Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 31, 2010
or
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o |
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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)
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Delaware
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04-2795439 |
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(State or other jurisdiction of
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(IRS Employer Identification No.) |
incorporation or organization) |
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200 Murray Hill Parkway
East Rutherford, NJ 07073
(Address of principal executive offices)
(201) 330-1400
(Registrants 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. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§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). Yes þ
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act
(Check one).
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of August 31, 2010 there were (i) 6,086,740 shares of the issuers common stock, par value
$0.01, outstanding; and (ii) 967,702 shares of the issuers Class A common stock, par value $0.01,
outstanding.
CCA INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
1
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
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August 31, |
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November 30, |
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2010 |
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2009 |
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(Unaudited) |
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Current Assets |
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Cash and cash equivalents |
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$ |
10,062,229 |
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$ |
7,844,369 |
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Short-term investments and marketable
securities |
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4,853,687 |
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9,636,103 |
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Accounts receivable, net of allowances of
$1,906,863 and $1,584,814, respectively |
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7,890,907 |
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7,613,273 |
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Inventories, net of reserve for inventory obsolescence
of $1,258,984 and $760,001, respectively |
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8,296,318 |
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8,327,277 |
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Insurance claim receivable |
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384,925 |
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Prepaid expenses and sundry receivables |
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655,583 |
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739,139 |
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Prepaid and refundable income taxes |
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920,134 |
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89,535 |
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Deferred income taxes |
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1,598,886 |
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1,193,745 |
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Total Current Assets |
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34,662,669 |
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35,443,441 |
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Property and Equipment, net of accumulated
depreciation and amortization |
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581,545 |
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682,921 |
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Intangible Assets, net of accumulated
amortization |
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695,868 |
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697,506 |
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Other Assets |
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Marketable securities |
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2,713,120 |
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2,900,035 |
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Other |
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65,300 |
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65,300 |
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Total Other Assets |
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2,778,420 |
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2,965,335 |
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Total Assets |
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$ |
38,718,502 |
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$ |
39,789,203 |
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See Notes to Unaudited Consolidated Financial Statements.
2
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
LIABILITIES AND SHAREHOLDERS EQUITY
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August 31, |
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November 30, |
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2010 |
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2009 |
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(Unaudited) |
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Current Liabilities |
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Accounts payable and accrued liabilities |
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$ |
10,043,356 |
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$ |
8,775,676 |
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Capitalized lease obligation current portion |
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25,585 |
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53,233 |
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Income taxes payable |
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147,153 |
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Dividends payable |
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493,811 |
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493,811 |
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Total Current Liabilities |
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10,562,752 |
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9,469,873 |
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Deferred tax liability |
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135,505 |
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76,929 |
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Capitalized lease obligations-long term |
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9,759 |
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22,553 |
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Total Liabilities |
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10,708,016 |
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9,569,355 |
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Shareholders Equity |
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Preferred stock, $1.00 par; authorized
20,000,000 shares; none issued |
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Common stock, $.01 par; authorized
15,000,000 shares; 6,086,740 shares issued and outstanding |
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60,867 |
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60,867 |
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Class A common stock, $.01 par; authorized
5,000,000 shares; 967,702 shares issued and outstanding |
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9,677 |
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9,677 |
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Additional paid-in capital |
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2,329,049 |
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2,329,049 |
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Retained earnings |
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25,646,089 |
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28,094,783 |
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Unrealized (loss) on marketable
securities |
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(35,196 |
) |
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(274,528 |
) |
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Total Shareholders Equity |
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28,010,486 |
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30,219,848 |
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Total Liabilities and Shareholders Equity |
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$ |
38,718,502 |
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$ |
39,789,203 |
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See Notes to Unaudited Consolidated Financial Statements.
3
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended |
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Nine Months Ended |
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August 31, |
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August 31, |
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2010 |
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2009 |
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2010 |
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2009 |
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Revenues |
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Sales of health and beauty
aid products Net |
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$ |
12,490,391 |
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$ |
15,139,754 |
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$ |
40,289,676 |
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$ |
44,508,290 |
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Other income |
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106,009 |
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204,841 |
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|
360,227 |
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529,100 |
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Total Revenues |
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12,596,400 |
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15,344,595 |
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40,649,903 |
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45,037,390 |
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Costs and Expenses |
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Costs of sales |
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6,006,187 |
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|
5,616,335 |
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17,157,109 |
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16,760,385 |
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Selling, general and
administrative expenses |
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5,371,167 |
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5,247,923 |
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16,312,271 |
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|
15,505,062 |
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Advertising, cooperative
and promotional expenses |
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1,690,455 |
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1,870,669 |
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5,599,736 |
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8,320,159 |
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Research and development |
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144,882 |
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123,808 |
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|
448,159 |
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|
369,744 |
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Bad debt expense |
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25,228 |
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|
82,735 |
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|
39,567 |
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|
58,061 |
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Interest expense |
|
|
748 |
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|
|
3,588 |
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|
|
3,499 |
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|
|
9,256 |
|
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|
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|
|
|
|
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Total |
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|
13,238,667 |
|
|
|
12,945,058 |
|
|
|
39,560,341 |
|
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41,022,667 |
|
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|
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Advertising Litigation
Expense |
|
|
65,254 |
|
|
|
|
|
|
|
2,194,297 |
|
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|
|
|
|
|
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|
|
|
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|
Total Costs and Expenses |
|
|
13,303,921 |
|
|
|
12,945,058 |
|
|
|
41,754,638 |
|
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|
41,022,667 |
|
|
|
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|
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|
|
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|
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|
(Loss) Income before (Benefit From) Provision for Income Taxes |
|
|
(707,521 |
) |
|
|
2,399,537 |
|
|
|
(1,104,735 |
) |
|
|
4,014,723 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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(Benefit from) provision
for income taxes |
|
|
(109,296 |
) |
|
|
800,191 |
|
|
|
(137,475 |
) |
|
|
1,596,876 |
|
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|
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|
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Net (Loss) Income |
|
$ |
(598,225 |
) |
|
$ |
1,599,346 |
|
|
$ |
(967,260 |
) |
|
$ |
2,417,847 |
|
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(Loss) Earnings per Share: |
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Basic |
|
$ |
(0.08 |
) |
|
$ |
0.23 |
|
|
$ |
(0.14 |
) |
|
$ |
0.34 |
|
|
|
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|
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|
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|
Diluted |
|
$ |
(0.08 |
) |
|
$ |
0.23 |
|
|
$ |
(0.14 |
) |
|
$ |
0.34 |
|
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Weighted Average Common
Shares Outstanding: |
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Basic |
|
|
7,054,442 |
|
|
|
7,054,442 |
|
|
|
7,054,442 |
|
|
|
7,054,442 |
|
|
|
|
|
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Diluted |
|
|
7,054,442 |
|
|
|
7,054,442 |
|
|
|
7,054,442 |
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|
|
7,054,442 |
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|
|
|
|
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|
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Cash dividends declared
per common share |
|
$ |
0.07 |
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|
$ |
0.07 |
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|
$ |
0.21 |
|
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
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|
See Notes to Unaudited Consolidated Financial Statements.
4
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
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|
|
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|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
August 31, |
|
|
August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income |
|
$ |
(598,225 |
) |
|
$ |
1,599,346 |
|
|
$ |
(967,260 |
) |
|
$ |
2,417,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Other Comprehensive
Income Unrealized gain
on investments, net of tax * (Note 7, Note 12) |
|
|
99,333 |
|
|
|
283,847 |
|
|
|
239,332 |
|
|
|
544,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
Comprehensive (loss) Income |
|
$ |
(498,892 |
) |
|
$ |
1,883,193 |
|
|
$ |
(727,928 |
) |
|
$ |
2,962,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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* |
|
Unrealized holding gain for the three and nine months ended August 31, 2010 is net of a deferred
tax (expense) from unrealized gains of ($65,948) and ($16,534)
respectively. The nine month
deferred tax expense was net of a decrease in the valuation allowance
of $85,557. |
See
Notes to Unaudited Consolidated Financial Statements.
5
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
August 31, |
|
|
August 31, |
|
|
|
2010 |
|
|
2009 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(967,260 |
) |
|
$ |
2,417,847 |
|
Adjustments to reconcile net income to net
cash (Used in) provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
183,429 |
|
|
|
185,138 |
|
Loss on write off of fixed assets |
|
|
|
|
|
|
3,262 |
|
Loss (gain) on sale of securities |
|
|
14,386 |
|
|
|
(111,411 |
) |
(Increase) decrease in deferred income taxes |
|
|
(363,099 |
) |
|
|
196,594 |
|
(Increase) in accounts receivable |
|
|
(277,634 |
) |
|
|
(1,093,648 |
) |
Decrease (increase) in inventory |
|
|
30,958 |
|
|
|
(317,386 |
) |
(Increase) in insurance claim receivable |
|
|
(384,925 |
) |
|
|
|
|
Decrease in prepaid expenses
and miscellaneous receivables |
|
|
83,556 |
|
|
|
82,482 |
|
(Increase) decrease in prepaid and
refundable income taxes |
|
|
(830,599 |
) |
|
|
1,359,957 |
|
Increase (decrease) in accounts payable and
accrued liabilities |
|
|
1,267,680 |
|
|
|
(114,677 |
) |
(Decrease) in income taxes payable |
|
|
(147,153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used in) Provided by Operating
Activities |
|
|
(1,390,661 |
) |
|
|
2,608,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment |
|
|
(80,414 |
) |
|
|
(252,135 |
) |
Purchase of marketable securities |
|
|
(9,157,181 |
) |
|
|
(14,242,206 |
) |
Proceeds from sale or maturity of
investments |
|
|
14,367,992 |
|
|
|
15,641,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Investing
Activities |
|
|
5,130,397 |
|
|
|
1,147,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Payments of capital lease obligation |
|
|
(40,443 |
) |
|
|
(42,795 |
) |
Dividends paid |
|
|
(1,481,433 |
) |
|
|
(2,045,789 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used in) Financing Activities |
|
|
(1,521,876 |
) |
|
|
(2,088,584 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash |
|
|
2,217,860 |
|
|
|
1,666,642 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Period |
|
|
7,844,369 |
|
|
|
5,568,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
10,062,229 |
|
|
$ |
7,235,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow
Information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
3,499 |
|
|
$ |
9,256 |
|
Income taxes |
|
|
1,422,836 |
|
|
|
42,945 |
|
|
|
|
|
|
|
|
|
|
Schedule of Non Cash Financing Activities: |
|
|
|
|
|
|
|
|
Dividends declared |
|
$ |
1,481,433 |
|
|
$ |
1,763,611 |
|
See Notes to Unaudited Consolidated Financial Statements.
6
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 accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States for complete
financial statements. Operating results for the three and nine month periods ended
August 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 Companys
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 managements 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.
7
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 Companys accumulated
other comprehensive (loss) income shown on the consolidated balance sheets consist of
unrealized gains and losses on investment holdings, net of deferred tax expense or
benefit.
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.
8
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 utilizing the straight-line method over the
following estimated useful lives or lease terms of the assets, whichever is shorter:
|
|
|
Machinery and equipment
|
|
57 Years |
Furniture and fixtures
|
|
310 Years |
Tools, dies and masters
|
|
3 Years |
Transportation equipment
|
|
5 Years |
Leasehold improvements
|
|
Remaining life of the lease (ranging from 19 years) |
Intangible Assets:
Intangible assets are stated at cost. Patents are amortized utilizing 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 Companys web site
have been capitalized in accordance with the Accounting Standards Codification (ASC)
Topic 350, Intangibles 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.
9
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 Companys financial statements and the carrying amounts as reflected on
the Companys 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 common stock equivalents 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 Companys
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.
10
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 Companys policy for financial reporting is to charge advertising cost to expense
as incurred. Advertising, cooperative and promotional expenses for the three months
ended August 31, 2010 and August 31, 2009 were $1,690,455 and $1,870,669, respectively.
Advertising, cooperative and promotional expenses for the nine months ended August 31,
2010 and August 31, 2009 were $5,599,736 and $8,320,159, respectively.
Shipping Costs:
The Companys 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 August 31, 2010 and August 31, 2009 were $729,725 and $683,039,
respectively. Freight costs included for the nine months ended August 31, 2010 and
2009 were $2,047,045 and $2,080,172, 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.
11
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 Companys 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
Companys 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 Companys
financial position or results of operation.
12
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
Companys 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 Companys 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 Companys 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 Companys
financial position or results of operation.
13
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 Companys 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
Companys 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
Companys 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.
14
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 INVENTORIES
The components of inventory consist of the following:
|
|
|
|
|
|
|
|
|
|
|
August 31, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
4,911,420 |
|
|
$ |
5,246,185 |
|
Finished goods |
|
|
3,384,898 |
|
|
|
3,081,092 |
|
|
|
|
|
|
|
|
|
|
$ |
8,296,318 |
|
|
$ |
8,327,277 |
|
|
|
|
|
|
|
|
At August 31, 2010 and November 30, 2009, the Company had a reserve for obsolescence
of $ 1,258,984 and $760,001, respectively.
NOTE 5 PROPERTY AND EQUIPMENT
The components of property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
August 31, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Machinery and equipment |
|
$ |
257,703 |
|
|
$ |
217,323 |
|
Furniture and equipment |
|
|
972,761 |
|
|
|
953,208 |
|
Tools, dies, and masters |
|
|
345,876 |
|
|
|
335,716 |
|
Capitalized lease obligations |
|
|
263,067 |
|
|
|
263,067 |
|
Web Site |
|
|
20,000 |
|
|
|
20,000 |
|
Leasehold improvements |
|
|
413,106 |
|
|
|
402,785 |
|
|
|
|
|
|
|
|
|
|
|
2,272,513 |
|
|
|
2,192,099 |
|
Less: Accumulated depreciation
and amortization |
|
|
1,690,968 |
|
|
|
1,509,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment Net |
|
$ |
581,545 |
|
|
$ |
682,921 |
|
|
|
|
|
|
|
|
Depreciation expense for the nine months ended August 31, 2010 and 2009 amounted to
$181,791 and $180,142, respectively. Furniture and equipment includes $164,967 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.
15
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
|
|
|
|
|
|
|
|
|
|
|
August 31, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Patents and trademarks |
|
$ |
856,006 |
|
|
$ |
856,006 |
|
Less: Accumulated amortization |
|
|
160,138 |
|
|
|
158,500 |
|
|
|
|
|
|
|
|
Intangible Assets Net |
|
$ |
695,868 |
|
|
$ |
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 nine months ended August 31, 2010 and 2009 amounted to
$1,638 and $4,996, 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 August 31, 2010 and November 30, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2010 |
|
|
November 30, 2009 |
|
|
|
COST |
|
|
MARKET |
|
|
COST |
|
|
MARKET |
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed bank
certificates of deposit |
|
$ |
1,066,000 |
|
|
$ |
1,073,787 |
|
|
$ |
942,000 |
|
|
$ |
944,910 |
|
Corporate
obligations |
|
|
200,000 |
|
|
|
203,148 |
|
|
|
598,370 |
|
|
|
607,189 |
|
U.S. Government
obligations (including mortgage
backed securities) |
|
|
2,497,153 |
|
|
|
2,499,275 |
|
|
|
7,494,318 |
|
|
|
7,497,900 |
|
Preferred stock |
|
|
454,855 |
|
|
|
381,850 |
|
|
|
250,000 |
|
|
|
187,720 |
|
Common stock |
|
|
443,816 |
|
|
|
479,625 |
|
|
|
189,552 |
|
|
|
196,873 |
|
Mutual funds |
|
|
215,273 |
|
|
|
179,512 |
|
|
|
215,274 |
|
|
|
165,383 |
|
Other equity
investments |
|
|
70,206 |
|
|
|
36,490 |
|
|
|
70,206 |
|
|
|
36,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current |
|
$ |
4,947,302 |
|
|
$ |
4,853,687 |
|
|
$ |
9,759,720 |
|
|
$ |
9,636,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2010 |
|
|
November 30, 2009 |
|
|
|
COST |
|
|
MARKET |
|
|
COST |
|
|
MARKET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed bank
Certificates of deposit |
|
$ |
|
|
|
$ |
|
|
|
$ |
816,000 |
|
|
$ |
818,250 |
|
Corporate obligations |
|
|
250,000 |
|
|
|
251,333 |
|
|
|
200,000 |
|
|
|
205,297 |
|
Preferred stock |
|
|
2,428,067 |
|
|
|
2,461,787 |
|
|
|
2,074,845 |
|
|
|
1,876,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Current |
|
|
2,678,067 |
|
|
|
2,713,120 |
|
|
|
3,090,845 |
|
|
|
2,900,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,625,369 |
|
|
$ |
7,566,807 |
|
|
$ |
12,850,565 |
|
|
$ |
12,536,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of August 31, 2010, the Company had unrealized losses on its investments of $58,562
This amount was reduced by a deferred tax benefit of $23,366, of which a $39,900
benefit was recorded in prior fiscal years and a ($16,534) expense 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 entitys own assumptions utilizing the best information available, and
includes situations where there is little market activity for the investment.
17
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 |
|
|
|
August 31, |
|
|
Markets |
|
|
Inputs |
|
Description |
|
2010 |
|
|
(Level 1) |
|
|
(Level 2) |
|
Bank Certificates of
Deposit |
|
$ |
1,073,787 |
|
|
$ |
|
|
|
$ |
1,073,787 |
|
Corporate obligations |
|
|
454,481 |
|
|
|
|
|
|
|
454,481 |
|
Government Obligations |
|
|
2,499,275 |
|
|
|
2,499,275 |
|
|
|
|
|
Preferred Stock |
|
|
2,843,637 |
|
|
|
2,843,637 |
|
|
|
|
|
Common Stock |
|
|
479,625 |
|
|
|
479,625 |
|
|
|
|
|
Mutual Funds |
|
|
179,512 |
|
|
|
179,512 |
|
|
|
|
|
Other Equity |
|
|
36,490 |
|
|
|
|
|
|
|
36,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,566,807 |
|
|
$ |
6,002,049 |
|
|
$ |
1,564,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
Quoted Market |
|
|
Other |
|
|
|
|
|
|
|
Price in Active |
|
|
Observable |
|
|
|
November 30, |
|
|
Markets |
|
|
Inputs |
|
Description |
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
Bank Certificates of
Deposit |
|
$ |
1,763,157 |
|
|
$ |
|
|
|
$ |
1,763,157 |
|
Corporate obligations |
|
|
812,490 |
|
|
|
|
|
|
|
812,490 |
|
Government Obligations |
|
|
7,497,900 |
|
|
|
6,997,900 |
|
|
|
500,000 |
|
Preferred Stock |
|
|
2,064,208 |
|
|
|
2,064,208 |
|
|
|
|
|
Common Stock |
|
|
196,872 |
|
|
|
196,872 |
|
|
|
|
|
Mutual Funds |
|
|
165,383 |
|
|
|
165,383 |
|
|
|
|
|
Other Equity |
|
|
36,128 |
|
|
|
|
|
|
|
36,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,536,138 |
|
|
$ |
9,424,363 |
|
|
$ |
3,111,775 |
|
|
|
|
|
|
|
|
|
|
|
18
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: |
|
|
|
|
|
|
|
|
|
|
|
August 31, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In Thousands) |
|
|
(In Thousands) |
|
a) Trade payables |
|
$ |
3,987 |
|
|
$ |
3,775 |
|
b) Media advertising |
|
|
580 |
|
|
|
548 |
|
c) Accrued returns |
|
|
1,892 |
|
|
|
1,207 |
|
d) Coop advertising |
|
|
1,398 |
|
|
|
1,218 |
|
e) Accrued bonuses |
|
|
* |
|
|
|
482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,857 |
|
|
$ |
7,230 |
|
|
|
|
|
|
|
|
|
|
All other liabilities individually did not exceed 5% of total current liabilities. |
NOTE 9 OTHER INCOME
|
|
Other income consists of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ending |
|
|
Nine Months Ending |
|
|
|
August 31, |
|
|
August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income |
|
$ |
54,876 |
|
|
$ |
32,960 |
|
|
$ |
196,349 |
|
|
$ |
245,367 |
|
Royalty income |
|
|
45,000 |
|
|
|
30,000 |
|
|
|
135,000 |
|
|
|
87,768 |
|
Realized gain (loss) on
sale
of securities |
|
|
2,394 |
|
|
|
112,473 |
|
|
|
(14,975 |
) |
|
|
162,458 |
|
Miscellaneous |
|
|
3,739 |
|
|
|
29,408 |
|
|
|
43,853 |
|
|
|
33,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
106,009 |
|
|
$ |
204,841 |
|
|
$ |
360,227 |
|
|
$ |
529,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10 COMMITMENTS AND CONTINGENCIES
|
|
A class action lawsuit, Wally v. CCA, alleging false and misleading advertisement of
the Companys 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. |
19
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 COMMITMENTS AND CONTINGENCIES (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 Courts 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. On June 16,
2010, the Company deposited $2,500,000 into an escrow account to fund the proposed
settlement of the advertising litigation expense. (See Note 13) |
|
|
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 fiscal 2010, with the resultant liability recorded as an accrued
liability. To date, the Company has incurred legal fees related to the litigation of
approximately $269,616, 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, $42,407 for the second quarter and $65,254 for the third
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
fiscal 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 |
|
|
Nine Months Ending |
|
|
|
August 31, |
|
|
August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation settlement |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,500,000 |
|
|
$ |
|
|
Legal expenses incurred |
|
|
65,254 |
|
|
|
|
|
|
|
169,297 |
|
|
|
|
|
Insurance claim settlement |
|
|
|
|
|
|
|
|
|
|
(475,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation expense Net |
|
$ |
65,254 |
|
|
$ |
|
|
|
$ |
2,194,297 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 COMMITMENTS AND CONTINGENCIES (CONTINUED)
|
|
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. |
|
|
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 was payable to all shareholders of
record on August 2, 2010 and was paid on September 2, 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 Companys employees covered under the collective bargaining
agreement. The new collective bargaining agreement is in effect through December 31,
2010. This agreement pertains to 30% 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 August
31, 2010 and August 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 August 31, 2010 or for the fiscal year to date ended August
31, 2009. |
21
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
Companys 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 $79,650 and $238,252 of officer salaries
during the three months ended August 31, 2010 and 2009, and $461,523 and $661,398
during the nine months ended August 31, 2010 and 2009, respectively that were not
deductible for tax purposes in calculating the income tax provision. As of August 31,
2010, the Company had unrealized losses on its investments of $58,562. This amount
was reduced by a deferred tax benefit of $23,366, of which a $39,900 benefit was
recorded in prior fiscal years and a ($16,534) expense recorded in fiscal 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 August 31, 2010 and November 30, 2009, respectively, the Company had temporary
differences arising from the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Classified As |
|
|
|
|
|
|
|
Deferred |
|
|
Short-Term |
|
|
Long-Term |
|
Type |
|
Amount |
|
|
Tax |
|
|
Asset |
|
|
(Liability) |
|
|
Depreciation |
|
$ |
(339,612 |
) |
|
$ |
(135,505 |
) |
|
$ |
|
|
|
$ |
(135,505 |
) |
Unrealized loss on
investments |
|
|
58,562 |
|
|
|
23,366 |
|
|
|
23,366 |
|
|
|
|
|
Reserve for bad debts |
|
|
37,719 |
|
|
|
15,050 |
|
|
|
15,050 |
|
|
|
|
|
Reserve for returns |
|
|
1.869,144 |
|
|
|
745,788 |
|
|
|
745,790 |
|
|
|
|
|
Reserve for obsolete
inventory |
|
|
1,258,984 |
|
|
|
502,334 |
|
|
|
502,334 |
|
|
|
|
|
Vacation accrual |
|
|
289,466 |
|
|
|
115,497 |
|
|
|
115,497 |
|
|
|
|
|
Charitable Contributions |
|
|
233,031 |
|
|
|
92,979 |
|
|
|
92,979 |
|
|
|
|
|
Section 263A costs |
|
|
260,327 |
|
|
|
103,870 |
|
|
|
103,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income
taxes |
|
|
|
|
|
$ |
1,463,381 |
|
|
$ |
1,598,886 |
|
|
$ |
(135,505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
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 August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
Current tax (benefit) expense
Federal |
|
$ |
(29,757 |
) |
|
$ |
660,138 |
|
Current tax expense State & Local |
|
|
57,784 |
|
|
|
192,024 |
|
Deferred tax (benefit) |
|
|
(137,323 |
) |
|
|
(51,971 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax (benefit) expense |
|
$ |
(109,296 |
) |
|
$ |
800,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
Current tax expense Federal |
|
$ |
122,551 |
|
|
$ |
1,280,342 |
|
Current tax expense State & Local |
|
|
103,073 |
|
|
|
374,493 |
|
Deferred tax (benefit) |
|
|
(363,099 |
) |
|
|
(57,959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax (benefit) expense |
|
$ |
(137,475 |
) |
|
$ |
1,596,876 |
|
|
|
|
|
|
|
|
23
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2010 |
|
$ |
438,681 |
|
|
$ |
481,453 |
|
|
$ |
920,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2009 |
|
$ |
|
|
|
$ |
89,535 |
|
|
$ |
89,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax payable is made up of the following components: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State & |
|
|
|
|
|
|
Federal |
|
|
Local |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 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 August 31, 2010 and 2009 is as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
August 31, 2010 |
|
|
August 31, 2009 |
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
of Pretax |
|
|
|
|
|
|
of Pretax |
|
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Income |
|
(Benefit from) Provision for
Income taxes
at federal statutory rate |
|
$ |
(240,557 |
) |
|
|
(34.00 |
)% |
|
$ |
815,843 |
|
|
|
34.00 |
% |
Increases in taxes
resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of
federal
income tax benefit |
|
|
(42,027 |
) |
|
|
(5.94 |
) |
|
|
142,532 |
|
|
|
5.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible expenses and
other adjustments |
|
|
173,288 |
|
|
|
24.49 |
|
|
|
(158,184 |
) |
|
|
(6.59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) Provision for
Income taxes
at effective rate |
|
$ |
(109,296 |
) |
|
|
(15.45 |
)% |
|
$ |
800,191 |
|
|
|
33.35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
24
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 INCOME TAXES (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
August 31, 2010 |
|
|
August 31, 2009 |
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
of Pretax |
|
|
|
|
|
|
of Pretax |
|
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Income |
|
(Benefit from) Provision for
Income taxes
at federal statutory rate |
|
$ |
(375,610 |
) |
|
|
(34.00 |
)% |
|
$ |
1,307,147 |
|
|
|
34.00 |
% |
Increases in taxes
resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of
federal
income tax benefit |
|
|
(65,621 |
) |
|
|
(5.94 |
) |
|
|
228,366 |
|
|
|
5.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible expenses and
other adjustments |
|
|
303,756 |
|
|
|
27.50 |
|
|
|
73,243 |
|
|
|
1.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) Provision for
Income taxes
at effective rate |
|
$ |
(137,475 |
) |
|
|
(12.44 |
)% |
|
$ |
1,608,756 |
|
|
|
41.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13 SUBSEQUENT EVENTS
On September 28, 2010, the Superior Court for the State of California, County of Los Angeles,
Central Civil West, entered a Final Order and Judgment in the case Denise Wally and Lauren
Fleischer, etal. vs. CCA Industries, Inc. The Final Order reconfirms the Preliminary Approval
order dated June 9, 2010, which, subject to the Courts 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. Please see Part II, Item 1 for
further information regarding the advertising litigation.
On October 13, 2010, the Board of Directors declared a $0.07 dividend for the fourth quarter
ending November 30, 2010. The dividend will be payable to all shareholders of record as of the
close of business on November 1, 2010, to be paid on December 1, 2010.
25
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) |
Except for historical information contained herein, this Managements 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. No assurance can be
given that the results in any forward-looking statement will be achieved and actual results could
be affected by one or more factors, which could cause them to differ materially. For these
statements, we claim the protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act.
OVERVIEW
The Company had, for the three month period ended August 31, 2010, a net loss of $(598,225) as
compared to net income of $1,599,346 for the same period in 2009. The third quarter was adversely
impacted by lower gross sales of its diet products, in addition to significantly higher returns.
The higher returns were primarily due to the voluntarily recall of the Plus White whitening gel
which the Company announced in May, 2010, returns of its instant lift product and returns from a
major customer as a result of their program to reduce the number of products carried in their
stores. In addition, the whitening gel manufacturing problem caused an increase in the Companys
cost of goods sold. Net sales for the third quarter of fiscal 2010 were $12,490,391 as compared to
$15,139,754 for the same period in fiscal 2009. The Companys balance sheet as of August 31, 2010
reflects $34,662,669 in current assets and $10,562,752 in current liabilities. The Company does
not have any loan or line of credit bank debt.
OPERATING RESULTS FOR THE THREE MONTHS ENDED AUGUST 31, 2010
For the three-month period ended August 31, 2010, the Company had total revenues of
$12,596,400 and a net loss of $(598,225) after (benefit from) income taxes of $(109,296). For the
same three month period in 2009, total revenues were $15,344,595 and net income was $1,599,346
after a provision for taxes of $800,191. Basic and fully diluted losses per share were $(0.08) for
the third quarter of fiscal 2010 as compared to basic and fully diluted earnings per share of $0.23
for the third quarter of fiscal 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 third quarter of fiscal 2010 were reduced by $1,937,397 and offset by an equal reduction of
trade promotional expenses, which were included in the Companys advertising expense budget. In the
same period of the prior year, net sales were reduced by $1,897,795 and trade promotion was
credited by that amount. These accounting adjustments under ASC Topic 605-10-S99 do not affect net
income.
26
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED) (CONTINUED) |
The Companys net sales decreased $2,649,363 to $12,490,391 for the three-month period ended
August 31, 2010 from $15,139,754 for the three-month period ended August 31, 2009. The decrease
was a result of lower gross sales and higher returns. The following were factors that affected net
sales:
|
|
|
There were lower sales of the Companys diet products, which has been impacted by
the economic recession resulting in a downward nation-wide trend in sales for all
diet brands. |
|
|
|
Sales returns and allowances, not including sales incentives, were 16.1% of gross
sales for the three-month period ended August 31, 2010 as compared to 7.1% for the
same period last year. |
|
|
|
Gross sales for the Sudden Change skin-care brand continue to decrease as the
Company focuses on its core brands. |
|
|
|
A major customer embarked on a program to reduce the number of products that they
were carrying in their retail stores. The customer returned to the Company the
inventory they had for the products that were discontinued, resulting in a
significantly higher return rate. Total returns from this customer were $389,933
higher in the third quarter ending August 31, 2010 as compared to the third quarter
ending August 31, 2009. Due to the product reduction program, the customers gross
sales were $1,062,794 less in the third quarter of fiscal 2010 as compared to the
third quarter of fiscal 2009. The combination of higher returns and lower gross
sales for this customer resulted in a combined decrease of $1,452,727 in net sales
for the third quarter of fiscal 2010 as compared to the same period in 2009. |
|
|
|
Returns of Plus White oral care brand were $104,784 higher in the third quarter
ending August 31, 2010 as compared to the same quarter in 2009, due to the voluntary
recall of three lots of the Plus White whitening gel product that was announced on
April 14, 2010. |
|
|
|
Returns of the Instant Lift product were $265,725 in the third quarter of fiscal
2010 as compared to no returns in the third quarter of fiscal 2009. The product was
introduced in the fourth quarter of fiscal 2009, and has now been discontinued. |
|
|
|
The amount of expense as a result of a change in the general reserve for returns
was $795,157 higher in the third quarter of fiscal 2010 as compared to the same
quarter in 2009. The estimate for the returns reserve is based on the historical
return rate as a percentage of sales over the prior five months adjusted for returns
that can be put back into inventory, and any specific reserves based on customer
circumstances. The reserve increased due to the higher returns experienced by the
Company over the last five months. It is possible for the reserve to decrease if
the rate of actual returns decreases. |
Included in sales incentives is the cost of the coupons issued by the Company, which was
$418,496 in the third quarter of fiscal 2010 as compared to $477,764 in the third quarter of fiscal
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.
27
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED) (CONTINUED) |
The Companys net sales by category for the third quarter of fiscal 2010 as compared to the
third quarter of fiscal 2009 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
August 31, 2010 |
|
|
August 31, 2009 |
|
Category |
|
Net Sales |
|
|
|
|
|
|
Net Sales |
|
|
|
|
|
Skin Care |
|
$ |
3,994,383 |
|
|
|
32.0 |
% |
|
$ |
5,066,264 |
|
|
|
33.5 |
% |
Dietary Supplement |
|
|
3,886,885 |
|
|
|
31.1 |
% |
|
|
6,299,682 |
|
|
|
41.6 |
% |
Oral Care |
|
|
2,865,423 |
|
|
|
23.0 |
% |
|
|
2,055,762 |
|
|
|
13.5 |
% |
Nail Care |
|
|
1,177,398 |
|
|
|
9.4 |
% |
|
|
1,234,359 |
|
|
|
8.2 |
% |
Fragrance |
|
|
283,833 |
|
|
|
2.3 |
% |
|
|
119,858 |
|
|
|
0.8 |
% |
Analgesic |
|
|
235,365 |
|
|
|
1.9 |
% |
|
|
205,173 |
|
|
|
1.3 |
% |
Hair Care |
|
|
17,315 |
|
|
|
0.1 |
% |
|
|
24,722 |
|
|
|
0.2 |
% |
Misc. |
|
|
29,789 |
|
|
|
0.2 |
% |
|
|
133,934 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,490,391 |
|
|
|
100.00 |
% |
|
$ |
15,139,754 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross margin for the third quarter of fiscal 2010 was 51.9%, as compared to 62.9% for
the third quarter of fiscal 2009, or a decrease of 11.0%. The gross margin during the third
quarter of fiscal 2010 was affected by the following resulting in the decrease:
|
|
|
The increase in sales returns and allowances accounted for approximately half of
the 11.0% decrease in gross margin. |
|
|
|
Changes to the inventory reserve are charged to the costs of sales. The
inventory reserve was increased by $229,607 during the third quarter ending August
31, 2010, while it was decreased by $117,386 during the same period in 2009,
resulting in reserve charges that were $346,993 higher in the third quarter of
fiscal 2010 as compared to the third quarter of fiscal 2009. The increase in the
reserve during the third quarter of fiscal 2010 was primarily related to inventory
of the Sudden Change skin care brand. |
|
|
|
The Sales incentives increased by $39,602 for the third quarter of fiscal 2010 as
compared to the same period in 2009. Sales incentives reduce net sales and the
resulting gross margin. |
|
|
|
The Company was forced to immediately switch the contract manufacturer producing
the Plus White whitening gel due to its problems in the production of the product
which resulted in the announced recall of three lots of the product. The Company
incurred production costs for the whitening gel that resulted in an approximate
$261,082 increase in the cost of goods during the third quarter of fiscal 2010, as
compared to the third quarter of fiscal 2009, when the Company was using the
original contract manufacturer. The Company is working with the new contract
manufacturer in order to reduce the production costs. |
28
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (UNAUDITED) (CONTINUED) |
Selling, general and administrative expenses were $123,244 higher in the third quarter of
fiscal 2010 as compared to the same period in 2009. The Company incurred additional expenses of
$43,402 during the third quarter of fiscal 2010 as a result of the voluntary recall of three lots
of the Plus White whitening gel. These temporary expenses included additional personnel needed in
order to sort and account for the returned product. In addition, due to the large amount of
recalled product, the Company was forced to rent additional warehouse space on a temporary basis.
Health insurance costs for Company personnel were $89,750 higher in the third quarter of fiscal
2010 as compared to the third quarter of fiscal 2009. The Company has been affected by a
nation-wide trend of higher insurance costs.
Advertising expense was $1,690,455 for the quarter ended August 31, 2010 as compared to
$1,870,669 for the quarter ended August 31, 2009, or a decrease of $180,214. The decrease was due
to lower co-operative advertising that is reflected as a selling expense. The Companys
advertising expense changes from quarter to quarter based on the timing of the Companys
promotions.
The Company recorded an advertising litigation expense of $65,254 for the three month period
ended August 31, 2010. This expense was a result of the class action lawsuit, Wally v. CCA,
alleging false and misleading advertisement of the Companys 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 loss before taxes was $(707,521) for the quarter ended August 31, 2010 as compared to
pre-tax income of $2,399,537 for the same quarter in 2009. The effective tax rate for the third
quarter of fiscal 2010 was (15.4) % versus 33.3% for the third quarter of fiscal 2009. The
(benefit from) income taxes included non-deductible expenses and adjustments that decreased the
(benefit from) income taxes by $173,288 or 24.5% of the pre-tax loss for the third quarter of
fiscal 2010. During the same period in 2009, non-deductible expenses and adjustments were an
expense of $(158,184) or (6.6)% of pre-tax income for the same period in fiscal 2009. During the
third quarter ended August 31, 2010 and 2009, there was $79,650 and $238,252, respectively of
officer salaries incurred that were not deductible for tax purposes in calculating the income tax
provision.
OPERATING RESULTS FOR THE NINE MONTHS ENDED AUGUST 31, 2010
For the nine month period ended August 31, 2010, the Company had total revenues of $40,649,903
and a net loss of $(967,260) after (benefit from) income taxes of $(137,475). For the same nine
month period in fiscal 2009, total revenues were $45,037,390 and net income was $2,417,847 after a
provision for taxes of $1,596,876. If the advertising litigation expense had not occurred, the
income before provision for income taxes would have been $1,089,562 for the nine months ended
August 31, 2010 as compared to $4,014,723 for the same period in 2009. Basic and fully diluted
losses per share were $(0.14) for the nine months ended August 31, 2010 as compared to basic and
fully diluted earnings per share of $0.34 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 nine months of 2010 were reduced by $5,446,259 and offset by an
equal reduction of trade promotional expenses, which were included in the Companys advertising
expense budget. In the same period of the prior year, net sales were reduced by $4,923,544 and
trade promotion was credited by that amount. These accounting adjustments under ASC Topic
605-10-S99 do not affect net income.
29
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED) (CONTINUED) |
The Companys net sales decreased $4,218,614 to $40,289,676 for the nine month period ended
August 31, 2010 from $44,508,290 for the nine month period ended August 31, 2009. Net sales for
the nine months ended August 31, 2010 were affected by the following factors:
|
|
|
Gross sales were $2,526,750 lower in the first nine months of 2010 as compared to
the same period in 2009. The lower gross sales were mainly due to lower sales of
the Companys diet products. As previously discussed, the economic recession has
caused a nation-wide decrease of sales for all diet brands. |
|
|
|
Gross sales for the Sudden Change skin-care brand continue to decrease as the
Company focuses on its core brands. |
|
|
|
Sales returns for the Instant Lift brand were $373,097 for the nine months ended
August 31, 2010. The Company launched the product in the fourth quarter of fiscal
2009. The Company has discontinued the product. |
|
|
|
Sales returns for the Plus White brand were $364,056 higher for the first nine
months of 2010 as compared to the same period in 2009. As announced in April 2010,
the Company had voluntarily recalled three lots of the Plus White whitening gel due
to problems in the manufacturing process that caused the product to lose its
efficacy. |
|
|
|
Sales returns for the Solar Sense brand were $307,153 higher for the nine months
ended August 31, 2010 as compared to the same period in 2009. Most of the returns
were from a major customer who has embarked on a program to reduce the number of
products that they were carrying in their retail stores, as well as the inventory
they were carrying. |
|
|
|
Sales incentives were $522,715 higher for the first nine months of 2010 as
compared to the first nine months of 2009. Included in sales incentives is the cost
of the Companys co-operative advertising with its retail partners and the cost of
coupons. Co-operative advertising increased $641,460 during the period ended August
31, 2010 as compared to the same period in 2009, while coupon redemption costs
decreased by $118,745. |
|
|
|
The amount of expense as a result of a change in the general reserve for returns
was $448,406 higher in the third quarter of fiscal 2010 as compared to the same
quarter in 2009. The estimate for the returns reserve is based on the historical
return rate as a percentage of sales over the prior five months adjusted for returns
that can be put back into inventory, and any specific reserves based on customer
circumstances. The reserve increased due to the higher returns experienced by the
Company over the last five months. It is possible for the reserve to decrease if
the rate of actual returns decreases. |
30
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED) (CONTINUED) |
The Companys net sales by category for the first nine months of fiscal 2010 as compared to
the first nine months of fiscal 2009 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
August 31, 2010 |
|
|
August 31, 2009 |
|
Category |
|
Net Sales |
|
|
|
|
|
|
Net Sales |
|
|
|
|
|
Dietary Supplement |
|
$ |
14,227,161 |
|
|
|
35.3 |
% |
|
$ |
18,690,334 |
|
|
|
42.1 |
% |
Skin Care |
|
|
12,422,467 |
|
|
|
30.8 |
% |
|
|
13,314,299 |
|
|
|
29.9 |
% |
Oral Care |
|
|
7,275,803 |
|
|
|
18.1 |
% |
|
|
6,959,020 |
|
|
|
15.6 |
% |
Nail Care |
|
|
4,235,646 |
|
|
|
10.5 |
% |
|
|
4,232,463 |
|
|
|
9.5 |
% |
Fragrance |
|
|
938,697 |
|
|
|
2.3 |
% |
|
|
458,480 |
|
|
|
1.0 |
% |
Analgesic |
|
|
690,279 |
|
|
|
1.7 |
% |
|
|
500,278 |
|
|
|
1.1 |
% |
Hair Care |
|
|
35,443 |
|
|
|
0.1 |
% |
|
|
61,147 |
|
|
|
0.1 |
% |
Misc. |
|
|
464,180 |
|
|
|
1.2 |
% |
|
|
292,269 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
40,289,676 |
|
|
|
100.0 |
% |
|
$ |
44,508,290 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Despite the nation-wide recession and weak economy, the Company did have some successes during
the first nine months of fiscal 2010:
|
|
|
Gross sales of the Cherry Vanilla fragrance brand increased by $378,215 and
returns decreased $131,233 during the nine month period ended August 31, 2010 as
compared to the same period in 2009. |
|
|
|
Gross sales of the Companys analgesic brand, Pain Bust-R II, continued to
increase during fiscal 2010. Gross sales increased $294,745 during the first nine
months of 2010 as compared to the same period in 2009, while returns increased only
slightly by $4,137. The Company acquired the Pain Bust-R II brand in November 2008. |
|
|
|
Gross sales of the oral care brand, Plus White, continued to increase in fiscal
2010, despite the voluntary recall of three lots of the Plus White whitening gel
announced in April 2010. Gross sales were $771,199 higher in the first nine months
of fiscal 2010 as compared to the same period in 2009. As previously discussed,
returns were $364,056 higher for the first nine months of fiscal 2010 as compared to
the same period in 2009 as a result of the voluntary product recall. |
|
|
|
Gross sales of the Solar Sense brand were $736,140 higher, and returns were
$307,153 higher, during the first nine months of fiscal 2010 as compared to the same
period in 2009. As previously discussed, a major customer embarked on a program to
reduce the number of products and inventory being carried in-store, which affected
the returns for this brand. |
31
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED) (CONTINUED) |
The gross margin for the nine months ended August 31, 2010 was 57.4%, as compared to 62.3% for
the same period in 2009, or a decrease of 4.9%. The following were factors that affected the gross
margin during the first nine months of fiscal 2010 as compared to the same period in the prior
year:
|
|
|
Sales returns and allowances increased to 11.8% of gross sales for the first nine
months of fiscal 2010 as compared to 9.1% of gross sales for the same period in
2009. This increase accounted for approximately 4.3% of the 4.9% decrease in gross
margin. |
|
|
|
The expense as a result of the increase in the inventory reserve was $498,983 for
the first nine months of fiscal 2010 as compared to a benefit of $23,924 as a result
of a reserve decrease for the same period in 2009. Changes to the inventory reserve
are charged directly to the cost of goods sold. Increased inventory reserves will
result in an expense that will reduce the gross margin. The inventory reserve was
increased approximately $201,009 as a result of the voluntary recall of three lots
of the Plus White whitening gel product. In addition, the reserve was increased
approximately $131,787 as a result of the discontinuance of the Instant Lift
products. |
|
|
|
Sales incentives were $522,715 higher for the nine months ended August 31, 2010
as compared to the same period in 2009. Sales incentives, which consists of
co-operative advertising conducted with the Companys retail partners and the
redemption cost of coupons, is a reduction of net sales. Higher sales incentives
will result in lowering the Companys gross margin. |
|
|
|
The Company was forced to immediately switch the contract manufacturer producing
the Plus White whitening gel due to its problems in the production of the product
which resulted in the announced recall of three lots of the product. The Company
incurred production costs for the whitening gel that resulted in an approximate
$261,082 increase in the cost of goods during the first nine months of fiscal 2010,
as compared to the first nine months of fiscal 2009, when the Company was using the
original contract manufacturer. The Company is working with the new contract
manufacturer in order to reduce the production costs. |
Selling, general and administrative expenses were $807,209 higher in the first nine months of
fiscal 2010 as compared to the same period in 2009. The increase was due, in part, to $363,682 of
higher employee compensation expense in the first nine months of fiscal 2010, as compared to the
same period in fiscal 2009, due to the hiring of additional sales and marketing personnel. Health
insurance costs continued to increase, with an additional expense of $127,645 for the first nine
months of fiscal 2010 as compared to the first nine months of fiscal 2009. The Company incurred an
additional expense of $78,652 during the first nine months of fiscal 2010 as a result of the
voluntary recall of three lots of the Plus White whitening gel product. These temporary expenses
included additional personnel needed in order to sort and account for the returned product. In
addition, due to the large amount of recalled product, the Company was forced to rent additional
warehouse space on a temporary basis. Consulting costs of $55,350 were incurred during the third
quarter of fiscal 2010 related to the upgrade of the Companys computer systems that is expected to be completed in the fourth quarter of fiscal 2010.
The Companys expense for contributions of inventory and donations increased $104,050 during the
first nine months of fiscal 2010 as compared to the first nine months of fiscal 2009 for which the
Company receives a tax benefit.
32
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED) (CONTINUED) |
Advertising expense was $5,599,736 for the nine months ended August 31, 2010 as compared to
$8,320,159 for the nine months ended August 31, 2009, or a decrease of $2,720,423. Of this amount,
$819,386 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 Companys advertising expense changes from
quarter to quarter based on the timing of the Companys promotions.
The Company recorded an advertising litigation expense of $2,194,297 for the nine month period
ended August 31, 2010. This expense was a result of the class action lawsuit, Wally v. CCA,
alleging false and misleading advertisement of the Companys 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 $169,297
during the nine month period ended August 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 $(1,104,735) for the nine months ended August 31, 2010 as compared
to pre-tax income of $4,014,723 for the same period in 2009. As previously disclosed, the
advertising litigation expense had a material effect on the results for the first nine months of
2010. If the advertising litigation expense had not occurred, the income before provision for
income taxes would have been $1,089,562 for the nine months ended August 31, 2010 as compared to
$4,014,723 for the same period in 2009. The effective tax rate for the nine months ended August
31, 2010 was (12.4) % versus 39.8% for the nine months ended August 31, 2009. The (benefit from)
provision for income tax included non-deductible expenses and adjustments that decreased the
(benefit from) income taxes by $303,756 or 27.5% of pre-tax loss for the first nine months of 2010
as compared to an increase to the provision for taxes of $73,243 or 1.9% of pre-tax income for the
same period in fiscal 2009. During the nine months ended August 31, 2010 and 2009, there was
$461,523 and $661,398, respectively of officer salaries incurred that were not deductible for tax
purposes in calculating the income tax provision.
FINANCIAL POSITION AS OF AUGUST 31, 2010
The Companys financial position as of August 31, 2010 consisted of current assets of
$34,662,669 and current liabilities of $10,562,752, or a current ratio of 3.3 to 1. The Companys
cash and cash equivalents were $10,062,229 as of August 31, 2010, an increase of $2,217,860 from
November 30, 2009. Included in this increase was net cash used in operating activities of
$(1,390,661) and net cash provided by investing activities of $5,130,397 offset by net cash used in
financing activities of $(1,521,876). The operating activities cash out-flow included the expense of
the advertising litigation. Included in the net cash used in
financing activities was $(1,481,433) of dividends paid.
33
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED) (CONTINUED) |
Accounts receivable increased to $7,890,907 as of August 31, 2010 from $7,613,273 as of
November 30, 2009. Included in net accounts receivable are reserves for returns and allowances of
$1,869,144 and reserves for doubtful accounts of $37,719. The reserve for returns and allowances
increased $415,553 during fiscal 2010 due to the higher returns experience during the year. As
previously discussed, a major customer embarked on a program to reduce the number of products
carried in-store, which has resulted in returns higher than normal. Gross receivables were further
reduced by $795,215, 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 $1,397,672 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
August 31, 2010 was higher as compared to the balance on November 30, 2009 due to the timing of the
Companys sales.
Inventory decreased to $8,296,318 as of August 31, 2010 from $8,327,277 as of November 30,
2009. The inventory obsolescence reserve increased to $1,258,984 as of August 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 $201,009
during the fiscal 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
August 31, 2010. In addition, the Company increased the reserve by $131,787 during fiscal 2010 as
a result of recording a reserve for the now discontinued Instant Lift product.
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 Companys
insurance carrier agreed to pay fifty-percent of all litigation and settlement expenses up to a
maximum amount of $475,000. As of August 31, 2010, the insurance carrier has made payments of
$90,075 against the Companys claim, leaving an insurance receivable balance of $384,925. Please
see Note No. 10 for further information regarding the advertising litigation.
Prepaid and refundable income taxes increased to $920,134 as of August 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 and the operating loss incurred during the third
quarter of fiscal 2010.
The deferred income tax asset increased to $1,598,886 as of August 31, 2010 from $1,193,745 as
of November 30, 2009. The increase was mainly due to increases in the reserves for returns and
inventory obsolescence. The Company expects that all of the deferred tax assets will be realized
within the next twelve month period subsequent to August 31, 2010. The deferred tax assets include
$23,366 related to the Companys unrealized losses of $58,562 on its investments as of August 31,
2010. The unrealized losses reported on the balance sheet were $(35,196), 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 August 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 $135,505
at August 31, 2010 as compared to $76,929 as of November 30, 2009. The liability is due to the
difference in depreciation between the Companys books and income tax returns.
34
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED) (CONTINUED) |
Accounts payable and accrued liabilities increased to $10,043,356 as of August 31, 2010 from
$8,775,676 as of November 30, 2009, or an increase of $1,267,680. The increase was due to an
increase in accrued liabilities in the normal course of business.
Shareholders equity decreased to $28,010,486 as of August 31, 2010 from $30,219,848 as of
November 30, 2009. The decrease was due to the net loss of $(967,260) and dividends declared of
$1,481.433 during the first nine months ended August 31, 2010, offset partially by unrealized gains
on its investments of $239,332 during the same period. Unrealized holding gains or losses are
recorded as other comprehensive income. Total unrealized losses on marketable securities were
$(35,196) at August 31, 2010, net of a deferred tax benefit of $23,366.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is defined as the ability to generate adequate amounts of cash to meet short-term
and long-term business needs. We assess our liquidity in terms of our total cash flow and the
amounts of cash, short-term and long-term marketable securities on hand. Significant factors that
could affect our liquidity include the following:
|
|
|
Cash flow generated or used by operating activities; |
Our primary capital needs are seasonal working capital requirements and dividend payments. In
addition, funds are kept on hand for any potential acquisitions, which the Company continues to
explore. As of August 31, 2010, the Company had $4,853,687 of short term marketable securities and
$2,713,120 of non-current securities. The Companys cash and cash equivalents together with both
short and long term marketable securities, net of current liabilities were $7,066,284 as of August
31, 2010. Please refer to Note No. 7 of the financial statements for further information regarding
the Companys investments. The Companys long term liabilities as of August 31, 2010, consist of
deferred tax liability of $135,505 and long-term capitalized lease obligations of $9,759. The
Company does not have any bank debt or a bank line of credit. Due to the amount of cash and
marketable securities on-hand, the Company does not believe that it needs the availability of a
bank line of credit at this time.
35
|
|
|
ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
The Companys financial statements record the Companys 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. $516,115 of the Companys
$7,566,807 portfolio of investments (approximate, as at August 31, 2010) is invested in the Common
Stock and Other Equity categories, and approximately $2,843,637 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 Companys management, including the
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Companys 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 Companys management, including the Chief Executive Officer and Chief Financial
Officer, concluded that, as of August 31, 2010, the Companys 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 Commissions 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 Companys 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 Companys 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 Companys internal control over financial reporting during
the quarterly period ended August 31, 2010 that have materially affected, or is reasonably likely
to materially affect, the Companys internal control overall financial reporting.
36
CCA INDUSTRIES, INC.
PART II OTHER INFORMATION
|
|
|
ITEM 1. |
|
LEGAL PROCEEDINGS: |
A class action lawsuit, Wally v. CCA, alleging false and misleading advertisement of the
Companys 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.
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 Courts 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 Courts final approval.
On September 28, 2010, the Court entered a Final Order and Judgment reconfirming their preliminary
orders and settlement agreement.
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.
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 $269,616, 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, $42,407 has been charged
against earnings for the second quarter of fiscal 2010 and $65,254 has been charged against
earnings for the third 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.
As of August 31, 2010, the insurance carrier has made payments of $90,075 against the Companys
claim, leaving an insurance receivable balance of $384,925.
37
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; |
|
|
|
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; |
|
|
|
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 Companys other public filings, which are available
without charge through the SECs website at http://www.sec.gov.
The following exhibits are included as part of this report:
|
|
|
|
|
Exhibit No. |
|
Description |
|
|
|
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 |
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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: October 15, 2010
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CCA INDUSTRIES, INC.
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By: |
/s/ STEPHEN A. HEIT
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Stephen A. Heit |
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Executive Vice President and Chief Financial Officer, and
duly authorized signatory on behalf of Registrant |
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