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.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
                         
                    Significant  
            Quoted Market     Other  
            Price in Active     Observable  
    November 30,     Markets     Inputs  
Description   2009     (Level 1)     (Level 2)  
Bank Certificates of Deposit
  $ 1,763,157     $     $ 1,763,157  
Corporate obligations
    812,490             812,490  
Government Obligations
    7,497,900       6,997,900       500,000  
Preferred Stock
    2,064,208       2,064,208        
Common Stock
    196,872       196,872        
Mutual Funds
    165,383       165,383        
Other Equity
    36,128             36,128  
 
                 
 
                       
Total
  $ 12,536,138     $ 9,424,363     $ 3,111,775  
 
                 
                         
            Quoted     Significant  
            Market Price     Other  
            in Active     Observable  
    November 30,     Markets     Inputs  
Description   2008     (Level 1)     (Level 2)  
Bank Certificates of Deposit
  $ 3,366,000     $     $ 3,366,000  
Corporate obligations
    1,023,666             1,023,666  
Government Obligations
    6,459,745       5,999,745       460,000  
Preferred Stock
    1,930,046       1,930,046        
Common Stock
    44,628       44,628        
Mutual Funds
    114,582       114,582        
Other Equity
    21,430             21,430  
 
                 
 
                       
Total
  $ 12,960,097     $ 8,089,001     $ 4,871,096  
 
                 

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)
   
The following table discloses a reconciliation of the NJHE bond Level 2 investment at measured fair value during the year ended November 30, 2009:
         
Beginning Balance as of December 1, 2008
  $ 460,000  
Unrealized (loss) as of May 31, 2009
    (60,000 )
 
     
Ending Balance as of May 31, 2009
    400,000  
Unrealized gain as of November 30, 2009
    100,000  
 
     
Ending Balance as of November 30, 2009
  $ 500,000  
 
     
   
There was no realized income or loss from the Level 2 NJHE bond investment during the fiscal year ended November 30, 2009.
NOTE 7 — LINE OF CREDIT
   
The Company had a $20,000,000 unsecured line of credit which expired on August 31, 2009. The Company elected not to renew the line of credit. The unsecured line was subject to certain financial covenants. The Company had never utilized the line of credit, and as of August 31, 2009 and November 30, 2008, there was no outstanding balance.
NOTE 8 — INCOME TAXES
   
CCA and its subsidiaries file a consolidated federal income tax return.
   
The Company previously adopted the provisions of ASC Subtopic 740-10-25, “Uncertain Tax Positions” (previously reported as FIN No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109’’). Management believes that there were no unrecognized tax benefits, or tax positions that would result in uncertainty regarding the deductions taken, as of November 30, 2009 and November 30, 2008. ASC Subtopic 740-10-25 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. There were no penalties or related interest for the fiscal year to date ended November 30, 2009 or for the fiscal year ended November 30, 2008.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — INCOME TAXES (Continued)
   
The United States Internal Revenue Service completed in 2009 an examination of the Company’s U.S. tax return for fiscal 2006. As a result of that examination, the Company received a refund of $94,195 in federal taxes for the 2006 fiscal year. The audit adjustments resulted in refunds from amended state tax returns in 2006 of $28,145, and an additional $196,335 in refunds from federal and state amended returns for fiscal 2007. The refunds resulted in the decreased effective tax rate for fiscal 2009. The State of New Jersey, Department of The Treasury, Division of Taxation is currently examining state income and sales tax returns filed for the fiscal years 2004 - 2008. As of February 25, 2010, no adjustments have been proposed. No other state has notified the Company of its intent to conduct an examination of tax returns filed in their jurisdictions. The Company had $747,668 of officer salaries during fiscal 2009 that were not deductible for tax purposes in calculating the income tax provision. As of November 30, 2009, the Company has unrealized losses on its investments of $314,428, which would have a tax benefit of $125,457. This tax benefit has been reduced by a valuation allowance of $85,557. The valuation allowance is based on an estimate of the losses, which if realized, could not be utilized to offset any corresponding capital gains. The tax benefit of the unrealized losses, if realized, net of valuation allowances, is $39,900 as of November 30, 2009.
   
At November 30, 2009 and 2008, respectively, the Company has temporary differences arising from the following:
                                 
    November 30, 2009  
                    Classified As        
            Deferred     Short-Term     Long- Term  
Type   Amount     Tax     Asset     (Liability)  
 
                               
Depreciation
  $ (192,804 )   $ (76,929 )   $     $ (76,929 )
Unrealized loss on investments
    314,428       125,457       125,457        
Reserve for bad debts
    131,223       52,358       52,358        
Reserve for returns
    1,453,591       579,983       579,983        
Reserve for obsolete inventory
    760,001       303,240       303,240        
Vacation accrual
    276,161       110,188       110,188        
Charitable Contributions
    9,569       3,818       3,818          
Section 263A costs
    261,298       104,258       104,258        
 
                         
 
                               
Deferred income tax
            1,202,373       1,279,302     $ (76,929 )
Valuation allowance
            (85,557)       (85,557 )      
 
                         
Net deferred income tax
          $ 1,116,816     $ 1,193,745     $ (76,929 )
 
                         

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — INCOME TAXES (Continued)
                                 
    November 30, 2008  
            Deferred     Classified As        
Type   Amount     Tax     Short-Term     Long-Term  
                Asset (Liability)  
 
                               
Depreciation
  $ 74,244     $ 29,623     $     $ 29,623  
Reserve for bad debts
    154,290       61,562       61,562        
Reserve for returns
    668,738       266,827       266,827        
Reserve for obsolete inventory
    578,941       230,997       230,997        
Vacation accrual
    501,096       199,937       199,937        
Charitable Contributions
    572,568       228,455       114,659       113,796  
Section 263A costs
    250,000       97,750       97,750        
 
                         
 
                               
Net deferred income tax
          $ 1,117,151     $ 973,732     $ 143,419  
 
                         
   
Income tax expense (benefit) is made up of the following components:
                         
    November 30, 2009  
    Federal     State & Local     Total  
Current tax expense
  $ 1,613,144     $ 525,101     $ 2,138,245  
Deferred tax expense
    30,981       9,254       40,235  
 
                 
 
  $ 1,644,125     $ 534,355     $ 2,178,480  
 
                 
                         
    November 30, 2008  
    Federal     State & Local     Total  
Current tax expense
  $ 1,030,348     $ 345,020     $ 1,375,368  
Deferred tax (benefit)
    (241,116 )     (80,739 )     (321,855 )
 
                 
 
  $ 789,232     $ 264,281     $ 1,053,513  
 
                 
                         
    November 30, 2007  
    Federal     State & Local     Total  
Current tax expense
  $ 2,823,468     $ 823,347     $ 3,646,815  
Deferred tax expense
    317,523       92,593       410,116  
 
                 
 
  $ 3,140,991     $ 915,940     $ 4,056,931  
 
                 

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — INCOME TAXES (Continued)
   
Prepaid and refundable income taxes are made up of the following components:
                         
    Federal     State & Local     Total  
 
                       
November 30, 2009
  $     $ 89,535     $ 89,535  
 
                 
 
                       
November 30, 2008
  $ 1,020,948     $ 533,210     $ 1,554,158  
 
                 
Income tax payable is made up of the following components:
                         
    Federal     State & Local     Total  
 
                       
November 30, 2009
  $ 61,303     $ 85,850     $ 147,153  
 
                 

 

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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, 2009, 2008 and 2007 is as follows:
                                                 
    2009     2008     2007  
            Percent             Percent             Percent  
            Of Pretax             Of Pretax             Of Pretax  
    Amount     Income     Amount     Income     Amount     Income  
 
                                               
Income tax expense at federal statutory rate
  $ 1,907,442       34.00 %   $ 838,576       34.00 %   $ 3,262,207       34.00 %
Increases (decreases) in taxes resulting from:
                                               
State income taxes, net of federal income tax benefit
    320,899       5.72       141,078       5.72       548,512       5.72  
 
                                               
Non-deductible expenses and other adjustments
    (49,861 )     (0.89 )     73,859       2.99       246,212       2.56  
 
                                   
 
                                               
Income tax expense at effective rate
  $ 2,178,480       38.83 %   $ 1,053,513       42.71 %   $ 4,056,931       42.28 %
 
                                   

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — STOCK-BASED COMPENSATION
   
On January 1, 2006, the Company adopted ASC Topic 718, “Stock Compensation” 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 ASC Topic 718 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. ASC Topic 718 requires 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, at $9.40 per share, which was the price of the stock on the day of the grant. 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 no charge against earnings in fiscal 2008 or 2009, and anticipates no charges in fiscal 2010 based on the current market value of the stock. The amounts for future years can change, as the valuation of the fair value, as required by ASC Topic 718, 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 2010 year charges against earnings based on those factors as of November 30, 2009.
   
The following summarizes stock option activity for the two years ended November 30, 2009 and 2008:
                                 
            Weighted Average              
    Number of     exercise price of     Weighted Average     Intrinsic  
    Shares     Outstanding Options     Remaining Life     Value  
 
                               
Outstanding December 1, 2007
    126,000     $ 8.00       1.35        
Granted
                       
Exercised
                       
Forfeited
                       
 
                       
Outstanding November 30, 2008
    126,000       8.00       1.35          
Granted
                       
Exercised
                       
Forfeited
    126,000       8.00              
 
                       
Outstanding November 30, 2009
        $              
 
                       

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 — ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE
   
The following items which exceeded 5% of total current liabilities are included in accounts payable and accrued liabilities as of:
                 
    November 30, (In Thousands)  
    2009     2008  
 
               
Coop advertising
  $ 1,218     $ 849  
Accrued returns
    1,207       1,443  
Accrued bonuses
    482       *
Media
    548       1,326  
 
           
 
  $ 3,455     $ 3,618  
 
           
     
*  
Did not exceed 5% of total current liabilities at November 30, 2008.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 — OTHER INCOME
Other income was comprised of the following:
                         
    November 30,  
    2009     2008     2007  
 
                       
Interest income
  $ 211,644     $ 340,795     $ 755,569  
Dividend income
    158,973       94,775       33,697  
Realized gain on sale of
                       
Securities
    113,272       88,096       60,697  
Royalty income
    151,768       169,482       125,158  
Miscellaneous
    34,508       23,665       70,589  
 
                 
 
  $ 670,165     $ 716,813     $ 1,045,710  
 
                 
NOTE 12 — COMMITMENTS AND CONTINGENCIES
Leases
The Company currently occupies approximately 58,625 square feet of space used for warehousing and corporate offices. The annual rental for this space is $390,835, with a CPI increase not to 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, 2009. 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, 2009, CAM was $29,988.
Rent expense for the years ended November 30, 2009, 2008 and 2007 was $618,311, $671,708 and $704,050, respectively.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 — COMMITMENTS AND CONTINGENCIES (Continued)
Leases (Continued)
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,        
 
       
2010
    694,120  
2011
    694,120  
2012
    374,060  
2013
     
2014
     
Royalty Agreements
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 incurred to Alleghany-Pharmacal under the license were $96,769 for the fiscal year ended November 30, 2009.
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 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, at which time the royalty rate will be reduced to 1% for a period of twenty-five years. The royalty incurred to Solar Sense, Inc. under the License Agreement was $38,607 for the fiscal year ended November 30, 2009.
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 incurred to The Nail Consultants, Ltd. under the License Agreement were $7,280 for the fiscal year ended November 30, 2009.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 — COMMITMENTS AND CONTINGENCIES (Continued)
Royalty Agreements (Continued)
On February 26, 2004, the Company entered into an agreement with Dr. Stephen Hsu. PhD. to create green tea skin care products. Dr. Hsu 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 incurred commissions of $80,832 to Dr. Hsu for the fiscal year ended November 30, 2009.
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 was amended on March 31, 2009, granting the Company a non-exclusive license, with no minimum royalty required. The royalty rate of 6% of net sales will remain unchanged during the term, including any term renewals, of the amended license agreement. The Company incurred royalties of $36,586 to Tea-Guard, Inc. for the fiscal year ended November 30, 2009.
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. The Company incurred royalties of $12,301 to Continental Quest Corp. for the fiscal year ended November 30, 2009.
On March 22, 2002, the Company entered into an agreement with Joann Bradvica, granting the Company an exclusive license to manufacture and sell an Earlobe Patch Support for Earrings. The agreement provided for a royalty of 10% of net sales of the licensed product. A new agreement was entered into and effective on June 8, 2009 at the same royalty rate, and provides for a minimum royalty of $40,000 for annual periods beginning July 1, 2009 in order to maintain the license. The Company incurred royalties of $37,392 to Joann Bradvica for the fiscal year ended November 30, 2009.
On March 14, 2009, the Company entered into an agreement with LaRosa Innovation, LLC, granting the Company an exclusive license to manufacture and sell Instant Arm Lifts and Instant Thigh Lifts. The agreement provides for a royalty of 5% of net sales until the Licensor receives $5,000,000 in aggregate royalties, at which time the royalty rate shall be reduced to 1% of net sales. The license agreement provides for a minimum royalty of $150,000 for the first eighteen month period of the agreement, and $150,000 per year thereafter in order to maintain the license. The Company incurred royalties of $21,026 to LaRosa Innovations, LLC for the fiscal year ended November 30, 2009, representing a portion of the initial eighteen-month minimum royalty period.

 

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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   2009     2008     2007  
 
                       
A
  $ 38,607     $ 56,051     $ 39,290  
B
    96,769       82,541       91,662  
C
    37,392       17,695       18,020  
D
                5,692  
E
          2       511  
F
                3,570  
H
    36,586       44,866       196,683  
I
    7,280       37,071       33,283  
K
    80,832       240,215       195,839  
L
    223       4,815       50,216  
M
    (572 )     5,876        
N
    12,301       508        
O
    461              
P
    21,026              
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 plus depreciation and amortization, 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 income before income taxes, plus 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 or 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.

 

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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 31% of the CCA labor force.
Litigation
On September 30, 2009 the Company was served with a class action suit Denise Wally v. CCA Industries, Inc. The claim, which did not specify any damages, was filed in the Superior Court, State of California, County of Los Angeles, alleging false and misleading claims about the Company’s weight loss dietary supplement product sold in California in violation of the California Business and Professional Code. The Company believes that the allegations are without any merit and intends to vigorously defend the case. However, there can be no assurance that the Company’s position will be upheld.
There is no other significant litigation presently outstanding against the Company.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 — COMMITMENTS AND CONTINGENCIES (Continued)
Dividends and Capital Transactions
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 was paid 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 was paid 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 was paid on December 1, 2008.
On January 28, 2009, the board of directors declared a $0.11 per share dividend for the 1st quarter ending February 28, 2009. The dividend was payable to all shareholders of record as of February 3, 2009 and was paid on March 3, 2009. On April 8, 2009 the board of directors declared a $0.07 per share dividend for the second quarter of 2009. The dividend was payable to all shareholders of record as of May 1, 2009 and was paid on June 1, 2009. On June 29, 2009, the board of directors declared a $0.07 dividend for the third quarter of 2009. The dividend was payable to all shareholders of record as of August 3, 2009 and was paid on September 3, 2009. On October 12, 2009, the board of directors declared a $0.07 dividend for the fourth quarter of 2009. The dividend was payable to all shareholders of record as of November 2, 2009 and was paid on December 2, 2009.
NOTE 13 — 401 (K) PLAN
The Company has adopted a 401(K) Profit Sharing Plan that covers all employees with over one year of service and attained age 21. Employees may make salary reduction contributions up to twenty-five percent of compensation not to exceed the federal government limits. The Plan allows for the Company to make discretionary contributions. For all Fiscal periods to date, the Company did not make any contributions.
NOTE 14 — CONCENTRATION OF RISK
Most of the Company’s products are sold to major drug and food chains merchandisers, and wholesale beauty-aids distributors throughout the United States and Canada.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 — CONCENTRATION OF RISK (Continued)
During the years ended November 30, 2009, 2008 and 2007, certain customers each accounted for more than 5% of the Company’s net sales, as follows:
                         
    For the Year Ended November 30,  
Customer   2009     2008     2007  
 
                       
Walmart
    36 %     44 %     40 %
Walgreen
    14 %     10 %     8 %
Rite Aid
    6 %     5 %     8 %
CVS
    7 %     7 %     6 %
McLanes
    *       *       5 %
 
                       
Foreign Sales
    5.6 %     4 %     3 %
     
*  
under 5%
The loss of any one of these customers could have a material adverse affect on the Company’s earnings and financial position.
During the years November 30, 2009, 2008 and 2007, certain products within the Company’s product lines accounted for more than 10% of the Company’s net sales as follows:
                         
    For the Year Ended November 30,  
Category   2009     2008     2007  
 
                       
Dietary Supplement
    42 %     33 %     31 %
Skin Care
    28 %     29 %     29 %
Oral Care
    16 %     25 %     25 %
Nail Care
    10 %     10 %     11 %
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.

 

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 21, 2009, the Board of Directors declared a $0.07 per share dividend for the first quarter of 2010 to all shareholders of record as of February 1, 2010 and payable on March 1, 2010.
On February 11, 2010, the Company received a letter from Wells Fargo Securities, LLC, informing the Company that they will be repurchasing the New Jersey Higher Education Bond auction rate security from the Company for the par value of $500,000 pursuant to a settlement agreement between Wells Fargo Securities LLC and the California Attorney General.
On February 24, 2010, the Board of Directors declared a $0.07 per share dividend for the second quarter of 2010 to all shareholders of record as of May 3, 2010 and payable on June 3, 2010.
The Company has evaluated subsequent events that occurred during the period of November 30, 2009 through February 25, 2010, the date that these financial statements were available to be issued. Except as disclosed above, management concluded that no other events required potential adjustment to, or disclosure in these consolidated financial statements.

 

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NOTE 17 — EARNINGS PER SHARE
Basic earnings per share is calculated using the average number of common shares outstanding. Diluted earnings per share is computed on the basis of the average number of common shares outstanding plus the effect of outstanding stock options using the “treasury stock method”.
                         
    Year Ended November 30,  
    2009     2008     2007  
 
                       
Net income available for common shareholders
  $ 3,431,644     $ 1,412,886     $ 5,537,795  
 
                 
 
                       
Weighted average common shares outstanding- Basic
    7,054,442       7,054,442       7,029,611  
 
                       
Net effect of dilutive stock options
          7,204       29,278  
 
                 
 
                       
Weighted average common shares and common shares equivalents — Diluted
    7,054,442       7,061,646       7,058,889  
 
                 
 
                       
Basic earnings per share
  $ 0.49     $ 0.20     $ 0.79  
 
                 
Diluted earnings per share
  $ 0.49     $ 0.20     $ 0.78  
 
                 

 

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SCHEDULE II
CCA INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
YEARS ENDED NOVEMBER 30, 2009, 2008 AND 2007
                                 
COL. A   COL. B     COL. C     COL. D     COL. E  
            Additions                
    Balance at     Charged To             Balance  
    Beginning     Costs and             At End  
    Of Year     Expenses     Deductions     Of Year  
Description
                               
Year Ended November 30, 2009:
                               
Allowance for doubtful accounts
  $ 154,291     $ (23,068 )   $     $ 131,223  
Reserve for returns and allowances
    668,738       3,518,949       2,734,096       1,453,591  
 
                       
 
                               
 
  $ 823,029     $ 3,495,881     $ 2,734,096     $ 1,584,814  
 
                       
 
                               
Reserve of inventory obsolescence
  $ 578,941     $ 538,653     $ 357,593     $ 760,001  
 
                       
 
                               
Year Ended November 30, 2008:
                               
Allowance for doubtful accounts
  $ 141,607     $ 12,684     $     $ 154,291  
Reserve for returns and allowances
    732,696       2,118,592       2,182,550       668,738  
 
                       
 
                               
 
  $ 874,303     $ 2,131,276     $ 2,182,550     $ 823,029  
 
                       
 
                               
Reserve of inventory obsolescence
  $ 604,746     $ 173,715     $ 199,520     $ 578,941  
 
                       
 
                               
Year Ended November 30, 2007:
                               
Allowance for doubtful accounts
  $ 185,779     $ (42,544 )   $ 1,628     $ 141,607  
 
                               
Reserve for returns and allowances
    840,418       6,039,823       6,147,545       732,696  
 
                       
 
                               
 
  $ 1,026,197     $ 5,997,279     $ 6,149,173     $ 874,303  
 
                       
 
                               
Reserve of inventory obsolescence
  $ 777,715     $ 62,827     $ 235,796     $ 604,746  
 
                       

 

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