The following discussion should be read in conjunction with our financial statements and the notes to those statements and other financial information appearing elsewhere in this report.

Overview

Net income for the year ended November 30, 2012 was $465,452 compared to net income of $491,698 for the year ended November 30, 2011. The earnings per share, basic and fully diluted was $0.07 for the year ended November 30, 2012 compared to earnings per share of $0.07 for the year ended November 30, 2011. The Company had net cash provided by operations of $1,460,199 for the year ended November 30, 2012 as compared to net cash used by operations of $(515,876) for the year ended November 30, 2011. Comprehensive income was $615,170 for fiscal 2012 as compared to comprehensive income of $413,249 for fiscal 2011. The Company had current assets of $33,439,053 and current liabilities of $10,770,627 at November 30, 2012. Retained earnings decreased to $21,813,136 at November 30, 2012 from $23,322,928 at November 30, 2011. There was no change in the number of outstanding shares at November 30, 2012 as compared to November 30, 2011.

Superstorm Sandy

On October 30, 2012, Superstorm Sandy caused widespread flooding on the New Jersey coast, resulting in substantial water damage to the Company's offices and warehouse. The Company has a flood insurance policy with a loss limit of $1,000,000. The Company received $200,000 of the insurance proceeds in November 2012 and anticipated receiving the balance of $800,000 as of November 30, 2012, and accordingly recorded an insurance receivable in the amount of $800,000 as of the same date. The Company received the balance of the proceeds of $800,000 in December 2012. The Company incurred a total net loss of $128,554 as a result of Superstorm Sandy that is recorded in the results for the year ended November 30, 2012. The following chart shows the components of the loss:

                            Superstorm Sandy Losses

                      For the year ended November 30, 2012



                Inventory at Cost                      $   437,088
                Loss on Disposal of Assets Destroyed        79,893
                Cleanup & Water Removal Costs              327,641
                Leased Office Equipment Destroyed          145,662
                Other Expenses                             138,271

                Total Expenses                           1,128,554
                Less: Insurance Proceeds                 1,000,000

                Net Loss                               $   128,554

In addition to the net loss of $128,554, the Company's ability to ship was interrupted for six business days which resulted in a loss of sales and profits.

Comparison of Operating Results for Fiscal Years 2012 and 2011

For the year ended November 30, 2012, the Company had revenues of $53,775,675 and net income of $465,452 after a provision for income taxes of $478,530. For the year ended November 30, 2011, the Company had revenues of $49,511,889, and net income of $491,698, after a provision for taxes of $461,541. Other income increased to $606,653 for fiscal 2012 as compared to $478,522 for fiscal 2011. The increase was primarily due to higher realized gains on sales of investments and increased royalty income on foreign sales. The basic and fully diluted income per share for fiscal 2012 was $0.07 as compared to a basic and fully diluted income per share of $0.07 for fiscal 2011.

The Company's net sales increased to $53,169,022 for the fiscal year ended November 30, 2012 from $49,033,367 for the fiscal year ended November 30, 2011. Net sales were affected by the following factors:

• The introduction of Gel Perfect has been a great success for the Company. Gross sales for Gel Perfect increased $9,991,602, or 251.2% during fiscal 2012 as compared to fiscal 2011. The returns of Gel Perfect were 10.1% of gross sales in 2012. The 2012 rate of return is within a normal range for a color cosmetic product. Gel Perfect, a UV-free gel nail polish, was launched at the end of August 2011.

• Sales of the Company's diet products continued to decrease. Gross sales decreased $3,718,291 during fiscal 2012 or a decrease of 22.7% as compared to fiscal 2011. The decrease in gross sales is part of an overall nation-wide trend in decreased sales of certain diet products.

• Gross sales of Sudden Change, the Company's skin care brand, increased 37.0% in fiscal 2012 as compared to fiscal 2011. This was due to added distribution in 2012.

• Returns of Plus White, the Company's oral care product decreased to 4.4% of gross sales in fiscal 2012 from 7.3% in fiscal 2011. The higher return rate in 2011 was due to product recalls. Returns of Solar Sense, a sun care product, decreased to 14.2% of gross sales in fiscal 2012 from 21.9% in 2011. Solar Sense is a seasonal product which experienced greater sell-through at retail in 2012. Returns of Cherry Vanilla, a fragrance product, increased to 11.9% of gross sales in fiscal 2012 from 3.1% in fiscal 2011. The higher return rate was due to additional mark down allowances for seasonal sales.

Sales returns and allowances was 9.9% of gross sales for fiscal 2012 and 10.1% for fiscal 2011. Coupon expense, charged against sales allowances, was $1,388,135 in fiscal 2012 as compared to $1,124,759 in fiscal 2011. The Company, on an ongoing basis, has returns of products that have been phased out and replaced by new items as part of its marketing plan.

In accordance with accounting principles generally accepted in the United States of America ("GAAP"), the Company reclassified certain advertising and promotional expenditures as a reduction of sales rather than report them as an expense, which had no affect on the net income. This reclassification is the adoption by the Company of ASC Topic 605-10-S99, "Revenue Recognition" as more fully described in Note 2 ("Sales Incentives") of the consolidated financial statements for fiscal 2012. The reclassification reflects a reduction in sales for the fiscal years ended November 30, 2012 and 2011 by $5,141,552 and $4,857,444 respectively, an increase in the net sales reduction of $284,108.

The Company's net sales, by category for fiscal 2012 as compared to fiscal 2011 were:

                                        Years Ended November 30,
                                   2012                          2011
             Category     Net Sales                     Net Sales
             Skin Care   $ 16,419,807        30.9 %    $ 15,297,890        31.2 %
             Nail Care     14,154,802        26.6 %       7,096,756        14.5 %
             Oral Care     10,753,761        20.3 %      10,301,151        21.1 %
             Dietary        9,723,831        18.3 %      12,784,518        26.0 %
             Fragrance      1,166,411         2.2 %       2,171,771         4.4 %
             Analgesic        272,172         0.5 %         596,482         1.2 %
             Hair Care         50,862         0.1 %          65,619         0.1 %
             Misc.            627,377         1.1 %         719,180         1.5 %

                         $ 53,169,022       100.0 %    $ 49,033,367       100.0 %

Gross profit margins decreased to 56.3% in fiscal 2012 from 58.3% in fiscal 2011. The decrease was primarily due to increases in product and packaging costs in fiscal 2012 as compared to fiscal 2011, as well as changes in product mix. Nail care, which is now the second largest category of net sales in fiscal 2012 increased due to Gel Perfect which has a higher cost of goods than many of the other product categories. The total cost of sales as a percentage of gross sales increased to 35.2% in fiscal 2012 as compared to 34.0% in fiscal 2011.

Selling, general and administrative expenses for fiscal 2012 were $21,727,273 as compared to $21,967,327 for fiscal 2011, a decrease of $240,054. The following factors contributed to the decrease:

• Royalty costs as a result of the license agreement with Alleghany Pharmacal Corporation decreased $465,953 in fiscal 2012 as compared to fiscal 2011. The Company reached a settlement with Alleghany Pharmacal Corporation which resulted in a one-time payment of $600,000 in fiscal 2011, resulting in a higher expense for that year. The decrease from year to year was reduced by increased sales of nail care in fiscal 2012 which resulted in higher royalty payments.

• Shipping costs increased $360,284 in fiscal 2012 as compared to fiscal 2011. The increase was mainly due to increased sales.

• Travel expense decreased $174,245 in fiscal 2012 as compared to fiscal 2011. The decrease was due to lower negotiated travel agency fees.

• Consulting and other costs decreased $605,786 in fiscal 2012 as compared to fiscal 2011. The decrease was due to lower use of outside consultants and lower payments to members of the board of directors due to less meetings in fiscal 2012 than fiscal 2011.

• Superstorm Sandy resulted in an increased expense due to costs of remediation from the flood. Please see Note 5 to the consolidated financial statements for the year ended November 30, 2012 for further information.

• The balance of the increase or decrease in expenses comprised a number of smaller expense categories.

Advertising, cooperative and promotions expenses for fiscal 2012 were $7,142,284 as compared to $5,436,565 for fiscal 2011. The increased expense of $1,705,719 was comprised in part of the following:

• Higher media, trade advertising and related expenses of $1,889,737

• Decreased co-operative advertising that is recorded as a sales expense of $373,076

The Company's advertising expense changes from year to year based on the timing of the Company's promotions.

The income before provision for income taxes was $943,982 for the year ended November 30, 2012, as compared to $953,239 for the year ended November 30, 2011.

The effective tax provision for fiscal 2012 was an expense of 50.7% of the income before tax as compared to 48.4% for fiscal 2011. The fiscal 2012 effective tax rate was higher due to a change in the allocation of state income taxes effective for the 2013 fiscal year. The change will result in a lower blended state income tax rate in future years. As a result, the deferred tax value decreased which increased the income tax provision for fiscal 2012. As of November 30, 2011, the Company has unrealized gains on its investments of $55,863, which, if realized, would have a tax expense of $20,616.

Comprehensive income was $615,170 for the year ended November 30, 2012 as compared to $413,249 for the year ended November 30, 2011. The comprehensive income for fiscal 2012 reflects the Company's net income of $465,452 for fiscal 2012 together with other comprehensive gains, net of income tax benefits, of $149,718. The other comprehensive gain is as a result of the gain in the market value of the Company's investments. Further information regarding the Company's investments can be found in Note 3 of the consolidated financial statements.

Comparison of Operating Results for Fiscal Years 2011 and 2010

For the year ended November 30, 2011, the Company had revenues of $49,511,889 and net income of $491,698 after a provision for income taxes of $461,541. For the year ended November 30, 2010, the Company had revenues of $50,811,642, and a net loss of $(1,664,760), after a benefit from taxes of $(693,085). Other income increased to $478,522 for fiscal 2011 as compared to $466,429 for fiscal 2010. The increase was primarily due to higher royalty income on foreign sales. The basic and fully diluted income per share for fiscal 2011 was $0.07 as compared to a basic and fully diluted loss of $(0.24) for fiscal 2010.

The Company's net sales decreased to $49,033,367 for the fiscal year ended November 30, 2011 from $50,345,213 for the fiscal year ended November 30, 2010. Net sales were affected by the following factors:

• Gross sales were impacted by sales of the Company's diet products, which have been trending downward since the first quarter of fiscal 2010. Diet sales were 26.0% lower in fiscal 2011 as compared to fiscal 2010. This is part of a continuing nation-wide trend of lower sales for all brands of diet products.

• Gross sales were down in fiscal 2011 for the Company's Hair Off depilatory brand, with a decrease of 54.1% as compared to fiscal 2010.

• Gross sales of Sudden Change, the Company's skin care brand, increased 52.7% in fiscal 2011 as compared to fiscal 2010. This was due to added distribution in 2011, and the success of the Under Eye Firming Serum product, which had been featured on the Rachel Ray show earlier in the year.

• Gross sales of Nutra Nail products increased 34.5% in fiscal 2011 as compared to fiscal 2010. This was due to the introduction of the Gel Perfect nail polish line, which began shipping in August 2011.

Sales returns and allowances decreased to 10.1% of gross sales for fiscal 2011 versus 11.4% in fiscal 2010. The decrease was primarily due to lower product returns offset by higher usage of coupons during fiscal 2011. Coupon expense, charged against sales allowances, was $1,124,759 in fiscal 2011 as compared to $904,610 in fiscal 2010. The Company, on an ongoing basis, has returns of products that have been phased out and replaced by new items as part of its marketing plan. Product returns as a percentage of gross sales were 6.0% in fiscal 2011 as compared to 8.2% in fiscal 2010, despite increased returns of Plus White as a result of the whitening gel recall.

In accordance with accounting principles generally accepted in the United States of America ("GAAP"), the Company reclassified certain advertising and promotional expenditures as a reduction of sales rather than report them as an expense, which had no affect on the net income. This reclassification is the adoption by the Company of ASC Topic 605-10-S99, "Revenue Recognition" as more fully described in Note 2 ("Sales Incentives") of the consolidated financial statements for fiscal 2011. The reclassification reflects a reduction in sales for the fiscal years ended November 30, 2011 and 2010 by $4,857,444 and $6,507,212 respectively, a decrease in the net sales reduction of $1,649,768.

The Company's net sales, by category for fiscal 2011 as compared to fiscal 2010 were:

                                        Years Ended November 30,
                                   2011                          2010
             Category     Net Sales                     Net Sales
             Skin Care   $ 15,297,890        31.2 %    $ 15,074,631        29.9 %
             Dietary       12,784,518        26.0 %      16,695,074        33.2 %
             Oral Care     10,301,151        21.1 %      10,047,391        20.0 %
             Nail Care      7,096,756        14.5 %       5,039,085        10.0 %
             Fragrance      2,171,771         4.4 %       2,031,549         4.0 %
             Analgesic        596,482         1.2 %         803,228         1.6 %
             Hair Care         65,619         0.1 %          51,354         0.1 %
             Misc.            719,180         1.5 %         602,901         1.2 %

                         $ 49,033,367       100.0 %    $ 50,345,213       100.0 %

Gross profit margins increased to 58.3% in fiscal 2011 from 56.7% in fiscal 2010. The increase was due to lower product returns and sales incentives in fiscal 2011 as compared to fiscal 2010. The portion of the Company's co-operative advertising that is classified as a sales incentive reduces net sales. The cost of sales as a percentage of gross sales increased slightly to 34.0% in fiscal 2011 as compared to 33.9% in fiscal 2010.

Selling, general and administrative expenses for fiscal 2011 were $21,967,327 as compared to $21,139,743 for fiscal 2010, an increase of $827,584. The increase was due to the following factors:

• The Company reached a settlement with Alleghany Pharmacal Corporation which resulted in a one-time payment of $600,000, and an increased royalty expense of $145,893 in fiscal 2011 due to the change in the royalty rate (see Item 1, License-Agreements for further information regarding the settlement).

• Compensation for the outside members of the Board of Directors increased $282,500 in fiscal 2011 due to an increased number of meetings during fiscal 2011, and the board approving an annual retainer of $25,000 for each director.

• Shipping costs increased $205,592 in fiscal 2011, despite lower gross sales, due to higher fuel costs. The Company anticipates continued higher fuel costs in fiscal 2012.

• The Company incurred legal and other expenses of $142,211 as a result of the Company's response to the SEC filings of Biglari Holdings, Inc. and related parties. The Company does not expect to have any further legal costs in connection with this matter.

• Health insurance costs increased $176,728 in fiscal 2011 as compared to fiscal 2010.

• Compensation costs for David Edell and Ira Berman decreased $1,075,448 as a result of their becoming consultants to the Company.

• The balance of the increase in expenses comprised a number of smaller expense increases.

Advertising, cooperative and promotions expenses for fiscal 2011 were $5,436,565 as compared to $7,493,282 for fiscal 2010. The decreased expense of $2,056,717 was comprised in part of the following:

• Lower media, trade advertising and related expenses of $1,388,402

• Decreased co-operative advertising that is recorded as a sales expense of $639,317

The Company's advertising expense changes from year to year based on the timing of the Company's promotions.

The Company recorded an advertising litigation expense of $2,235,465 in fiscal 2010. This consists of settlement costs of $2,500,000 and litigation related legal expenses of $210,465, less a recovery of $475,000 from the Company's insurance carrier as a result of the class action lawsuit, "Wally v. CCA". Please see Item 3 - Legal Proceeding in Form 10-K, filed for the fiscal year ended November 30, 2010 for further information regarding this litigation. There were no material legal expenses related to this litigation in fiscal 2011.

The income before provision for income taxes was $953,239 for the year ended November 30, 2011, as compared to a loss before benefit from income taxes of $(2,357,845) for the year ended November 30, 2010.

The effective tax provision for fiscal 2011 was an expense of 48.4% of the income before tax as compared to a benefit of 29.4% of income before tax for fiscal 2010. The fiscal 2011 effective tax provision was calculated using the carry forward loss from fiscal 2010 and applicable federal and state income taxes. The fiscal 2011 tax provision was also affected by an under accrual of state income taxes in the amount of $46,706 from fiscal 2010. The entire carry forward loss from fiscal 2010 was utilized in fiscal 2011. The fiscal 2010 effective tax rate was a benefit due to the loss that the Company sustained during the year. The Company had $0 and $547,566 of officer salaries during fiscal 2011 and 2010, respectively, which were not deductible for tax purposes in calculating the income tax expense or benefit. The Company also lost the benefit of the domestic production activities federal tax credit in fiscal 2010 as a result of the operating loss. As of November 30, 2011, the Company has unrealized losses on its investments of $192,064, which, if realized, would have a tax benefit of $77,594.

Comprehensive income was $413,249 for the year ended November 30, 2011 as compared to a comprehensive loss of $(1,426,253) for the year ended November 30, 2010. This reflects the Company's net income of $491,698 for fiscal 2011 together with other comprehensive loss, net of income tax benefits, of $(78,449). The deferred tax benefit of the unrealized loss is $52,666 for the year ended November 30, 2011. The other comprehensive loss is as a result of the loss in the market value of the Company's investments. Further information regarding the Company's investments can be found in Note 6 of the consolidated financial statements.

Financial Position as of November 30, 2012

As of November 30, 2012, the Company had working capital of $22,668,426 as compared to $21,557,320 at November 30, 2011. The ratio of total current assets to current liabilities is 3.1 to 1 as compared to a ratio of 3.4 to 1 for the prior year. The Company's cash position and short-term investments at November 30, 2012 were $12,112,453, versus $10,061,611 as at November 30, 2011. Non-current or long term investments were $0 at November 30, 2012 versus $2,983,026 at November 30, 2011. The Company paid cash dividends during fiscal 2012 in the amount of $1,975,244. This amount includes the dividends declared at the end of fiscal 2011 but not paid until fiscal 2012 of $493,811 and $1,481,433 in dividends declared and paid for fiscal 2012. As of November 30, 2012, there were dividends declared but not paid of $493,811. The investment securities the Company purchased are all classified as "Available for Sale Securities", and are reported at fair market value as of November 30, 2012, with the resultant unrealized gains or losses reported as a separate component of shareholders' equity. Due to the current securities market conditions, the Company cannot ascertain the risk of any future change in market value. Our investments include corporate obligations, limited partnerships, common stock and fixed income in order to decrease the risk due to any specific concentrations.

Accounts receivable as of November 30, 2012 and 2011 were $8,073,398 and $7,743,601 respectively. Included in net accounts receivable are an allowance for doubtful accounts, a reserve for returns and allowances and a reduction based on an estimate of co-operative advertising that will be taken as credit against payments. The allowance for doubtful accounts was $26,340 and $53,191 for November 30, 2012 and 2011, respectively. 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.

The reserve for returns and allowances is based on the historical returns as a percentage of sales in the five preceding months, adjusting for returns that can be put back into inventory, and a specific reserve based on customer circumstances. This allowance decreased to $1,772,405 as of November 30, 2012 from $2,014,303 as of November 30, 2011. Of this amount, allowances and reserves in the amount of $665,184, which are anticipated to be deducted from future invoices, are included in accrued liabilities. The reserve for returns and allowances was lower as of November 30, 2012 due to lower average returns and credits of 5.3% of sales for fiscal 2012 as compared to 6.6% in fiscal 2011.

Gross receivables were further reduced by $1,212,067 as of November 30, 2012, which was reclassified from accrued liabilities, as an estimate of the co-operative advertising that will be taken as a credit against payments. In addition, accrued liabilities include $2,471,174, which is an estimate of co-operative advertising expense relating to fiscal 2012 sales which are anticipated to be deducted from future invoices rather than current accounts receivable.

Inventories were $9,794,448 and $9,460,408, as of November 30, 2012 and 2011, respectively. The inventory was purchased in anticipation of forecasted sales to take place in the first and second quarter of 2013. The reserve for inventory obsolescence is based on a detailed analysis of inventory movement. The inventory obsolescence reserve was decreased to $671,609 as of November 30, 2012 from $892,226 as of November 30, 2011. This decrease was primarily due to the scrapping and disposal of $776,329 of inventory, which decreased both the gross inventory and the inventory reserve to the extent that the scrapped inventory was already considered obsolete. In addition, $437,088 of inventory that was damaged as a result of Super storm Sandy was scrapped. Changes to the inventory obsolescence reserves are recorded as an increase or decrease to the cost of sales.

The Company recorded an insurance claim receivable in the amount of $800,000 as of November 30, 2012 that the Company anticipated receiving. The insurance claim was due to Superstorm Sandy. The Company's flood policy has a $1,000,000 loss limit, and $200,000 was already paid to the Company for the loss in November 2012. The Company received payment of $800,000 in December 2012.

Prepaid expenses and sundry receivables decreased to $671,093 as of November 30, 2012 from $947,087 as of November 30, 2011. The decrease was in the ordinary course of business.

Prepaid and refundable income taxes increased to $745,177 as of November 30, 2012, from $718,828 as of November 30, 2011.

The amount of deferred income tax reflected as a current asset decreased to $1,242,484 as of November 30, 2012 from $1,738,949 as of November 30, 2011. The $496,465 decrease was due to decreases in reserve accounts, the decrease in the deferred tax asset as a result of the unrealized gain on investments and a revaluation of the deferred tax assets as a result of a lower blended state income tax rate for fiscal 2013. There was a change in the New Jersey state tax law regarding the allocation of income between states that will result in a lower blended state income tax rate for fiscal 2013 and thereafter. There was an unrealized loss on investments as of November 30, 2011.

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. The Company acquired $796,442 of additional property and equipment during fiscal 2012, of which $438,902 was directly related to Superstorm Sandy.

Current liabilities are $10,770,627 and $9,113,164, as of November 30, 2012 and 2011 respectively. Current liabilities at November 30, 2012 consisted of accounts payable, accrued liabilities, short-term capital lease obligations and dividends payable. As of November 30, 2012, there was $3,683,241 of open cooperative advertising commitments, of which $1,927,648 is from 2012, . . .