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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2017
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission file number: 1-31643
CCA Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
04-2795439
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
65 Challenger Road, Suite 340
Ridgefield Park, New Jersey 07660
(Address of principal executive offices)
(201) 935-3232
(Registrant’s telephone number, including area code)


(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
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  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer
 
[ ]
 
Accelerated filer
 
[ ]
Non-accelerated filer
 
[ ] (Do not check if a smaller reporting company)
 
Smaller reporting company
 
[X]
 
 
 
 
Emerging growth company
 
[ ]
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]


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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  ¨    No  ý
As of July 17, 2017 there were (i) 6,038,982 shares of the issuer’s common stock, par value $0.01, outstanding; and (ii) 967,702 shares of the issuer’s Class A common stock, par value $0.01, outstanding.


TABLE OF CONTENTS


CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS

INDEX
 
 
 
 
Page
Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



TABLE OF CONTENTS

Part I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
May 31,
2017
 
November 30,
2016
ASSETS
 
(Unaudited)
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
34,473

 
$
309,280

Accounts receivable, net of allowances of $412,264 and $957,029, respectively
 
3,421,367

 
2,147,680

Inventories, net of reserve for inventory obsolescence of $120,981 and $500,156, respectively
 
2,203,387

 
2,347,483

Prepaid expenses and sundry receivables
 
925,891

 
466,060

Prepaid and refundable income taxes
 
38,277

 
44,154

Deferred income taxes
 
1,951,197

 
2,148,764

        Total Current Assets
 
8,574,592

 
7,463,421

 
 
 
 
 
Property and equipment, net of accumulated depreciation
 
229,145

 
235,203

Intangible assets, net of accumulated amortization
 
433,584

 
433,778

Deferred financing fees, net of accumulated amortization
 
196,454

 
259,587

Deferred income taxes
 
8,113,064

 
8,415,699

Other
 
430,544

 
430,544

               Total Assets
 
$
17,977,383

 
$
17,238,232

 
 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
 
Current Liabilities:
 
 
 
 
     Accounts payable and accrued liabilities
 
$
5,188,671

 
$
5,615,756

     Capital lease obligation - current portion
 
1,909

 
3,721

     Income tax payable
 
1,000

 
20,000

     Line of credit
 
3,530,239

 
3,277,885

Total Current Liabilities
 
8,721,819

 
8,917,362

 
 
 
 
 
Long term accrued liabilities
 
235,048

 
264,126

Long term - other
 
147,853

 
147,853

Total Liabilities
 
9,104,720

 
9,329,341

 
 
 
 
 
Shareholders' Equity:
 


 


Preferred stock, $1.00 par, authorized 20,000,000 none issued
 

 

Common stock, $.01 par, authorized 15,000,000 shares, issued and outstanding 6,038,982 and 6,038,982 shares, respectively
 
60,390

 
60,390

Class A common stock, $.01 par, authorized 5,000,000 shares, issued and outstanding 967,702 and 967,702 shares, respectively
 
9,677

 
9,677

Additional paid-in capital
 
4,298,893

 
4,220,422

Retained earnings
 
4,503,703

 
3,618,402

Total Shareholders' Equity
 
8,872,663

 
7,908,891

Total Liabilities and Shareholders' Equity
 
$
17,977,383

 
$
17,238,232

See Notes to Consolidated Financial Statements.

4

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CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 
Three Months Ended May 31
 
 Six Months Ended May 31
 
 
 
2017
 
2016
 
2017
 
2016
 
Revenues:
 
 
 
 
 
 
 
 
 
Sales of health and beauty aid products - net
 
$
6,111,836

 
$
5,675,177

 
$
10,376,913

 
$
10,355,449

 
Other income
 
4,074

 
4,574

 
8,147

 
8,746

 
Total Revenues
 
6,115,910

 
5,679,751

 
10,385,060

 
10,364,195

 
Costs and Expenses:
 
 
 
 
 
 
 
 
 
Cost of sales
 
2,345,980

 
2,122,059

 
4,053,834

 
3,936,853

 
Selling, general and administrative expenses
 
2,058,174

 
2,093,823

 
3,683,552

 
4,152,494

 
Advertising, cooperative and promotional expenses
 
461,149

 
532,327

 
943,364

 
848,783

 
Research and development
 
14,250

 
26,726

 
27,332

 
34,927

 
Bad debt (recovery) expense
 
(724
)
 
29,557

 
(10,655
)
 
27,299

 
Interest expense - related party
 

 

 

 
3,085

 
Interest expense
 
123,077

 
197,216

 
274,238

 
341,543

 
Total Costs and Expenses
 
5,001,906

 
5,001,708

 
8,971,665

 
9,344,984

 
Income before provision for income taxes
 
1,114,004

 
678,043

 
1,413,395

 
1,019,211

 
Provision for income taxes
 
415,454

 
247,054

 
528,094

 
379,224

 
 Income from Continuing Operations
 
$
698,550

 
$
430,989

 
$
885,301

 
$
639,987

 
   Discontinued Operations
 
 
 
 
 
 
 
 
 
(Loss) from Discontinued Operations
 

 
(11,504
)
 

 
(20,600
)
 
(Benefit from) income taxes
 

 
(4,192
)
 

 
(7,665
)
 
(Loss) from Discontinued Operations
 

 
(7,312
)
 

 
(12,935
)
 
Net Income
 
$
698,550

 
$
423,677

 
$
885,301

 
$
627,052

 
 
 
 
 
 
 
 
 
 
 
Earnings per Share:
 
 
 
 
 
 
 
 
 
Basic
 


 





 


 
Continuing Operations
 
$
0.10

 
$
0.06

 
$
0.13

 
$
0.09

 
Discontinued Operations
 
$

 
$

 
$

 
$

 
Income
 
$
0.10

 
$
0.06

 
$
0.13

 
$
0.09

 
Diluted
 


 



 
 
 
 
Continuing Operations
 
$
0.10

 
$
0.06

 
$
0.13

 
$
0.09

 
Discontinued Operations
 
$

 
$

 
$

 
$

 
Income
 
$
0.10

 
$
0.06

 
$
0.13

 
$
0.09

 
Weighted Average Common Shares Outstanding
 
 
 
 
 
 
 
Basic
 
7,006,684

 
7,006,684

 
7,006,684

 
7,006,684

 
Diluted
 
7,024,428

 
7,126,333

 
7,006,684

 
7,088,115

 
See Notes to Consolidated Financial Statements.

5

TABLE OF CONTENTS

CCA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Six Months Ended May 31,
 
2017
 
2016
Cash Flows from Operating Activities:
 
 
 
Net Income
$
885,301

 
$
627,052

Adjustments to reconcile net income to cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
45,758

 
39,113

Change in allowance for bad debts
(10,655
)
 
27,299

Loss on write off of fixed assets

 
1,575

Deferred financing fees amortization
63,133

 
63,132

Stock based compensation
78,471

 
140,977

Deferred income taxes
500,201

 
366,824

Change in Operating Assets & Liabilities:
 
 
 
(Increase) decrease in accounts receivable
(1,263,032
)
 
226,678

Decrease in inventory
144,096

 
105,523

(Increase) in prepaid expenses and other receivables
(459,831
)
 
(210,372
)
Decrease (Increase) in prepaid income and refundable income tax
6,877

 
(1,410
)
(Decrease) in accounts payable and accrued liabilities
(456,161
)
 
(1,341,765
)
(Decrease) in income tax payable
$
(20,000
)
 

Net Cash (Used in) Provided by Operating Activities
(485,842
)
 
44,626

Cash Flows from Investing Activities:
 
 
 
Acquisition of property, plant and equipment
(39,506
)
 
(29,496
)
Proceeds from sale of property, plant and equipment

 
500

Net Cash (Used in) Investing Activities
(39,506
)
 
(28,996
)
Cash Flows from Financing Activities:
 
 
 
Payment on line of credit - related party

 
(2,700,000
)
Payments on tern loan - related party

 
(1,000,000
)
Proceeds from line of credit, net
252,354

 
3,790,096

Payment of deferred financing fees

 
(387,559
)
Payments for capital lease obligations
(1,813
)
 
(20,294
)
Net Cash Provided by (Used in) Financing Activities
250,541

 
(317,757
)
Net Decrease in Cash
(274,807
)
 
(302,127
)
Cash and Cash Equivalents at Beginning of Period
309,280

 
509,884

Cash and Cash Equivalents at End of Period
$
34,473

 
$
207,757

Supplemental Disclosures of Cash Flow Information:
 
 
 
 
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
274,238

 
$
97,030

Income taxes
$
41,000

 
$
6,146

See Notes to Consolidated Financial Statements

6

TABLE OF CONTENTS
CCA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO 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 of America (“GAAP”) 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 GAAP for complete financial statements. Operating results for the three and six month periods ending May 31, 2017 are not necessarily indicative of the results that may be expected for the entire year ended November 30, 2017. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended November 30, 2016. 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 two 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, both of which are currently inactive.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of CCA and its wholly-owned subsidiaries (collectively the “Company”). All significant inter-company accounts and transactions have been eliminated.
Estimates and Assumptions:
The consolidated financial statements include the use of estimates, which management believes are reasonable. The process of preparing financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”), requires management to make estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accounting estimates and assumptions are those that management considers to be most critical to the financial statements because they inherently involve significant judgment and uncertainties. All of these estimates and assumptions reflect management’s best judgment about current economic and market conditions and their effects on the information available as of the date of the consolidated financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
Cash and Cash Equivalents:
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
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 allowance for cooperative advertising and reserves for returns which are anticipated to be taken as credits against the balances as of May 31, 2017. 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.

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



Trade receivables that are deemed uncollectible are offset against the allowance for uncollectible accounts. The Company generally does not require collateral for trade receivables.
Inventories:
Inventories are stated at the lower of cost (weighted average) or market. Product returns are either recorded in inventory when they are received at the lower of their original cost or market or destroyed, 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:
 
Computer equipment
3-5 Years
Furniture and fixtures
3-10 Years
Tools, dies and masters
3 Years
Leasehold improvements
Remaining life of the lease (3 years 3 months)

Intangible Assets:
Intangible assets, which consist of patents and trademarks, are stated at cost. Patents are amortized on the straight-line method over a period of 17 years. Patents are reviewed for impairment when events or changes in business indicate that the carrying amount may not be recoverable. Trademarks are indefinite lived intangible assets and are reviewed for impairment annually or more frequently if impairment conditions occur.
Long-Lived Assets:
Long-lived assets are assets in which the Company has an economic benefit for longer than twelve months from the date of the financial statement. Long-lived assets include property and equipment, intangible assets, deferred financing fees, deferred income taxes and other assets. The Company evaluates impairment losses on long-lived assets used in operations when events and circumstances indicate that the asset might be impaired. If the review indicates that the carrying value of an asset will not be recoverable, based on a comparison of the carrying value of the asset to the undiscounted future cash flows, the impairment will be measured by comparing the carrying value of the asset to its fair value. Fair value will be determined based on discounted cash flows or appraisals. Impairments are recorded in the statement of operations as part of selling, general and administrative expenses. No impairments were recorded in the six months ended May 31, 2017 and May 31, 2016.
Revenue Recognition: (See also Cooperative Advertising)
The Company recognizes sales in accordance with ASC Topic 605 “Revenue Recognition”. Revenue is recognized upon shipment of merchandise. Net sales comprise gross revenues less expected returns, trade discounts, customer allowances and various sales incentives. Included in sales incentives are coupons that the Company issues that are redeemed by its customers. Redemptions are handled by a coupon national clearing house. The Company also has estimated that there is an approximate six week lag in coupon redemptions, with the estimated cost recorded as an accrued liability. Although no legal right of return exists between the customer and the Company, returns, including return of unsold products, are accepted if it is in the best interests of the Company's relationship with the customer. The Company, therefore, records a reserve for returns based on the historical returns as a percentage of sales in the three preceding months and specific reserve based on customer circumstances and product circumstances. Those returns which are anticipated to be taken as credits against the balances as of May 31, 2017 are offset against the

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



accounts receivable. The reserves which are anticipated to be deducted from future invoices are included in accrued liabilities. Changes in the estimated coupon reserve and sales return reserve are recorded to Sales of health and beauty aid products - net, in the Consolidated Statement of Operations.
Cooperative Advertising:
Cooperative advertising is accrued based on a combination of new contracts given to the customers in the current fiscal year, along with liabilities open from prior years. Specific new contracts in the current fiscal year are identified as sales incentives (see sales incentives) and those contracts reduce revenues for the current period. The balances for all years open are reduced throughout the year by either the customer advertising and submitting the proof according to the contract or by customer post audit adjustments that finalize any amount due. Any item open more than three years is closed unless management believes that a deduction may still be taken by the customer. The portion of cooperative advertising recorded as sales incentives was reduced by $204,598 and $409,196, respectively, in the three and six months ended May 31, 2017 to reduce open cooperative advertising contracts for 2014 for events that have been finalized. There were reductions of $300,000 and $300,000, respectively, for open cooperative advertising contracts that were finalized during the three and six months ended May 31, 2016. The balance of the remaining open cooperative advertising is allocated between accrued liabilities and the allowance for cooperative advertising based on the customer's open accounts receivable balance.
Sales Incentives:
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 do not affect net income.
Shipping Costs:
         
The Company’s policy for financial reporting is to charge shipping costs as part of selling, general and administrative expenses as incurred. Shipping costs included for the three months ended May 31, 2017 and May 31, 2016 were $96,778 and $140,657, respectively. Shipping costs included for the six months ended May 31, 2017 and May 31, 2016 were $178,245 and $254,765, respectively.
Advertising Costs:
The Company’s policy for financial reporting is to charge advertising cost to expense as incurred. Advertising, cooperative and promotional expenses for the three months ended May 31, 2017 and May 31, 2016 were $461,149 and $532,327, respectively. Advertising, cooperative and promotional expenses for the six months ended May 31, 2017 and May 31, 2016 were $943,364 and $848,783, respectively.
Research and Development Costs:
The Company's policy for financial reporting is to charge research and development costs to expense as incurred. Research and development costs for the three months ended May 31, 2017 and May 31, 2016 were $14,250 and $26,726, respectively. Research and development costs for the six months ended May 31, 2017 and May 31, 2016 were $27,332 and $34,927 , respectively.
Income Taxes:
Income taxes are accounted for under ASC Topic 740 “Income Taxes”, which utilizes the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to the temporary differences between the carrying amounts of assets and liabilities as recorded on the Company’s financial statements and the carrying amounts as reflected on the Company’s income tax return. In addition, the portion of charitable contributions that cannot be deducted in the current period and are carried forward to future periods are also reflected in the deferred tax assets. A substantial portion of the deferred tax asset is due to the losses incurred in fiscal 2015 and prior years, the benefit of which will be carried forward into future tax years. 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. Management has

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



estimated that it will utilize the entire deferred tax asset in future years based on anticipated future profitability.  However, anticipated future profitability may be impacted if the Company’s sales decrease from current levels or due to other factors discussed under Item 1A - Risk Factors in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2016 as supplemented in this Form 10-Q. The portion that management expects to utilize within twelve months of the period ended May 31, 2017 is recorded as a current asset, and the portion that management expects to utilize in subsequent periods is recorded as a long term asset.

The Company previously adopted the provisions of ASC Subtopic 740-10-25, “Uncertain Tax Positions”. Management believes that there were no unrecognized tax benefits, or tax positions that would result in uncertainty regarding the deductions taken, as of May 31, 2017 and November 30, 2016. 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.
Tax Credits:
Tax credits, when present, are accounted for using the flow-through method as a reduction of income taxes in the years utilized.
Earnings Per Common Share:
Basic earnings per share 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 year. Diluted 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 and warrants.
Stock Options:
ASC Topic 718, “Stock Compensation,” requires stock grants to employees to be recognized in the consolidated statement of operations based on their fair values. The Company issued stock options in fiscal 2016 and 2015, see Note 12 for details.
Recent Accounting Pronouncements:
In May 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2017-09, which is an update to Topic 718, Compensation - Stock Compensation. The update provides guidance on determining which changes to the terms and conditions of share-based payment awards, including stock options, require an entity to apply modification accounting under Topic 718. The Company issued stock options in fiscal 2016 and 2015, and has not made any modifications to the stock option agreements since issuance as of May 31, 2017. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management does not expect that ASU 2017-09 will have a material impact on the Company's results of operations and consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. While we are still evaluating the impact of our pending adoption of the new standard on our consolidated financial statements, we expect that upon adoption we will recognize ROU assets and lease liabilities and that the amounts could be material.
In November 2015, the FASB issued ASU 2015-17, which is an update to Topic 740, "Income Taxes". The update will require that all deferred tax assets and liabilities be classified as non-current. The update is effective for fiscal

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



years, and the interim periods within those years, beginning after December 15, 2016. ASU 2015-17 will have a material impact on the Company's balance sheet, as the deferred tax reported as a current asset will be reported as a non-current asset once the update is effective, resulting in a decrease to the Company's current ratio. As of May 31, 2017, the Company reported 1,951,197 of deferred tax as a current asset. It will not have an impact on the Company's results of operations.
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements, other than any that were disclosed in prior Company filings with the SEC.

NOTE 4 - INVENTORIES
The components of inventory consist of the following:
 
 
May 31,
2017
 
November 30,
2016
Raw materials
 
$
544,494

 
$
586,372

Finished goods
 
1,658,893

 
1,761,111

 
 
$
2,203,387

 
$
2,347,483


At May 31, 2017 and November 30, 2016, the Company had a reserve for obsolescence of $120,981 and $500,156, respectively.

NOTE 5 - PROPERTY AND EQUIPMENT
The components of property and equipment consisted of the following:
 
 
May 31,
2017
 
November 30,
2016
Furniture and equipment
 
$
571,128

 
$
559,971

Tools, dies and masters
 
497,999

 
469,652

Capitalized lease obligations
 
15,286

 
15,286

Leasehold improvements
 
35,017

 
35,017

 
 
$
1,119,430

 
$
1,079,926

Less: Accumulated depreciation
 
890,285

 
844,723

Property and Equipment—Net
 
$
229,145

 
$
235,203


Depreciation expense for the three months ended May 31, 2017 and May 31, 2016 amounted to $23,718 and $18,974, respectively. Depreciation expense for the six months ended May 31, 2017 and May 31, 2016 amounted to $45,564 and $38,919 , respectively.


NOTE 6 - INTANGIBLE ASSETS
Intangible assets consist of owned trademarks and patents for ten product lines.
 
 
May 31,
2017
 
November 30,
2016
Patents and trademarks
 
$
580,006

 
$
580,007

Less: Accumulated amortization
 
146,422

 
146,229

Intangible Assets - Net
 
$
433,584

 
$
433,778




11


Patents are amortized on a straight-line basis over their legal life of 17 years. Trademarks have an indefinite life and are reviewed annually for impairment or more frequently if impairment indicators occur. Amortization expense for the three months ended May 31, 2017 and 2016 amounted to $97 and $97, respectively. Amortization expense for the six months ended May 31, 2017 and May 31, 2016 amounted to $194 and $194 , respectively. Estimated amortization expenses for the years ending November 30, 2017, 2018, 2019, 2020 and 2021 are $388, $388, $388, $243 and $243, respectively.


NOTE 7 - ACCRUED EXPENSES
The following items which exceeded 5% of total current liabilities are included in accrued expenses as of:
 
 
May 31,
2017
 
November 30,
2016
Co-operative advertising
$
1,454,365

 
$
1,741,402

Restructuring Costs
$
505,000

 
$
925,000

Accrued bonuses
$
490,839

 
*


* represents less than 5% as of total current liabilities


The following items which exceeded 5% of total long-term liabilities are included in long term accrued expenses as of:
 
 
May 31,
2017
 
November 30,
2016
Sub-lease rent differential
$
235,048

 
$
264,126


    



NOTE 8 - DEBT AGREEMENT

On December 4, 2015 (the “Closing Date”), CCA Industries, Inc., a Delaware corporation (the “Company”),
entered into the Credit and Security Agreement (the “Credit Agreement”) with SCM Specialty Finance Opportunities
Funds, L.P., an affiliate of CNH Finance, L.P. The Credit Agreement provides for a line of credit up to a maximum of
$5,500,000 (the “Revolving Loan”). The proceeds of the Revolving Loans was used to pay off the Company's existing
debt with Capital Preservation Solutions, LLC and for general working capital purposes.

Pursuant to the Credit Agreement, all outstanding amounts under the Revolving Loan bear interest at the 30
day LIBOR rate plus 6% per annum (currently in the aggregate, 6.21% per annum), payable monthly in arrears. The
Company is also required to pay a monthly unused line fee and collateral management fee. The commitment under the Credit Agreement expires three years after the Closing Date. The Revolving Loan and all other amounts due and owing under the Credit Agreement and related documents are secured by a first priority perfected security interest in, and lien on, substantially all of the assets of the Company. Amounts available for borrowing under the Line of Credit equal the lesser of the Borrowing Base (as defined below), and $5,500,000, in each case, as the same is reduced by the aggregate principal amount outstanding under the Line of Credit. “Borrowing Base” under the Loan Agreement means, generally, the amount equal to (i) 85% of the Company’s eligible accounts receivable, plus (ii) 65% of the value of eligible inventory, less (iii) certain reserves. The Credit Agreement contains customary representations, warranties and covenants on the part of the Company, including a financial covenant requiring the Company to maintain a fixed charge coverage ratio of no less than 1.0 to 1.0. The Credit Agreement imposes an early termination fee and also provides for events of default, including failure to repay principal and interest when due and failure to perform

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


or violation of the provisions or covenants of the agreement. The principal amount borrowed under the Revolving Loan was $3,530,239 as of May 31, 2017.

    

NOTE 9 - OTHER INCOME
Other income consists of the following:
 
 
Three Months Ended May 31,
 
Six Months Ended May 31,
 
 
2017
 
2016
 
2017
 
2016
Interest and dividend income
 
$

 

 
$

 
$
9

Royalty income
 
3,000

 
3,000

 
6,000

 
6,000

Miscellaneous
 
1,074

 
1,574

 
2,147

 
2,737

Total Other Income
 
$
4,074

 
$
4,574

 
$
8,147

 
$
8,746


NOTE 10 - 401(K) PLAN
The Company has a 401(K) Profit Sharing Plan for its employees. The plan requires six months of service in order to be eligible to participate. Employees must be 21 years or older to participate. Employees may make salary reduction contributions up to 25% of compensation not to exceed the federal government limits. The Plan allows for the Company to make discretionary contributions to match employee contributions up to 3% of compensation. The Company's matching contributions vest immediately at 100% with the employee. The Company made the following matching contributions:
 
Three Months Ended
Six Months Ended
 
May 31, 2017

May 31, 2016

May 31, 2017

May 31, 2016

Company Contributions
6,130


7,642




NOTE 11 - INCOME TAXES

CCA and its subsidiaries file a consolidated federal income tax return.
The Company previously adopted the provisions of ASC Subtopic 740-10-25, “Uncertain Tax Positions”. Management believes that there were no unrecognized tax benefits, or tax positions that would result in uncertainty regarding the deductions taken, as of May 31, 2017 and May 31, 2016. 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.
The charitable contributions portion of the deferred tax asset and the loss carry forward has $84,306 and $7,982,555, respectively, that has been reclassified as a long-term asset, based on an estimate of the amount that will be realizable in periods greater than twelve months from May 31, 2017.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


At May 31, 2017 and November 30, 2016, respectively, the Company had temporary differences arising from the following:
 
 
May 31, 2017
 
 
 
 
 
 
Classified As
Type
 
Amount
 
Deferred Tax
 
Short-Term
Asset
 
Long-Term
Asset (Liability)
Depreciation
 
$
(355,424
)
 
$
(129,552
)
 
$

 
$
(129,552
)
Reserve for bad debts
 
5,146

 
1,876

 
1,876

 

Reserve for returns
 
409,118

 
149,124

 
149,124

 

Accrued returns
 
219,307

 
79,937

 
79,937

 

Reserve for obsolete inventory
 
120,981

 
44,098

 
44,098

 

Vacation accrual
 
27,243

 
9,930

 
9,930

 

Alternative minimum tax carry forward
 

 
36,000

 
 
 
36,000

Deferred Compensation
 
383,416

 
139,755

 
 
 
139,755

Bonus obligation unpaid
 
482,945

 
176,033

 
176,033

 

Restructuring costs
 
505,000

 
184,073

 
184,073

 

Charitable contributions
 
550,267

 
200,571

 
116,265

 
84,306

Section 263A costs
 
74,656

 
27,212

 
27,212

 

Loss carry forward
 
25,089,724

 
9,145,204

 
1,162,649

 
7,982,555

Net deferred tax asset
 
 
 
$
10,064,261

 
$
1,951,197

 
$
8,113,064

 
 
 
 
 
November 30, 2016
 
 
 
 
 
 
Classified As
Type
 
Amount
 
Deferred Tax
 
Short-Term
Asset
 
Long-Term
Asset (Liability)
Depreciation
 
$
(349,763
)
 
$
(127,489
)
 
$

 
$
(127,489
)
Reserve for bad debts
 
15,801

 
5,759

 
5,759

 

Reserve for returns
 
941,228

 
343,078

 
343,078

 

Accrued Returns
 
194,873

 
71,031

 
71,031

 

Reserve for obsolete inventory
 
500,156

 
182,307

 
182,307

 

Vacation accrual
 
29,528

 
10,763

 
10,763

 

Alternative minimum tax carry forward
 

 
20,000

 
 
 
20,000

Deferred compensation
 
304,945

 
111,153

 
 
 
111,153

Bonus obligation unpaid
 
304,355

 
110,937

 
110,937

 

Restructuring costs
 
925,000

 
337,163

 
337,163

 

Charitable contributions
 
584,558

 
213,071

 
96,249

 
116,822

Section 263A costs
 
79,539

 
28,992

 
28,992

 

Loss carry forward
 
25,398,347

 
9,257,698

 
962,485

 
8,295,213

Net deferred tax asset
 
 
 
$
10,564,463

 
$
2,148,764

 
$
8,415,699










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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS







Income tax expense (benefit) is made up of the following components:
 
Three Months Ended
 
Six Months Ended
 
May 31, 2017
May 31, 2016
 
May 31, 2017
May 31, 2016
Continuing Operations
 
 
 
 
 
Current tax - Federal
$
5,000

$

 
$
16,000

$

Current tax - State & Local
2,938

2,369

 
5,877

4,735

Deferred tax
407,516

244,685

 
506,217

374,489

Tax - Continuing Operations
$
415,454

$
247,054

 
$
528,094

$
379,224

Discontinued Operations
 
 
 
 
 
Current tax - Federal


 


Current tax - State & Local


 


Deferred tax

(4,192
)
 

(7,665
)
Tax - Discontinued Operations
$

$
(4,192
)
 
$

$
(7,665
)


Prepaid and refundable income taxes are made up of the following components:
Prepaid and refundable income taxes
 
Federal
 
State &
Local
 
Total
May 31, 2017
 
$

 
$
38,277

 
$
38,277

November 30, 2016
 
$

 
$
44,154

 
$
44,154



Income taxes payable are made up of the following components:
Income Taxes Payable
 
Federal
 
State &
Local
 
Total
May 31, 2017
 
$
1,000

 
$

 
$
1,000

November 30, 2016
 
$
20,000

 
$

 
$
20,000















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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS












A reconciliation of the provision for income taxes computed at the statutory rate to the effective rate for the three months and nine months ended May 31, 2017, and May 31, 2016 is as follows:

 
 
Three Months Ended
 
Three Months Ended
 
 
May 31, 2017
 
May 31, 2016
 
 
Amount
 
Percent of Pretax Income
 
Amount
 
Percent of Pretax Income
Continuing Operations
 
 
 
 
 
 
 
 
Provision for income taxes at federal statutory rate
 
$
378,761

 
34.00
%
 
$
230,535

 
34.00
 %
Changes in provision for income taxes resulting from:
 
 
 
 
 
 
 
 
State income taxes, net of federal income tax benefit
 
32,306

 
2.90
%
 
19,663

 
2.90
 %
Non-deductible expenses and other adjustments
 
4,387

 
0.39
%
 
(3,144
)
 
(0.46
)%
Provision for income taxes at effective rate
 
415,454

 
37.29
%
 
247,054

 
36.44
 %
Discontinued Operations
 
 
 
 
 
 
 
 
(Benefit from) income taxes at federal statutory rate
 

 
%
 
(3,911
)
 
34.00
 %
Changes in benefit from income taxes resulting from:
 
 
 
 
 
 
 
 
State income taxes, net of federal income tax benefit
 

 
%
 
(334
)
 
2.90
 %
Non-deductible expenses and other adjustments
 

 
%
 
53

 
(0.46
)%
(Benefit from) income taxes at effective rate for Discontinued Operations
 

 
%
 
(4,192
)
 
36.44
 %
Total provision for income taxes at effective rate
 
$
415,454

 
37.29
%
 
$
242,862

 
36.44
 %


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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS




Six Months Ended

Six Months Ended


May 31, 2017

May 31, 2016


Amount

Percent of Pretax Income

Amount

Percent of Pretax Income
Continuing Operations












Provision for (benefit from) income taxes at federal statutory rate

$
480,554


34.00
%

$
346,532


34.00
%
Increases in taxes resulting from:










State income taxes, net of federal income tax benefit

40,988


2.90
%

29,557

 
2.90
%
Non-deductible expenses and other adjustments

6,552


0.46
%

3,135


0.31
%
Provision for (benefit from) income taxes at effective rate

528,094


37.36
%

379,224


37.21
%









Discontinued Operations








(Benefit from) provision for income taxes at federal statutory rate



%

(7,004
)

34.00
%
Changes in (benefit from) provision for income taxes resulting from:









State income taxes, net of federal income tax benefit



%



%
Non-deductible expenses and other adjustments



%

(661
)

3.21
%
(Benefit from) provision for income taxes at effective rate



%

(7,665
)

37.21
%









Total Provision for (benefit from) income taxes at effective rate

$
528,094


37.36
%

$
371,559


37.21
%



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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - STOCK-BASED COMPENSATION

On June 15, 2005, the shareholders approved an amended and Restated Stock Option Plan amending the 2003 Stock Option Plan (the “Plan”). The Plan authorizes the issuance of up to one million shares of common stock (subject to customary adjustments set forth in the plan) pursuant to equity awards, which may take the form of incentive stock options, nonqualified stock options restricted shares, stock appreciation rights and/or performance shares. The plan expired in April, 2015. On August 13, 2015, the shareholders approved the 2015 CCA Industries, Inc. Incentive Plan (the "2015 Plan"). The 2015 Plan authorizes the issuance of up to 700,000 shares of common stock (subject to customary adjustments set forth in the plan) pursuant to equity awards, which may take the form of incentive stock options, nonqualified stock options, stock appreciation rights and/or restricted stock.
The Company recorded a charge against earnings in the amount of $51,079 for the three months ended May 31 , 2017 and $70,488 for the three months ended May 31, 2016 for all outstanding stock options granted. The Company recorded a charge against earnings in the amount of $78,471 and $140,977, respectively, for the six months ended May 31, 2017 and May 31, 2016 for all stock options granted.
A summary of stock option activity for the Company is as follows:
 
Number of Options
Weighted-Average Exercise Price
Weighted-Average Remaining Term (years)
Aggregate Intrinsic Value
Outstanding at November 30, 2014
137,000

$
3.40

5.4


Granted
185,000

$
3.46


 
Exercised




Canceled or Forfeited
218,000

$
3.46



Outstanding at November 30, 2015
104,000

$
3.41

7.6


Granted
519,000

$
3.23



Exercised




Canceled or Forfeited
59,000

3.42



Outstanding at November 30, 2016
564,000

$
3.25

9.2


Granted

 
 
 
Exercised

 
 
 
Canceled or Forfeited

 
 
 
Outstanding at February 28, 2017
564,000

$
3.25

6.1

 
Granted

$

 
 
Exercised

 
 
 
Canceled or Forfeited

$

 
 
Outstanding at May 31, 2017
564,000

$
3.25

5.9

 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13 - INCOME PER SHARE
Basic earnings per share is calculated using the average number of common shares outstanding. Diluted income per share is computed on the basis of the average number of common shares outstanding plus the effect of outstanding stock options and warrants using the “treasury stock method”.

 
Three Months Ended
 
Six Months Ended
 
May 31, 2017
 
May 31, 2016
 
May 31, 2017
 
May 31, 2016
Net income available for common shareholders
$
698,550

 
$
423,677

 
$
885,301

 
$
627,052

Weighted average common shares outstanding-Basic
7,006,684

 
7,006,684

 
7,006,684

 
7,006,684

Net effect of dilutive stock options and warrants
17,744

 
119,649

 

 
81,431

Weighted average common shares and common shares equivalents—Diluted
7,024,428

 
7,126,333

 
7,006,684

 
7,088,115

 
 
 
 
 
 
 
 
Earnings per Share:
 
 
 
 
 
 
 
    Basic
 
 
 
 
 
 
 
Continuing Operations
$
0.10

 
$
0.06

 
$
0.13

 
$
0.09

Discontinued Operations
$

 
$

 
$

 
$

Income
$
0.10

 
$
0.06

 
$
0.13

 
$
0.09

 
 
 
 
 
 
 
 
    Diluted
 
 
 
 
 
 
 
Continuing Operations
$
0.10

 
$
0.06

 
$
0.13

 
$
0.09

Discontinued Operations
$

 
$

 
$

 
$

Income
$
0.10

 
$
0.06

 
$
0.13

 
$
0.09


For the three months ended May 31, 2017 and May 31, 2016, there were 564,000 and 404,000 shares, respectively, underlying previously issued stock options and warrants that were excluded from diluted loss per share because the effects of such shares were anti-dilutive. For the six months ended May 31, 2017 and May 31, 2016, there were 2,456,744 and 404,000 shares, respectively, underlying previously issued stock options and warrants that were excluded from diluted loss per share because the effects of such shares were anti-dilutive.




NOTE 14 - DISCONTINUED OPERATIONS
The Company discontinued the Gel Perfect color nail polish business effective as of May 31, 2014. The Gel Perfect brand had declining sales in fiscal 2013 and fiscal 2014. The brand has been recorded as discontinued operations and are reflected as such in the Company's statement of operations.
There has been no discontinued operations in fiscal 2017. The following table summarizes those components of the statement of operations for the discontinued brand, which contains additional returns for the three and six months ended May 31 2016:



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 
Three Months Ended
Six Months Ended
 
May 31, 2017
 
May 31, 2016
May 31, 2017
 
May 31, 2016
Revenues:
 
 
 
 
 
 
Sales of health and beauty-aid products-net
$

 
$
(11,504
)
$

 
$
(20,600
)
Total revenues

 
(11,504
)

 
(20,600
)
Costs and Expenses:
 
 
 
 
 
 
Cost of sales

 


 

Selling, general and administrative expenses

 


 

Advertising, cooperative and promotions

 


 

Total expenses

 


 

( Loss) before (benefit from) income taxes

 
(11,504
)

 
(20,600
)
(Benefit from) income taxes

 
(4,192
)

 
(7,665
)
(Loss) from Discontinued Operations
$

 
$
(7,312
)
$

 
$
(12,935
)


NOTE 15 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 5, 2014, the Company entered into a Loan and Security Agreement (the “Agreement”) with Capital Preservation Solutions, LLC (“Capital”) for a $5,000,000 working capital line of credit and a term loan for working capital purposes not to exceed $1,000,000. Capital Preservation Solutions, LLC is owned by Lance Funston, who also is the managing partner of Capital Preservations Holdings, LLC which owns common stock and all of the Company's Class A common stock. Contemporaneously with the signing of the Agreement, the Company issued a Warrant to Purchase Common Stock (the “Warrant”) to Capital whereby Capital may acquire upon exercise of the Warrant 1,892,744 shares of the Company’s Common Stock. The Warrant may be exercised in whole or in part at any time during the exercise period which is five years from the date of the Warrant. The Warrant bears a purchase price of $3.17 per share, subject to adjustments. The working capital line of credit and term loan principal balances were repaid on December 4, 2015 (see Note 8 - Debt Agreement for further information) . The Warrant remains outstanding. There was no related party interest expense or amortized financing costs incurred for the three and six months ended May 31, 2017.
The Company signed an agreement in December 2014 with Funston Media Management Services, Inc. ("FMM"), which is owned by Lance Funston, who is the Company's Chairman of the Board and Chief Executive Officer. The agreement provided for FMM to provide consumer advertising purchasing services and brand management for the Company. The agreement ended on November 19, 2015. The Company signed a new agreement in December 2015 with FMM. The agreement provided for FMM to provide consumer advertising purchasing services and brand management for a fee equal to 10.0% of the advertising costs with no minimum fee or monthly management fee. The agreement automatically renews unless canceled by the Company or FMM. The Company incurred costs of $34,274 and $38,667, respectively for the three months ended May 31, 2017 and May 31, 2016 for fees to FMM. The Company incurred costs of $65,177 and $62,484, respectively, for the six months ended May 31, 2017 and May 31, 2016 As of May 31, 2017, there were unpaid fees of $180,427 due to FMM.





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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16 - SUBSEQUENT EVENTS
On June 7, 2017, the Company's shareholders approved the 2015 CCA Industries, Inc. Incentive Plan, as amended, at the annual meeting of shareholders. The amendment increased the shares available to be issued under the plan from 700,000 to 1,400,000.     

On June 20, 2017, the Company granted incentive stock options to eleven employees. The awards were for an aggregate of 232,500 option shares with an exercise price of $3.30 per share, the closing market price as of that day. The options vest in equal 20% increments commencing one year after the date of grant, and for each of the four subsequent anniversaries of such date. The options expire on June 19, 2027.

On June 20, 2017, the Compensation committee of the Board of Directors approved the following director compensation: $20,000 per annum for non-executive directors, to be paid quarterly and in arrears, $500 for each meeting attended in person and $250 for each meeting attended by telephone.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Cautionary Statements Regarding Forward-Looking Statements

Our disclosure and analysis in this report contains forward-looking information that involves risks and uncertainties. Our forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of future performance, liquidity, statements of management’s plans and objectives, future contracts, and forecasts of trends and other matters. Forward-looking statements speak only as of the date of this filing, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as “anticipate”, “estimate”, “expect”, “believe”, “will likely result”, “should”, “outlook”, “plan” “project” and other words and expressions of similar meaning. 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. The cautionary statements made in this Quarterly Report on Form 10-Q should be read as being applicable to all forward-looking statements whenever they appear in this report. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act. In addition to the information in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and risks and uncertainties included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2016 and other periodic reports filed with the United States Securities and Exchange Commission.
Overview
For the three months ended May 31, 2017, the company had net income from continuing operations of $698,550, and earnings per share, basic and fully diluted of $0.10 as compared to net income from continuing operations of $430,989, and earnings per share, basic and fully diluted of $0.06 for the same period in fiscal 2016. The Company had no discontinued operations in the year to date period ended May 31, 2017, and expects no further discontinued operations activity in fiscal 2017. For the six months ended May 31, 2017 and May 31, 2016, the Company had net income from continuing operations of $885,301 and $639,987, respectively, and earning per share, basic and fully of $0.13 and $0.09, respectively. As of May 31, 2017, the Company had $8,574,592 in current assets and $8,721,819 in current liabilities. The Company's credit agreement does not expire until December 2018, however amounts outstanding under the line of credit are classified as a current liability.
Operating Results for the Three Months Ended May 31, 2017
For the three months ended May 31, 2017, the Company had total revenues of $6,115,910 and a net profit from continuing operations of $698,550 after a provision for tax of $415,454. The Company had no discontinued operation activity for the the quarter ended May 31, 2017. For the same three month period in 2016, total revenues

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were $5,679,751 and net income from continuing operations was $430,989 after a provision for tax of $247,054, and a loss from discontinued operations of $7,312 after a benefit from taxes of $4,192 for a total net income of $423,677. The basic and fully diluted earnings per share from continuing operations was $0.10 for the second quarter of fiscal 2017 as compared to earnings per share of $0.06 from continuing operations and losses per share of $0.00 for discontinued operations for the second quarter of fiscal 2016. In accordance with ASC Topic 605-10-S99, “Revenue Recognition”, the Company has accounted for certain sales incentives offered to customers by charging them directly to sales as opposed to advertising and promotional expenses. Net sales for the second quarter of fiscal 2017 were reduced by $443,192, comprised of cooperative advertising recorded as sales incentives of $442,140, and coupons of $1,052. This amount was offset by an equal reduction of trade promotional expenses, which were included in the Company's advertising expenses. In the same period of the prior year, net sales were reduced by $284,843, comprised of cooperative advertising recorded as sales incentives of $275,126 and coupons of $9,717. The $284,843 was offset by an equal reduction of trade promotional expenses, which were included in the Company's advertising expense. These accounting adjustments under ASC Topic 605-10-S99 do not affect net income. In the first three months of fiscal 2017, the Company wrote-off co-operative advertising contracts of $204,598, and in the same period in fiscal 2016 wrote-off $300,000. The Company records co-operative advertising expense as the commitments are made to its retail customers. There is a lag of up to three