CCA Industries 10Q 2010 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2010


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-31643

CCA Industries Inc.

(Exact name of registrant as specified in its charter)


Delaware		04-2795439

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

200 Murray Hill Parkway
East Rutherford, NJ 07073

(Address of principal executive offices)

(201) 330-1400

(Registrant’s telephone number, including area code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).


Large accelerated filero	Accelerated filero	Non-accelerated filero	Smaller reporting companyþ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

As of July 14, 2010 there were (i) 6,086,740 shares of the issuer’s common stock, par value $0.01, outstanding; and (ii) 967,702 shares of the issuer’s Class A common stock, par value $0.01, outstanding.

CCA INDUSTRIES, INC. AND SUBSIDIARIES

INDEX


	Page
	Number
PART I FINANCIAL INFORMATION:

Item 1. Financial Statements:

Consolidated Balance Sheets as of May 31, 2010 and November 30, 2009		2-3

Consolidated Statements of Operations for the three and six months ended May 31, 2010 and May 31, 2009		4

Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended May 31, 2010 and May 31, 2009		5

Consolidated Statements of Cash Flows for the three months and six months ended May 31, 2010 and May 31, 2009		6

Notes to Unaudited Consolidated Financial Statements		7 - 25

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		26 - 31

Item 3. Quantitative and Qualitative Disclosures about Market Risk		32

Item 4T. Controls and Procedures		32

PART II OTHER INFORMATION		33 - 34

Item 1. Legal Proceedings

Item 6. Exhibits

SIGNATURES		35

EXHIBITS		36-65

Exhibit 10.1
Exhibit 10.2
Exhibit 11
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

CCA INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

A S S E T S


	May 31,		November 30,
	2010		2009
	(Unaudited)

Current Assets
Cash and cash equivalents	$	8,947,057	$	7,844,369
Short-term investments and marketable securities		8,574,360		9,636,103
Accounts receivable, net of allowances of $1,808,900 and $1,584,814, respectively		8,500,031		7,613,273
Inventories, net of reserve for inventory obsolescence of $1,029,377 and $760,001, respectively		8,757,728		8,327,277
Insurance claim receivable		475,000		—
Prepaid expenses and sundry receivables		521,600		739,139
Prepaid and refundable income taxes		679,161		89,535
Deferred income taxes		1,509,158		1,193,745


Total Current Assets		37,964,095		35,443,441


Property and Equipment, net of accumulated depreciation and amortization		585,990		682,921


Intangible Assets, net of accumulated Amortization		696,414		697,506


Other Assets
Marketable securities		2,675,748		2,900,035
Other		65,300		65,300


Total Other Assets		2,741,048		2,965,335


Total Assets	$	41,987,547	$	39,789,203

See Notes to Unaudited Consolidated Financial Statements.

CCA INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS’ EQUITY


	May 31,			November 30,
	2010			2009
	(Unaudited)

Current Liabilities
Accounts payable and accrued liabilities	$	12,326,264		$	8,775,676
Capitalized lease obligation — current portion		35,789			53,233
Income taxes payable		—			147,153
Dividends payable		493,811			493,811


Total Current Liabilities		12,855,864			9,469,873

Deferred tax liability		117,154			76,929
Capitalized lease obligations-long term		11,339			22,553


Total Liabilities		12,984,357			9,569,355


Shareholders’ Equity
Preferred stock, $1.00 par; authorized 20,000,000 shares; none issued		—			—
Common stock, $.01 par; authorized 15,000,000 shares; 6,086,740 shares issued and outstanding		60,867			60,867
Class A common stock, $.01 par; authorized 5,000,000 shares; 967,702 shares issued and outstanding		9,677			9,677
Additional paid-in capital		2,329,049			2,329,049
Retained earnings		26,738,126			28,094,783
Unrealized (loss) on marketable securities		(134,529	)		(274,528	)


Total Shareholders’ Equity		29,003,190			30,219,848


Total Liabilities and Shareholders’ Equity	$	41,987,547		$	39,789,203

See Notes to Unaudited Consolidated Financial Statements.

CCA INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)


	Three Months Ended						Six Months Ended
	May 31,						May 31,
	2010			2009			2010			2009

Revenues
Sales of health and beauty aid products — Net	$	14,708,108		$	14,609,686		$	27,799,285		$	29,368,536
Other income		147,109			138,643			254,218			324,260


Total Revenues		14,855,217			14,748,329			28,053,503			29,692,796


Costs and Expenses
Costs of sales		6,119,823			5,527,838			11,150,922			11,144,050
Selling, general and administrative expenses		5,538,352			5,050,297			10,945,348			10,257,140
Advertising, cooperative and promotional expenses		2,353,530			2,782,150			3,905,037			6,449,490
Research and development		156,751			119,390			303,277			245,936
Bad debt (recovery) expense		(31,936	)		(72,181	)		14,339			(24,675	)
Interest expense		1,004			2,383			2,751			5,668


Total		14,137,524			13,409,877			26,321,674			28,077,609

Advertising Litigation Expense		2,067,407			—			2,129,043			—


Total Costs and Expenses		16,204,931			13,409,877			28,450,717			28,077,609


(Loss) Income before (Benefit From) Provision for Income Taxes		(1,349,714	)		1,338,452			(397,214	)		1,615,187

(Benefit From) Provision for Income Taxes		(439,125	)		644,316			(28,179	)		796,685


Net (Loss) Income	$	(910,589	)	$	694,136		$	(369,035	)	$	818,502


(Loss) Earnings per Share:
Basic	$	(0.13	)	$	0.10		$	(.05	)	$	0.12

Diluted	$	(0.13	)	$	0.10		$	(.05	)	$	0.12


Weighted Average Common Shares Outstanding:
Basic		7,054,442			7,054,442			7,054,442			7,054,442

Diluted		7,054,442			7,054,442			7,054,442			7,054,442

See Notes to Unaudited Consolidated Financial Statements.

CCA INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)


	Three Months Ended May 31,					Six Months Ended May 31,
	2010			2009		2010			2009

Net (Loss) Income	$	(910,589	)	$	694,136	$	(369,035	)	$	818,502

Other Comprehensive (Loss) Income — Unrealized (loss) gain on investments, net of tax * (Note 7, Note 12)		(44,287	)		1,059,550		139,999			260,824


Comprehensive (Loss) Income	$	(954,876	)	$	1,753,686	$	(229,036	)	$	1,079,326


*		Unrealized holding (loss) gain for the three and six months ended May 31, 2010 is net of a deferred tax benefit from unrealized losses of $29,402 and $49,413 respectively.

See Notes to Unaudited Consolidated Financial Statements.

CCA INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


	Six Months Ended
	May 31,			May 31,
	2010			2009
Cash Flows from Operating Activities:
Net (loss) income	$	(369,035	)	$	818,502
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		125,517			124,042
Loss on write off of fixed assets		—			3,262
Loss (Gain) on sale of securities		16,780			(49,971	)
(Increase) decrease in deferred income taxes		(225,775	)		37,337
(Increase) in accounts receivable		(886,758	)		(1,262,827	)
(Increase) decrease in inventory		(430,452	)		151,864
(Increase) in insurance claim receivable		(475,000	)		—
Decrease in prepaid expenses and miscellaneous receivables		217,539			62,020
(Increase) decrease in prepaid and refundable income taxes		(589,626	)		720,949
Increase (Decrease) in accounts payable and accrued Liabilities		3,550,588			(331,560	)
(Decrease) in income taxes payable		(147,153	)


Net Cash Provided by Operating Activities		786,625			273,618


Cash Flows from Investing Activities:
Acquisition of property, plant and equipment		(27,492	)		(168,382	)
Purchase of marketable securities		(9,008,164	)		(9,626,163	)
Proceeds from sale or maturity of investments		10,367,999			8,384,000


Net Cash Provided by (Used in) Investing Activities		1,332,343			(1,410,545	)


Cash Flows from Financing Activities:
Payments of capital lease obligation		(28,658	)		(28,219	)
Dividends paid		(987,622	)		(1,551,978	)


Net Cash (Used in) Financing Activities		(1,016,280	)		(1,580,197	)


Net Increase (decrease) in Cash		1,102,688			(2,717,124	)

Cash and Cash Equivalents at Beginning of Period		7,844,369			5,568,699

Cash and Cash Equivalents at End of Period	$	8,947,057		$	2,851,575


Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	2,751		$	5,668
Income taxes		957,768			41,017

Schedule of Non Cash Financing Activities:
Dividends declared		987,622			1,269,800

See Notes to Unaudited Consolidated Financial Statements.

CCA INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 —BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the three and six month periods ended May 31, 2010 are not necessarily indicative of the results that may be expected for the entire year ended November 30, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended November 30, 2009. The accompanying unaudited consolidated financial statements, in the opinion of management, include all adjustments necessary for a fair presentation. All such adjustments are of a normal recurring nature.

NOTE 2 —ORGANIZATION AND DESCRIPTION OF BUSINESS

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

CCA manufactures and distributes health and beauty aid products.

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

NOTE 3 —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 Accounting Principles Generally Accepted in the United States (“GAAP”), requires management to make estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accounting estimates and assumptions are those that management considers to be most critical to the financial statements because they inherently involve significant judgment and uncertainties. All of these estimates and assumptions reflect management’s best judgment about current economic and market conditions and their effects on the information available as of the date of the consolidated financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Comprehensive (Loss) Income:

Comprehensive (loss) 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 (loss) income. The Company’s accumulated other comprehensive (loss) income shown on the consolidated balance sheets consist of unrealized gains and losses on investment holdings, net of tax.

Cash and Cash Equivalents:

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

Short-Term Investments and Marketable Securities:

Short-term investments and marketable securities consist of certificates of deposits, corporate and government bonds and equity securities. The Company has classified its investments as Available-for-Sale securities. Accordingly, such investments are reported at fair market value, with the resultant unrealized gains and losses reported as a separate component of shareholders’ equity. Fair value for Available-for-Sale securities is determined by reference to quoted market prices or other relevant information.

Accounts Receivable:

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

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Inventories:

Inventories are stated at the lower of cost (weighted average) 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, whichever is shorter:


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 on a quarterly basis.

Web Site Costs:

Certain costs incurred in creating the graphics and content of the Company’s web site have been capitalized in accordance with the Accounting Standards Codification (“ASC”) Topic 350, “Intangible — Goodwill and Other”, issued by the Financial Accounting Standards Board (“FASB”). The Company had determined that these costs would be amortized over a two-year period. Web site design and conceptual costs are expensed as incurred.

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial Instruments:

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

Income Taxes:

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to the temporary differences between the carrying amounts of assets and liabilities as recorded on the Company’s financial statements and the carrying amounts as reflected on the Company’s income tax return. In addition, the portion of charitable contributions that cannot be deducted in the current period and are carried forward for future periods are also reflected in the deferred tax assets. Deferred tax assets and liabilities are valued using the tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of the deferred tax asset will not be realized.

Tax Credits:

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

(Loss) Earnings Per Common Share:

Basic (loss) earnings per share are calculated in accordance with ASC Topic 260, “Earnings Per Share”, which requires using the average number of shares of common stock outstanding during the period. Diluted (loss) earnings per share is computed on the basis of the average number of common shares outstanding plus the dilutive effect of any outstanding stock options using the “treasury stock method”. Common stock equivalents consist of stock options.

Revenue Recognition:

The Company recognizes sales upon shipment of merchandise. Net sales comprise gross revenues less expected returns, trade discounts, customer allowances and various sales incentives. Although no legal right of return exists between the customer and the Company, returns are accepted if it is in the best interests of the Company’s relationship with the customer. The Company, therefore, records a reserve for returns based on the historical returns as a percentage of sales in the five preceding months, adjusting for returns that can be put back into inventory, and a specific reserve based on customer circumstances. Those returns which are anticipated to be taken as credits against the balances as of the balance sheet date are offset against the accounts receivable. The reserves which are anticipated to be deducted from future invoices are included in accrued liabilities.

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Sales Incentives:

In accordance with ASC Topic 605-10-S99, “Revenue Recognition”, the Company has accounted for certain sales incentives offered to customers by charging them directly to sales as opposed to advertising and promotional expense. These accounting adjustments under ASC Topic 605-10-S99 do not affect net income.

Advertising Costs:

The Company’s policy for financial reporting is to charge advertising cost to expense as incurred. Advertising, cooperative and promotional expenses for the three months ended May 31, 2010 and May 31, 2009 were $2,353,530 and $2,782,150, respectively. Advertising, cooperative and promotional expenses for the six months ended May 31, 2010 and May 31, 2009 were $3,905,037 and $6,449,490, respectively.

Shipping Costs:

The Company’s policy for financial reporting is to charge shipping costs as part of selling, general and administrative expenses as incurred. Freight costs included for the three months ended May 31, 2010 and May 31, 2009 were $681,604 and $722,360, respectively. Freight costs included for the six months ended May 31, 2010 and 2009 were $1,317,320 and $1,397,133, respectively.

Stock Options:

In December 2004, the FASB issued ASC Topic 718, “Stock Compensation”. ASC Topic 718 requires stock grants to employees to be recognized in the consolidated statement of operations based on their fair values.

Recent Accounting Pronouncements:

In December 2007, the FASB amended certain provisions of Accounting Standard Codification (“ASC”) Topic 805, “Business Combinations”. This amendment changes accounting for acquisitions that close beginning in 2009 in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, in-process research & development and restructuring costs. More transactions and events will qualify as business combinations and will be accounted for at fair value under the new standard. This amendment promotes greater use of fair values in financial reporting. In addition, under Topic 805, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income tax expense. Some of the changes will introduce more volatility into earnings. Topic 805 became effective for fiscal years beginning on or after December 15, 2008.

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)

Topic 805 will have an impact on accounting for any business acquired after the effective date of this pronouncement.

In December 2007, the FASB issued ASC Topic 810, “Consolidation”. Topic 810 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests (“NCI”) and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest holders. Topic 810 became effective for fiscal years beginning after December 15, 2008. Topic 810 will have an impact on the presentation and disclosure of the noncontrolling interests of any non-wholly owned business acquired in the future.

In April 2008, the FASB amended certain provisions of ASC Topic 350, “Intangibles-Goodwill and Other”. Topic 350 amends the factors that must be considered in developing renewal or extension assumptions used to determine the useful life over which to amortize the cost of a recognized intangible. It further requires an entity to consider its own assumptions about renewal or extension of the term of the arrangement, consistent with its expected use of the asset, and is an attempt to improve consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. Topic 350 became effective for fiscal years beginning after December 15, 2008, and the guidance for determining the useful life of a recognized intangible asset must be applied prospectively to intangible assets acquired after the effective date. Topic 350 did not have a significant impact on the Company’s results of operations, financial condition or liquidity.

In April 2009, the SEC issued Staff Accounting Bulletin No. 111 (“SAB No. 111”). SAB No. 111 amends Topic 5.M. in regard to other than temporary impairment of certain investments in debt and equity securities. SAB No. 111 confirms the establishment of the “other than temporary” category of investment impairment. The adoption of SAB No. 111 became effective upon issuance and did not have any material impact on the Company’s financial position or results of operation.

In April 2009, the FASB issued an amendment to ASC Topic 825, “Financial Instruments”. The amendment requires disclosure of the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The amendment to Topic 825 became effective for interim reporting periods ending after June 15, 2009. The adoption of this topic had no impact on the Company’s financial position or results of operation.

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)

In April 2009, the FASB issued additional guidance under ASC Topic 820, “Fair Value Measurements and Disclosures”. Topic 820 provides additional guidance for estimating the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly decreased, and identifying circumstances in which a transaction may not be orderly. The adoption of this topic became effective for all interim and annual reporting periods ending after June 15, 2009. The adoption of the additional guidance provided by Topic 820 did not have any material impact on the Company’s financial position or results of operation.

In April 2009, the FASB issued an amendment to ASC Topic 320, “Investments — Debt and Equity” which amends the guidance in regard to other-than-temporary impairments on debt and equity securities in the financial statements. Topic 320 also requires additional disclosures in the financial statements that enable users to understand the types of debt and equity securities held, including those investments in an unrealized loss position for which an other-than-temporary impairment has or has not been recognized. The adoption of the amendment to Topic 320 became effective for all interim and annual reporting periods ending after June 15, 2009. The adoption of this amended topic did not have any material impact on the Company’s financial position or results of operation.

In May 2009, the FASB issued ASC Topic 855, “Subsequent Events”. The statement is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Topic 855 became effective June 15, 2009 for all subsequent reporting periods. The adoption of Topic 855 did not have any material impact on the Company’s financial position or results of operation.

In June 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-01, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”. This update identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States. This update is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of ASU 2009-01 did not have any material impact on the Company’s financial position or results of operation.

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)

In August 2009, the FASB issued ASU 2009-05, which is an update to Topic 820, “Fair Value Measurements and Disclosures”. The update provides clarification in regard to the estimation of the fair value of a liability. In addition, it also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. This update became effective for all interim and annual reporting periods ending after August 31, 2009. The adoption of ASU 2009-05 did not have a material impact on the Company’s financial position or results of operation.

In January 2010, the FASB issued ASU 2010-06, which is an update to Topic 820, “Fair Value Measurement and Disclosures”. This update establishes further disclosure requirements regarding transfers in and out of levels 1 and 2, and activity in level 3 fair value measurements. The update also provides clarification as to the level of disaggregation for each class of assets and liabilities, requires disclosures about inputs and valuation techniques, and also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 will be effective for all interim and annual reporting periods beginning after December 15, 2010. ASU 2010-06 is not expected to have a material impact on the Company’s financial position or results of operation.

In February 2010, the FASB issued ASU 2010-09, which is an update to Topic 855, “Subsequent Events”. This update clarifies the date through which the Company is required to evaluate subsequent events. SEC filers will be required to evaluate subsequent events though the date that the financial statements are issued. ASU 2010-009 was effective upon issuance, and will not have a material impact on the Company’s financial position or results of operation.

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 —INVENTORIES

The components of inventory consist of the following:


	May 31,		November 30,
	2010		2009

Raw materials	$	5,464,822	$	5,246,185
Finished goods		3,292,906		3,081,092

	$	8,757,728	$	8,327,277

At May 31, 2010 and November 30, 2009, the Company had a reserve for obsolescence of $1,029,377 and $760,001, respectively.

NOTE 5 —PROPERTY AND EQUIPMENT

The components of property and equipment consisted of the following:


	May 31		November 30,
	2010		2009

Machinery and equipment	$	231,170	$	217,323
Furniture and equipment		958,218		953,208
Tools, dies, and masters		344,351		335,716
Capitalized lease obligations		263,067		263,067
Web Site		20,000		20,000
Leasehold improvements		402,785		402,785

		2,219,591		2,192,099

Less: Accumulated depreciation and amortization		1,633,601		1,509,178


Property and Equipment — Net	$	585,990	$	682,921

Depreciation expense for the six months ended May 31, 2010 and 2009 amounted to $124,425 and $120,711, respectively. Furniture and equipment includes $132,550 of costs for computer equipment and software that has been purchased, but not placed in service as of yet. No depreciation expense for these assets will be recorded until they are placed in service.

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 —INTANGIBLE ASSETS

Intangible assets consist of owned trademarks and patents for ten product lines


	May 31,		November 30,
	2010		2009

Patents and trademarks	$	856,006	$	856,006
Less: Accumulated amortization		159,592		158,500

Intangible Assets — Net	$	696,414	$	697,506

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. Amortization expense for the six months ended May 31, 2010 and 2009 amounted to $1,092 and $3,331, respectively. Estimated amortization expense for the years ending November 30, 2010, 2011, 2012, 2013 and 2014 will be $2,185, $2,185, $2,185, $2,163 and $2,123 respectively.

NOTE 7 —SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES

Short-term investments and marketable securities, which consist of fully guaranteed bank certificates of deposit, 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 within the ensuing twelve months. The remaining investments are considered non-current assets. The cost and market values of the investments at May 31, 2010 and November 30, 2009 were as follows:


	May 31, 2010				November 30, 2009
	COST		MARKET		COST		MARKET
Current
Guaranteed bank certificates of deposit	$	826,000	$	832,758	$	942,000	$	944,910
Corporate obligations		399,614		404,104		598,370		607,189
U.S. Government obligations (including mortgage backed securities)		6,295,145		6,296,310		7,494,318		7,497,900
Preferred stock		454,855		402,570		250,000		187,720
Common stock		443,816		434,532		189,552		196,873
Mutual funds		215,274		171,722		215,274		165,383
Other equity investments		70,206		32,364		70,206		36,128


Total Current		8,704,910		8,574,360		9,759,720		9,636,103

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	May 31, 2010				November 30, 2009
	COST		MARKET		COST		MARKET

Non-Current:
Guaranteed bank Certificates of deposit		240,000		241,387		816,000		818,250
Corporate obligations		250,000		249,660		200,000		205,297
Preferred stock		2,279,039		2,184,701		2,074,845		1,876,488


Total Non-Current		2,769,039		2,675,748		3,090,845		2,900,035


Total	$	11,473,949	$	11,250,108	$	12,850,565	$	12,536,138

As of May 31, 2010, the Company had unrealized losses on its investments of $223,841. This amount was reduced by a deferred tax benefit of $89,313, of which $39,900 was recorded in prior periods and $49,413 was recorded in fiscal 2010. None of the unrealized losses have been deemed to be other-than-temporary or temporary impairments, and are accounted for under mark-to-market rules for Available-for-Sale securities. Please see Note 3 for further information.

Bank certificates of deposit are insured by the Federal Deposit Insurance Corporation for the full balance under the Temporary Liquidity Guarantee Program. 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).

The Company adopted ASC Topic 820, “Fair Value Measurements and Disclosures” as of December 1, 2007, which expands disclosures about investments that are measured and reported at fair market value. ASC Topic 820 established a fair value hierarchy that prioritizes the inputs to valuations techniques utilized to measure fair value into three broad levels as follows:

Level 1 — Quoted market prices in active markets for the identical asset or liability that the reporting entity has ability to access at measurement date.

Level 2 — Quoted market prices for identical or similar assets or liabilities in markets that are not active, and where fair value is determined through the use of models or other valuation methodologies.

Level 3 — Unobserved inputs for the asset or liability. Fair value is determined by the reporting entity’s own assumptions utilizing the best information available, and includes situations where there is little market activity for the investment.

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 —SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES (CONTINUED)


					Significant
			Quoted Market		Other
			Price in Active		Observable
	May 31,		Markets		Inputs
Description	2010		(Level 1)		(Level 2)
Bank Certificates of Deposit	$	1,074,145	$	—	$	1,074,145
Corporate obligations		653,764		—		653,764
Government Obligations		6,296,310		6,296,310		—
Preferred Stock		2,587,271		2,587,271		—
Common Stock		434,532		434,532		—
Mutual Funds		171,722		171,722		—
Other Equity		32,364		—		32,364


Total	$	11,250,108	$	9,489,835	$	1,760,273


			Quoted		Significant
			Market Price		Other
			in Active		Observable
	November 30,		Markets		Inputs
Description	2009		(Level 1)		(Level 2)

Bank Certificates of Deposit	$	1,763,157	$	—	$	1,763,157
Corporate obligations		812,490		—		812,490
Government Obligations		7,497,900		6,997,900		500,000
Preferred Stock		2,064,208		2,064,208		—
Common Stock		196,872		196,872		—
Mutual Funds		165,383		165,383		—
Other Equity		36,128		—		36,128


Total	$	12,536,138	$	9,424,363	$	3,111,775

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 —ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

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


	May 31,		November 30,
	2010		2009
	(In Thousands)		(In Thousands)
a) Trade payables	$	2,549	$	3,775
b) Advertising litigation		2,500		*
c) Media advertising		1,997		548
d) Accrued returns		1,410		1,207
e) Coop advertising		1,136		1,218
f) Accrued bonuses		938		482


	$	10,530	$	7,230


*		under 5%

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

NOTE 9 —OTHER INCOME

Other income consists of the following:


	Three Months Ending					Six Months Ending
	May 31,					May 31,
	2010			2009		2010			2009

Interest and dividend income	$	83,295		$	102,007	$	141,472		$	212,407
Royalty income		45,000			36,180		90,000			57,768
Realized (loss) gain on sale of Bonds		(21,264	)		—		(17,368	)		49,985
Miscellaneous		40,078			456		40,114			4,100


	$	147,109		$	138,643	$	254,218		$	324,260

NOTE 10 —COMMITMENTS AND CONTINGENCIES

Litigation

A class action lawsuit, “Wally v. CCA”, alleging false and misleading advertisement of the Company’s dietary supplement, was commenced in the Superior Court of the State of California, County of Los Angeles, on September 29, 2009. The action was brought seeking monetary and equitable remedies.

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 —COMMITMENTS AND CONTINGENCIES (CONTINUED)

Litigation (Continued)

The Company denied all of the allegations of wrongdoing and liability in regard to its advertising. Nevertheless, it concluded that in the light of the costs, delays and risks, as well as the disruption that would be caused by the litigation and the legal expense to defend the action, it was in the best interest of the Company to settle the litigation.

The performance of any act of the Settlement Agreement, or any other circumstance regarding the parties’ agreement to settle, is not to be considered an admission of liability, or as an admission of any allegations made in any claim or litigation.

The settlement, subject to the Court’s final approval, provides for the deposit of Two Million Five Hundred Thousand dollars ($2,500,000) into a common fund to be dispersed as per provisions approved by the Court in the final Order of Settlement.

The Company also entered into a settlement with its insurance carrier in regard to liability insurance coverage for litigation and settlement costs. The settlement calls for the insurance carrier to pay fifty percent (50%) of any combination of defense fees and related costs incurred for any settlement of, or any judgment on the released claims, up to a total of Four Hundred Seventy-Five Thousand dollars ($475,000). The obligation for the insurance carrier to make payments under this claim will cease once it has paid $475,000 to or on behalf of the Company.

The Company recorded a charge of $2,500,000 as an advertising litigation expense during the second quarter of 2010, with the resultant liability recorded as an accrued liability. To date, the Company has incurred legal fees related to the litigation of approximately $204,362, of which $100,319 was taken as a charge against earnings in the fourth quarter of fiscal 2009, $61,636 was taken as a charge against earnings in the first quarter of fiscal 2010 and $42,407 has been charged against earnings for the second quarter of fiscal 2010. The Company also recorded, as a result of the insurance settlement, an insurance claim receivable of $475,000, during the second quarter of 2010. The advertising litigation expense was reduced by the amount of the insurance claim receivable. The net cost of the litigation is reflected in the consolidated statements of operations as advertising litigation expense and consists of the following:


	Three Months Ending					Six Months Ending
	May 31,					May 31,
	2010			2009		2010			2009

Litigation settlement	$	2,500,000		$	—	$	2,500,000		$	—
Legal expenses incurred		42,407			—		104,043			—
Insurance claim settlement		(475,000	)		—		(475,000	)		—


Litigation expense — Net	$	2,067,407		$	—	$	2,129,043		$	—

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 —COMMITMENTS AND CONTINGENCIES (CONTINUED)

Dividends

On December 21, 2009, the board of directors declared a $0.07 per share dividend for the first quarter ended February 28, 2010. The dividend was payable to all shareholders of record as of February 1, 2010 and was paid on March 1, 2010.

On February 23, 2010, the Board of Directors declared a $0.07 per share dividend for the second quarter ended May 31, 2010. The dividend was payable to all shareholders of record on May 3, 2010 and was paid on June 3, 2010.

Collective Bargaining Agreement

On July 8, 2008, the Company signed a collective bargaining agreement with Local 108, L.I.U. of N.A., AFL-CIO with similar provisions of the one that expired on January 1, 2008. The new agreement is effective January 1, 2008. Other than standard wage, holiday, vacation and sick day provisions, the agreement requires the Company to contribute to the Recycling and General Industrial Union Local 108 Welfare Fund (“Welfare Fund”) certain benefits costs. The Welfare Fund provides medical, dental and life insurance for the Company’s employees covered under the collective bargaining agreement. The new collective bargaining agreement is in effect through December 31, 2010. This agreement pertains to 32% of the CCA labor force.

NOTE 11 —401(K) PLAN

The Company has adopted a 401(K) Profit Sharing Plan that all employees with over one year of service and have attained age 21 are eligible to join. 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 12 –INCOME TAXES

CCA and its subsidiaries file a consolidated federal income tax return.

The Company previously adopted the provisions of ASC Subtopic 740-10-25, “Uncertain Tax Positions”. Management believes that there were no unrecognized tax benefits, or tax positions that would result in uncertainty regarding the deductions taken, as of May 31, 2010 and May 31, 2009. ASC Subtopic 740-10-25 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. There were no penalties or related interest for the fiscal year to date ended May 31, 2010 or for the fiscal year to date ended May 31, 2009.

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 –INCOME TAXES (Continued)

The United States Internal Revenue Service completed in 2009 an examination of the Company’s U.S. tax return for fiscal 2006. As a result of that examination, the Company received a refund of $94,195 in federal taxes for the 2006 fiscal year. The audit adjustments resulted in refunds from amended state tax returns for 2006 of $28,145, and an additional $196,335 in refunds from federal and state amended returns for fiscal 2007. The State of New Jersey, Department of The Treasury, Division of Taxation is currently examining state income and sales tax returns filed for the fiscal years 2004 – 2008. As of July 14, 2010, no adjustments have been proposed. No other state has notified the Company of its intent to conduct an examination of tax returns filed in their jurisdictions. The Company had $214,139 and $315,455 of officer salaries during the three months ended May 31, 2010 and 2009, and $381,873 and $423,146 during the six months ended May 31, 2010 and 2009, respectively that were not deductible for tax purposes in calculating the income tax provision. As of May 31, 2010, the Company had unrealized losses on its investments of $223,841. This amount was reduced by a deferred tax benefit of $89,313, of which $39,900 was recorded in prior periods, $20,012 was recorded in the first quarter of fiscal 2010 and $29,402 recorded in the second quarter of 2010. The deferred tax benefit has been recorded as a deferred tax asset, and offset against the unrealized losses on marketable securities reported on the consolidated balance sheets.

At May 31, 2010 and November 30, 2009, respectively, the Company had temporary differences arising from the following:


	May 31, 2010
							Classified As
				Deferred			Short-Term		Long- Term
Type	Amount			Tax			Asset		(Liability)
Depreciation	$	(293,619	)	$	(117,154	)	$	—	$	(117,154	)
Unrealized loss on investments		233,841			89,313			89,313
Reserve for bad debts		38,333			15,295			15,295		—
Reserve for returns		1.770,567			706,456			706,456		—
Reserve for obsolete inventory		1,029,377			410,721			410,721		—
Vacation accrual		293,365			117,053			117,053		—
Charitable Contributions		145,448			58,034			58,034		—
Section 263A costs		281,421			112,286			112,286		—


Net deferred income taxes				$	1,392,004		$	1,509,158	$	(117,154	)

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 —INCOME TAXES (CONTINUED)


	November 30, 2009
							Classified As
				Deferred			Short-Term			Long- Term
Type	Amount			Tax			Asset			(Liability)

Depreciation	$	(192,804	)	$	(76,929	)	$	—		$	(76,929	)
Unrealized loss on investments		314,428			125,457			125,457			—
Reserve for bad debts		131,223			52,358			52,358			—
Reserve for returns		1,453,591			579,983			579,983			—
Reserve for obsolete inventory		760,001			303,240			303,240			—
Vacation accrual		276,161			110,188			110,188			—
Charitable Contributions		9,569			3,818			3,818
Section 263A costs		261,298			104,258			104,258			—


Deferred income tax					1,202,373			1,279,302		$	(76,929	)
Valuation allowance					(85,557	)		(85,557	)		—


Net deferred income taxes				$	1,116,816		$	1,193,745		$	(76,929	)

Income tax expense is made up of the following components:


	Three Months Ended May 31,
	2010			2009

Current tax expense — Federal	$	(177,373	)	$	514,952
Current tax expense — State & Local		(51,136	)		149,759
Deferred tax (benefit)		(210,616	)		(20,395	)


Total tax expense	$	(439,125	)	$	644,316


	Six Months Ended May 31,
	2010			2009

Current tax expense — Federal	$	152,308		$	586,748
Current tax expense — State & Local		45,289			172,600
Deferred tax (benefit) expense		(225,776	)		37,337


Total tax expense	$	(28,179	)	$	796,685

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 — INCOME TAXES (CONTINUED)

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


			State &
	Federal		Local		Total

May 31, 2010	$	402,950	$	276,211	$	679,161


November 30, 2009	$	—	$	89,535	$	89,535

Income tax payable is made up of the following components:


			State &
	Federal		Local		Total

May 31, 2010	$	—	$	—	$	—


November 30, 2009	$	61,303	$	85,850	$	147,153

A reconciliation of (benefit from) provision for income taxes computed at the statutory rate to the effective rate for the three months ended May 31, 2010 and 2009 is as follows:


	Three Months Ended						Three Months Ended
	May 31, 2010						May 31, 2009
									Percent
				Percent					of Pretax
	Amount			Amount			Amount		Income
(Benefit from) Provision for Income taxes at federal statutory rate	$	(458,903	)		(34.00	)%	$	455,074		34.00	%
Increases in taxes resulting from:
State income taxes, net of federal income tax benefit		(80,173	)		(5.94	)		79,504		5.94

Non-deductible expenses and other adjustments		99,951			7.41			109,738		8.19


(Benefit from) Provision for Income taxes at effective rate	$	(439,125	)		(32.53	)%	$	644,316		48.13	%

CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Six Months Ended						Six Months Ended
	May 31, 2010						May 31, 2009
									Percent
				Percent					of Pretax
	Amount			Amount			Amount		Income
(Benefit from) Provision for Income taxes at federal statutory rate	$	(135,053	)		(34.00	)%	$	549,163		34.00	%
Increases in taxes resulting from:
State income taxes, net of federal income tax benefit		(23,595	)		(5.94	)		95,942		5.94

Non-deductible expenses and other adjustments		130,469			32.85			151,580		9.38


(Benefit from) Provision for Income taxes at effective rate	$	(28,179	)		(7.09	)%	$	796,685		49.32	%

NOTE 13 —SUBSEQUENT EVENTS

On May 28, 2010, the Board of Directors declared a $0.07 per share dividend for the third quarter ended August 31, 2010. The dividend will be payable to all shareholders of record on August 2, 2010 and will be payable on September 2, 2010.

On June 16, 2010, the Company deposited $2,500,000 into an escrow account to fund the proposed settlement of the advertising litigation expense. Please see Note No. 10 for further information regarding the litigation.

The Company has evaluated subsequent events that occurred during the period of May 31, 2010 through July 14, 2010, the date that these financial statements were issued. Except as disclosed above, management concluded that no other events required potential adjustment to, or disclosure in these consolidated financial statements.


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED)

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.

OVERVIEW

The Company had, for the three month period ended May 31, 2010, a net loss of $(910,589) as compared to net income of $694,136 for the same period in 2009. The reason for the second quarter loss was the recording of the proposed settlement of advertising litigation plus related legal fees, reduced by an insurance claim, for a net expense of $2,067,407 before tax. This advertising litigation expense also impacted the net income for the six month period ended May 31, 2010. If the advertising litigation expense had not occurred, the income before provision for income taxes would have been $717,693 and $1,731,829, respectively for the three months and six months ended May 31, 2010 as compared to $1,338,452 and $1,615,187, respectively for the same periods in 2009. Net sales for the second quarter of fiscal 2010 were $14,708,108 as compared to $14,609,686 for the same period in fiscal 2009. The Company’s balance sheet as of May 31, 2010 reflects $37,964,095 in current assets and $12,855,864 in current liabilities. The Company does not have any loan or line of credit bank debt.

OPERATING RESULTS FOR THE THREE MONTHS ENDED MAY 31, 2010

For the three-month period ended May 31, 2010, the Company had total revenues of $14,855,217 and a net loss of $(910,589) after (benefit from) income taxes of $(439,125). For the same three month period in 2009, total revenues were $14,748,329 and net income was $694,136 after a provision for taxes of $644,316. If the advertising litigation expense had not occurred, the income before provision for income taxes would have been $717,693 for the three months ended May 31, 2010 as compared to $1,338,452 for the same period in 2009. Basic and fully diluted losses per share were $(0.13) for the second quarter of 2010 as compared to basic and fully diluted earnings per share of $0.10 for the second quarter of 2009. In accordance with ASC Topic 605-10-S99, “Revenue Recognition”, the Company has accounted for certain sales incentives offered to customers by charging them directly to sales as opposed to advertising and promotional expenses. Net sales for the second quarter of 2010 were reduced by $1,858,394 and offset by an equal reduction of trade promotional expenses, which were included in the Company’s advertising expense budget. In the same period of the prior year, net sales were reduced by $1,630,652 and trade promotion was credited by that amount. These accounting adjustments under ASC Topic 605-10-S99 do not affect net income.

The Company’s net sales increased $98,422 to $14,708,108 for the three-month period ended May 31, 2010 from $14,609,686 for the three-month period ended May 31, 2009. The Company’s gross sales had increased by $423,102 in the second quarter of 2010 as compared to the second quarter of 2009. However, this increase was offset primarily by higher sales incentives of $227,242 and higher returns of $42,452. Sales returns and allowances, not including sales incentives, were 11.88% of gross sales for the three-month period ended May 31, 2010 as compared to 11.63% for the same period last year. Sales returns for the Plus White oral care brand were $201,278 higher during the second quarter of 2010 as compared to the second quarter of 2009, due to a voluntary product recall. A Form 8-K was filed on April 14, 2010 announcing that the Company had requested the voluntary recall of three lots of its Plus White whitening gel which had shipped in March and early April. The gel liquefied, subsequent to shipment (a cosmetic change), which caused the product to lose its efficacy.


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) (CONTINUED)

Included in sales incentives is the cost of the coupons issued by the Company, which was $246,005 in the second quarter of 2010 as compared to $280,389 in the second quarter of 2009. The Company uses a national clearing house for the receipt and processing of coupons from our retail partners. The national clearing house renders invoices to the Company on a weekly basis for coupons that they have processed which are recorded as an expense in the period for which the invoice is dated. The Company also records an expense accrual at the end of each period equal to the prior six weeks of invoices rendered based on information from the national clearing house that there is an average lag time of six weeks between the time that the retailer receives the coupon and when the Company receives the invoice. The amount recorded as an expense or an accrual includes the retailer cost of the coupon in addition to any processing charges by the national coupon clearing house. Coupons are issued by the Company to be used with the purchase of specific products, with an expiration date noted on the coupon.

The Company’s net sales by category for the second quarter of 2010 were: Dietary Supplement $5,517,103, 37.5%; Skin Care $4,749,930, 32.3%; Oral Care $1,966,020, 13.4%; Nail Care $1,757,105, 11.9%; Fragrance, $393,398, 2.7%; Analgesic $232,267, 1.6%; and Hair Care and Miscellaneous $92,285, 0.6%; for a total of $14,708,108.

The Company makes every effort to control the cost of manufacturing and has had no substantial cost increases. The gross margin for the second quarter of 2010 was 58.4%, as compared to 62.2% for the second quarter of 2009. The gross margin was lower primarily due to higher inventory reserves related to the voluntary recall of the three lots of the Plus White whitening gel and higher sales incentives. The inventory reserve was increased by $271,153 for items directly related to the product recall. Increases in the inventory reserve are charged to the costs of sales. Sales incentives increased by $227,742 for the second quarter of 2010 as compared to the same period in 2009. Sales incentives reduce net sales and the resulting gross margin.

Selling, general and administrative expenses were $488,055 higher in the second quarter of 2010 as compared to the same period in 2009. The increase was due to higher employee compensation expense in the second quarter of 2010 as compared to the second quarter of 2009. The higher compensation expense was due to one additional payroll period in the second quarter of 2010 than the second quarter of 2009, and the timing of when additional compensation expense was recorded.

Advertising expense was $2,353,530 for the quarter ended May 31, 2010 as compared to $2,782,150 for the quarter ended May 31, 2009, or a decrease of $428,620. Of this amount, $283,139 was due to lower co-operative advertising that is reflected as a selling expense and $144,835 was as a result of lower advertising expense. The Company’s advertising expense changes from quarter to quarter based on the timing of the Company’s promotions.


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) (CONTINUED)

The Company recorded an advertising litigation expense of $2,067,407 for the three month period ended May 31, 2010. This expense was a result of the class action lawsuit, “Wally v. CCA”, alleging false and misleading advertisement of the Company’s dietary supplement, which was commenced in the Superior Court of the State of California, County of Los Angeles, on September 29, 2009. Please see Note No. 10 to the financial statements for more information regarding the litigation. The proposed settlement agreement provides for the Company to pay $2,500,000 in order to settle the litigation. The Company incurred litigation related legal expenses of $42,407 during the three month period ended May 31, 2010. The Company has also entered into a settlement with its insurance carrier in regard to liability insurance coverage for litigation and settlement costs. As a result of the insurance settlement, the Company recorded an insurance claim receivable of $475,000 during the second quarter of 2010, which reduced the advertising litigation expense by the same amount.

The loss before taxes was $(1,349,714) for the quarter ended May 31, 2010 as compared to pre-tax income of $1,338,452 for the same quarter in 2009. As previously disclosed, the advertising litigation expense had a material effect on the second quarter results. If the advertising litigation expense had not occurred, the income before provision for income taxes would have been $717,693 for the three months ended May 31, 2010 as compared to $1,338,452 for the same period in 2009. The effective tax rate for the second quarter of 2010 was (32.5) % versus 48.1% for the second quarter of 2009. The (benefit from) provision for income taxes included non-deductible expenses and adjustments that decreased the (benefit from) income taxes by $99,951 or 7.4% of the pre-tax loss for the second quarter of 2010 as compared to $109,738 or 8.2% of pre-tax income for the same period in fiscal 2009. During the second quarter ended May 31, 2010 and 2009, there was $214,139 and $315,455, respectively of officer salaries incurred that were not deductible for tax purposes in calculating the income tax provision.

OPERATING RESULTS FOR THE SIX MONTHS ENDED MAY 31, 2010

For the six month period ended May 31, 2010, the Company had total revenues of $28,053,503 and a net loss of $(369,035) after (benefit from) income taxes of $(28,179). For the same six month period in 2009, total revenues were $29,692,796 and net income was $818,502 after a provision for taxes of $796,685. If the advertising litigation expense had not occurred, the income before provision for income taxes would have been $1,731,829 for the six months ended May 31, 2010 as compared to $1,615,187 for the same period in 2009. Basic and fully diluted losses per share were $(0.05) for the six months ended May 31, 2010 as compared to basic and fully diluted earnings per share of $0.12 for the same period in 2009. In accordance with ASC Topic 605-10-S99, “Revenue Recognition”, the Company has accounted for certain sales incentives offered to customers by charging them directly to sales as opposed to advertising and promotional expenses. Net sales for the first six months of 2010 were reduced by $3,508,863 and offset by an equal reduction of trade promotional expenses, which were included in the Company’s advertising expense budget. In the same period of the prior year, net sales were reduced by $3,025,750 and trade promotion was credited by that amount. These accounting adjustments under ASC Topic 605-10-S99 do not affect net income.


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) (CONTINUED)

The Company’s net sales decreased $1,569,251 to $27,799,285 for the six month period ended May 31, 2010 from $29,368,536 for the six month period ended May 31, 2009. The Company’s gross sales of its diet products were $1,545,598 lower in the first six months of 2010 as compared to the same period in 2009, with most of the decrease occurring in the first quarter of 2010. Sales returns and allowances, not including sales incentives, were 9.6% of gross sales for the six month period ended May 31, 2010 as compared to 10.0% for the same period last year. Included in sales incentives is the cost of the coupons issued by the Company, which was $339,798 for the first six months of 2010 as compared to $399,275 for the same period in 2009.

The Company’s net sales by category for the first six months of 2010 were: Dietary Supplement $10,497,513, 37.8%; Skin Care $8,459,792, 30.4%; Oral Care $4,473,071, 16.1%; Nail Care $3,095,115, 11.1%; Fragrance, $656,369, 2.4%; Analgesic $460,354, 1.7%; and Hair Care and Miscellaneous $157,071, 0.5%; for a total of $27,799,285.

The Company makes every effort to control the cost of manufacturing and has had no substantial cost increases. The gross margin for the six months ended May 31, 2010 was 59.9%, as compared to 62.1% for the same period in 2009. The gross margin was affected by higher inventory reserves related to the voluntary recall of the three lots of the Plus White whitening gel and higher sales incentives. The inventory reserve was increased by $271,153 for items directly related to the product recall. Increases in the inventory reserve are charged to the costs of sales. Sales incentives increased by $483,113 for the six months ended May 31, 2010 as compared to the same period in 2009. Sales incentives reduce net sales and the resulting gross margin. The Company has also had higher manufacturing costs for its Plus White whitening gel, since it had to utilize a secondary manufacturer at a higher unit cost due to the voluntary recall of the whitening gel.

Selling, general and administrative expenses were $688,208 higher in the first six months of 2010 as compared to the same period in 2009. The increase was due to higher employee compensation expense in the second quarter of 2010 as compared to the second quarter of 2009 as a result of the timing of when the additional compensation expense was recorded. The higher compensation expense was also due to the hiring of additional sales personnel. Health insurance costs continued to increase, with an additional expense of $37,896 for the first six months of 2010 as compared to the first six months of 2009. Advertising expense was $3,905,037 for the six months ended May 31, 2010 as compared to $6,449,490 for the six months ended May 31, 2009, or a decrease of $2,544,453. Of this amount, $512,811 was due to lower co-operative advertising that is reflected as a selling expense with the balance as a result of lower advertising expense. The Company’s advertising expense changes from quarter to quarter based on the timing of the Company’s promotions.

The Company recorded an advertising litigation expense of $2,129,043 for the six month period ended May 31, 2010, of which $2,067,407 was incurred in the second quarter of 2010. This expense was a result of the class action lawsuit, “Wally v. CCA”, alleging false and misleading advertisement of the Company’s dietary supplement, which was commenced in the Superior Court of the State of California, County of Los Angeles, on September 29, 2009. Please see Note No. 10 to the financial statements for more information regarding the litigation. The proposed settlement agreement provides for the Company to pay $2,500,000 in order to settle the litigation. The Company incurred litigation related legal expenses of $104,043 during the six month period ended May 31, 2010. The Company has also entered into a settlement with its insurance carrier in regard to liability insurance coverage for litigation and settlement costs. As a result of the insurance settlement, the Company recorded an insurance claim receivable of $475,000 during the second quarter of 2010, which reduced the advertising litigation expense by the same amount.


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) (CONTINUED)

The loss before taxes was $(397,214) for the six months ended May 31, 2010 as compared to pre-tax income of $1,615,187 for the same period in 2009. As previously disclosed, the advertising litigation expense had a material effect on the results for the first six months of 2010. If the advertising litigation expense had not occurred, the income before provision for income taxes would have been $1,731,829 for the six months ended May 31, 2010 as compared to $1,615,187 for the same period in 2009. The effective tax rate for the six months ended May 31, 2010 was (7.1) % versus 49.3% for the six months ended May 31, 2009. The (benefit from) provision for income tax included non-deductible expenses and adjustments that decreased the (benefit from) income taxes by $130,649 or 32.85% of pre-tax loss for the first six months of 2010 as compared to $151,580 or 9.4% of pre-tax income for the same period in fiscal 2009. During the six months ended May 31, 2010 and 2009, there was $381,873 and $423,146, respectively of officer salaries incurred that were not deductible for tax purposes in calculating the income tax provision.

FINANCIAL POSITION AS OF MAY 31, 2010

The Company’s financial position as of May 31, 2010 consisted of current assets of $37,964,095 and current liabilities of $12,855,864, or a current ratio of 3.0 to 1. The Company’s cash and cash equivalents were $8,947,057 as of May 31, 2010, an increase of $1,102,688 from November 30, 2009. Included in this increase was net cash provided by operating activities of $786,625 and net cash provided by investing activities of $1,332,343 offset by net cash used in financing activities of $1,016,280. Included in the net cash used in financing activities was $987,622 of dividends paid.

As of May 31, 2010, the Company had $8,574,360 of short term marketable securities and $2,675,748 of non-current securities. The Company’s cash and cash equivalents together with both short and long term marketable securities, net of current liabilities were $7,341,301 as of May 31, 2010. Please refer to Note No. 7 of the financial statements for further information regarding the Company’s investments.

Accounts receivable increased to $8,500,031 as of May 31, 2010 from $7,613,273 as of November 30, 2009. Included in net accounts receivable are reserves for returns and allowances of $1,770,567 and allowances for doubtful accounts of $38,333. Gross receivables were further reduced by $952,349, which were 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 $1,136,088 which is an estimate of co-operative advertising expense relating to fiscal 2010 sales which are anticipated to be deducted from future invoices rather than against the current accounts receivable. Any changes in this accrued liability are recorded as a debit or credit to the reserve for returns and allowances account. The gross accounts receivable as of May 31, 2010 was higher as compared to the balance on November 30, 2009 due to the timing of the Company’s sales.


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) (CONTINUED)

Inventory increased to $8,757,728 as of May 31, 2010 from $8,327,277 as of November 30, 2009. The inventory increased to support the anticipated sales in the third quarter of 2010. The inventory obsolescence reserve increased to $1,029,377 as of May 31, 2010 from $760,001 as of November 30, 2009. Changes to the inventory obsolescence reserves are recorded as an increase or decrease to the cost of goods. The inventory reserve was increased by $271,153 during the second quarter of 2010 as a result of the voluntary recall of the Plus White whitening gel. This additional reserve reflects the costs of the recalled product that remained in inventory as of May 31, 2010.

The Company recorded an insurance claim receivable of $475,000 during the second quarter of 2010 as a result of a settlement between the Company and its insurance carrier in regard to liability insurance coverage of the advertising litigation, “Wally vs. CCA”. The Company’s insurance carrier agreed to pay fifty-percent of all litigation and settlement expenses up to a maximum amount of $475,000.

Prepaid and refundable income taxes increased to $679,161 as of May 31, 2010 from $89,535 as of November 30, 2009. The increase was due to a reduction of the anticipated income taxes that will be due for the fiscal year ended November 30, 2010. The reduction is as a result of the recording of the advertising litigation expense. The Company had already made its estimated income payments in the first quarter of 2010.

The deferred income tax asset increased to $1,509,158 as of May 31, 2010 from $1,193,745 as of November 30, 2009. The Company expects that all of the deferred tax assets will be realized within the next twelve month period subsequent to May 31, 2010. The deferred tax assets include $89,313 related to the Company’s unrealized losses of $223,841 on its investments as of May 31, 2010. The unrealized losses reported on the balance sheet were $134,529, which is net of the deferred tax benefit. The Company had reported a valuation allowance of $85,557 as of November 30, 2009 against the deferred tax benefit resulting from the unrealized losses on investments. There is no valuation allowance against the deferred tax benefit from unrealized losses at May 31, 2010, as the Company believes that if the unrealized losses were realized, the full amount of the deferred tax benefit would also be realized in the subsequent twelve months, based on capital gains earned over the prior three years and anticipated gains over the next year. The deferred tax liability increased to $117,154 at May 31, 2010 as compared to $76,929 as of November 30, 2009. The liability is due to the difference in depreciation between the Company’s books and income tax returns.

Accounts payable and accrued liabilities increased to $12,326,264 as of May 31, 2010 from $8,775,676 as of November 30, 2009, or an increase of $3,550,588. The Company recorded an accrued liability of $2,500,000 during the second quarter of 2010 as a result of the proposed settlement of its advertising litigation. Please see Note No. 10 to the financial statement for further information regarding the litigation. The balance of the increase was for accrued liabilities in the normal course of business.

Shareholders’ equity decreased to $29,003,190 as of May 31, 2010 from $30,219,848 as of November 30, 2009. The decrease was due to the net loss of $369,035 and dividends declared of $987,622 during the first six months ended May 31, 2010, offset partially by unrealized gains on its investments of $139,999 during the same period. Unrealized holding gains or losses are recorded as other comprehensive income. Total unrealized losses on marketable securities were $134,529 at May 31, 2010, net of a deferred tax benefit of $89,313.


ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company’s financial statements 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 “Fully Guaranteed Bank Certificates of Deposit”, “Common Stock”, “Mutual Funds”, “Other Equity”, “Preferred Stock”, “Government Obligations” and “Corporate Obligations.” $466,896 of the Company’s $11,250,108 portfolio of investments (approximate, as at May 31, 2010) is invested in the “Common Stock” and “Other Equity” categories, and approximately $2,587,451 in the Preferred Stock holdings category. The Company invests in various investment securities. Investment securities are exposed to various risks such as interest rates, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will incur in the near term. The Company does not take positions or engage in transactions in risk-sensitive market instruments in any substantial degree, nor as defined by SEC rules and instructions, however, due to current securities market conditions, the Company cannot ascertain the risk of any future change in the market value of its’ investments.


ITEM 4T.		CONTROLS AND PROCEDURES

An evaluation was performed under the supervision of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that, as of May 31, 2010, the Company’s disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives.

There have been no changes in the Company’s internal control over financial reporting during the quarterly period ended May 31, 2010 that have materially affected, or is reasonably likely to materially affect, the Company’s internal control overall financial reporting.

CCA INDUSTRIES, INC.

PART II OTHER INFORMATION


ITEM 1.		LEGAL PROCEEDINGS:

The settlement, subject to the Court’s final approval, provided for the deposit of Two Million Five Hundred Thousand dollars ($2,500,000) into a common fund to be dispersed as per provisions approved by the Court in the final Order of Settlement. On June 16, 2010, the Company deposited $2,500,000 into an escrow account to be used for the common fund upon the Court’s final approval.

The Company also entered into a settlement with its insurance carrier in regard to liability insurance coverage for litigation and settlement costs. The settlement calls for the insurance carrier to pay fifty percent (50%) of any combination of defense fees and related costs incurred for any settlement of, or any judgment on the released claims, up to a total of Four Hundred Seventy-Five Thousand dollars ($475,000). The obligation for the insurance carrier to make payments will cease once it has paid $475,000 to or on behalf of the Company.


ITEM 6.		EXHIBITS.

In reviewing the agreements included as exhibits to this Form 10-Q, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

•

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

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have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

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may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

•

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

The following exhibits are included as part of this report:


Exhibit No.		Description

	10.1	Proposed Order of Settlement

	10.2	Settlement and Mutual Release Agreement

	11	Computation of Unaudited Earnings Per Share

	31.1	Certification of Chief Executive Officer pursuant to Section 302 the Sarbanes-Oxley Act of 2002

	31.2	Certification of Chief Financial Officer pursuant to Section 302 the Sarbanes-Oxley Act of 2002

	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: July 14, 2010


	CCA INDUSTRIES, INC.

	By:	/s/ David Edell
		David Edell, Chief Executive Officer

	By:	/s/ Stephen A. Heit
		Stephen A. Heit, Chief Financial Officer

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Avg

CCA Industries (CAWW) Inactive 10-Q2010 Q2 Quarterly report

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