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                                                      Commission File Number

    November 30, 2007                                                                         001-31643 

 

 

 CCA INDUSTRIES, INC.

(Exact Name of Registrant as specified in Charter)

 

 

DELAWARE                                                                                     04-2795439

(State or other jurisdiction of                                                                         (I.R.S. Employer

incorporation or organization)                                                                        Identification No.)

 

                                                                             

200 Murray Hill Parkway, East Rutherford, New Jersey 07073

(Address of principal executive offices, including zip code)

 

(201) 330-1400

(Registrant's telephone number, including area code)

 

 

 Securities registered pursuant to Section 12(b) of the Act: NONE

 

 

 Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

(Title of Class)

 

 

Class A Common Stock, par value $.01 per share

(Title of Class)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.  Yes  X .  No    .

 


 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K.  [ X].

 

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).         Yes             No   [X].

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes            No   [X].

 

The aggregate market value of the voting stock held by non‑affiliates of the Registrant (i.e., by persons other than officers and directors of the Registrant), at the closing sales price $9.20 on May 31, 2007, was as follows:

  

Class of Voting Stock                                                           Market Value

 

4,939,078 .shares; Common                                        

Stock, $.01 par value                                                           $45,439,518

 

On February 25, 2008 there was an aggregate of 7,054,442 shares of Common Stock and Class A Common Stock of the Registrant outstanding.



 

 

 

CROSS REFERENCE SHEET

                                                                                                                                                             Headings in this Form

Form 10‑K                                                                                                                                           10‑K for Year Ended

Item No.                                                                                                                                                November 30, 2007      

 

1. Business                                                                                                                                             Business

 

2. Property                                                                                                                                             Property

 

3. Legal Proceedings                                                                                                                               Legal Proceedings

 

4. Submission of Matters                                                                                                                         Submission of Matters to a

   to a Vote of Security                                                                                                                            Vote of Security Holders

   Holders

 

5. Market for Registrant's                                                                                                                         Market for the Company's

   Common Equity and                                                                                                                              Common Stock and Related

   Related Stockholder                                                                                                                              Shareholder Matters

   Matters

 

6. Selected Financial Data                                                                                                                         Selected Financial Data

 

7. Management's Discussion                                                                                                                     Management's Discussion and

   and Analysis of Financial                                                                                                                       Analysis of Financial

   Condition and Results                                                                                                                           Condition and Results of

   of Operations                                                                                                                                        Operations

 

7A. Quantitative and Qualitative                                                                                                                Quantitative and Qualitative

       Disclosures about Market Risk                                                                                                           Disclosures about Market Risk

 

8. Financial Statements                                                                                                                             Financial Statements

   and Supplementary Data                                                                                                                        and Supplementary Data

 

9. Changes In and Dis‑                                                                                                                            Changes In and Dis‑

    agreements With                                                                                                                                   agreements With

    Accountants On Accounting                                                                                                                 Accountants On Accounting

    and Financial Disclosure                                                                                                                       and Financial Disclosure

 

9A. Controls and Procedures                                                                                                                   Controls and Procedures

 

10. Directors and                                                                                                                                     Directors and Executive

      Executive Officers                                                                                                                              Officers of the Registrant

      of the Registrant

                                                      

 

‑ iii‑



                                                                                                                                                                 Headings in this Form

Form 10‑K                                                                                                                                               10‑K for Year Ended

Item No.                                                                                                                                                    November 30, 2007     

 

11. Executive Compensation                                                                                                                      Executive Compensation

 

12. Security Ownership                                                                                                                             Security Ownership

      of Certain Beneficial                                                                                                                             of Certain Beneficial

      Owners and Management                                                                                                                    Owners and Management and Related

      and Related Stockholder  Matters                                                                                                       Stockholder Matters

 

13. Certain Relationships                                                                                                                           Certain Relationships

      and Related Transactions                                                                                                                     and Related Transactions

 

14. Principal Accountant Fees                                                                                                                    Principal Accountant Fees

      and Services                                                                                                                                         and Services

 

15. Exhibits, Financial                                                                                                                                 Exhibits, Financial

    Statements, Schedules,                                                                                                                           Statements, Schedules,

    and Reports on Form                                                                                                                             and Reports on Form

    8‑K                                                                                                                                                       8‑K

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

‑ iv‑



 

 

 

 

TABLE OF CONTENTS

Item                                                                                                                                                                                                           Page

 

PART I

 

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

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

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

4. Submission of Matters to a Vote of Security Holders..........................                                                                                                            7

 

PART II

 

5. Market for the Company's Common Stock and Related

    Shareholder Matters...........................................................................                                                                                                           8

6. Selected Financial Data......................................................................                                                                                                          10

7. Management's Discussion and Analysis of Financial Condition

    and Results of Operations..................................................................                                                                                                           11

7A. Quantitative And Qualitative Disclosure About Market Risk............                                                                                                            23

8. Financial Statements and Supplementary Data....................................                                                                                                           23

9. Changes In and Disagreements with Accountants On Accounting

    and Financial Disclosure....................................................................                                                                                                           24

9A.Controls and Procedures.................................................................                                                                                                           24

 

PART III

 

10. Directors and Executive Officers of the Registrant...............................                                                                                                         25

 11. Executive Compensation..................................................................                                                                                                          28

 12. Security Ownership of Certain Beneficial Owners and

       Management and Related Stockholder Matter..................................                                                                                                          37

13. Certain Relationships and Related Transactions.................................                                                                                                          39

14. Principal Accountant Fees and Services............................................                                                                                                          39

  

PART IV

 

15. Exhibits, Financial Statement Schedules, and Reports on Form 8‑K...                                                                                                        41

 

 

 

 

 - v‑



PART I

Item 1. BUSINESS

 

            (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),  and "Scar Zone" (scar diminishing cream).

 

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

 

The Company recognizes sales at the time its products are shipped to customers.  However, while sales are not formally subject to any contract contingency, the acceptance of returns is an industry‑wide practice.  The Company thus estimates 'unit returns' based upon a review of the market's recent-historical acceptance of subject products as well as current market-expectations, and equates its reserves for estimated returns in the sum of the gross profits, in the five preceding months, realized upon an equivalent number of subject-product sales.  (See Item 15, Financial Statements, Note 2).  Of course, there can be no precise going‑forward assurance in respect to return rates and gross margins, and in the event of a significant increase in the rate of returns, the circumstance could have a materially adverse affect upon the Company's operations.

 

The Company's net sales in fiscal 2007 were $ 59,832,157. Gross profits were $38,071,751.  International sales accounted for approximately 3 % of sales.  The Company had a net profit of $5,537,795 for fiscal 2007.    Net worth at November 30, 2007 was $ 30,750,318.

 

1

 


 

 

 

 

Including the principal members of management (see Directors and Executive Officers), the Company, at November 30, 2007, had 150 sales, administrative, creative, accounting, receiving, and warehouse personnel in its employ.

 

(b) Manufacturing and Shipping

 

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

 

(c) Marketing

 

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

 

The Company sells its products to approximately 300 accounts, most of which have numerous outlets. Approximately 40,000 stores carry at least one Company product (SKU).

 

During the fiscal year ended November 30, 2007, the Company's largest customers were Wal-Mart (approximately 40% of net sales), Walgreens (approximately 8%), Rite Aid (approximately 8%), CVS (approximately 6%),   and McLanes, (approximately 5%).  The loss of any of these principal customers, or substantial reduction of sales revenues realized from their business, could materially and negatively affect the Company's earnings.

 

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

           

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

 

The Company primarily utilizes local and national television advertisements to promote its leading brands.  On occasion, print and radio advertisements are engaged.  In addition, and more‑or‑less continuously, store‑centered product promotions are co‑operatively undertaken with customers.

 

 

2


 

 

 

Each of the Company's brand‑name products is intended to attract a particular demographic segment of the consumer market, and advertising campaigns are directed to the respective market‑segments.

 

The Company's in‑house advertising department is responsible for the selection of its media advertising.  Placement is accomplished either directly or through media‑service companies.

 

(d) "Wholly‑Owned" Products

 

The majority of the Company's sales revenues are from sales of the Company's "wholly‑owned" product lines (i.e., products sold under trademark names owned by the Company, and not subject to any other party's interest or license), which include principally "Plus+White", "Sudden Change", "Wash 'N Curl",  "Bikini Zone", "Mood Magic", "Mega -T", "Cherry Vanilla", and "Scar Zone".

 

(e) All Products

 

The Company's gross sales net of returns by category percentage were: Dietary Supplement   31.1%; Skin Care 28.8%; Oral Care 25.0%; Nail Care 10.7%; Fragrance 3.4% and   Hair Care and Miscellaneous 1%.

 

(f) License-Agreements Products

 

i. Alleghany Pharmacal

 

In 1986, the Company entered into a license agreement with Alleghany Pharmacal Corporation (the "Alleghany Pharmacal License").  Under the terms of the Alleghany Pharmacal License, the Company was granted, and yet retains, the exclusive right to manufacture and market certain products, and to use their associated trademarks, including "Nutra Nail," "Nutra Nail 60," "Pro Perm," "Hair Off," "Permathene" and "IPR".

 

The Alleghany Pharmacal License required the Company (a) to pay royalties of 6% per annum on net sales of "Pro-Perm" hair‑care products, the PPA-based and now discontinued dietary-product "Permathene", "IPR" foot-care products, "Nutra‑Nail" nail‑enamel products, and "Hair‑Off" depilatories; and (b) to pay 1% royalties on net sales of a "Hair-Off" mitten that is a depilatory‑product accessory, and "Nutra Nail 60", a fast-acting nail enamel, and "Nutra Nail Power Gel."

 

3

 


 

The Company had been required to pay not less than $360,000 per annum in order to maintain exclusive rights under the Alleghany Pharmacal License.  (Royalties have always exceeded the minimum; but, if they did not, the Company would be entitled to maintain exclusive license rights by electing to pay the 'difference.'  At the same time, the Company would not be required to pay any fee in excess of royalties payable in respect of realized sales if sales did not yield 'minimum royalties' and the Company chose in such circumstance to concede the license rights.)

 

The Alleghany Pharmacal License agreement provides that if, and when, in the aggregate, $9,000,000 in royalties had been paid thereunder, the royalty‑rate for those products 'charged' at 6% would be reduced to 1%.  The Company paid an aggregate of $9,000,000 in royalties to Allegheny as of April 2003.  Commencing May 1, 2003, the license royalty was reduced to 1%.

 

The products subject to the Alleghany‑Pharmacal License accounted for $9,166,219 or 15.3 % of total net sales in the fiscal year ended November 30, 2007.  "Nutra Nail" and the "Hair-Off" depilatory were the leaders among all of the Alleghany license-agreement products, producing approximately 10.7% and 2.9%, respectively, of net sales.

 

ii. Solar Sense, Inc.

 

CCA commenced the marketing of its sun‑care products line following a May 1998 License Agreement with Solar Sense, Inc. (the "Solar Sense License"), pursuant to which it acquired the exclusive right to use the trademark names "Solar Sense" and "Kids Sense" and the exclusive right to market mark-associated products.  The Solar Sense License requires the Company to pay a royalty on net sales of said licensed products until $1 million total royalties are paid.  CCA realized $785,792 in net sales of sun-care products in 2007.

 

 iii. The Nail Consultants Ltd.

 

 In October of 1999, the Company entered into a License Agreement with The Nail Consultants, Ltd. for the use of an activator invented in connection with a method for applying a protective covering to fingernails.  The Company's License Agreement with The Nail Consultants, Ltd. is for the use of the method and its composition in a new product kit packaged and marketed by CCA under its own name, "Nutra Nail Power Gel".  The Company is required to pay a royalty of net sales of all products sold under the license, by the Company.   Net sales for products sold under the License Agreement with Nail Consultants, Ltd. were $705,643 in 2007.

                       

 iv. Dr. Stephen Hsu - Green Tea

 

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

 

4


 

 

Dr. Hsu collaborated with Drew Edell, Vice-President of Research and Development for the Company, to create and file a patent application for a special anti-oxidant green tea serum to be used for topical skin application.  The patent was filed in November 2004.

 

Dr. Hsu is entitled to a commission on the net factory sales of all of the Company's products using the green tea serum created exclusively for the Company.  Net sales of the products utilizing the green tea serum were $6,527,969 for the fiscal year ended November 30, 2007.

 

v. Mega -T Green Tea Chewing Gum and Mints

 

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

 

The license agreement requires the Company to pay a minimum annual royalty of $250,000 commencing with the period beginning March 1, 2007 to February 28, 2008.  The minimum payments are required to maintain the Company's exclusivity for the sale of the products and to continue marketing the products and until royalties have aggregated to $10,000,000, at which time all royalty obligations cease.  Except as to maintain its rights to "exclusivity", the Company has no obligation to meet minimum royalty requirements.

 

The Company commenced sales of the Mega -T Green Tea Chewing Gum in July 2004.  Net sales of the Mega-T Green Tea chewing gum for the fiscal year ended November 30, 2007 were $1,131,511. 

           

vii. Other Licenses

 

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

 

(g) Trademarks

 

The Company's own trademarks and licensed‑use trademarks serve to identify its products and proprietary interests.  The Company considers these marks to be valuable assets.  However, there can be no assurance, as a practical matter, that trademark registration results in marketplace advantages, or that the presumptive rights acquired by registration will necessarily and precisely protect the presumed exclusivity and asset value of the marks.

 

 

 

 

5


 

 

(h) Competition

 

The market for cosmetics and perfumes, and health‑and‑beauty aids products in general, including patent medicines, is characterized by vigorous competition among producers, many of whom have substantially greater financial, technological and marketing resources than the Company.  Major competitors such as Revlon, L'Oreal, Colgate, Coty, Unilever, and Procter & Gamble have Fortune 500 status, and the broadest‑based public recognition of their products.  Moreover, a substantial number of other health‑and‑beauty aids manufacturers and distributors may also have greater resources than the Company.

 

(i) Government Regulation

 

All of the products that the Company markets are subject or potentially subject to particular regulation by government agencies, such as the U.S. Food and Drug Administration, the Federal Trade Commission, and various state and/or local regulatory bodies.  In the event that any future regulations were to require new approval for any in‑the‑market products, or should require approval for any planned product, the Company would attempt to obtain the necessary approval and/or license, assuming reasonable and sufficient market expectations for the subject product.  However, there can be no assurance, in the absence of particular circumstances that Company efforts in respect of any future regulatory requirements would result in approvals and issuance of licenses.  Moreover, if such license‑requirement circumstances should arise, delays inherent in any application‑and‑approval process, as well as any refusal to approve, could have a material adverse affect upon existing operations (i.e., concerning in‑the‑market products) or planned operations.

 

 (j) Dubilier Transaction

 

On November 1, 2006, the Company entered into a letter of intent with Dubilier and Company ("Dubilier") relating to a proposed acquisition of the Company by Dubilier to take the Company private.  Dubilier did not arrange the necessary financing and the acquisition was terminated on April 10, 2007.  The Company incurred $717,850 of expenses directly related to the proposed transaction that were charged on its 2007 Statement of Operations.

 

Item 2. PROPERTY

 

The principal executive offices of the Company are located at 200 Murray Hill Parkway, East Rutherford, New Jersey.  Under a net lease, the Company occupies approximately 58,625 square feet of space.  Approximately 43,598 square feet in such premises is used for warehousing and 15,027 square feet for offices.  The annual rental is $327,684, with an annual CPI increase not cumulatively exceeding 15% in any consecutive five year period.   The lease expires on May 31, 2012 with a renewal option for an additional five years. 

 

6


 

 

 

 

The lease requires the Company to pay for additional expenses, Common Area Maintenance ("CAM"), which includes real estate taxes, common area expense, utility expense, repair and maintenance expense and insurance expense.  For the year ended November 30, 2007, CAM was estimated at $164,880.

    

The Company entered into a warehouse lease on May 1, 2005 at 300-1(D), Route 17, Lodi, New Jersey for the 12 month period ending April 30, 2006. The lease was extended to April 30, 2008.  The lease comprises 13,000 square feet for warehousing.  The year end net rental expense including CAM was $147,895.  The Company is not renewing the lease.                       

 

On September 26, 2007, the Company entered into an additional lease for warehouse space with Ninth Avenue Equities Co., Inc. for four and a half years commencing November 1, 2007.  The premises comprise 16,438 square feet of space.  The Company is obligated to pay maintenance which includes but is not limited to real estate taxes and all other common area expenses.  The annual rental is $123,285.  Year end rental expense including CAM was $13,258.    

 

Item 3. LEGAL PROCEEDINGS

 

All of the 13 legal proceedings against the Company related to the Company's dietary suppressant products that contained phenylpropanolamine ("PPA") and were previously sold, were dismissed with prejudice.

 

There is no significant litigation presently outstanding against the Company.

 

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

 

On July 31, 2007, the Company held its annual meeting of shareholders.  The actions taken, and the voting results thereupon, were as follows:

 

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

 

(2) As proposed by Management, Dunnan Edell, Robert Lage and Seth Hamot were elected as directors by the holders of the Common Stock.

 

(3) The Board's appointment of KGS LLP as the Company's independent certified public accountants for the 2007 fiscal year was approved.

 

The Company has not submitted any matter to a vote of security holders since the 2007 Annual Meeting.

 

7


 

 


PART II

 

Item 5. MARKET FOR THE COMPANY'S COMMON STOCK

            AND RELATED SHAREHOLDER MATTERS

 

The Company's Common Stock is traded on the American Stock Exchange under the symbol "CAW." 

 

The range of high and low sales prices of the Common Stock during each quarter of its 2007, 2006 and 2005 fiscal years was as follows:

 

Quarter Ended                                        2007                                   2006                         2005              

February 28                                      $12.12 - $11.06             $11.45 - $7.80           $10.75 - $13.80

May 31                                             $12.04 - $ 9.03              $11.10 - $9.95           $12.56 - $ 9.45

August 31                                          $10.60 - $ 8.94              $10.40 - $9.41           $11.40 - $ 8.85     

November 30                                    $10.25 - $ 9.20              $11.73 - $9.49           $ 9.90 - $ 7.00      

 

The high and low prices for the Company's Common Stock, on February 1, 2008 were $9.18 to $9.07 per share.

 

As of November 30, 2007, there were approximately 157 individual shareholders of record of the Company's common stock.  (There are a substantial number of shares held of record in various street and depository trust accounts, which represent approximately 1,000 additional shareholders.)

 

The dividend policy is at the discretion of the Board of Directors and will depend on numerous factors, including earnings, financial requirements and general business conditions.

 

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

 

On November 15, 2005,   the Board of Directors declared a $0.05 per share dividend for the first quarter ended February 28, 2006, payable to all shareholders of record as of February 1, 2006 and payable on March 1, 2006.  On March 14, 2006, the Board of Directors declared a $0.05 per share dividend for the second quarter ended May 31, 2006, payable to all shareholders of record as of May 1, 2006 and payable on June 1, 2006.   On June 29, 2006, the Board of Directors declared a $0.07 per share dividend for the third quarter ended August 31, 2006, payable to all shareholders of record as of August 1, 2006 and payable on September 1, 2006. On October 5, 2006, the Board of Directors declared a $0.07 per share dividend for the fourth quarter ended November 30, 2006, to all shareholders of record as of November 1, 2006 and payable on December 1, 2006. 

 

8


 

 

 

On December 28, 2006, the Board of Directors declared a $0.07 per share dividend for the first quarter ended February 28, 2007, payable to all shareholders of record as of February 1, 2007 and payable on March 1, 2007.  On April 12, 2007,   the Board of Directors declared a $0.07 per share dividend for the second quarter ended May 31, 2007, payable  to all shareholders of record as of May 1, 2007 and payable on June 1, 2007.   On June 22, 2007, the Board of Directors declared a $0.07 per share dividend for the third quarter ended August 31, 2007, payable to all shareholders of record as of August 1, 2007 and payable on September 1, 2007.  On September 26, 2007,   the Board of Directors declared a $0.09 per share dividend for the fourth quarter ended November 30, 2007, payable to all shareholders of record as of November 1, 2007 and payable on December 1, 2007.

 

On December 5, 2007, the Board of Directors declared a $0.10 per share dividend for the first quarter ending February 29, 2008, payable to all shareholders of record as of February 1, 2008 and payable on March 1, 2008.

 

On February 14, 2008, the Board of Directors declared a $0.11 per share dividend for the second quarter ending May 31, 2008, payable to all shareholders of record as of May 1, 2008 and payable on June 1, 2008.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 



 Item 6. SELECTED FINANCIAL DATA

 

                                                                                                                            Year Ended November 30,   

 

     2007

     2006

     2005

      2004

      2003

Statement of Income         

 

 

 

 

 

  Sales, Net

$59,832,157

$63,302,220

$61,181,344

$59,008,135

$53,388,602

Other income

    1,045,710

       797,803

       572,909

       850,196

       591,271

 

 

 

 

 

 

Costs and Expenses

  51,283,141

  55,183,378

  54,646,715

  50,484,052

  45,482,975

Income before provision for

 

 

 

 

 

  Income Taxes

      9,594,726

    8,916,645

    7,107,528

    9,374,279

    8,496,898

Net Income

$   5,537,795

$   5,604,251

$   3,785,502

$   5,796,663

$   5,252,131

 

 

 

 

 

 

Earnings Per Share:

 

 

 

 

 

  Basic

$               .79

$               .80

$               .53

$               .78*

$             .71*

  Diluted

$               .78

$               .79

$               .52

$               .75*

$              .68*    

Weighted Average Number

 

 

 

 

 

  of Shares Outstanding

      7,029,611

      7,034,276

    7,145,297

    7,399,472*

    7,372,232*

Weighted Average Number

 

 

 

 

 

  of Shares and Common Stock

 

 

 

 

 

  Equivalents Outstanding

     7,058,889

      7,133,332

    7,317,994

    7,680,781*

    7,768,361*

                                                                                               

Balance Sheet Data:                                                                                                    As At November 30,              

 

    2007

     2006

    2005

    2004

     2003

 

 

 

 

 

 

Working Capital

$24,922,016

$22,295,983

$18,602,107

$13,562,389

$11,565,685

Total Assets

  39,903,876

  36,516,571

  35,309,308

  31,556,577

  29,839,216   

 

 

 

 

 

 

Total Liabilities

    9,153,558

    9,131,780

     9,309,652

     8,034,530

     6,494,676  

Total Shareholders' Equity (1)

  30,750,318

  27,284,791

  25,999,656

  23,522,047

  23,344,540

             

(1) Certain additional promotional expenses were re-classified during 2006 from an expense to a reduction of net sales.  In order to have an accurate comparison, the same expenses were re-classified accordingly for the years ended November 30, 2003 – 2005.

 

*Adjusted for 2% stock dividend in 2004.

 

 

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

            Except for historical information contained herein, this "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements.  These statements involve known and unknown risks and uncertainties that may cause actual results or outcomes to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements, and statements which explicitly describe such issues.  Investors are urged to consider any statement labeled with the terms "believes," "expects," "intends" or "anticipates" to be uncertain and forward-looking. 

 

Comparison of Results for Fiscal Years 2007 and 2006

 

            The Company's net sales decreased from $63,302,220 in the 2006 fiscal year to $59,832,157   in the 2007 fiscal year.  Net sales were adjusted after reclassifying certain advertising expenses from selling expense to a reduction of net sales as more fully described in the footnotes to the financial statements for fiscal 2007.  During fiscal 2007, the amount of advertising expenses that were classified as a reduction of net sales was $5,184,112, versus $4,013,619 in fiscal 2006, reflecting an increased net sales reduction of $1,170,493.  The Company has been working to adjust its business model by decreasing the amount of its media advertising and focusing more on co-operative advertising with its retail partners. A major portion of the Company's co-operative advertising is reclassified as a reduction of net sales.  The decrease in net sales is attributable to the higher sales incentives, discontinued products and higher sales returns.  Sales returns and allowances were 9.6% of gross sales for fiscal 2007 versus 8.7% in fiscal 2006.  Sales returns were higher due to the Company's unsuccessful launch of Pound-X, a dietary supplement launched in the fourth quarter of 2006, and the returns of other products that were phased out and replaced by new items. Gross profit margins increased slightly from 63.3% in fiscal 2006 to 63.6% in fiscal 2007. 

 

            The Company's gross sales net of returns and allowances, but before promotional charges, by category were: Dietary Supplement $20,351,748 or 31% of sales, Skin Care $18,862,125 or 29% of sales, Oral Care $16,375,634 or 25% of sales, Nail Care $6,977,616 or 11% of sales, Fragrance $2,259,648 or 3% of sales, and Hair Care and Miscellaneous $686,142 or 1% of sales.

 

            Income before taxes was $9,594,726 for fiscal 2007 as compared to $8,916,645 for fiscal 2006, an increase of $678,081.  The increase was primarily due to a decrease in media advertising in 2007 versus 2006 as the Company focuses more on co-operative advertising as noted above.

 

            On November 1, 2006 the Company entered into a letter of intent with Dubilier and Company relating to a proposed acquisition of the Company by Dubilier, and as more fully described in Note 15 of the financial statements for fiscal 2007.  The proposed transaction was formally terminated by the Company on April 10, 2007.  During fiscal 2007, the Company incurred expenses related to the proposed transaction of $717,850, which is reflected on the financial statements as a special transaction expense. 

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            The allowance for doubtful accounts is a combination of specific and general reserve amounts relating to accounts receivable.  The general reserve is calculated based on historical percentages applied to aged accounts receivable and the specific reserve is established and revised based on individual customer circumstances.  This allowance decreased from $185,779 as of November 30, 2006 to $141,607 as of November 30, 2007.  The decrease is directly attributable to the reduction of reserves for specific disputes.

 

            The reserve for returns and allowances is based on a reserve for returns equal to its gross profit on its historical percentage of returns on its last five month's sales, and a specific reserve based on customer circumstances.  This allowance decreased from $840,418 as of November 30, 2006 to $732,695 as of November 30, 2007.  The reserve was higher as of November 30, 2006 due to additional reserves at that time for the Pound-X brand which has been discontinued.  No additional reserves were required for Pound-X as of November 30, 2007.

 

            The reserve for inventory obsolescence is based on a detailed analysis of inventory movement.  The reserve decreased from $777,715 as of November 30, 2006 to $604,746 as of November 30, 2007. 

            In accordance with GAAP (generally accepted accounting principles), the Company   reclassified certain advertising and promotional expenditures as a reduction of sales rather than report them as expenses.  This reclassification is the adoption by the Company of EITF 00-14 "Accounting for Certain Sales Incentives" (codified by EITF 01-9 "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products"), as more fully described in footnote 2 ("Sales Incentives"), of the financial statements for fiscal 2007.  The reclassification reflects a reduction in sales for the fiscal years ended November 30, 2007 and 2006 by $5,184,112 and $4,013,619 respectively.  The increase is due to the Company focusing more on co-operative advertising, most of which is reclassified as a reduction of sales.

 

            For the year ended November 30, 2007, the Company had revenues of $60,877,867, and net income of $5,537,795, after a provision of $4,056,931 for taxes.  For the year ended November 30, 2006, the Company had revenues of $64,100,023, and net income of $5,604,251, after a provision of $3,312,394 for taxes.  Fully diluted earnings per share for fiscal 2007 were $0.78 as compared to $0.79 for fiscal 2006.  As noted earlier, earnings in fiscal 2007 were impacted by the recording of $717,850 of transaction expenses related to the proposed acquisition of the Company by Dubilier and Company.  Other income increased from $797,803 for fiscal 2006 to $1,045,710 in fiscal 2007, primarily due to higher interest income.

 

            The effective tax rate for fiscal 2007 was 42.3% of income before tax as compared to 37.1% for fiscal 2006.  The income tax rate in 2006 was lower in part due to an over accrual of the actual tax due for 2005 due to certain deductions and credits that the Company was able to utilize in the final preparation of the 2005 income tax return that were not anticipated at the time of making the accrual for financial reporting.  These items resulted in an over accrual of $200,000 for fiscal 2005, which was adjusted by reducing the provision for fiscal 2006.  Had that adjustment not been made, the effective

 

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  tax rate for fiscal 2006 would have been 39.4%.  In addition, during fiscal 2006 there was a larger deduction for donations of certain of our inventory as compared to fiscal 2007, which resulted in reducing the effective tax rate for fiscal 2006 further. 

 

            For fiscal 2007, advertising, cooperative and promotional expenses were $6,956,407 as compared to $10,345,407 for fiscal 2006, or an expense reduction of $3,389,000.  Advertising expenses were 11.6% of net sales for fiscal 2007 versus 16.3% for fiscal 2006.  The reduction in advertising expense was due to the Company focusing more on cooperative advertising with its retail partners and less on media advertising.  Most of the Company's cooperative advertising is reflected as a reduction of net sales in accordance with GAAP.

 

            Selling, general and administrative expenses increased slightly from $21,104,728 in fiscal 2006 to $21,266,327 in fiscal 2007.  The increase was primarily due to increased compensation and related benefit costs as a result of hiring additional marketing personnel, as well as salary increases in the normal course of business.

 

            As of November 30, 2007, there was $1,839,016 of open cooperative advertising commitments, of which $1,241,482 is from 2007, $226,427 is from 2006 and $371,107 is from 2005.  The Company's total cooperative advertising commitment increased from $6,484,840 in fiscal 2006 to $6,800,000 in fiscal 2007.  Cooperative advertising is advertising that is run by the retailers in which the Company shares in part of the cost.  If it becomes apparent that this cooperative advertising was not utilized, the unclaimed cooperative advertising will be offset against the expense during the fiscal year in which it is determined that it did not run.  This procedure is consistent with the prior year's methodology with regard to the accrual of unsupported cooperative advertising commitments.

 

Comparison of Results for Fiscal Years 2006 and 2005

 

            The Company's net sales increased from $61,181,334 (after reclassifying certain advertising expenses from selling expense to a reduction of net sales as more fully described in the footnotes to the financial statements) to $63,302,220 for the current fiscal year.  Gross profit margins increased from 62.8% to 63.3%.  The increase in net sales is principally due to increased sales in Oral Care.

 

            The Company's gross sales net of returns and allowances by category were: Dietary Supplement $21,055,278 or 31% of sales, Skin Care $20,347,016 or 30% of sales, Oral Care $16,025,534 or 24% of sales, Nail Care $6,003,041 or 9% of sales, Hair Care $2,285,329 or 3% of sales, and Fragrance and Miscellaneous $2,382,240 or 3% of sales.

 

            Income before taxes was $8,916,645 as compared to $7,107,528 for fiscal 2005.  The increase in income before taxes for fiscal 2006 is principally the result of higher gross sales and less returns than in 2005.  Returns were higher in 2005 primarily due to the return of product from the launch of the Denise Austin skin care line in 2005.

 

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            The allowance for doubtful accounts is a combination of specific and general reserve amounts relating to accounts receivable. The general reserve is calculated based on historical percentages applied to aged accounts receivable and the specific reserve is established and revised based on individual customer circumstances.  This allowance decreased from $260,366 as of November 30, 2005 to $185,779 as of November 30, 2006.  The decrease is directly attributable to the reduction of reserves for specific disputes.

 

            The reserve for returns and allowances is based on a reserve for returns equal to its gross profit on its historical percentage of returns on its last five month's sales, and a specific reserve based on customer circumstances.  This reserve increased from $678,346 as of November 30, 2005 to $840,418 as of November 30, 2006 primarily from additional reserves for the Pound –X brand which was launched in the fourth quarter of 2006.

 

            The reserve for inventory obsolescence is based on a detailed analysis of inventory movement.  The reserve decreased from $854,764 as of November 30, 2005 to $ 777,715 as of November 30, 2006.

 

            In accordance with GAAP, the Company reclassified certain advertising and promotional expenditures as a reduction of sales rather than report them as expenses.  This reclassification is the adoption by the Company of the EITF 00-14 GAAP standard.  The reclassification reflects a reduction in the sales for the fiscal years ended November 30, 2006 and 2005 by $4,013,619 and $4,007,051 respectively.

 

            For the year ended November 30, 2006, the Company had revenues of $64,100,023, and net income of $5,604,251, after a provision of $3,312,394 for taxes.  For the year ended November 30, 2005, the Company had revenues of $61,754,243 (after reclassification) and net income of $3,785,502, after a provision of $3,322,026 for taxes.     Fully diluted earnings per share for fiscal 2006 were $.79 compared to $.52 in fiscal 2005. 

 

            The effective tax rate in Fiscal 2006 was significantly lower than Fiscal 2005 due to the effect of permanent tax adjustments and certain over accruals affecting the tax due for the periods. In Fiscal 2005, the company accrued for additional taxes due based on audits in progress for the previous three years. The actual settlement of the audits in 2006 was less than anticipated which resulted in smaller than estimated adjustments. The favorable outcome of some of the calculations in the audit also resulted in an over accrual of the actual tax due for 2005, which were originally accrued for based on the proposed change to  some of our methods of calculating certain adjustments. There were also certain deductions and credits which we were able to avail ourselves of in our final preparation of our 2005 return that we had not anticipated at the time of making the accrual for financial reporting. These items resulted in an over accrual of our taxes in 2005 by approximately $200,000. The reversal of the over accrual in 2005 results in showing $200,000 less in 2006 (a $400,000 adjustment in the tax provision). We also had a larger deduction for donations of certain of our inventory in 2006 which resulted in a lower effective tax rate for 2006 versus 2005. The combination of the prior year's over accrual and the larger "permanent" differences resulted in a significantly lower effective tax rate for Fiscal 2006.

 

14


 

            For fiscal 2006, advertising, cooperative and promotional expenses were $10,345,407 as compared to $10,671,906 in the same period for fiscal 2005.  Advertising expenses were 16.3% of sales in fiscal 2006 versus 17.4% for fiscal 2005.  The reduction in advertising expense was due to the change in the overall budget for the year.

 

            SG&A expenses increased from $20,246,344 in fiscal 2005 to $21,104,728 in fiscal 2006.  This was primarily due to increased compensation and related benefit costs as a result of hiring additional sales and marketing personnel.

 

            At year's end, there were approximately $2,053,946 of open co-op commitments, of which $1,172,057 is from 2006, $673,378 is from 2005 and 208,511 is from 2004.  The Company's total co-op commitment increased from $6,000,000 in fiscal 2005 to $6,484,840 in fiscal 2006.  Co-op is advertising that is run by the retailers in which the Company shares in part of the cost.  If it becomes apparent that this co-op was not utilized, the unclaimed co-op will be offset against the expense during the fiscal year in which it is determined that it did not run.  This procedure is consistent with the prior year's methodology with regard to the accrual of unsupported co-op commitments.

 

Liquidity and Capital Resources 

 

As of November 30, 2007, the Company had working capital of $24,922,016 as compared to $22,295,983 at November 30, 2006.  The ratio of total current assets to current liabilities is 3.8 to 1 as compared to a ratio of 3.5 to 1 for the prior year.  The working capital and the current ratio in 2006 were reduced by the Company's purchase of an aggregate of 253,304 shares of the Company's common stock for $2,653,867 from current and past officers/directors. The company also purchased during fiscal 2006 19,600 shares under Rule 144 for an aggregate of $171,738. Stockholders' equity increased to $30,750,319 from $27,284,791.  The Company did not purchase any treasury stock during fiscal 2007.

 

The Company's cash position and short-term investments at November 30, 2007 were $14,747,784, versus $15,901,689 as at November 30, 2006.  Non-current or long term investments were $4,801,504 at November 30, 2007 versus $4,073,656 as at November 30, 2006.  The Company paid cash dividends during fiscal 2007 in the amount of $1,965,111, representing the dividends declared at the end of fiscal 2006 but not paid until fiscal 2007 of $490,970 and $1,474,945 in dividends declared and paid for fiscal 2007.   As of November 30, 2007, there were dividends declared but not paid of $634,900.  The Company paid cash dividends during fiscal 2006 totaling $1,776,975.  The Board of Directors increased the dividends declared during fiscal 2007 resulting in the larger amount of paid cash dividends in fiscal 2007 versus fiscal 2006.  The securities the Company purchased are all of an investment grade rating of Triple A. Because of the rating of the securities

 

 

15


 

 

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

 

The Company's investment in property and equipment consisted mostly of computer hardware and software, racking for our warehouse facilities, leasehold improvements and furniture to accommodate our personnel in addition to tools and dies used in the manufacturing process.

 

Inventories were $7,857,322 and $6,350,013, as of November 30, 2007 and 2006 respectively.  The Company increased the amount of inventory on hand in order to accommodate its customer's needs for just in time inventory shipments.  In addition, the inventory obsolescence reserve was reduced from $777,715 to $604,746.    The inventory obsolescence reserve as of November 30, 2006 had been increased due to a specific reserve for Pound-X, a dietary supplement product that was launched in the fourth quarter of 2006.  The product has since been discontinued. 

 

Accounts receivable as of November 30, 2007 and 2006 were $9,119,179 and $7,188,197 respectively.   A large part of the increase was due to increased gross sales during October and November 2007 versus the same periods in fiscal 2006.  The increased gross sales were $1,317,490, most of which would not have been collected by November 30, 2007 resulting in a higher outstanding accounts receivable.  Accounts Receivable allowances and reserves decreased in the aggregate by $151,895 from November 30, 2006 to November 30, 2007, which would affect the net balance.

 

The amount of deferred income tax reflected as a current asset decreased from $1,180,472 as of November 30, 2006 to $765,821 as of November 30, 2007.  The decrease was mainly due to the utilization of deferred tax credits for charitable contributions during fiscal 2007. Other material components of the deferred tax asset are the timing differences caused by changes in the reserve for returns, inventory and bad debt, as well as the accrual for unused vacation pay.  The Company anticipates that these amounts will be deductible in future tax years.

 

Current liabilities are $9,038,676 and $9,009,263, as of November 30, 2007 and 2006 respectively.  Current liabilities at November 30, 2007 consisted of accounts payable, accrued liabilities, short term capital lease obligations and dividends payable.  The Company's only long term obligation is for a portion of its capitalized leases, which is for certain office and warehouse equipment.  At November 30, 2007, the Company had long and short-term triple A investments and cash of $19,549,288 as compared to $19,975,345 as of November 30, 2006.  As of November 30, 2007, the Company was not utilizing any of the funds available under its $25,000,000 unsecured credit line.  During fiscal 2007, 52,089 shares of Company Common Stock were issued to Dunnan Edell, the Company's President, upon his exercise of stock options for 55,000 shares.

 

 

 

16


 

 

 

Inventory, Seasonality, Inflation and General Economic Factors

 

The Company attempts to keep its inventory for every product at levels that will enable shipment against orders within a three-week period.  However, certain components must be inventoried well in advance of actual orders because of time‑to‑acquire circumstances.   For the most part, purchases are based upon projected quarterly requirements, which are projected based upon sales indications received by the sales and marketing departments, and general business factors.  All of the Company's contract‑manufacture products and components are purchased from non‑affiliated entities.  Warehousing is provided at Company facilities, and all products are shipped from the Company's warehouse facilities.

 

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

 

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

 

Because our products are sold to retail stores (throughout the United States and, in small part, abroad), sales are particularly affected by general economic conditions.  Accordingly, any adverse change in the economic climate can have an adverse impact on the Company's sales and financial condition.  The Company does not believe that inflation or other general economic circumstance that would negatively affect operations can be predicted at present, but if such circumstances should occur, they could have material and negative impact on the Company's net sales and revenues, unless the Company was able to pass along related cost increases to its customers. There was no significant impact on operations as a result of inflation during the current fiscal year.

 

Contractual Obligations

 

            The following table sets forth the contractual obligations in total for each year of the next five

years as at November 30, 2007.  Such obligations include the current lease for the Company's premises, written employment contracts and License Agreements.

 

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                                               2008               2009                  2010                2011                2012

Lease on Premises (1)           701,144           639,969           639,969            639,969           319,985

Royalty Expense    (2)           255,000           275,000           275,000           275,000            275,000

Employment Contracts (3)  2,501,156        2,613,726        2,733,049        1,679,025         1,742,266

Open Purchase Orders        3,846,791                                                                                                

Total Contractual Obligations  7,421,903        3,528,695        3,648,018        2,593,994        2,337,151

 

The major lease is a net, net lease requiring a yearly rental of $327,684 plus Common Area Maintenance "CAM".  See Section Part I, Item 2. The rental provided above is the base rental and estimated CAM.  CAM for 2007 is estimated at $164,880. The figures above do not include adjustments for the CPI.  The lease has an annual CPI adjustment, not to cumulatively exceed 15% in any consecutive five year period.  The lease expires on May 31, 2012 with a renewal option for an additional five years. The Lodi lease requires a yearly rental of $97,500 plus CAM.  The lease is a 12-month lease which commenced in May 2005. The Company extended the lease to April 30, 2008.  The Company did not renew the lease, due to signing a lease with Ninth Avenue Equities.

 

On September 26, 2007, the Company entered into a warehouse lease with Ninth Avenue Equities Co., Inc. to lease 16,438 square feet of space known as Unit B located at Murray Hill Industrial Center in East Rutherford, New Jersey for a four and a half year period.  The year end net rental expense including CAM was $13,258.  The annual rental is $123,285 plus CPI adjustments, real estate taxes and common area maintenance expenses.

 

See Section Part I, Item 1(f).  The Company is not required to pay any royalty in excess of realized sales if the Company chooses not to continue under the license.  The figures set forth above reflect estimates of the royalty expense anticipated minimum requirements to maintain the licenses under the various contracts for the licensed products based on fiscal 2007 sales.  Royalty expense includes Alleghany Pharmacal, Solar Sense, Nail Consultants, Tea-Guard, Inc. and Stephen Hsu, PhD. 

 

The Company has executed Employment Contracts with its CEO, David Edell, and its Chairman of the Board, Ira W. Berman. The contracts for both are exactly the same.  The contracts expire on December 31, 2010.  The contracts provide for a base salary which commenced in 1994 in the amount of $300,000 (plus a bonus of 20% of the base salary), with a year-to-year CPI or 6% increase, plus 2.5% of the Company's pre-tax income less depreciation and amortization (EBITDA) plus certain fringe benefits including the cost of certain life insurance, auto expenses,   and health insurance.  (The 2.5% measure in the bonus provision of the Edell/Berman contracts was amended on November 3, 1998 so as to calculate it against earnings before income taxes, less depreciation, amortization and expenditures for media and cooperative advertising in excess of $8,000,000.)  On May 24, 2001, the contract was amended increasing the base salary then in effect by $100,000 per annum.  The contracts also provide that at the end of the term or upon retirement, Edell/Berman shall be retained by the Company as consultants at the consideration equal to 50% of the prior year's salary and bonus for a five year period. The figures above include only the base salaries for

18

 

 


 

 

 

 

the five years (plus 20% of the base salary), an adjustment for CPI, and without estimating bonuses, as the bonus is contingent upon future earnings, and also including  payments that would be due as consulting payments upon expiration or retirement.  On June 1, 2001, the Company added a provision to the Contracts stating that in the event of death within the employment and consulting periods, the Company would be obligated for two successive years to pay the executive's estate an amount equal to the annual base salary and bonus. 

 

David Edell's sons, Dunnan Edell and Drew Edell have five-year employment contracts in the amounts of $270,000 and $200,000 respectively, which expire on November 30, 2007 (See Item 11, Summary Compensation Table).  In July 2003, Dunnan Edell's salary was increased to $300,000 and in January 2004, Drew Edell's salary was increased to $225,000.  In fiscal 2005, Drew Edell's salary was increased to $250,000.  Dunnan Edell is a director and during fiscal 2003 was appointed President of the Company and Chief Operating Officer. Drew Edell is the Vice President of Research, and Product Development.

 

On February 10, 2006, the Board of Directors extended the employment contracts for Dunnan Edell and Drew Edell to December 31, 2010.  On May 17, 2007, the employment contracts for Dunnan Edell and Drew Edell were amended by the Board of Directors, extending the contracts to November 30, 2012, and increasing Dunnan Edell's base salary to $350,000 and Drew Edell's base salary to $275,000. 

 

Recent Accounting Pronouncements

 

              In June 2006, the Financial Accounting Standards Board ("FASB") issue FASB Interpretation No. 48 ("FIN No. 48") "Accounting for Uncertainty in Income Taxes – an Interpretation of FASB No. 109".  FIN No. No. 48 established a recognition threshold and measurement for income tax positions recognizes in an enterprise's financial statements in accordance with FASB No. 109, "Accounting for Income Taxes".  FIN No. 48 also prescribes a two-step evaluation process for tax positions. The first step is recognition and the second is measurement.  FIN No. 48 is effective for fiscal years beginning after December 15, 2006.  Accordingly, the Company plans to adopt FIN No. 48 on December 1, 2007.  The adoption of FIN No. 48  will have no material impact on the Company's financial position or results of operation.

 

              In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("SFAS No. 157").  SFAS No. 157 defines fair value, established a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods in those fiscal years.  The adoption of SFAS No .157 will have no material impact on the Company's financial position or results of operation.

 

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              In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of SFAS Statements Nos. 87, 88,106 and 132R.  SFAS No. 158, requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position, measure a plan's assets and obligations as of the end of the employer's fiscal year-end and recognize changes in the funded status in the year in which the changes occur through comprehensive income.  SFAS No. 158 is effective as of the end of the fiscal year ending after December 15, 2007.  Since the Company does not have a defined benefit plan, the adoption will not have an impact on the Company's financial statements.

 

              In September 2006, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 108 ("SAB 108") which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement.  SAB 108 is effective for the first fiscal year ending after November 15, 2006 which   was   the fiscal year ending November 30, 2006.  The adoption of this statement had no material impact on the Company's financial position or results of operations.

 

              In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 ("SFAS No. 159").  SFAS No. 159 which amends SFAS No. 115 allows certain financial assets and liabilities to be recognized, at the Company's election, at fair market value, with any gains or losses for the period recorded in the statement of income.  SFAS No. 159 included available-for-sale securities in the assets eligible for this treatment.  Currently, the Company records the gains or losses for the period in the statement of comprehensive income and in the equity section of the balance sheet.  SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and interim periods in those fiscal years.  The Company, at this time, has not elected to recognize any gains or losses for its available-for-sale securities in the statement of income, and accordingly there will be no impact on the Company's financial position or results of operations.  

 

              In November 2007, the SEC issued Staff Accounting Bulletin No. 109 ("SAB 109") which provides interpretive guidance regarding written derivative loan commitments that are accounted for at fair value through earnings.  SAB 109 is effective for fiscal quarters beginning after December 15, 2007.  The adoption of this statement will have no material impact on the Company's financial position or results of operation.

 

              In December 2007, the SEC issued Staff Accounting Bulletin No. 110 ("SAB 110") which provides interpretive guidance regarding the use of a "simplified" method in estimating the expected term of "plain vanilla" share options in accordance with FASB No. 123.  SAB 110 is effective as of January 1, 2007.  The adoption of this statement will have no material impact on the Company's financial position or results of operation.

 

 

 

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              In December 2007, the FASB issued a revised Statement of Financial Accounting Standards No. 141 ("SFAS No. 141 revised") which establishes the methods for accounting for business combinations.  SFAS No. 141 revised defines the acquirer and the acquisition date.  SFAS No. 141 revised is effective for acquisition dates on or after December 15, 2008.  The adoption of this statement will have no material impact on the Company's financial position or results of operation.

 

              In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 ("SFAS No. 160) which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.  SFAS No. 160 is effective for fiscal years beginning after December 15, 2008.  The Company has not determined the impact, if any, of the adoption of SFAS No. 160.

 

            Cautionary Statements Regarding Forward-Looking Statements

 

            This annual report contains forward-looking statements based upon current expectations of management that involve risks and uncertainty.  Actual risks could differ materially from those anticipated.  Additional risks and uncertainties not presently known may possibly impair business operations.  If any of these risks actually occur, the business, financial conditions and operating results could be materially adversely affected.  The cautionary statements made in this Annual Report on Form 10K should be read as being applicable to all forward-looking statements whenever they appear in this Annual Report. 

           

            Concentration of Risk

 

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

 

            The Company does not manufacture any of its products.  All of the products are manufactured for the Company by independent contract manufacturers.  There can be no assurance that the failure of a supplier to deliver the products ordered by the Company when requested will not cause burdensome delays in the Company's shipments to accounts.  The Company does constantly seek alternative suppliers should a major supplier fail to deliver as contracted.  A failure of the Company to ship as ordered by its accounts could cause penalties and/or cancellations of our customers' orders. 

 

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

 

            In fiscal 2007, net sales were $59,832,157.  Almost all of the products were able to maintain the projected gross profit margins.  Net income was $5,537,795.  There is no assurance that all of the Company's products will be successful.

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            Competition in the Cosmetic, Health and Beauty Aid Industry is Highly Competitive.

                       

            Reference is made to "Business 'Sub-section' of Competition."

 

            CLASS A Shareholders Retain Control of Board of Directors.

 

            See "Voting" in the Proxy Statement dated June 6, 2007.  Class A Shareholders, David Edell, CEO and Ira W. Berman, Chairman of the Board of Directors, have the right to elect four members to the Board of Directors.  Common stockholders have the right to elect three members to the Board of Directors.

 

            Future Success Depends on Continued Success of the Company's Current  Products and New Product Development.

 

            The Company is not financially as strong as the major companies against whom it competes.  The ability to successfully introduce new niche products and increase the growth and profitability of its current and new niche brand products will affect the business and prospects of the future of the Company and it relies upon the creativity and marketing skills of management.

 

            Future Possible Litigation

 

            Although there is no substantial litigation pending against the Company, there is always the possibility that one of the Company's products could cause litigation by a consumer over and above the Company's Product Liability Insurance.  There are no such cases currently against the Company.

 

            All of the company's product must be in compliance with all FDA and states regulations and all products which are being manufactured for the Company by outside suppliers must conform to the FDA's Good Manufacturing Practices requirements.  It is the Company's responsibility to ascertain that the suppliers do conform.  

 

            The Company Relies On A Few Large Customers For A Significant Portion Of Its Sales.

 

            In fiscal 2007, Wal-Mart Stores Inc. represented approximately 40% of the Company's total revenues.   The Company's ten largest customers accounted for 80% of the Company's total revenues.  The Company has no agreement with any of its customers to stock its products.  The Company's business would suffer materially if it lost Wal-Mart Stores, Inc.  The loss of any of the Company's 10 top customers could have an adverse effect on the Company's financial results. 

 

 

 

 

 

 

22


 

            The Company's Dietary Supplement Business Could Be Adversely Affected By Unfavorable Scientific Studies Or Negative Press.

 

            The Company's dietary supplement, Mega -T (Green Tea), to some extent is dependent on consumers' perceptions, the discussions of scientific evidence and the benefit and integrity of the dietary supplement business.  Any safety alert on any dietary supplement for weight loss may negatively affect the consumers' perceptions of the product category. 

 

            The Price of the Company's Stock May Be Volatile

 

            The Company's stock could fluctuate substantially.  There is a limited float of shares tradable.  There are factors beyond the Company's control, including by not limited to variations in the Company's operating revenues and profits, the timing of advertising commitments, the volatility of small cap stock in general and the general stock market conditions, quarter to quarter variations.

 

Item 7A. QUANTITATIVE AND QUALITATIVE

                DISCLOSURE ABOUT MARKET RISK

 

The Company's financial statements (See Item 15) record the Company's investments under the "mark to market" method (i.e., at date-of-statement market value).  The investments are, categorically listed, in "Common Stock", "Mutual Funds", "Other Equity", "Preferred Stock", "Government Obligations" and "Corporate Obligations" (which, primarily, are intended to be held to maturity).  $216,237 of the Company's $12,805,323 portfolio of investments ( as at Nov. 30, 2007) is invested in the "Common Stock" and "Other Equity" category, and $713,756 are invested in Preferred Stock holdings.  Whereas the Company does not take positions or engage in transactions in risk‑sensitive market instruments in any substantial degree, nor as defined by SEC rules and instructions, thus the Company does not believe that its investment-market risk is material.

 

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The Financial Statements are listed under Item 15 in this Form 10‑K.  The following financial data is a summary of the quarterly results of operations (unaudited) during and for the years ended November 30, 2007 and 2006:

 

Three Months Ended

Fiscal 2007 **                                        Feb. 28             May 31           Aug. 31          Nov. 30

 

Net Sales                                            $13,579,472    $18,227,413    $13,939,369      14,085,903

Total Revenue                                      13,827,578      18,457,562      14,266,083      14,326,644

Cost of Products Sold                            5,084,105        6,662,077        4,933,134        5,081,090

Net Income                                               472,753        1,292,921        2,069,604        1,702,517

Earnings Per Share:

  Basic                                                            $.07                 $.18                 $.29                 $.25  

  Diluted                                                          $.07                 $.18                 $.29                 $.24  

 

 

23

 


                                                                                 

                                                                                             Three Months Ended

Fiscal 2006 **                                        Feb. 28             May 31           Aug. 31          Nov. 30

 

Net Sales                                            $14,562,927    $18,558,174    $15,788,172    $14,392,947

Total Revenue                                       14,732,887      18,773,398      15,996,688      14,597,050

Cost of Products Sold                             5,904,747        6,109,857        4,993,420        6,252,283

Net Income                                             1,070,778        1,705,108        1,927,476           900,889

Earnings Per Share:

  Basic                                                              $.15                 $.24                 $.28                 $.13     

  Diluted                                                            $.15                 $.24                 $.27                 $.13     

 

** After reclassification of certain additional promotional expenses from expense to a reduction of net sales.

 

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

             ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

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

 

Item 9A. CONTROLS AND PROCEDURES

 

            With the participation of our Chief Executive Officer and Chief Financial Officer, management has carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934).  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of November 30, 2007.

 

            There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) pursuant to preliminary evaluations that the Company believes will materially affect, or are reasonably likely to materially affect, internal control over financial reporting.

 

            Under Section 404 of the Sarbanes-Oxley Act of 2002, The Company's fiscal 2008 annual report is required to be accompanied by a "Section 404 Formal Report" by management on the effectiveness of internal controls over financial reporting. Management has commenced preparing a report and reviewing the internal controls in each of the Company's departments.  The Company has engaged the services of CBIZ Risk & Advisory Services, LLC to assist in the development and implementation of procedures to determine the effectiveness of the Company's internal controls over

 

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financial reporting. The filing of the Company's November 30, 2009 annual report must contain an opinion by the Company's independent accounting firm on the effectiveness of the Company's internal controls.  The Company's officers are continually working to evaluate and confirm that the Company's automated data processing software systems and other procedures are effective and that the information created by the Company's systems adequately confirm the validity of the information upon which the Company relies. 

 

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

 

            The Company's preliminary review has not identified or required any changes over its internal controls that have materially affected, or are reasonably likely to materially affect internal controls over financial reporting.

 

PART III

 

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

 

            We have a code of ethics that applies to the Chairman of the Board, Directors, Officers and Employees, including our Chief Executive Officer and Chief Financial Officer.  You can find our code of ethics in Exhibit 14.

 

The Executive Officers and Directors of the Company are as follows:

 

                                                                                  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

 

 

 

           

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John Bingman             Vice President and Treasurer                  1986

 

Jon Denis                    Senior Executive Vice President –

                                   Sales                                                     2006

 

Jim Gonedes               Executive Vice President – Marketing    2006

 

Stanley Kreitman        Director                                                 1996

 

Jack Polak                 Director                                                  1983

 

Robert Lage               Director                                                  2003

 

Seth Hamot                Director                                                  2007

 

Gio Batta Gori            Director (retired effective 7/31/07)          2004

 

David Edell, age 75, is a director, and the Company's Chief Executive Officer.  Prior to his association with the Company, he was a marketing and financial consultant; and, by 1983, he had extensive experience in the health and beauty aids field as an executive director and/or officer of Hazel Bishop, Lanolin Plus and Vitamin Corporation of America.  In 1954, David Edell received a Bachelor of Arts degree from Syracuse University.

 

Ira W. Berman, age 76, is the Company's Executive Vice President and Corporate Secretary. He is also Chairman of the Board of Directors.  Mr. Berman is an attorney who has been engaged in the practice of law since 1955.  He received a Bachelor of Arts Degree (1953) and Bachelor of Law Degree (1955) from Cornell University, and is a member of the American Bar Association.

 

Dunnan Edell is the 52 year‑old son of David Edell.  He is a graduate of George Washington University.  He has been a director since 1994, and in fiscal 2003, he was promoted to position of President of the Company and Chief Operating Officer.  He joined the Company in 1984 and was appointed Divisional Vice‑President in 1986.  He was employed by Alleghany Pharmacal Corporation from 1982 to 1984 and by Hazel Bishop from 1977 to 1981.

 

Stephen Heit, age 53 joined CCA in May 2005 as Executive Vice President – Operations, and was appointed Chief Financial Officer in March 2006. Prior to that he was Vice President – Business Strategies for Del Laboratories, Inc., a consumer products company that was listed on the American stock exchange, from 2003 to 2005.  Mr. Heit served as President of AM Cosmetics, Inc. from 2001 to 2003, as Chief Financial Officer from 1998 to 2003, and Corporate Secretary to the Board of Directors from 1999 to 2003.  From 1986 to 1997 he was the Chief Financial Officer of Pavion Limited, and also served on the Board of Directors.  He also served as a Director of Loeb House, Inc., a non-profit organization serving mentally handicapped adults from 1987 to 1995, and Director of Nyack Hospital Foundation from 1993 to 1995.  He received a Bachelor of Science from Dominican College in 1976,

 

26


 

 

 

with additional graduate work in Professional Accounting at Fordham University from 1976 – 1978, and is a MBA Candidate at the University of Connecticut Graduate Business School. 

 

Drew Edell, the 50 year‑old son of David Edell, is a graduate of Pratt Institute, where he received a Bachelor's degree in Industrial Design. He joined the Company in 1983, and in 1985, he was appointed Vice President of Product Development and Production.

 

John Bingman, age 56, received a Bachelor of Science degree from Farleigh Dickenson University in 1973.  He worked as a Certified Public Accountant who practiced with the New Jersey accounting firm of Zarrow, Zarrow & Klein from 1976 to 1986.

 

Jon Denis, age 60, joined the Company as Senior Executive Vice President of Sales in February 2006.  From 1997 to 2006, he was Corporate Vice President of Sales for Natrol, Inc.  Prior to that, he was Vice President of Sales and Marketing for Conair Corporation from 1984 to 1997.    He received a B.A. in Business Administration from the University of Maryland in 1971, and attended the Master of Business and Marketing program of Fairleigh Dickinson University from 1973 to 1974.

 

Jim Gonedes, age 56, joined the Company as Executive Vice President of Marketing in July 2006.  From 2001 to 2006, he was Vice President of skin care for the Alberto Culver Company.  Prior to that, he was Senior Vice President of strategic marketing for Phillips Lighting North America from 1997 to 2001.  He has a BS and MBA in marketing from St. John's University, and has been in consumer products marketing since 1974 when he started his career with Scott Paper Company.

 

Jack Polak, age 95, has been a private investment consultant and a banker since April 1982.  He is a certified Dutch Tax Consultant and a member of The Netherlands Federation of Certified Tax Consultants.  He was knighted on his 80th birthday by Queen Beatrix of the Netherlands for his untiring efforts on behalf of the Anne Frank Center USA for which he is still actively working as the "Chairman-Emeritus."  On May 23, 2004, Hofstra University in Long Island, NY awarded him with an honorary doctorate in humane letters. 

 

Stanley Kreitman, age 75 has been Vice Chairman of Manhattan Associates an equity investment firm since 1994.  He is a director of Medallion Financial Corp. (NASDAQ), Capital Lease Financial Corp.(NYSE), KSW Corp., Geneva Mortgage Corp., and Century Bank.  He also serves as Chairman of the New York City Board of Corrections, Nassau County Crime Stoppers, and serves on the board of the Police Athletic League.  From 1975 to 1993 he was President of United States Banknote Corp.(NYSE) a securities printer.

 

Robert Lage, age 71, is a retired CPA.  He became a director in fiscal 2003.  He was a partner at Price WaterhouseCoopers Management Consulting Service prior to his retirement in 1997.  He has been engaged in the practice of public accounting and management consulting since 1959.  He received a BBA from Bernard Baruch College of the City University of New York in 1958.

 

27

  


         

Seth Hamot, age 45, is a graduate of Princeton University with a degree in Economics. Since 1997, Mr. Hamot has been the Managing Member of Roark, Rearden & Hamot Capital Management, LLC ("RRHCM") and the owner of its corporate predecessor, Roark, Rearden & Hamot, Inc. RRHCM is the investment manager to Costa Brava partnership III L.P. ("Costa Brava"), a private investment fund that owns 549,300 common shares of the Company.  Mr. Hamot is also President of Roark, Rearden & Hamot Capital Management, LLC, the general partner of Costa Brava.  Prior to 1997, Mr. Hamot was one of the partners of the Actionvest entities.  Mr. Hamot is currently a director of Bradley Pharmaceuticals Inc and serves as a member of their audit committee.

 

            Dr. Gio Batta Gori, 77, voluntarily withdrew as a director during 2007 to become a consultant for the Company.  He had been a director of the Company since 2004.  He is president of the Health Policy Center, Bethesda, Maryland, a consulting group in toxicology, epidemiology, nutrition, and related scientific, industrial, and regulatory issues. Advisor to major corporations worldwide, his previous experiences include directing the Franklin Institute Policy Analysis Center, and executive positions at the National Cancer Institute as Deputy Director of the Division of Cancer Causes and Prevention, Director of the Smoking and Health Program, Director of the Diet, Nutrition and Cancer Program. He held earlier positions in the pharmaceutical and biologics industry, and in academia. Recipient of the U.S. Department of Health Education and Welfare Superior Service Award, he is active in toxicology, carcinogenesis, nutrition, tobacco, and environmental issues. He has been a two-term President of the International Society of Regulatory Toxicology and Pharmacology, is a member of scientific societies, fellow of the Academy of Toxicological Sciences, funding and former editor of the journal Nutrition and Cancer, and editor of the journal Regulatory Toxicology and Pharmacology. .

 

Item 11. EXECUTIVE COMPENSATION

 

i. Summary Compensation Table

 

The following table summarizes compensation earned in the 2007, 2006 and 2005 fiscal years by all of the executive officers whose fiscal 2007 compensation exceeded $100,000, including the Chief Executive Officer (the "Named Officers").

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28


 

 

                                                      Annual Compensation        Long‑Term Compensation      

 

                                                                                                          Number

                                                                                           All           of Shares

                                                                                          Other        Covered        Other

Name and                                                                        Annual        by Stock    Long-Term

Principal                                                                          Compen-     Options        Compen-

Position                           Year        Salary       Bonus(1)   sation(2)    Granted(3)       sation   

 

David Edell,

  2007

$794,173

$532,807

$44,155

 -

0 (4)

Chief

  2006

  737,001

  556,410

  41,193

-

0 (4)

Executive

  2005

  695,738

  510,857

  28,976

-

0 (4)

Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

Ira W. Berman,

  2007

$794,173

$532,807

$40,699

 -

0 (4)

Secretary and

  2006

  737,001

  556,410

  31,718

 -

0 (4)

Executive

  2005

  695,738

  510,857

  30,256

 -

0 (4)

Vice President

 

 

 

 

 

 

 

Dunnan Edell,

 2007

$355,962

$120,000

$11,060

 -

0

President, Chief

 2006

  300,000

  120,000

    9,155

 -

0

Operating Officer

 2005

 300,000 

  120,000

  12,317

 -

0

 

 

 

 

 

 

 

Stephen Heit

 2007

$229,327

$  30,000

$  8,081

 -

0

Executive

 2006

  211,538

    30,000

    7,972

 -

0

Vice President,

 2005

  110,000

    15,000

    3,721

 -

0

Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

Drew Edell

 2007

$279,904

$ 60,000

$10,008

 -

0

Vice President

 2006

  250,000

   60,000

    9,188

-

0

Product

 2005

  243,269

   60,000

    8,861

 -

0

Development and

 

 

 

 

 

 

Production

 

 

 

 

 

 

 

 

 

 

 

 

 

Jon Denis

 2007

$331,250

$ 50,000

$10,235

10,000

0

Senior Executive

 2006

  248,750

    75,000

    6,693

         -

0

Vice President – Sales

 2005

  0

  0

           0

        - 

0

 

29


 

(1)   Bonus amounts represents amounts earned in each respective fiscal year, not necessarily paid in each year. 

(2)   Includes the personal‑use value of Company‑leased automobiles, the value of Company‑provided life insurance, and health insurance that is made available to all employees.  The Employment Agreement of Edell/Berman provides that they may receive an additional reimbursement for a complete physical examination and reimbursement of up to $5,000 of medical expenses for each employment or consulting period.  The Company also pays for a life insurance policy owned by Edell/Berman, with a face value of $750,000 for each policy, as per their respective Employment Agreements.

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

(4)  The employment of Edell/Berman provides that in the event of death within the employment and consulting periods, the Company is obligated for two successive years to pay the executive's estate an amount equal to the annual base salary and bonus.

 

ii.  Fiscal 2007 Option Grants and Option Exercises,

    Year‑End Option Valuation, Option Repricing

 

            Ten thousand (10,000) Stock Appreciation Rights were issued to Jon Denis, Senior Executive Vice President of Sales.  The option was based upon the price of the stock on the day of grant, September 27, 2007 at $9.40 per share.  The option expires on September 25, 2012.  The employee has the right to sell the Options back to the Company commencing 2 years from September 26, 2007, so long as he is still employed by the Company. 

 

            The value of the Option shall be computed by the difference in the share price of the stock on the date of grant ($9.40) and the price on the exercise date.  The Option shall be exercisable to purchase the Company's common stock at the price of the stock on the date of exercise. 

 

            The next table identifies 2007 fiscal‑year option exercises by Named Officers and Directors, and reports a valuation of their options.

 

                         Number of                                 Number of Shares

                            Shares                                      Covered by Un-               Value of Unexercised

                           Acquired            Value             exercised Options            In-the-Money Options

                          On Exercise     Realized (1)      at November 30, 2007      at November 30, 2007(2)

 

David Edell                      0                    0                   25,000                                 $18,500

Ira Berman                       0                    0                   25,000                                   18,500

Dunnan Edell           55,000        $486,750                  15,000                                   22,350

Drew Edell                       0                     0                  15,000                                   22,350

John Bingman                   0                     0                  10,000                                   14,900

  ‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑

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Represents the difference between market price and the respective exercise price of the options as of the exercise date.  The market price at May 24, 2007 was $9.35.

 

Represents the difference between market price and the respective exercise prices of the options as of December 1, 2007.  The market price at December 1, 2007 was $9.74.

 

iii. Compensation of Directors

 

Each outside director was paid $2,500 for a conference call meeting and $5,000 per meeting for attendance of board meetings in fiscal 2007 (without additional compensation for committee meetings, other than as noted below). Mr. Lage received an additional $30,000 as chairman of the audit committee. The full Board of Directors met four times in fiscal 2007, for an aggregate compensation of $75,000.  No stock options were awarded.  A special committee of the board of directors was formed to consider the proposed Dubilier transaction (see Part I, item 1 (j).  The special committee was comprised of Dr. Gio Batta Gori, Stanley Kreitman, Robert Lage and Jack Polak.   Each member of the special committee received compensation of $25,000 in addition to the compensation above.

 

  iv.  Executive Compensation Principles

 

       Audit and Compensation Committee 

 

The Company's Executive Compensation Program is based on guiding principles designed to align executive compensation with Company values and objectives, business strategy, management initiatives, and financial performance.  In applying these principles the Compensation Committee of the Board of Directors, comprised of Stanley Kreitman, Jack Polak, Seth Hamot and Robert Lage, has established a program to:

 

         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.

           

            Stanley Kreitman, former president of a national bank, qualifies as a "financial expert" as defined by the SEC in Instruction 1 to proposed Item 309 of Regulation S-K, which is set forth in the SEC Release No. 34 - 46701 dated October 22, 2003.    Mr. Kreitman is an "independent" as that term is used in Section 10A(m)(3) of the Exchange Act.

 

            Jack Polak was knighted by the Dutch government in 1993.  He is a certified Dutch tax consultant and a member of the association of certified tax accountants.  The Board has deemed that he is both "independent" and qualifies as a "financial expert."

 

 

 

 

31

 


 

 

            Robert A. Lage, Chairman of the Audit Committee and a retired CPA, was a partner at PriceWaterhouseCoopers Management Consulting Service prior to his retirement in 1997.  He has been engaged in the practice of public accounting and management consulting since 1959.  He received a BBA from Bernard Baruch College of the City University of New York in 1958. The Board has deemed that he is both "independent" and qualifies as a "financial expert".

 

            Seth Hamot is a graduate of Princeton University with a degree in Economics. Since 1997, Mr. Hamot has been the Managing Member of Roark, Rearden & Hamot Capital Management, LLC ("RRHCM") and the owner of its corporate predecessor, Roark, Rearden & Hamot, Inc. RRHCM is the investment manager to Costa Brava partnership III L.P. ("Costa Brava"), a private investment fund that owns 549,300 common shares of the Company.  Mr. Hamot is also President of Roark, Rearden & Hamot Capital Management, LLC, the general partner of Costa Brava.  Mr. Hamot is currently a director of Bradley Pharmaceuticals Inc and serves as a member of the company's audit committee.  The Board has deemed that he is "independent".

 

            The Compensation Committee has a charter, which will be published with the proxy statement for the 2008 annual meeting of shareholders.  Compensation, including annual bonus amounts, for the executive officers named in the Summary Compensation Table (other than David Edell and Ira Berman, whose compensation and bonus are determined in accordance with their employment agreement) are recommended by David Edell, Chief Executive Officer, and approved by the Compensation Committee.

 

v. Employment Contracts/Compensation Program

 

            The total compensation program consists of both cash and equity based compensation.  The Audit and Compensation Committee (the "Committee") determines the level of salary and bonuses, if any, for key executive officers of the Company.  The Committee determines the salary or salary range based upon competitive norms.  Actual salary changes are based upon performance, and bonuses were awarded by the Committee in consideration of the Company's performance during the 2007 fiscal year.

 

            The Company has executed Employment Contracts with its CEO, David Edell, and its Chairman of the Board, Ira W. Berman. The contracts for both are exactly the same.  The contracts expire on December 31, 2010.  The contracts provide for a base salary which commenced in 1994 in the amount of $300,000 (plus a bonus of 20% of the base salary), with a year-to-year CPI or 6% increase, plus 2.5% of the Company's pre-tax income less depreciation and amortization (EBITDA).  (The 2.5% measure in the bonus provision of the Edell/Berman contracts was amended on November 3, 1998 so as to calculate it against earnings before income taxes, less depreciation, amortization and expenditures for media and cooperative advertising in excess of $8,000,000.)  On May 24, 2001, the contract was amended increasing the base salary then in effect by $100,000 per annum (See Item 11, Summary Compensation Table).  The contracts also provide that at the end of the term or upon retirement, Edell/Berman shall be retained by the Company as consultants at the consideration equal to 50% of the prior year's salary and bonus for a five year period.  The contracts also provide that in the

 

 

32

 


 

 

event of the death of Edell/Berman within the employment and consulting periods, the Company is obligated for two successive years to pay the executive's estate an amount equal to the annual base salary and bonus.  The Company, per the Employment Agreement, pays for life insurance policies owned by Edell/Berman with a face value of $750,000 each.  Edell/Berman are entitled to have the Company pay for a complete physical examination and reimbursement of up to $5,000 of medical expenses during each benefit year.

 

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

 

            On May 17, 2007, the employment contracts for Dunnan Edell and Drew Edell were extended to November 30, 2012 (See Item 11, Summary Compensation Table).  Dunnan Edell's salary was increased to $350,000 and Drew Edell's salary was increased to $275,000. 

 

vi. Stock Option Plans

 

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

 

            (The 1984 Stock Option Plan covered 1,500,000 shares of its Common Stock, and the 1986 Stock Option Plan covered 1,500,000 shares of its Common Stock.)  On July 9, 2003, the Company's Stock Option Plan was approved by the shareholders authorizing the issuance of options to issue up to 1,000,000 shares.

 

            The Company's 2003 Stock Option Plan covers 1,000,000 shares of its Common Stock.

 

            The 2003 Option Plan provides (as had the 1984, 1986 and the 1994 plans) for the granting of two (2) types of options: "Incentive Stock Options" and "Nonqualified Stock Options".  The Incentive Stock Options (but not the Nonqualified Stock Options) are intended to qualify as "Incentive Stock Options" as defined in Section 422(a) of The Internal Revenue Code.  The Plans are not qualified under Section 401(a) of the Code, nor subject to the provisions of the Employee Retirement Income Security Act of 1974.

  

            Options may be granted under the Options Plans to employees (including officers and directors who are also employees) and consultants of the Company provided, however, that Incentive Stock Options may not be granted to any non‑employee director or consultant.

 

            Option Plans are administered and interpreted by the Board of Directors.  (Where issuance to a Board member is under consideration, that member must abstain.)  The Board has the power, subject to plan provisions, to determine the persons to whom and the dates on which options will be

granted, the number of shares subject to each option, the time or times during the term of each when

 

33

 


 

 

options may be exercised, and other terms.  The Board has the power to delegate administration to a Committee of not less than two (2) Board members, each of whom must be disinterested within the meaning of Rule 16b‑3 under the Securities Exchange Act, and ineligible to participate in the option plan or in any other stock purchase, option or appreciation right under plan of the Company or any affiliate.  Members of the Board receive no compensation for their services in connection with the administration of option plans.

 

            Option Plans permit the exercise of options for cash, other property acceptable to the Board or pursuant to a deferred payment arrangement.  The 1994 Plan specifically authorizes that payment may be made for stock issuable upon exercise by tender of Common Stock of the Company; and the Executive Committee is authorized to make loans to option exercisers to finance optionee tax‑consequences in respect of option exercise, but such loans must be personally guaranteed and secured by the issued stock.

 

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

 

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

 

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

 

            One new award was made by the committee in fiscal 2007. (See Executive Compensation in Fiscal 2007 Option Grants)

 

            Under the plans, options will terminate three (3) months after the optionee ceases to be employed by the Company or a parent or subsidiary of the Company unless (i) the termination of employment is due to such person's permanent and total disability, in which case the option may, but need not, provide that it may be exercised at any time within one (1) year of such termination (to the extent the option was vested at the time of such termination); or (ii) the optionee dies while employed by the Company or a parent or subsidiary of the Company or within three (3) months after termination of such employment, in which case the option may, but need not provide that it may be exercised (to the extent the option was vested at the time of the optionee's death) within eighteen (18) months of the optionee's death by the person or persons to whom the rights under such option pass by will or by the laws of descent or distribution; or (iii) the option by its terms specifically provides otherwise.

 

            The exercise price of all nonqualified stock options must be at least equal to 85% of the fair market value of the underlying stock on the date of grant.  The exercise price of all Incentive Stock Options must be at least equal to the fair market value of the underlying stock on the date of grant.  The aggregate fair market value of stock of the Company  (determined at the date of the option grant)

 

34

 


for which any employee may be granted Incentive Stock Options in any calendar year may not exceed $100,000, plus certain carryover allowances.  The exercise price of an Incentive Stock Option granted to any participant who owns stock possessing more than ten (10%) of the voting rights of the Company's outstanding capital stock must be at least 110% of the fair market value on the date of grant. As at November 30, 2006, 181,000 stock options, yet exercisable, to purchase 181,000 shares of the Company's Common Stock, were outstanding.

 

            The Company has adopted Stock Appreciation Rights incentives and Restricted Stock grants in the 2005 Amended Stock Option Plan.  No such grants were issued in fiscal 2006.  One grant was issued in 2007. (See Fiscal 2007 Option Grants and Option Exercises)  All of the terms and conditions of the Plan were included in the June 15, 2005 Proxy, which Plan was approved by the shareholders at the annual meeting.  The Proxy was incorporated by reference to the 10K Annual Report for fiscal 2005.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35


 

 

vii. Performance Graph  

 

Set forth below is a line graph comparing cumulative total shareholder return on the Company's Common Stock, with the cumulative total return of companies in the NASDAQ Stock Market (U.S.) and the cumulative total return of Dow Jones's TMI/Personal Products Index.

 

 

GRAPH

 

 

 

 

CCA Industries - ASE

 

 

 

Cumulative Total Return

 

 

11/02

11/03

11/04

11/05

11/06

11/07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CCA Industries, Inc.

 

100.00

444.49

674.98

515.55

744.50

640.74

Dow Jones US

 

100.00

117.68

133.28

146.61

167.75

181.01

Dow Jones US Personal Products

 

100.00

115.20

129.14

142.49

170.87

203.93

 

 

 

 

 

 

 

 

 

 

 

36

 


 

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

 

            The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock and/or Class A Common Stock as of   November 30, 2007 by (i) all those known by the Company to be owners of more than five percent of the outstanding shares of Common Stock or Class A Common Stock; (ii) each officer and director; and (iii) all officers and directors as a group.

 

            Unless otherwise indicated, each of the shareholders has sole voting and investment power with respect to the shares owned (subject to community property laws, where applicable), and is beneficial owner of them.

                                                                                                                                         Ownership, As A

                                                                                                                                            Percentage of

                                                                                                                                          All Shares Out-

                                                                            Number of                "Option            Standing/Assuming

  Name and Address                                        Shares Owned (1):        Shares" (1)     Option Share Exercise (1) 

                                                                    Common

                                                                      Stock         Class A (2)       

 

David Edell

146,609

484,615

25,000 

    8.9%

  9.3%

c/o CCA Industries, Inc.

 

 

 

 

 

200 Murray Hill Parkway

 

 

 

 

 

East Rutherford, NJ 07073

 

 

 

 

 

 

 

 

 

 

 

Ira W. Berman

160,533

483,087

  25,000 

    9.1%

  9.5%

c/o CCA Industries, Inc.

 

 

 

 

 

 

 

 

 

 

 

Gio Batta Gori, PhD

   -

   -

       -

  0.0%

  0.0%

c/o CCA Industries, Inc.

 

 

 

 

 

 

 

 

 

 

 

Seth Hamot (3)(4)

574,300

  -

        -

  8.1%

    8.1%

c/o Costa Brava

 

 

 

 

 

Partnership III LP

 

 

 

 

 

 

 

 

 

 

 

Stanley Kreitman

    15,000

   ‑

      -    

  0.2%

  0.2%

c/o CCA Industries, Inc.

 

 

 

 

 

 

 

 

 

 

 

Robert Lage

    -  

   - 

       -

  0.0%

  0.0%

c/o CCA Industries, Inc.

 

 

 

 

 

 

 

 

 

 

 

37



Jack Polak

 

 

 

 

 

c/o CCA Industries, Inc.

  53,254

   -

       -

  0.8%

  0.8%

 

 

 

 

 

 

Dunnan Edell

 

  

 

  

 

c/o CCA Industries, Inc.

  97,158

   ‑

  15,000

   1.4%

1.6%

 

 

 

 

 

 

Drew Edell

c/o CCA Industries, Inc.

  98,108

   ‑

  15,000

   1.4%          

1.6%

 

 

 

 

 

 

John Bingman

c/o CCA Industries, Inc.

   ‑

    ‑

  10,000

   0.0%         

0.1%

 

 

 

 

 

 

Stephen A. Heit

  

   

 

 

 

c/o CCA Industries, Inc.

   1,000

    -

     -

    0.0%

0.0%

 

 

 

 

 

 

Jon Denis

  

   

    

   

 

c/o CCA Industries, Inc.

   -

    -

     -

    0.0%

0.0%

 

 

 

 

 

 

Officers and Directors

as a group (10 persons)

1,145,962

967,702

90,000

  

  30.0%       

31.2%

 

 

 

 

 

 

 

_______________________

 

(1) The number of "Option Shares" represents the number of shares that could be purchased by, and upon exercise of unexercised options, exercisable within 90 days; and the percentage ownership figure denominated "Assuming Option Share Exercise" assumes, per person, that unexercised options have been exercised and, thus, that subject shares have been purchased and are actually owned.  In turn, the "assumed" percentage ownership figure is measured, for each owner, as if each had exercised such options, and purchased subject 'option shares,' and thus increased total shares actually outstanding, but that no other option owner had 'exercised and purchased.'

 

(2) David Edell and Ira Berman own 100% of the outstanding shares of Class A Common Stock. Messrs. David Edell, Dunnan Edell, and Ira Berman are officers and directors.  Messrs. Stephen Heit, John Bingman and Drew Edell are officers.  Messrs. Hamot, Lage, Kreitman and Polak are independent, outside directors.  Dr. Gori served as an independent outside director until July 1, 2007.  Dr. Gori had requested to not be re-nominated for another term as director.

 

(3) Includes 574,300 shares beneficially owned by Costa Brava Partnership III L.P.  Seth W. Hamot is the president of Roark, Reardon & Hamot, LLC, which is the general partner of Costa Brava Partnership III L.P.

38

 


(4) The principal business of Costa Brava Partnership III L.P. is to make investments in, buy, sell, hold, pledge and assign securities. The principal business of Roark, Rearden and Hamot, LLC is to act as general partner of Costa Brava Partnership III L.P. The principal business address is 420 Boylston Street, Boston, MA 02116.  Seth W. Hamot is the president of Roark, Rearden & Hamot, LLC, which is the general partner of Costa Brava Partnership III L.P.

 
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

            The Company did not purchase any shares of common stock from officers, directors or affiliates in fiscal 2007. 

 

            During fiscal 2007, several related parties provided services to the Company, which were deemed immaterial to the financial statements.

 

            During fiscal 2006 the Company purchased and retired an aggregate of 225,000 shares of common stock from three officers/directors, David Edell-100,000, Ira Berman-100,000 and Drew Edell-25,000.  The purchase price was $10.50 per share discounted from $10.82 per share, the closing price at the close of business on the transaction date.  The Company purchased 9,392 shares from Stanley Kreitman, a director, and 15,000 shares from Rami Abada, a former director, for $10.50 per share discounted from $10.70 per share, the closing price at the close of business on the transaction date.

 

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

            KGS LLP ("KGS") served as the Company's independent auditors for 2007 and 2006.  The services performed by KGS in this capacity included conducting an audit in accordance with generally accepted auditing standards of, and expressing an opinion on, the Company's consolidated financial statements.

 

            Audit Fees

 

            KGS's fees for professional services rendered in connection with the audit and review of Forms 10-K and all other SEC regulatory filings were $251,363 for the 2007 fiscal year and $216,725 for the 2006 fiscal year.  The Company has paid and is current on all billed fees.

 

            Audit Related Fees

 

            Audit related fees billed in Fiscal 2007 and 2006 by KGS were $98,015 and $39,012, respectively.  Audit related fees consist primarily of fees billed for professional services rendered by KGS for accounting consultations and services related to business acquisitions and dispositions, responses to SEC correspondence, and readiness consultations for Section 404 of the Sarbanes Oxley Act of 2002.

39

 


 

            Tax Fees

 

            KGS's fees for professional services rendered in connection with Federal and State tax return preparation and other tax matters for the 2007 and 2006 fiscal years were $48,847 and $58,100, respectively.

           

            All Other Fees

           

            All other fees of $300 and $140 billed in Fiscal years 2007 and 2006, respectively, represent fees for miscellaneous services other than those described above.     

 

            Engagements Subject to Approval

 

            Under its charter, the Audit Committee must pre-approve all subsequent engagements of our independent auditor unless an exception to such pre-approval exists under the Securities Exchange Act of 1934 or the rules of the Securities and Exchange Commission.  Each year, the independent auditor's retention to audit our financial statements, including the associated fee, is approved by the committee before the filing of the preceding year's annual report on form 10-K.  At the beginning of the fiscal year, the Audit Committee will evaluate other known potential engagements of the independent auditor, including the scope of the work proposed to be performed and the proposed fees, and approve or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor's independence from management.  At each subsequent committee meeting, the committee will receive updates on the services actually provided by the independent auditor, and management may present additional services for approval.  The committee has delegated to the Chairman of the committee the authority to evaluate and approve engagements on behalf of the committee in the event that a need arises for pre-approval between committee meetings.  If the Chairman so approves any such engagements, he will report that approval to the full committee at the next committee meeting.

 

            Since the May 6, 2003 effective date of the Securities and Exchange Commission rules stating that an auditor is not independent of an audit client if the services it provides to the client are not appropriately approved, each new engagement of KGS LLP was approved in advance by the Audit Committee, and none of those engagements made use of the de minimus exception to pre-approval contained in the Commission's rules.

 

 

 

 

 

 

 

 

 

40



PART IV

 

Item 15. EXHIBITS, FINANCIAL STATEMENTS,

              SCHEDULES AND REPORTS ON FORM 8‑K

 

Financial Statements:

 

Table of Contents, Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets as of November 30, 2007 and 2006, Consolidated Statements of Income for the years ended November 30, 2007, 2006 and 2005, Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Shareholders' Equity for the years ended November 30, 2007, 2006 and 2005, Consolidated Statements of Cash Flows for the years ended November 30, 2007, 2006 and 2005, Notes to Consolidated Financial Statements.

 

Financial Statement Supplementary Information:

 

Schedule II: Valuation Accounts; Years Ended Nov. 30, 2007, 2006 and 2005. 

 

Exhibits:  All Exhibits are incorporated by reference.

 

(1)        The Indenture (and the Promissory note exhibited therewith) defining the rights of former shareholders who tendered Common Stock to the Company for its $2 per share, five- year, 6% debenture, is incorporated by reference to the filing of such documents with the Schedule TO filed with the SEC, on June 5, 2001.

 

(3)        The Company's Articles of Incorporation and Amendments thereof, and its By‑Laws, are incorporated by reference to their filing with the Form 10‑K/A filed April 5, 1995.  (Exhibit pages 000001‑23).

 

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

 

(10.2) The February 1999 Amendments to the Amended and Restated Employment Agreements of David Edell and Ira Berman (1994) are incorporated by reference to the 1998 10‑K. (Exhibit pages 00001‑00002).  The May 29, 2001 Amended and Restated Employment Agreements of David Edell and Ira Berman are incorporated by reference herein.

 

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

 

 

41


 

(1) The Forms 8K, filed on May 22, 2002 and November 20, 2002, are incorporated by reference to this 2006 10K.  Three 8Ks are referenced, October 29, 2003, November 24, 2003 and December 11, 2003.  Three additional 8Ks are referenced, one on April 7, 2004, one on August 3, 2004 and the last on October 6, 2004. 

 

(2) Forms 8K filed on April 11, 2005, June 27, 2005, and July 15, 2005 are incorporated by reference to this 10K

 

(3) The Company's 2003 Stock Option Plan was filed with the 2003 Proxy and is incorporated by reference to this 10K. 

 

(4) The Company's 2005 Amended and Restated Stock Option Plan and the 2005 Proxy are incorporated by reference herein.

 

The following reports were filed with the Securities and Exchange Commission during the three months ended November 30, 2007:

 

(1) Form 10-Q, filed on October 11, 2007, for the quarter ended August 31, 2007.

 

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

 

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

 

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

 

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

 

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

 

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

 

Shareholders may obtain a copy of any exhibit not filed herewith by writing to CCA Industries, Inc., 200 Murray Hill Parkway, East Rutherford, New Jersey 07073.  Moreover, exhibits may be inspected and copied at prescribed rates at the Commission's public reference facilities at Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549; Jacob K. Javits Federal Building, 26 Federal Plaza, New York, New York 10278; and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.  Copies of such materials may also be obtained by mail at prescribed rates from the Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and one is available at the Commission's Internet website (http://www.sec.gov).

 

 

 42

 


SIGNATURES

 

 

Pursuant to the requirements of Section 13 or 15(A) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized.

                                                                                                                                            CCA INDUSTRIES, INC.

 

By:                                                                                                                                      s/                                                                                               

                                                                                                                                            DUNNAN EDELL, President

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons in the capacities and on the dates indicated.

 

     Signature                                    Title                                                  Date

 

s/                                               Chief Executive Officer,                     February 28, 2008   

    DAVID EDELL                     Director                                          

                                                                                          

s/                                              Chairman of the Board                        February 28, 2008   

    IRA W. BERMAN               of Directors, Executive

                                                Vice President, Secretary

 

s/                                              President, Chief Operating                   February 28, 2008   

    DUNNAN EDELL               Officer, Director

 

s/                                               Executive Vice President,                   February 28, 2008      

    STEPHEN HEIT                   Chief Financial Officer

 

/                                               Vice President ,                                   February 28, 2008   

    DREW EDELL                     Research & Development

 

s/                                              Director                                              February 28, 2008   

    STANLEY KREITMAN

 

s/                                              Director                                               February 28, 2008   

    ROBERT LAGE

 

s/                                              Director                                               February 28, 2008   

    JACK POLAK

 

s/                                               Director                                              February 28, 2008

    SETH HAMOT     

43


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

 

CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOVEMBER 30, 2007 AND 2006

 


 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

                                                                C O N T E N T S

 

 

 

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

 

FINANCIAL STATEMENTS:

 

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

 

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

 

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

 

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

 

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

 

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................................... 8-35

 

SUPPLEMENTARY INFORMATION

 

   SCHEDULE II – VALUATION ACCOUNTS……………………………………………...36

 

 

 

 

 


 


 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Stockholders

CCA Industries, Inc.

East Rutherford, New Jersey

 

            We have audited the consolidated balance sheets of CCA Industries, Inc. and Subsidiaries as of November 30, 2007 and 2006, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended November 30, 2007.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

            We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

            In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CCA Industries, Inc. and Subsidiaries as of November 30, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 30, 2007, in conformity with accounting principles generally accepted in the United States of America.

 

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

 

 

                                                                        KGS  LLP

                                                                        CERTIFIED PUBLIC ACCOUNTANTS

 

February 26, 2008

Jericho, New York

-1-



 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

A S S E T S

November 30,

 

                         2007

                          2006

 

 

 

Current Assets

 

 

    Cash and cash equivalents

$ 6,743,960

$  4,385,340

    Short-term investments and marketable

 

 

       securities (Notes 2 and 6)

8,003,824

  11,516,349

    Accounts receivable, net of allowances of

 

 

       $874,302 and $1,026,197, respectively

9,119,179

   7,188,197

    Inventories, net of reserve for inventory

 

 

       obsolescence of $604,746 and $777,715,

 

 

       respectively (Notes 2 and 3)

7,857,322

   6,350,013

    Prepaid expenses and sundry receivables

630,893

      684,875

    Prepaid income taxes and refunds due (Note 8)

839,693

 

    Deferred income taxes (Note 8)

       765,821

        1,180,472

 

 

 

         Total Current Assets

  33,960,692

  31,305,246

 

 

 

Property and Equipment, net of accumulated

 

 

  depreciation and amortization

 

 

        (Notes 2 and 4)

       562,528

       561,634

 

 

 

Intangible Assets, net of accumulated

 

 

  amortization (Notes 2 and 5)

         484,377

       503,595

 

 

 

  Other Assets

 

 

  Marketable securities (Notes 2 and 6)

4,801,504

   4,073,656

  Deferred taxes

29,475

        24,940

  Other

           65,300

           47,500

 

 

 

       Total Other Assets

      4,896,279

      4,146,096

 

 

 

       Total Assets

$39,903,876

$36,516,571

 

 

 

 

             

See Notes to Consolidated Financial Statements.

 

 

 

 

                                                                            - -2-



 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS' EQUITY

November 30,

 

 

                        2007

                  2006

 

 

 

Current Liabilities

 

 

  Accounts payable and accrued liabilities (Note 10)

$  8,354,458

$   8,104,424

  Short term capital lease

49,318

-

  Income tax payable

-

        413,869

  Dividends payable (Note 12)

        634,900

        490,970

 

 

 

     Total Current Liabilities

     9,038,676

     9,009,263

 

 

 

Capitalized lease obligations

        114,882

        122,517

 

 

 

     Total  Liabilities

     9,153,558

     9,131,780

 

 

 

Commitments and Contingencies (Note 12)

 

 

 

 

 

Shareholders' Equity

 

 

   Preferred stock, $1.00 par; authorized

 

 

       20,000,000 shares; none issued         

 

 

   Common stock, $.01 par; authorized

 

 

       15,000,000 shares; issued and

 

 

       outstanding 6,086,740 and

 

 

       6,034,651 shares, respectively

60,867

         60,346

   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

     2,329,570

  Retained earnings

28,541,086

   25,112,331

  Unrealized (losses) on marketable securities (Note 2)

(      190,361)

(       127,133)

 

 

 

     Total Shareholders' Equity

  30,750,318

  27,284,791

 

 

 

     Total Liabilities and Shareholders' Equity

$39,903,876

$36,516,571

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

 

                                                                            - -3-



                                                                             

 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 

 

 

 Years Ended November 30,

                                   

                 2007

             2006

              2005

 

 

 

 

Revenues

 

 

 

  Sales of health and beauty   

 

 

 

     aid products, net

$59,832,157

$63,302,220

$61,181,334

  Other income

     1,045,710

              797,803

            572,909

 

 

 

 

 

   60,877,867

     64,100,023 

     61,754,243

Costs and Expenses

 

 

 

  Cost of sales

21,760,406

23,260,307

  22,734,062

  Selling, general and

    administrative expenses

 

21,266,327

 

21,104,728

 

20,246,344

  Advertising, cooperative and

    promotions

 

6,956,407

 

10,345,407

 

10,671,906

  Research and development

574,900

536,590 

772,627

  Provision for doubtful accounts

(           21,839)

     (         73,657)

201,864

  Interest expense

          29,090

          10,003

        19,912

 

 

 

 

 

   50,565,291

  55,183,378

54,646,715

 

 

 

 

Transaction Costs

        717,850

            -         

                   -

 

 

 

 

Total Costs and Expenses

               51,283,141

          55,183,378

           54,646,715

 

 

 

 

    Income before Provision

 

 

 

       for Income Taxes

9,594,726

8,916,645

7,107,528

 

 

 

 

Provision for Income Tax

     4,056,931

    3,312,394

     3,322,026

 

 

 

 

       Net Income

$   5,537,795

$   5,604,251

$ 3,785,502

 

 

 

 

Weighted Average Shares Outstanding

 

 

 

      Basic

     7,029,611

     7,034,276

     7,145,297

      Diluted

     7,058,889

     7,133,332

     7,317,994

 

 

 

 

Earnings Per Common Share (Note 2):

 

 

 

      Basic

$.79

$.80

$.53

      Diluted

$.78

$.79

$.52

 

 

 

 

 

 

 

 

                                                                                                                         

 

 

See Notes to Consolidated Financial Statements.

                                                                            - -4-



                                                                             

 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

                                                                                                   Years Ended November 30,

 

               2007

             2006

              2005

 

 

 

 

Net Income          

$5,537,795

$5,604,251

$3,785,502

 

 

 

 

Other Comprehensive Income  (Loss)

 

 

 

    Unrealized holding gain (loss)

 

 

 

      on investments

  (       63,228)

     251,206

  (    149,395)

 

 

 

 

Comprehensive Income

$5,474,567

$5,855,457

$3,636,107

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

 

 

 

 

 

                                                                            - -5-



 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED NOVEMBER 30, 2007, 2006 AND 2005

 

 

 

 

 

 

 

 

COMMON STOCK (1)

SHARES     AMOUNT

 

 

 

ADDITIONAL

 PAID IN

 CAPITAL

 

 

 

 

RETAINED

EARNINGS

 

UNREALIZED

GAIN (LOSS)

ON

MARKETABLE

 SECURITIES

 

 

 

 

TREASURY

STOCK

 

 

 

 

 

 

 

 

Balance – December 1, 2004 as revised

7,130,879

$71,309

$5,904,660

$18,734,693

($228,944)

 

($149,671)

Issuance of common stock

137,769

1,378

11,072

-

 

- -

Net income for the year

-

-

-

3,785,502

-

 

- -

Dividends declared

-

-

-

(  1,151,411)

-

 

-

Unrealized (loss) on marketable securities  

-

-

-

-

(  149,395)

 

- -

Purchase of 2,188 shares of  common stock

-

-

  -

-

-

 

(   19,537)

Retirement of treasury stock

(   88,891)

(     889)

                -

(    168,319)

                -

 

   169,208

Balance – November 30, 2005

7,179,757

71,798

5,105,732

21,200,465

(  378,339)

 

-

Issuance of common stock

95,500

955

46,795

-

-

 

-

Net income for the year

-

-

-

5,604,251

-

 

-

Dividends declared

-

-

-

( 1,692,385)

-

 

-

Unrealized (loss) on marketable securities

-

-

-

-

251,206

 

-

Purchase and retirement of  common stock

( 272,904)

(  2,730)

( 2,822,957)

                  -

               -

 

               -

Balance – November 30, 2006

7,002,353

70,023

2,329,570

25,112,331

  ( 127,133)

 

-

Issuance of common stock

  52,089

  521

(           521)

-

-

 

-

Net income for the year

Dividends declared

Unrealized (loss) on marketable securities

-

-

               -

-

-

             -

-

-

                  -

5,537,795

( 2,109,040)

                   -

-

-

(     63,228)

 

 

 

- -

               -

Balance – November 30, 2007

7,054,442

$70,544

$2,329,049

$28,541,086

($190,361)

 

               -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

                                                                                                          - -6-



                                                                             

CCA INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED NOVEMBER 30,

 

                2007

                      2006

                           2005

Cash Flows from Operating Activities:

 

 

 

   Net income 

$  5,537,795

$  5,604,251

$3,785,502 

       Adjustments to reconcile net

 

 

 

       income to net cash provided by

 

 

 

       operating activities:

 

 

 

            Depreciation and amortization

257,555

227,039

329,278

            (Gain) on sale of securities

(         60,697)

(         62,012)

-

            Loss on sale or impairment

 

 

 

            of intangible assets        

  21,745

112,901

42,380 

       Decrease (increase) in deferred

 

 

 

        income taxes

410,116

(       363,045)

(      202,154)

        (Increase) decrease in accounts receivable

(   1,930,982)

2,072,202

(      582,415)

        (Increase) decrease in inventory

(   1,507,309)

204,137

(      506,150)

        Decrease (increase) in prepaid expenses

 

 

 

            and sundry receivables

  53,982

(       158,741)

  169,519

        (Increase) decrease in prepaid income

 

 

 

            taxes and refunds due

(       839,693)

165,560

253,091

        (Increase) decrease in other assets

(         17,800)

825

(        10,914)

       Increase (decrease) in accounts payable and

 

 

 

            accrued liabilities

250,033

(        629,667)

1,751,257 

       (Decrease) increase in income taxes payable

(        413,869)

         413,869

(        59,888)

 

 

 

 

         Net Cash  Provided by Operating

 

 

 

            Activities

     1,760,876

       7,587,319

    4,969,506

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

       Acquisition of property and equipment

(       260,453)

(       309,594)

(     215,066)

       Acquisition of intangible assets

(              522)

(         45,161)

(     126,233)

       Purchase of available for sale securities

( 14,824,908)

( 12,588,205)

( 4,616,689)

       Proceeds from sale of available for

 

 

 

           sales securities

17,605,791

10,636,835

1,946,814 

       Proceeds from sale of trademark

                     -

                          -

                    -

 

 

 

 

         Net Cash Provided by (Used in)

 

 

 

           Investing Activities

   2,519,908

(   2,306,125)

( 3,011,174)

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

       Purchase of common shares

-

( 2,825,687)

594 

       Repurchase of outstanding debentures

-

-

(      497,656)

       Proceeds from exercise of stock options

-

47,749

(        8,548)

       Increase in capital lease obligation

80,036

151,407

-

       Payments in capital lease obligation

(       38,352)

(      28,890)

-

       Purchase of treasury stock

-

-

867 

       Dividends paid

(  1,965,111)

( 1,776,975)

( 1,059,277)

 

 

 

 

          Net Cash (Used in) Financing Activities

(  1,923,427)

( 4,432,396)

( 1,564,020)

 

 

 

 

Net Increase In Cash

2,357,357

848,798

394,312

 

 

 

 

Cash at Beginning of Year

     4,385,340

    3,536,542

   3,142,230

 

 

 

 

Cash and Cash Equivalents at End of Year

$ 6,743,960

$  4,385,340

$ 3,536,542

 

 

 

 

Supplemental Disclosures of Cash

 

 

 

       Flow Information

 

 

 

           Cash paid during the year for:

 

 

 

           Interest                                                                       

$      29,090

  $         10,003

$       19,912

           Income taxes

4,882,361

2,256,400

3,297,371 

 

 

 

 

Supplemental Disclosure of Non-Cash

 

 

 

       Information:

 

 

 

           Dividends declared and accrued

$    634,900

$      490,970

$      575,560 

           Retirement of -0-, 272,904, and 88,891 shares of

 

 

 

                treasury stock, respectively

-

2,825,687

169,208

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

 

                                                                              - -7-



 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 1 -     ORGANIZATION AND DESCRIPTION OF BUSINESS

 

CCA Industries, Inc. (“CCA”) was incorporated in the State of Delaware on March 25, 1983.

 

CCA manufactures and distributes health and beauty aid products.

 

CCA has several wholly-owned subsidiaries, CCA Cosmetics, Inc., CCA Labs, Inc., Berdell, Inc., Nutra Care Corporation, and CCA Online Industries, Inc., all of which are currently inactive.  CCA has an active wholly-owned subsidiary, CCA IND., S.A. DE C.V., a Variable Capital Corporation organized pursuant to the law of Mexico. 

 

NOTE 2 -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation:

 

The consolidated financial statements include the accounts of CCA and its wholly-owned subsidiaries (collectively the “Company”).  All significant inter-company accounts and transactions have been eliminated.

 

Estimates and Assumptions:

 

The consolidated financial statements include the use of estimates, which management believes are reasonable.  The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses.  Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements.  Accordingly, upon settlement, actual results may differ from estimated amounts.

 

Other Comprehensive Income:

 

Total comprehensive income includes changes in equity that are excluded from the consolidated statements of operations and are recorded directly into a separate section of consolidated statements of comprehensive income.  The Company’s accumulated other comprehensive income shown on the consolidated balance sheet consist of unrealized gains and losses on investment holdings.

 

Short-Term Investments and Marketable Securities:

 

Short-term investments and marketable securities consist of corporate and government bonds and equity securities.  The Company has classified its investments as Available-for-Sale securities.  Accordingly, such investments are reported at fair market value, with the resultant unrealized gains and losses reported as a separate component of shareholders' equity.

 

Accounts Receivable

 

Accounts receivable consist of trade receivables recorded at original invoice amount, less an estimated allowance for uncollectible amounts. The accounts receivable balance is further reduced by allowances for coop advertising and reserves for returns which are anticipated to be taken as credits against the balances as of November 30th. The allowances and reserves which are anticipated to be deducted from future invoices are included in accrued liabilities. Trade credit is generally extended on a short term basis; thus trade receivables do not bear interest, although a finance charge may be applied to receivables that are past due.  Trade receivables are periodically evaluated for collectibility based on past credit history with customers and their current financial condition.  Changes in the estimate collectibility of trade receivables are recorded in the results of operations for the period in which the estimate is revised.  Trade receivables that are deemed uncollectible are offset against the allowance for uncollectible accounts.  The Company generally does not require collateral for trade receivables.

 

 

-8-



 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 2 -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Statements of Cash Flows Disclosure:

 

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

 

During fiscal 2005, three officers/shareholders exercised in the aggregate 139,000 options, David Edell with 65,000, Ira Berman with 59,000 and Stanley Kreitman with 15,000.  In addition, 5,000 options were exercised by Aimee Boutcher.

                    

During fiscal 2006, four officers/directors exercised in the aggregate 95,500 options, David Edell with 22,500, Ira Berman with 28,000, Dunnan Edell with 20,000 and Jack Pollack with 25,000.

 

In addition, during fiscal 2006 the Company purchased and retired an aggregate of 225,000 shares of common stock from three officers/directors, David Edell-100,000, Ira Berman-100,000 and Drew Edell-25,000.  The purchase price was $10.50 per share discounted from $10.82 per share, the closing price at the close of business on the transaction date.  The Company purchased 9,392 shares from Stanley Kreitman, a director, and 15,000 shares from Rami Abada, a former director, for $10.50 per share discounted from $10.70 per share, the closing price at the close of business on the transaction date.

 

For the year ended November 30, 2007, dividends declared but not yet due amounted to $ 634,900.

 

Inventories:

 

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

 

Product returns are recorded in inventory when they are received at the lower of their original cost or market, as appropriate.  Obsolete inventory is written off and its value is removed from inventory at the time its obsolescence is determined.

 

Property and Equipment and Depreciation and Amortization

 

Property and equipment are stated at cost.  The Company charges to expense repairs and maintenance items, while major improvements and betterments are capitalized.  When the Company sells or otherwise disposes of property and equipment items, the cost and related accumulated depreciation are removed from the respective accounts and any gain or loss is included in earnings. 

 

Depreciation and amortization are provided on the straight-line method over the following estimated useful lives or lease terms of the assets:

 

Machinery and equipment

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.

 

Financial Instruments:

 

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

 

 

-9-



 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Income Taxes:

 

Income tax expense includes federal and state taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes.

 

Tax Credits:

 

Tax credits, when present, are accounted for using the flow-through method as a reduction of income taxes in the years utilized.

 

Earnings Per Common Share:

 

The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share” in 1998.  Basic earnings per share is calculated using the average number of shares of common stock outstanding during the year.  Diluted earnings per share is computed on the basis of the average number of common shares outstanding plus the effect of outstanding stock options using the “treasury stock method” and convertible debentures using the “if-converted” method.  Common stock equivalents consist of stock options.

 

Revenue Recognition:

 

The Company recognizes sales upon shipment of merchandise.  Net sales comprise gross revenues less expected returns, trade discounts, customer allowances and various sales incentives.  Although no legal right of return exists between the customer and the Company, it is an industry-wide practice to accept returns from customers.  The Company, therefore, records a reserve for returns equal to its gross profit on its historical percentage of returns on its last five months sales. Those returns which are anticipated to be taken as credits against the balances as of November 30th are offset against the accounts receivable. The reserves which are anticipated to be deducted from future invoices are included in accrued liabilities.

 

Sales Incentives

 

In accordance with EITF 00-14, the Company has accounted for certain sales incentives offered to customers by charging them directly to sales as opposed to “advertising and promotional” expense.  Had EITF 00-14 not been adopted, net sales for the years ended November 2007, 2006 and 2005 would have been $65,016,269, $67,701,423, and $65,352,334 respectively.  In the fourth quarter of 2006, the Company reclassified certain promotional expenses from sales expense to a charge against sales for fiscal 2006.  For comparison purposes, those same expenses were reclassified for fiscal year 2005.  None of these changes affected net income reported for the interim periods or fiscal years ended November 30, 2005 and 2006.

 

-10-



 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

NOTE 2 -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Advertising Costs:

 

The Company’s policy is to charge advertising costs to expense as incurred.  During fiscal 2005, the Company changed its estimate of future benefits it derives from advertising expenditures and the effect it has on its allocation among the interim quarters.  Effective June 1, 2005, the Company expensed its advertising based on when the advertising ran.  The change in estimate affected interim reporting in fiscal 2005 and had no effect on the Company’s year-end earnings for fiscal 2005.

 

Shipping Costs:

 

The Company’s policy for fiscal financial reporting is to charge shipping cost to operations as incurred.  For the years ended November 30, 2007, 2006 and 2005, included in selling, general and administrative expenses are shipping costs amounting to $2,962,754, $2,542,685, and $3,601,322, respectively.

                                                                                

Stock Options:

 

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Accounting for Share-Based Compensation” which is a revision of SFAS No. 123.  Effective for annual or interim periods beginning after December 15, 2005, SFAS No. 123R requires stock grants to employees to be recognized in the income statement based on their fair values.  The adoption of SFAS No. 123R did not have any impact on the Company’s financial position, results of operations or cash flow.

 

Reclassifications

 

Certain prior years amounts have been reclassified to conform with the current years presentation.

 

Recent Accounting Pronouncements

 

In June 2006, the Financial Accounting Standards Board (“FASB”) issue FASB Interpretation No. 48 (“FIN No. 48”) “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB No. 109”.  FIN No. No. 48 established a recognition threshold and measurement for income tax positions recognizes in an enterprise’s financial statements in accordance with FASB No. 109, “Accounting for Income Taxes”.  FIN No. 48 also prescribes a two-step evaluation process for tax positions. The first step is recognition and the second is measurement.   FIN No. 48 is effective for fiscal years beginning after December 15, 2006.  Accordingly, the Company plans to adopt FIN No. 48 on December 1, 2007.  The adoption of FIN No. 48  will have no material impact on the Company’s financial position or results of operation.

 

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”).  SFAS No. 157 defines fair value, established a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods in those fiscal years.  The adoption of SFAS No .157 will have no material impact on the Company’s financial position or results of operation.

 

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of SFAS Statements Nos. 87, 88,106 and 132R.  SFAS No. 158, requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position, measure a plan’s assets and obligations as of the end of the employer’s fiscal year-end and recognize changes in the funded status in the year in which the changes occur through comprehensive income.  SFAS No. 158 is effective as of the end of the fiscal year ending after December 15, 2007.  Since the Company does not have a defined benefit plan, the adoption will not have an impact on the Company’s financial statements.

 

 

- 11 -

 


 

 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

NOTE 2 -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

 

Recent Accounting Pronouncements (Continued)

 

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”) which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement.  SAB 108 is effective for the first fiscal year ending after November 15, 2006 which was fiscal year ending November 30, 2006.  The adoption of this statement had no material impact on the Company’s financial position or results of operations.

  

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (“SFAS No. 159”).  SFAS No. 159 which amends SFAS No. 115 allows certain financial assets and liabilities to be recognized, at the Company’s election, at fair market value, with any gains or losses for the period recorded in the statement of income.  SFAS No. 159 included available-for-sale securities in the assets eligible for this treatment.  Currently, the Company records the gains or losses for the period in the statement of comprehensive income and in the equity section of the balance sheet.  SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and interim periods in those fiscal years.  The Company, at this time, has not elected to recognize any gains or losses for its available-for-sale securities in the statement of income, and accordingly there will be no impact on the Company’s financial position or results of operations.   

 

In November 2007, the SEC issued Staff Accounting Bulletin No. 109 (“SAB 109”) which provides interpretive guidance regarding written derivative loan commitments that are accounted for at fair value through earnings.  SAB 109 is effective for fiscal quarters beginning after December 15, 2007.  The adoption of this statement will have no material impact on the Company’s financial position or results of operation.

 

In December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”) which provides interpretive guidance regarding the use of a “simplified” method in estimating the expected term of “plain vanilla” share options in accordance with FASB No. 123.  SAB 110 is effective as of January 1, 2007.  The adoption of this statement will have no material impact on the Company’s financial position or results of operation.

 

In December 2007, the FASB issued a revised Statement of Financial Accounting Standards No. 141 (“SFAS No. 141 (revised)”) which establishes the methods for accounting for business combinations.  SFAS No. 141 (revised) defines the acquirer and the acquisition date.  SFAS No. 141 revised is effective for acquisition dates on or after December 15, 2008.  The adoption of this statement will have no material impact on the Company’s financial position or results of operation.

 

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (“SFAS No. 160) which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.  SFAS No. 160 is effective for fiscal years beginning after December 15, 2008.  The Company has not determined the impact, if any, of the adoption of SFAS No. 160.

 

 

NOTE 3 -     INVENTORIES

 

At November 30, 2007 and 2006, inventories consist of the following:

 

 

 

 

 2007

 2006

 

 

 

Raw materials

$4,717,225

$3,822,073

Finished goods

  3,140,097

  2,527,940

 

$7,857,322

$6,350,013

 

 

 

                                                                  

At November 30, 2007 and 2006, the Company had a reserve for obsolete inventory of $ 604,746 and $777,715, respectively.

 

 

- 12 -

 

 


 

 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4 -    PROPERTY AND EQUIPMENT                      

 

At November 30, 2007 and 2006, property and equipment consisted of the following:

                                                                                        

 

                2007

               2006

 

 

 

Machinery and equipment

$   130,346

$   125,788

Office furniture and equipment

795,714

825,928

Transportation equipment

10,918

10,918

Tools, dies, and masters

379,171

426,470

Capitalized lease obligations

242,254

162,218

Leasehold improvements

     281,582

     300,402

 

1,839,985

1,851,724

 

 

 

Less: Accumulated depreciation

 

 

        and amortization

  1,277,457

  1,290,090

 

 

 

Property and Equipment – Net

$   562,528

$   561,634

                                                                                        

Depreciation expense for the years ended November 30, 2007, 2006 and 2005 amounted to $250,307, $215,197, and $317,573, respectively.

 

NOTE 5 -  INTANGIBLE ASSETS

 

Intangible assets consist of owned trademarks and patents for ten product lines covering thirty countries.  The cost and accumulated amortization for November 30, 2007 and 2006 is as follows:

                                                                                                                    

 

                     2007

                   2006

 

 

 

Trademarks and patents

$636,608

$650,274

Less: Accumulated amortization

  152,231

  146,679

Intangible Assets – Net

$484,377

$503,595

             

Patents are amortized on a straight-line basis over their legal life of 17 years and trademarks are adjusted to realizable value for each quarterly reporting period. During 2007, $14,190 (including $1,696 of accumulated amortization) of intangibles were deemed to be impaired and written off. Amortization expense for the years ended November 30, 2007, 2006 and 2005 amounted to $ 7,248, $11,843 and $54,085, respectively.  Estimated amortization expense for November 30, 2008, 2009, 2010, 2011 and 2012 will be $6,661, $6,661, $6,661, $6,396 and $6,134, respectively.

 

 

 

 

 

 

 

-13-

 


 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 6 -  SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES

 

Short-term investments and marketable securities, which consist of stock and various corporate and government obligations, are stated at market value.  The Company has classified its investments as Available-for-Sale securities and considers as current assets those investments which will mature or are likely to be sold in the next fiscal year. The remaining investments are considered non-current assets.  The cost and market values of the investments at November 30, 2007 and November 30, 2006 were as follows:     

 

 

November 30,

  2007

             November 30,

                      2006

 

 

 

 

 

Current:

COST

MARKET

COST

MARKET

 

 

 

 

 

Corporate obligations

$ 5,552,779

$5,555,917

$ 4,725,545

$ 4,712,154

Government obligations

 

 

 

 

  (including mortgage

 

 

 

 

    backed securities)

2,335,358

2,140,921

  6,519,395

6,536,115

Preferred stock

50,000

38,760

-

-

Common stock

51,649

58,860

51,649

56,508

Mutual funds

215,274

151,989

208,955

       148,464

Other equity

         70,206

         57,377

         64,881

          63,108

 

 

 

 

 

    Total

    8,275,266

    8,003,824

   11,570,425

    11,516,349

 

 

 

 

 

Non-Current:

 

 

 

 

 

 

 

 

 

Corporate obligations

400,000

400,000

1,591,292

1,571,928

Government obligations

3,445,577

3,626,508

1,630,576

1,583,524

Preferred stock

774,845

674,996

824,845

818,204

Other equity investments

       100,000

       100,000

       100,000

        100,000

 

 

 

 

 

    Total

    4,720,422

    4,801,504

    4,146,713

    4,073,656

 

 

 

 

 

    Total

$12,995,687

$12,805,328

$15,717,138

$15,590,005

             

 

                                                                                

 

 

 

 

 

 

 

- 14 -



CCA INDUSTRIES, INC. AND SUBSIDIARIES

                 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

The market value at November 30, 2007 was $ 12,805,323 as compared to $15,590,005 at November 30,

2006.  The gross unrealized gains and losses were $122,117 and ($312,478) for November 30, 2007 and

$47,504 and ($174,637) for November 30, 2006.  The cost and market values of the investments at

November 30, 2007 were as follows:

                                                                                                                                                                                    

COL. A

 

 

COL. B

COL. C

COL.D

COL.E

 

 

 

 

 

 

 

Name of Issuer and

Title of Each Issue

 

 

 

 

 

 

 

Maturity

Date

 

 

 

 

 

 

 

Interest

Rate

 

 

 

 

Number of

 Units-Principal

Amount of

 Bonds and

 Notes

 

 

 

 

 

 

 

Cost of

Each Issue

 

 

 

 

 

Market Value

 of Each Issue

at Balance

Sheet Date

 

 

Amount at Which

Each Portfolio of

 Equity Security

 Issues and Each

 Other Security

Issue Carried in

 Balance Sheet

 

 

 

 

 

 

 

CORPORATE OBLIGATIONS:

 

 

 

 

 

 

  American Intl Group Inc.

05/15/08

2.875%

250,000

$     245,100

$     248,750

$    248,750

  American Express Co

05/16/08

  3.000 

100,000

98,152

99,400

99,400

  Banc One Global Notes

06/30/08

  2.625

125,000

124,363

123,159

123,159

  Bank of America Corp

01/15/08

  3.875

250,000

249,560

250,080

250,080

  Bank of America Corp

08/15/08

  3.250

200,000

199,630

196,938

196,938

  Bristol-Myers Squibb

08/15/08

  4.000

250,000

246,023

248,528

248,528

  Capmark BK Midvalue

01/18/08

  5.150

100,000

100,000

99,993

99,993

  Caterpillar Fin Service Corp

10/15/09

  4.750

200,000

200,000

202,029

202,024

  Citigroup Global Markets

12/20/07

  4.200

200,000

199,442

199,862

199,862

  Citigroup Global Markets

01/31/08

  4.000

550,000

544,627

547,921

547,921

  Consolidated Edison Inc.

08/01/08

  3.625

250,000

245,150

247,758

247,758

  Firstbank PR Santurce

01/18/08

  5.150

100,000

100,000

99,993

99,993

  General Electric Capital Corp

12/05/07

  3.500

100,000

99,215

98,000

98,000

  General Electric Capital Corp

01/15/08

  4.250

200,000

199,050

199,760

199.760

  General Electric Capital Corp

03/04/08

  4.125

400,000

397,726

388,000

388,000

  General Electric Capital Corp

05/01/08

  3.500

250,000

246,168

245,000

245,000

  Goldman Sachs Group

01/15/08

  4.125

400,000

398,262

399,216

399,216

  IBM

02/01/08

  3.800

100,000

99,251

97,000

97,000

  JP Morgan Chase & Co.

02/01/08

  4.000

325,000

322,995

322,156

322,156

  Kayne Anderson MLP

12/21/45

  5.150

400,000

400,000

400,000

400,000

  Lehman Brothers

01/22/08

  4.000

325,000

321,156

323,983

323,983

 

-15-



CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

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

 

 

 

 

 

 

 

Name of Issuer and

  Title of Each Issue

 

 

 

 

 

 

 

Maturity

  Date

 

 

 

 

 

 

 

Interest

  Rate

 

 

 

 

Number of

 Units-Principal

 Amount of

 Bonds and

 Notes

 

 

 

 

 

 

 

Cost of

 Each Issue

 

 

 

 

 

Market  Value

 of Each Issue

 at Balance

 Sheet Date

 

 

Amount at Which

 Each Portfolio of

Equity Security

 Issues and Each

 Other Security 

 Issue Carried in

   Balance Sheet

 

 

 

 

 

 

 

CORPORATE OBLIGATIONS (Continued):  

 

 

 

 

 

 

  Merrill Lynch & Co

04/21/08

3.700%

250,000

$   247,635

$   249,374

$   249,375

  Morgan Stanley

04/01/08

  3.625

250,000

247,123

248,358

248,358

  United Healthcare Notes

1/30/08

  3.300

75,000

74,890

74,753

74,753

  Washington Mutual

1/15/08

  4.375

250,000

248,103

247,620

247,620

  Wells Fargo & Co

  8/25/08

  3.120

100,000

           99,158

       98,286

       98,286

 

 

 

 

 

 

 

 

 

 

 

  5,952,779

  5,955,917

  5,955,912

                                                                                                  

 

                                                                                                                                                           

                                                                                                                                                           

                                                                                                                                                           

 

 

                                                                                                                                                            

                                                                                                                                                            

 

 

 

-16-



CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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

                                                                                                                                                                                                                                                                       

COL. A

 

 

COL. B

COL. C

COL. D

COL. E

 

 

 

 

 

 

 

 

Name of Issuer and

Title of Each Issue

 

 

 

 

 

 

 

 

 

Maturity

Date

 

 

 

 

 

 

 

 

 

Interest

  Rate

 

 

 

 

 

 

Number of

 Units-Principal

 Amount of

 Bonds and

     Notes

 

 

 

 

 

 

 

 

 

Cost of

Each Issue

 

 

 

 

 

 

 

Market Value

 of  Each Issue

 at Balance

Sheet Date

 

 

 

 

Amount at Which

  Each Portfolio of

Equity Security

Issues and Each

Other Security

Issue Carried in

     Balance Sheet

 

 

 

 

 

 

 

GOVERNMENT OBLIGATIONS:

 

 

 

 

 

 

  Federal Home Loan Bank

7/24/08

2.13%

100,000

$   100,000

$   100,125

$   100,000

  FHLMC

11/15/09

     3.25

250,000

250,000

250,008

250,008

  FHLMC

11/15/17

     4.50

200,000

200,000

200,000

200,000

  FNMA

12/10/07

     3.00

150,000

150,000

150,000

150,000

  NJ ECN DEVLP

05/19/19

     3.60

150,000

150,000

150,000

150,000

  NJ ECN DEVLP

09/01/27

     0.00

1,015,000

1,015,000

1,015,000

1,015,000

  NJ ECN DEVLP

06/01/31

     0.00

425,000

425,000

425,000

425,000

  NJ ST HGR ED

12/01/40

     0.00

500,000

500,000

500,000

500,000

  NJ TRANS TR

12/15/18

     3.60

150,000

150,000

150,000

150,000

  SALEM CNTY NJ POLLUTN

10/01/29

     0.00

500,000

500,000

500,000

500,000

  Tennessee Valley

05/01/29

     6.50

4,000

106,688

97,000

97,000

  Tennessee Valley

05/01/29

     6.50

9,300

    251,065

225,525

251,068

  Tennessee Valley

05/01/29

     6.50

4,700

    122,820

113,975

113,975

  US TREASURY BILL

12/06/07

     0.00

200,000

197,861

199,950

199,950

  US TREASURY BILL

01/10/08

     0.00

300,000

292,704

299,063

299,064

  US TREASURY BILL

01/17/08

     0.00

250,000

243,911

249,068

249,068

 

-17-



CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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

                                                                                                                                                                                             

                                                                       

COL. A

 

 

COL. B

COL. C

COL. D

COL. E

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name of Issuer and

Title of Each Issue

 

 

 

 

 

 

 

Maturity

Date

 

 

 

 

 

 

 

Interest

     Rate

 

 

 

 

Number of

 Units-Principal

Amount of

Bonds and

     Notes

 

 

 

 

 

 

 

Cost of

Each Issue

 

 

 

 

 

Market Value

 of  Each Issue

 at Balance

Sheet Date

 

 

Amount at Which

 Each Portfolio Of

Equity Security

 Issues and Each

 Other Security

 Issue Carried in

     Balance Sheet

 

 

 

 

 

 

 

US TREASURY BILL

02/07/08

0.000%

400,000

$   390,495

$   397,780

$   397,780

US TREASURY BILL

02/28/08

       0.000

300,000

293,099

297,768

297,768

US TREASURY BILL

03/06/08

       0.000

150,000

146,739

148,838

148,838

US TREASURY BILL

03/13/08

       0.000

200,000

    195,995

198,282

198,282

US TREASURY NOTE

12/31/07

       4.250

100,000

      99,558

    100,047

     100,047

 

 

 

 

 

 

 

 

 

 

 

    5,780,935

  5,767,429

  5,792,848

EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock:

 

 

 

 

 

 

General Electric Cap Corp

11/15/32

      6.100

8,800

224,845

216,656

216,656

MetLife Floater

6/15/10

      4.000

8,000

200,000

176,000

176,000

ABN AMRO Cap Fund

07/03/08

      5.900

2,000

50,000

38,760

38,760

JP Morgan Chase Cap IX

06/15/33

      5.875

2,000

50,000

41,500

41,500

Morgan Stanley Cap Tr

07/15/33

      5.750

4,000

100,000

77,240

77,240

Wells Fargo Cap Tr VIII

08/01/33

      5.625

8,000

    200,000

     163,600

     163,600

 

 

 

 

 

 

 

 

 

 

 

    824,845

     713,756

     713,756

 

-18-



CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

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

 

COL. A

 

 

COL. B

COL. C

COL. D

COL. E

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name of Issuer and

Title of Each Issue

 

 

 

 

 

 

 

Maturity

Date

 

 

 

 

 

 

 

Interest

  Rate

 

 

 

 

Number of

 Units-Principal

 Amount of

 Bonds and   

    Notes

 

 

 

 

 

 

 

Cost of

  Each Issue

 

 

 

 

 

Market Value

 of  Each Issue

 at Balance

 Sheet Date

 

 

Amount at Which 

Each Portfolio  Of

 Equity Security

 Issues and Each

 Other Security

 Issue Carried in

     Balance Sheet

 

           

Common Stock:

           

 

 

 

 

 

 

 

DTE Energy Company

 

 

1,200

$          51,649

$       58,860

$       58,860

 

 

 

 

 

 

 

Mutual Funds:

 

 

 

 

 

 

Dreyfus Premier Ltd High Income

 

 

16,296.314

215,274

151,989

151,989

 

 

 

 

 

 

 

Other Equity Investments:

 

 

 

 

 

 

Aberdeen Asia Pacific Fund

 

 

4

100,000

100,000

100,000

PIMCO Floating Rate Strategy

 

 

2,900

          70,206

         57,377

         57,377

 

           

 

 

 

 

 

 

 

Totals

 

 

 

$12,995,688

$12,805,328

$12,805,328

             

 

                                                                                                      

-19-



CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

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

 

During the years ended November 30, 2007, 2006 and 2005, available-for-sale securities were liquidated and proceeds amounting to $17,605,791, $10,636,835 and $1,946,814 were received, with resultant realized gains/(losses) totaling $60,697, $62,012, and  $0, respectively.  Cost of available-for-sale securities includes unamortized premium or discount.

 

NOTE 7 -     NOTES PAYABLE AND SUBORDINATED DEBENTURES

 

The Company has an available line of credit of $25,000,000.  Interest is calculated at the Company’s option, either on the outstanding balance at the prime rate minus 1% or Libor plus 150 basis points at the Company’s option.  The line of credit is unsecured as of November 30, 2007 and must adhere to certain financial covenants pertaining to net worth and debt coverage.  The Company was not utilizing their available credit line at November 30, 2007 and 2006.  The Company has extended the line of credit through August 31, 2008.

 

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

 

NOTE 8 -     INCOME TAXES

 

CCA and its subsidiaries file a consolidated federal income tax return.  The Company’s 2004 returns have been examined by the Internal Revenue Service.

 

At November 30, 2007 and 2006, respectively, the Company has temporary differences arising from the following:

 

 

 

 

 

 

                                                                               November 30, 2007___________

 

 

 

 

 

 

 

 

           Classified As

 

Type

 

Amount

Deferred

 Tax

Short-Term

Asset

Long-Term

 (Liability)

 

 

 

 

 

Depreciation

$  74,244

$    29,475

$               -

$  29,475

Reserve for bad debts

141,607

56,218

56,218

-

Reserve for returns

452,695

179,720

179,720

-

Reserve for obsolete inventory

604,746

240,084

240,084

-

Vacation accrual

484,971

192,534

192,534

-

Section 263A costs

  245,000

        97,265

        97,265

                -

 

 

 

 

 

Net deferred income tax

 

$  795,296

$  765,821

$  29,475

                                                                                                                                            

 

 

 

 

 

 

 

-20-



 

 

 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

NOTE 8 -       INCOME TAXES (Continued)

                      

                                                                                       November 30, 2006___________

 

 

 

 

 

 

 

 

Classified As

 

Type

 

Amount

Deferred

     Tax

 

Short-Term

 

Long-Term

 

 

 

Asset (Liability)

 

 

 

 

 

Depreciation

$ 62,361  

$  24,940 

$            -    

$24,940 

Reserve for bad debts

185,779

74,298

74,298

Reserve for returns

443,418

177,336

177,336

Reserve for obsolete inventory

777,715

311,031

311,031

-

Vacation accrual

344,031

137,588

137,588 

-

Charitable contributions                         

1,047,761

  419,030

419,030

-

Section 263A Costs

153,000

       61,189

        61,189

             -

 

 

 

 

 

Net deferred income tax

 

$1,205,412

$1,180,472

$24,940

                      

 

                                                                                                                                                                 

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

                                                                                          November 30, 2007

                                               

Federal

State & Local

Total

Current tax expense

$2,823,468

           $823,347

  $3,646,815

Tax credits                                        

 

 

 

Deferred tax expense

     317,523

    92,593

      410,116

 

$3,140,991

           $915,940

  $4,056,931

                                                                                                                                                           

                                                                                                                                           

                                                                                                         

             

                                                              November 30, 2006

 

Federal

State &  Local

Total

Current tax expense

$2,892,278

$849,564

$3,741,842  

Tax credits

-

-

-

Deferred tax (benefit)

(   331,944)

(  97,504)

(     429,448)

 

$2,560,334

$752,060

$3,312,394

 

 

 

                                                                              - -21-



CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 8 -       INCOME TAXES (Continued)

                                                                                           

                                     November 30, 2005

 

 

State &

 

 

Federal

Local

Total

Current tax expense

  $2,563,858 

$910,086

$3,473,944

Tax credits

(       40,000)

(    30,000) 

(      70,000)

Deferred tax (benefit) expense

(     103,222)

    21,304

     81,918

 

$2,420,636 

$901,390

$3,322,026

 

 

 

 

                                                                                            

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

 

 

 

State &

 

 

Federal

Local

Total

 

 

 

 

November 30, 2007

$625,350

$214,343

$839,693

 

 

 

 

November 30, 2006

$            -

$            -

$            -

 

 

 

 

November 30, 2005

$   50,653

$114,907

$165,560

 

                       Income taxes payable are made up of the following components:

 

 

 

 

 

 

State &

 

 

Federal

Local

Total

 

 

 

 

November 30, 2007                  

$            -

$           -

$            -

 

 

 

 

November 30, 2006

$182,404 

$231,465

$413,869

 

 

 

 

November 30, 2005                  

$   -          

$     -       

$   -         

 

 

 

 

 

 

 

                                                                                 

 

 

 

-22-



CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 8 -       INCOME TAXES (Continued)

 

 

A reconciliation of income tax expense (benefit) computed at the statutory rate to income tax expense at the effective rate for each of the three years ended November 30, 2007 is as follows:                        

     

 

2007

2006

2005

 

 

 

 

 

                      Percent

                        Percent

                       Percent

 

 

Of Pretax

 

Of Pretax

 

Of Pretax

 

Amount

Income

Amount

Income

Amount

Income

Income tax expense (benefit)

 

 

 

 

 

 

   at federal statutory rate

$3,262,207 

34.00%

$3,031,659

34.00%

$2,416,559

34.00%

Increases (decreases) in taxes

 

 

 

 

 

 

  resulting from:

 

 

 

 

 

 

   State income taxes, net of federal

 

       

 

 

 

 

      income tax benefit                    

548,512

      5.72

560,712

6.29  

594,911

8.40    

  

 

 

 

 

 

 

    Non-deductible expenses and

 

 

 

 

 

 

     other adjustments

246,212

    2.56

(  279,977)

     (   3.14 )

380,556

5.47   

     Utilization of tax credits

               -  

           - 

                -

           -

(      70,000)

(     1.13 )

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

 

 

 

 

      at effective rate

$4,056,931

42.28%

$3,312,394

37.15%

$3,322,026

46.74%

 

-23-



CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                            

NOTE 9 -       STOCK-BASED COMPENSATION

 

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS No. 123R”) which requires an entity to recognize the grant-date fair value of stock options and other equity-based compensation issued to employees in the financial statements.  Accordingly, the Company applied the provisions of SFAS No. 123R to all awards granted subsequent to December 31, 2005 and will apply the provisions to the extent that these awards are subsequently modified, repurchased or cancelled.

 

Prior to January 1, 2006, the Company accounted for stock based compensation plans under the intrinsic value method of accounting as defined by Accounting Principles Board Opinion No. 25, “Accounting for Stock-Based Compensation”, as amended.  Under Opinion No. 25, no compensation expense was recognized for employee share option grants because the exercise price of the options granted equaled the market price of the underlying shares on the date of grant.  SFAS No. 123, required that the Company provide pro forma information regarding net earnings as if compensation cost for the Company’s stock-based awards had been determined in accordance with the fair value prescribed therein. 

 

On September 27, 2007, the Company granted stock appreciation rights for 10,000 shares to its Executive Vice President of Sales.  The stock appreciation rights granted do not vest until two years after the grant date and expire five years after the grant date.  Upon exercise, the option value would be paid through the issuance of Company stock.  The Company had a charge against earnings during fiscal 2007 of $1,280, and anticipates a charge against earnings for the stock appreciation rights of 10,000 shares in fiscal 2008 and 2009 of $7,680 and $6,399 respectively.  The amounts for future years can change, as the valuation of the fair value, as required by SFAS No. 123R, involves factors such as the Company’s dividend yield, interest rates, and share price volatility, all of which are subject to change.  The Company has made its estimate of fiscal 2007, 2008 and 2009 year charges against earnings based on those factors as of November 30, 2007.

 

The following table illustrated the effect on net earning if the Company had not applied the fair value recognition of SFAS No. 123R to stock-based employee compensation.

 

                                                                                                           

                                                                                            Year Ended November 30,

 

2007

2006

 

 

 

Net income

$5,537,795

  $5,797,272

Add: Total stock-based employee

 

 

compensation expense determined

 

 

under fair value based method for

 

 

all awards net of related tax effects

               1,280

                 -

 

 

 

Pro forma net earnings

$5,539,075

$5,797,272

 

 

 

 

                                                                                  - -24-



CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                            

 

 

 

NOTE 9 -       STOCK-BASED COMPENSATION (Continued)

 

The following summarizes stock option activity for the two years ended November 30, 2007 and 2006:

 

 

 

Weighted Average

 

 

 

Number of

exercise price of

Weighted Average

Intrinsic

 

Shares

Outstanding Options

Remaining Life

Value

 

 

  

 

  

Outstanding December 1, 2005

285,500

$4.70

3.20

 

            Granted 

                   -

-

-

-

            Exercised

(95,500)

$0.50

-

-

            Forfeited

(   9,000)

$7.50

-

-

Outstanding November 30, 2006          

181,000

$5.88

1.83

 

            Granted

-        

-

-

-

            Exercised

(55,000)

$0.50

-

-

            Forfeited

                    -

-

-

-

Outstanding November 30, 2007         

126,000

$8.00

1.35

 

 

 

 

 

 

 

NOTE 10 -    ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE

 

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

 

                                                                                           

                     

                                                                                                     November 30  

 

2007

2006

 

                        (In Thousands)

Coop advertising

$1,214

$1,356

Accrued returns

964

1,011

Accrued bonuses

       841

     777

Vacation accrual

     485

          -

 

$3,504

$3,144

                     

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

 

 

 

 

 

 

 

-25-



                                       CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 11 -    OTHER INCOME

 

Other income was comprised of the following:                                       

                      

                                                                                  November 30,

 

         2007

             2006

         2005

 

 

 

 

Interest income

$   794,456

$582,149

$417,537 

Dividend income

33,697

43,820

32,182 

Realized gain (loss) on sale of securities

21,810

49,280

            -  

Royalty income

125,158

108,249

109,274 

Sale of trademark

-

-

-  

Miscellaneous

       70,589

    14,305

     13,916

 

$1,045,710

$797,803

$572,909

 

 

 

 

 

 

NOTE 12 -     COMMITMENTS AND CONTINGENCIES

 

Leases

 

The Company currently occupies approximately 58,625 square feet of space used for warehousing and corporate offices.  The annual rental for this space is $327,684, with an annual CPI increase of 3%, but shall not cumulatively exceed 15% in any consecutive five year period.  The lease requires the Company to pay for additional expenses “Expense Rent” (Common Area Maintenance “CAM”), which includes real estate taxes, common area expense, utility expense, repair and maintenance expense and insurance expense, which was $164,880 for the current year.  The lease expires on May 31, 2012 with a renewal option for an additional five years.

 

The Company entered into an additional lease on May 1, 2005 for warehouse space at 300-1(D), Route 17, Lodi, New Jersey for the 12 month period ending April 30, 2006.  The lease comprises 13,000 square feet for warehousing.  The year end net rental expense including CAM was $147,895. The Company has extended the lease for an additional one year period ending April 30, 2008.  The Company is not renewing the lease.

 

On September 26, 2007 the Company entered into an additional lease for warehouse space at 99 Murray Hill Parkway, East Rutherford, New Jersey for a term commencing November 1, 2007 and ending on May 31, 2012.  The premise comprises 16,438 square feet of space to be used for warehousing and storage.  The lease requires the Company to pay for additional expenses “Expense Rent” (Common Area Maintenance “CAM), which includes real estate taxes, common area expense, certain utility expense, repair and maintenance expense and insurance expense.  The year end net rental expense including CAM was $13,258.

 

 

 

 

                                                                              - -26-



                                       CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 12 -   COMMITMENTS AND CONTINGENCIES (Continued)

 

Leases (Continued)

 

Rent expense for the years ended November 30, 2007, 2006 and 2005 was $704,050, $605,893 and $597,530, respectively.

 

In addition, the Company has entered into various property and equipment operating leases with expiration dates ranging through November 2011.    

 

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

 

Year Ending

November 30,

 

 

2008

$810,831

2009

724,216

2010

664,901

2011

642,127

2012

321,063

                      

Royalty Agreements

 

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

 

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

 

The products subject to the Alleghany Pharmacal License accounted for $9,166,219 or 15.3% of total net sales in the fiscal year ended November 30, 2007.

 

                                                                                

 

 

 

 

 

 

 

 

 

 

 

 

 

-27-


 

                                                                                

CCA INDUSTRIES, INC. AND SUBSIDIARIES

                                                                                                                                  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12 -     COMMITMENTS AND CONTINGENCIES (Continued)

 

Royalty Agreements (Continued)

 

In May of 1998, the Company entered into a License Agreement with Solar Sense, Inc. for the marketing of sun care products under trademark names.  The Company’s License Agreement with Solar Sense, Inc. is for the exclusive use of the trademark names “Solar Sense” and “Kids Sense”, in connection with the commercial exploitation of sun care products.  The Company is required to pay a royalty on net sales of the licensed products; with minimum per-annum royalties of $30,000. The Company paid out the minimum $30,000 for 2005, but has revised the contract omitting that minimum for the future.  The Company realized $785,792 in net sales of sun-care products in 2007.

 

In October of 1999, the Company entered into a License Agreement with The Nail Consultants, Ltd. for the use of an activator invented in connection with a method for applying a protective covering to fingernails.  The Company’s License Agreement with The Nail Consultants, Ltd. is for the exclusive use of the method and its composition in a new product kit packaged and marketed by CCA under its own name, “Nutra Nail Power Gel”.  The Company will pay a royalty of 5% of net sales of all licensed product sold by the Company.  Net sales for products subject to the Nail Consultants, Ltd. License were $705,643 in fiscal 2007.

 

On May 18, 2004, the Company entered into a license agreement with Tea-Guard, Inc. to manufacture and distribute Mega-T Green Tea chewing gum and Mega-T Green Tea mints.  The license agreement requires the Company to pay a minimum royalty in order to maintain its exclusivity for the sale of the products and to continue marketing the products so long as the minimum requirements are met and until royalties have aggregated to $10,000,000.  The Company is required to pay a royalty of net sales payable quarterly.  In fiscal 2007, the net sales were $1,131,511.

 

On February 26, 2004, the Company entered into an agreement with Dr. Stephen Hsu. PhD. to create green tea skin care products.  Dr. Hsu will be entitled to a commission on the net factory sales of all of the Company’s products using the green tea serum created exclusively for the Company.  The net sales for products subject to a commission under the agreement was $6,527,969 in 2007.

 

On July 14, 2004, the Company entered into a license agreement with Denise Austin.  The license agreement requires the Company to pay a minimum royalty in order to maintain the exclusive use of the name, “Denise Austin” to manufacture and sell a special line of skin care and cosmetic products.  The license agreement was not renewed and expired on July 13, 2006.

 

 

 

-28-



CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 12 -     COMMITMENTS AND CONTINGENCIES (Continued)

 

Royalty Agreements (Continued)

 

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

 

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

           

Summary

 

 

 

Licensor

                  2007

            2006

          2005

 

 

 

 

A

$  39,290

$43,367

   $  45,116

B

91,662

    92,630

99,166

C

18,020

11,892

23,616

D

5,692

(        88)

(    3,497)

E

511

3,237 

    6,815

F

3570

1,054 

4,424

G

-

    - 

H

196,683

74,148 

116,916

I

33,283

81,363

96,975

J

-

(  60,402)

116,870

K

195,839

   37,939

91,870

L

84,732

-

-

 

Employment Contracts

 

The Company has executed Employment Contracts with its Chief Executive Officer and its Chairman of the Board.  The contracts for both are exactly the same.  The contracts expire on December 31, 2010.  The contracts provide for a base salary which commenced in 1994 in the amount of $300,000, with a year-to-year CPI or 6% plus 2.5% of the Company’s pre-tax income less depreciation and amortization (EBITDA), plus 20% of the base salary for the fiscal year plus fringes.  The “2.5% measure” in the bonus provision of the two contracts was amended on November 3, 1998 so as to calculate it against earnings before income taxes, less depreciation, amortization and expenditures for media and cooperative advertising in excess of $8,000,000.  On May 24, 2001, the contract was amended increasing the base salary then in effect by $100,000 per annum.  Upon expiration of the employment contracts, the agreement provides that the executives will serve as consultants to the Company for an additional five years.  For the consulting services provided, the executives will be paid fifty percent (50%) of their annual base salary plus bonus.  The Employment Contracts also provide that upon the death of the Chief Executive Officer and its Chairman of the Board within the employment and consulting period, the Company is obligated for two successive years to pay their respective estate an amount equal to their total compensation at that time.

 

 

 

 

-29-


 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

                                               

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12 -      COMMITMENTS AND CONTINGENCIES (Continued)

 

Employment Contracts (Continued)

                       

David Edell’s sons, Dunnan Edell and Drew Edell have five year employment contracts in the amounts of $270,000 and $200,000 respectively, which expire on November 2007.  On February 10, 2006, the Board of Directors extended the contracts for Dunnan Edell and Drew Edell to December 31, 2010.   Dunnan Edell is a director and President of the Company.  Drew Edell is the Vice President of Product Development and Production.  On July 1, 2003, Dunnan Edell’s salary was increased to $300,000, and on January 5, 2004 Drew Edell’s salary  was increased to $225,000 and in 2005, it was increased to $250,000.  On May 17, 2007 the Board of Directors amended the contracts for Dunnan Edell and Drew Edell, extending the contracts to November 30, 2012, and increasing the base salary to $350,000 and $275,000 respectively.

                       

Collective Bargaining Agreement

                       

On December 1, 2004, the Company signed a new collective bargaining agreement with Local 734, L.I.U. of N.A., AFL-CIO with similar provisions of the one that expired on November 30, 2004.  Other than standard wage, holiday, vacation and sick day provisions, the agreement calls for CCA to provide certain medical and dental benefits and to contribute to the Local 734 Educational Fund $.01 per hour for each hour the employees are paid.  The new collective bargaining agreement is in effect through January 1, 2008.  This agreement pertains to 29% of the CCA labor force.  During 2007, Local 734 was taken over by Local 108 of Laborer’s International Union, which had no impact on the Company.  On December 12, 2007, the Company and Local 108 agreed to extend the collective bargaining agreement that had been in effect until January 31, 2008.  On January 31, 2008, the Company and Local 108 agreed to further extend the collective bargaining agreement until February 29, 2008.  The Company is in discussions with Local 108 to further extend the collective bargaining agreement until March 31, 2008.  If the new collective bargaining agreement is not signed by that date, the Company does not believe that there will be any material effect on the Company’s financial position or results of operations.

 

Litigation

 

All of the Company’s litigation other than in the ordinary course of business has been dismissed.  Refer to Form 8-K, filed on May 8, 2007 with the United States Securities and Exchange Commission for further information.

 

 

 

 

 

 

 

 

 

-30-



CCA INDUSTRIES, INC. AND SUBSIDIARIES

                                               

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12 -      COMMITMENTS AND CONTINGENCIES (Continued)

                       

Dividends and Capital Transactions

 

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

 

On November 15, 2005 the Board of Directors declared a $0.05 per share dividend for the first quarter ending February 28, 2006.  The dividend was paid on March 1, 2006 to all shareholders of record as of February 1, 2006.  On March 14, 2006, the Board of Directors declared another $0.05 per share dividend for the second quarter ending May 31, 2006.  The dividend was paid on June 1, 2006 to all shareholders of record as of May 31, 2006.  On June 29, 2006, the Board of Directors declared a $0.07 per share dividend for the third quarter ending August 31, 2006.  The dividend was paid to all shareholders of record as of August 1, 2006 and payable on September 1, 2006.  On October 5, 2006 the Board of Directors declared a $0.07 per share dividend for the fourth quarter ending November 30, 2006.  The dividend was paid to shareholders of record as of November 1, 2006 and payable on December 1, 2006.

 

On December 28, 2006, the Board of Directors declared a $0.07 per share dividend for the first quarter ended February 28, 2007.  The dividend was payable to all shareholders of record as of February 1, 2007 and payable on March 1, 2007.  On April 12, 2007, the Board of Directors declared a $0.07 per share dividend for the second quarter ended May 31, 2007.  The dividend was payable to all shareholders of record as of May 1, 2007 and payable on June 1, 2007.  On June 22, 2007, the Board of Directors declared a $0.07 per share dividend for the third quarter ended August 31, 2007.  The dividend was payable to all shareholders of record as of August 1, 2007 and payable on September 1, 2007.  On September 26, 2007, the Board of Directors declared a $0.09 dividend for the fourth quarter ended November 30, 2007.  The dividend was payable to all shareholders of record as of November 1, 2007 and payable on December 1, 2007.

 

During fiscal 2006, three officer/directors and one director exercised in the aggregate 95,500 options, the officers/directors David Edell-22,500, Ira Berman-28,000, Dunnan Edell-20,000 and the director Jack Polak-25,000.  In addition, the Company purchased and retired an aggregate of 225,000 shares of common stock from three officer/directors, David Edell100,000, Ira Berman-100,000 and Drew Edell-25,000.  The purchase price was $10.50 per share discounted from $10.82 per share, the closing price at the close of business on the transaction date.  The Company purchased 9,392 shares from Stanley Kreitman, a director, and 15,000 shares from Rami Abada, a former director, for $10.50 per share discounted from $10.70, the closing price at the close of business on the transaction date.

 

 

 

 

-31-



CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

NOTE 13 -      401 (K) PLAN

 

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

 

NOTE 14 -      CONCENTRATION OF RISK

 

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

 

During the years ended November 30, 2007, 2006 and 2005, certain customers each accounted for more than 5% of the Company's net sales, as follows:

 

                       

Customer

2007

2006

2005

 

 

 

 

Walmart

40%

36%

34%

Walgreen

8%

12%

10%

Rite Aid

8%

*

*

CVS

6%

6%

7%

McLanes

5%

6%

13%

 

 

 

 

Foreign Sales

3%

2%

2%

 

 

 

 

* under 5%

 

 

 

                                                                                                                                   

The loss of any one of these customers could have a material adverse affect on the Company’s earnings and financial position.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-32-



CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 14 -      CONCENTRATION OF RISK (Continued)

 

During the years November 30, 2007, 2006 and 2005, certain products within the Company’s product lines accounted for more than 10% of the Company’s net sales as follows:

                       

Category

2007

2006

2005

 

 

 

 

Dietary Supplement

31%

31%

26%

Skin Care

29%

30%

37%

Oral Care

25%

24%

24%

Nail Care

11%

9%

8%

 

The Company maintains cash balances at several banks.  Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000.  In addition, the Company maintains accounts with several brokerage firms.  The accounts contain cash and securities.  Balances are insured up to $500,000 (with a limit of $100,000 for cash) by the Securities Investor Protection Corporation (SIPC).  Each brokerage firm has substantial insurance beyond the $500,000 SIPC limit.

 

NOTE 15 -      OTHER EVENTS

 

On November 1, 2006 the Company entered into a letter of intent with Dubilier and Company relating to a proposed acquisition of the Company by Dubilier.  A copy of the letter of intent was included as an exhibit to the Company’s 8K filed Report with the Securities and Exchange Commission on November 2, 2006.  The Company and Dubilier had reached an agreement in principle on a transaction pursuant to which Dubilier would acquire all of the outstanding common stock and Class A common stock of the Company at a price per share of $12.25.  The transaction was subject to, among other matters, the execution and delivery of a definitive merger agreement, approval of the transaction by CCA’s board of directors and shareholders, receipt of an opinion from an independent investment banking firm to the effect that the consideration to be paid by Dubilier is fair, from a financial point of view, to the public holders of the Company’s common stock, and Dubilier’s ability to obtain financing for the transaction.  On April 2, 2007, the Company received an opinion from an investment banking company that from a financial point of view, the proposed transaction is fair to all shareholders.  On April 10, 2007 the Company was advised by Dubilier that it was unable to obtain its’ financing, despite the fact that the Company had met all of its financial requirements of earnings before income tax, depreciation, and amortization, as well as net working capital.  The proposed transaction was formally terminated by the Company on April 10, 2007.

 

NOTE 16 -      SUBSEQUENT EVENT

                       

On December 5, 2007, the Board of Directors declared a $0.10 per share dividend to all shareholders of record as of February 1, 2008 and payable on March 1, 2008.

 

-33-



 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 17 -      EARNINGS PER SHARE

 

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

                                                                                                                                                    

      

                                                                                                                                 Year Ended November 30,

 

                   2007

        2006

         2005

Net income available for common

 

 

 

  shareholders, basic and diluted

$5,537,795

$5,604,251

$3,785,502

 

 

 

 

Weighted average common stock

 

 

 

  outstanding- Basic        

7,029,611

7,034,276

  7,145,297

 

 

 

 

Net effect of dilutive stock options

        29,278

        99,056

      172,697

 

 

 

 

Weighted average common stock and

 

 

 

  common stock equivalents - Diluted      

7,058,889

7,133,332

7,317,994

 

 

 

 

Basic earnings per share

$.79

$.80

$.53

Diluted earnings per share

$.78

$.79

$.52  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                                                                            - -34-


 


SCHEDULE II

 

CCA INDUSTRIES, INC. AND SUBSIDIARIES

VALUATION ACCOUNTS

YEARS ENDED NOVEMBER 30, 2007, 2006 AND 2005

 

 

 

 

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, 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

 

 

 

 

 

Year Ended November 30, 2006:

 

 

 

 

Allowance for doubtful accounts

$   260,366

($      73,657)

($          930)

$   185,779

 

 

 

 

 

Reserve for returns and allowances

      678,348

    4,520,660

(  4,358,590)

     840,418

 

 

 

 

 

 

$   938,714

  $4,447,003 

($ 4,359,520)

$1,026,197

 

 

 

 

 

 

 

 

 

 

Reserve of inventory obsolescence

$   854,764

  $   625,743

($   702,792)

$   777,715

 

 

 

 

 

 

 

 

 

 

Year Ended November 30, 2005:

 

 

 

 

Allowance for doubtful accounts

$   111,078

  $   206,736

($     57,448)

$   260,366  

 

 

 

 

 

Reserve for returns and allowances