April 18, 2005
Mr. John Cash
Accounting Branch Chief
Division of Cooperative Finance
US Securities and Exchange Commission
450 Fifth Street
Washington, DC 20549
Dear Mr. Cash:
Thank you for your prompt response to our letter dated March 20th.
1. Independent Registered Accountant
We were waiting for a response from the PCAOB as to whether or
not they thought that the spin-off of KGS LLP from Sheft Kahn &
Company LLP constituted a "change of auditors". However, after
the Managing Partner, Mitchell Kahn, discussed the matter with
Ms. Armelin, we have concluded that the SEC wishes to treat it as
a completely new firm and we have therefore sent out all of the
appropriate notices to the SEC and Sheft Kahn & Company LLP
(copies of letters and Form 8K are attached). We hadn't
officially appointed KGS LLP as our new auditors until Thursday
April 7, 2005 when they informed us that their registration with
the PCAOB was approved, so the notifications are all timely.
2. Management's Discussion and Analysis, page 11
We have taken your suggestion and will try to expand our analysis
of changes in our financial position in future Management's
Discussions and Analysis. As for setting forth the revenue
results by product line in the amended 10K and the future 10Qs;
we feel that it is more than adequate to give the revenue results
by broad category groups. To disclose the revenue results of
each product would jeopardize our sales force in obtaining the
best price from our customers, and hinder our negotiations when
trying to obtain the lowest royalty rate from our licensors. It
is not prudent to divulge proprietary information which could
hurt the value of the company and negatively impact our
shareholders simply so that those same shareholders (and others)
understand every minute detail of our business.
3. Item 15, Exhibits, page 29
We have considered the materiality of our License Agreements.
None of the license Agreements currently have a material effect
on our Company, other than the Alleghany Agreement, which was
previously filed. None of the agreements create an ongoing
liability if the Company chooses to discontinue the licenses.
Other than Alleghany, the revenues currently from our other
Licensees are not material at this date. We believe that the
Agreements with each Licensor should be confidential. Many of
the terms of the Agreements differ. As stated above, to divulge
this information could have a negative impact on our shareholders
via the decreased profitability of the Company. We believe that
all material risks have been disclosed.
4. Consolidated Statement of Shareholders' Equity, page 6
After further review, we became aware that the stock dividend was
erroneously accounted for similar to that of a stock split. The
financial statements will be revised in the Amended 10K to
properly measure the stock dividend at fair value.
5. Class A and Common Stock Rights
We will set forth the pertinent rights and privileges of our
Class A and Common Stock. Our Common Stock has all the rights and
privileges provided under the Delaware Law of Corporations and
Business Organizations. The Common Stock shareholders have a
right to vote for 3 members of the Board of Directors. The Class
A Common shareholders have the same rights as the Common Stock
shareholders except that they have the right to elect 4 members
to the Board of Directors. Class A shares can be converted into
Common shares. Common shares cannot be converted into Class A
shares.
6. Advertising Costs, page 11
We believe that our method of accounting for our advertising
costs is the most conservative, fair, and consistent presentation
of the expense. To understand the substance of our reporting, I
will briefly describe how we have created a very successful model
which we have followed to run our business.
At the beginning of every year, we meet with our retail accounts
and work out a program to advertise and promote our products. We
are a small niche player in the industry. We attempt to create a
product that can be differentiated from other competitive
products.
Experience has taught us that that at the beginning of each year
we have to jump-start our new product lines and brands to give
them the impetus to get the consumers' attention.
In the first quarter, we introduce our new products into the
marketplace. We define new products as new products, repackaging
old products and repositioning established brand products. In
the first and second quarter, we advertise and promote our
products. The second quarter advertising will be at our highest
level and will help strengthen the information about the products
in the consumer's mind and allow the product to begin to sell on
its own impetus without the substantial media expense we will
have expensed in the first half of the year. We will have
allocated between 60 and 70% of our budget during the first half.
The balance of the budget will be spent in the second half to
shore up any products in a particular area that need more
promotion. Once we get the sales of our products started, we
believe that they can continue to sell in the second half with
less advertising behind them. We firmly believe that we have more
success in the long run (and we emphasize "long-run" meaning
beyond the current period) by concentrating our advertising in
one quarter rather than defusing its effect by spreading it out
over the whole year. Once the initial impact is made, only
sporadic reinforcement is needed to perpetuate the effect of the
initial advertising blitz.
The foregoing is our strategy for our media advertising. The
gradual building up of advertisement will cause the sale of our
products throughout the year. The particular day, week or month
in which the media runs does not necessarily cause immediate
sales. (We will discuss co-operative advertising separately.)
Our advertising is used to create an image, keep repeating the
products' names and although it may not create an instant sale,
the product will sell over a period time. Advertising in the
media looks to the future.
As an example, I am enclosing herewith the sales and media
expenses for our Mega - T dietary supplement product, (Exhibit
"A"). During the first quarter of 2004, we spent $617,626 and had
sales of $2,924,389. During the second quarter of 2004, we spent
$1,528,609 and had sales of $4,821,257. Because we had
advertised so heavily in the first and second quarters for this
product, we had sales of $4,935,091 with only advertising of
$201,908 in the third quarter. In the fourth quarter, we had
sales of $3,760,142 with no advertising. During the first quarter
of 2005, we spent $551,988 to advertise and had sales of
$5,364,754.
We have been using this merchandising model since 1986 with
substantial success. We firmly believe that we have established
that the advertising benefits from an expense in a period clearly
extend beyond the particular period in which the expenditure was
made using our model. Management has taken the Company from a negative
net worth in 1986 to a $25 million net worth today, $13.5 million
cash and investments with no contingent liabilities and no
requirements to utilize our $10 million unsecured line of credit.
EBITDA was $9.4 million.
Co-operative Advertising
At the beginning of each year, a program of co-operative
advertising is entered into with our retail accounts. The
commitments are for the full year. We automatically require that
every time a commitment is made, whether oral or written, we
record the commitment on the date it is made. We may make a
commitment in January, but the promotion may not run until
August.
During the first quarter of 2005, we committed to approximately
$3.5 million. During that period, approximately $1.8 million of
the $3.5 million actually ran. The expense we charged against
the quarter was approximately $1.5 million. The balance of
approximately $2 million not charged during the period was
deferred instead of $1.7 million had we charged what actually
ran. We have attached "Exhibit B" detailing what the actual
expense would have been.
Conclusion
We believe that APB also suggests that accounting information not
distort the annual expense on a quarterly basis. Our method
helps to give a reasonable illustration of the expected results
of operations for the year based on the sales and expenses for
the quarter. The year-end statement marshals all of the data and
sets forth the advertising that was actually run during the year.
7. Note 5. Intangible Assets, Page 12
We are attaching a schedule of all of our Trademarks (Exhibit C)
as well as another schedule showing total sales and sales by
product per country (Exhibit D).
8. Note 9. Stock Options, page 21
We had given consideration to measuring the stock price's
volatility over a period in line with the expected life of the
options, as we had done in previous years, but upon review of the
calculation of "volatility" we discovered educational literature
that explained volatility and the use of standard deviation.
That literature (copy enclosed - Exhibit E) indicated that the
most common way to calculate standard deviation was to determine
the deviation from an average monthly return over a 36-month time
period and then annualize that number. In an attempt to be more
accurate in our calculation we adopted this method. We felt that
a 36 month time period was more appropriate given that our
volatility had changed once we were listed on the American Stock
Exchange and the inclusion of the older years would probably not
reflect the future volatility as accurately.
9. After further review, we agree that in accordance with FAS
123, compensation expense should be recognized over the vesting
period. The financial statement disclosure will be revised in
the amended Form 10-K.
10. We agree that the modification of options granted would cause
additional compensation to be recognized in accordance with FASB
interpretation No. 44. Upon further review, the measurement
modification of the options resulted in an immaterial amount of
compensation to be recognized. The effect on net income was
approximately 1% and therefore less than 1% on net sales,
stockholders' equity and total assets. Therefore, no
compensation was recognized.
11. Commitments and Contingencies, page 27
We have considered whether or not to be more specific about
royalty costs by Licensors. We believe that it is not in the
best interest of the Company to disclose the specific arrangement
with each Licensor. We do include all of the minimum costs we
must maintain in the aggregate to maintain the licenses. (See
response to item 3.)
12. To date there is no change from our prior response.
13. We will refer to the SEC staff's letter to the Center for
Public Company Audit Firms dated February 7, 2005 regarding
certain leasing issues and will make sure that we comply with it
with respect to these matters in future filings.
We hope that this response adequately answers all of your
questions and suggestions regarding our 10K filing and our future
10Qs. If this response is sufficient in response to your review
of our 10K and your comments thereto, please advise and we will
file form 10-KA as an amendment to our previously filed 10K.
We understand that (1) we are responsible for the accuracy and
adequacy of the disclosures in our filings, (2) staff comments or
changes to disclosures in response to staff comments do not
foreclose the Commission from taking any action with respect to
the filing, and (3) the Company may not assert staff comments as
a defense in any proceeding initiated by the Commission or any
person under the federal securities laws of the United States.
Very truly yours,
John Bingman
Chief Financial Officer
/js
cc: Patricia Armelin
Staff Accountant
CCA INDUSTRIES, INC.
200 MURRAY HILL PARKWAY
E. RUTHERFORD, NJ 07073
April 11, 2005
Mr. Mitchell Kahn
Sheft Kahn & Company LLP
125 Jericho Tpke.
Jericho, NY 11753
Dear Mr. Kahn:
We have engaged KGS LLP to audit our financial statements for the year
ended November 30, 2005. In connection therewith, they would like to make
inquiries and examine your working papers for the audit of our financial
statements for the year ended November 30, 2004. We hereby authorize you
to respond fully and without limitation to their requests.
Please allow our auditors to copy any information needed from files related to
our financial statements that they request (unless proprietary in nature) and
bill our company for the reproduction costs.
We have represented to our auditors that we are not involved with your firm
in any disputes about accounting principles, auditing procedures, or similarly
significant items and that we have paid in full for all services rendered by
you to date. You will be contacted by Mr. Mitchell Kahn of this audit firm
concerning these matters.
Very truly yours,
CCA INDUSTRIES, INC.
SHEFT KAHN & COMPANY LLP
125 JERICHO TPKE.
JERICHO, NY 11753
April 11, 2005
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Gentlemen:
We are writing pursuant to 17CFR'229.304(a)(3), with respect to the CCA
Industries, Inc.=s report on Form 8-K regarding our replacement as independent
auditors for CCA Industries, Inc.
We have reviewed the letter from CCA Industries, Inc. dated April 11, 2005,
which notified us that CCA Industries, Inc. has engaged other auditors to
perform their annual audit for the year ending November 30, 2005.
Upon review, we are in agreement that during the preceding 24 months there
have been no disagreements regarding accounting principles or practices,
financial statement presentation and disclosures, audit scope or procedures
or compliance with applicable rules of the Securities and Exchange Commission.
Very truly yours,
SHEFT KAHN & COMPANY LLP
Mitchell Kahn
CCA INDUSTRIES, INC.
200 MURRAY HILL PARKWAY
EAST RUTHERFORD, NJ 07073
April 11, 2005
Sheft Kahn & Company LLP
125 Jericho Turnpike
Jericho, NY 11753
Gentlemen:
The audit committee of the Company=s Board of Directors has been informed
that effected February 28, 2005, the firm of Sheft Kahn & Company LLP has
dissolved. The audit committee has retained the successor firm of KGS LLP to
perform the audit of CCA Industries, Inc. as of and for the year ending
November 30, 2005.
Please be advised that pursuant to Securities and Exchange Commissions
(SEC) Regulation S-K, Item 304, we are hereby requesting you to review the
attached copy of Form 8-K filed with the SEC by the Company and make comment
as to whether or not you agree said comments should be addressed to the SEC.
Very truly yours,
CCA Industries, Inc.
April 11, 2005
Mr. John Bingman
Chief Financial Officer
CCA Industries, Inc.
200 Murray Hill Parkway
East Rutherford, NJ 07073
Dear Mr. Bingman:
This is to confirm that the client-auditor relationship between CCA Industries,
Inc. (Commission File Number 2-85538) and Sheft Kahn & Company LLP has
ceased.
Very truly yours,
SHEFT KAHN & COMPANY LLP
Mitchell G. Kahn
cc.: Office of the Chief Accountant
SECPS Letter File
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
DATE OF REPORT: April 11, 2005
CCA Industries, Inc.
(Exact Name of Registrant as Specified in Charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
1-31643
(Commission File Number)
04-2795439
(IRS Employer Identification Number)
200 Murray Hill Parkway, East Rutherford, New Jersey 07073
(Address of principal executive offices, zip code)
(201) 330-1400
(Registrant's telephone number including area code)
-1-
Item 5. Other
The audit committee of the Company's Board of Directors
has been informed that effective February 28, 2005, the firm
of Sheft Kahn & Company LLP has dissolved. The audit
committee has retained the successor firm of KGS LLP to
perform the audit of CCA Industries, Inc. as of and for the
year ending November 30, 2005.
During the preceding 24 months there have been no
disagreements regarding accounting principles or practices,
financial statement presentation and disclosures, audit
scope or procedures or compliance with applicable rules of
the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934,
the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: April 11, 2005
CCA Industries, Inc.
Registrant
By: Ira W. Berman
Ira W. Berman, Secretary
-2-
All Mega Product Lines
Dollars Shipped and TV Expenditures
2004 and Q1 2005
Sales TV Expenditures
December-03 1,047,011.66 -
January-04 731,981.60 331,453.33
February-04 1,145,395.85 286,173.39
Q1 2004 Total $2,924,389.11 $617,626.72
March-04 1,632,615.49 -
April-04 1,912,835.79 1,041,332.79
May-04 1,275,806.60 487,277.00
Q2 2004 Total $4,821,257.88 $1,528,609.79
June-04 1,597,268.10 204,905.18
July-04 1,785,873.37 (2,997.12)
August-04 1,551,949.81 -
Q3 2004 Total $4,935,091.28 $201,908.06
September-04 1,124,066.16 -
October-04 547,526.75 (106.25)
November-04 2,088,550.05 90.67
Q4 2004 Total $3,760,142.96 $(15.58)
2004 TOTAL $16,440,881.23 $2,348,128.99
December-04 1,467,153.36 16,930.65
January-05 1,789,289.02 354,568.11
February-05 2,108,311.70 180,489.56
Q1 2005 Total $5,364,754.08 $551,988.32
Exhibit A
Commitments - 1st Quarter 2005 $3,480,566
Less: Quarterly Contracts (CVS, Rite Aid) $1,169,561
Subtotal $2,311,005
Less: Slotting (est.) $ 237,500
Subtotal $2,073,505
Less: 11% Reserve on Coop $ 207,921
Total $1,865,584
Exhibit B
TOTAL 2003 TOTAL 2004 2005 1st Quarter
Product Line Net Sales Net Sales Net Sales
BIKINI ZONE 4,524,794 4,896,990 899,897
BLO'DRY SAFE 40 18 -
CHERRY VANILLA 1,499,868 1,849,514 273,276
CLOUD DANCE (341) 25 -
DIET 5,707,304 16,231,919 5,256,153
DENISE AUSTIN - - 1,540,553
FOOT PRODUCTS 348,601 256,862 8,200
HAIROFF 4,702,386 4,587,548 1,074,492
HOLD THAT CURL 590 - -
LOBE WONDER 19,171 83,407 24,420
MIXED DEALS 68,672 10,171 -
MOOD MAGIC (17,687) 754 12
NUTRA 8,841,032 5,383,328 1,184,982
NUTRA ENAMEL (60 SEC) (13,128) (3,152) 16
OTHER 36,663 (500,547) 151,103
PLUS WHITE 17,353,719 14,958,921 2,793,008
PROPERM 803,326 673,736 34,022
SOLAR SENSE 1,028,825 1,849,472 (215,004)
SUDDEN CHANGE 10,809,597 12,046,765 1,898,671
SUNSET CAFE 183,238 305,801 -
SWEET ENDERS 417,932 (30,335) (53,962)
VISION (136) - -
WASH'N CURL 234,740 1,017,707 697,782
WASH'N STRAIGHT 1,784 934 50
WASH'N TINT 79 - -
Totals 56,551,068 63,619,838 15,567,670
EXHIBIT D
Puerto Rico
2005 2004 2003
BIKINI ZONE 1,652 1,484
DIET 723
HAIROFF 1,048 4,254
NUTRA 2,380 8,541 11,097
PLUS WHITE 5,937 20,127 17,762
SOLAR SENSE 3,456
SUDDEN CHANGE 605
Total 9,040 34,824 35,202
England
2005 2004 2003
PLUS WHITE 49,380 76,710
SUDDEN CHANGE 28,000
BIKINI ZONE 300,048
Total
49,380 300,048 104,710
Mexico
2005 2004 2003
HAIR OFF 34
BIKINI ZONE 10
Total - - 44
Japan
2005 2004 2003
SUDDEN CHANGE 15,561 24,495 558
MEGA 242
BIKINI ZONE 111
IPR 6,000
Total 15,561 30,606 800
Australia
2005 2004 2003
SUDDEN CHANGE 1,284 45,082 67,710
HAIR OFF 3,190 3,050
PLUS WHITE 3,063 2,476
BIKINI ZONE 2
MEGA 5
WASH'N CURL 252
SOLAR SENSE 4
SWEET ENDERS 688 4
NUTRA 51,807 56,395
Total 1,284 103,830 129,898
EXHIBIT D
Columbia
2005 2004 2003
HAIR OFF 9,906 30,868 16,134
PLUS WHITE 22,939 57,976 66,428
NUTRA 465
Total 33,310 88,844 82,562
New Zealand
2005 2004 2003
BIKINI ZONE 91 136 393
PLUS WHITE 927 8,775 12,625
SUDDEN CHANGE 2,556 10,445 11,426
Total 3,574 19,356 24,444
China
2005 2004 2003
PLUS WHITE 1,673 7,065
Total 1,673 7,065 -
Spain
2005 2004 2003
SUDDEN CHANGE 39,705 187,067 35,032
Total 39,705 187,067 35,032
Arabia
2005 2004 2003
SUDDEN CHANGE 23,385 75,104 159,682
HAIR OFF 3,325 7,560 38,465
PLUS WHITE 4,480 6,720 9,440
BIKINI ZONE
IPR 720 1,200 1,760
SUNSET CAFE 305,783 185,544
SOLAR SENSE 875
SWEET ENDERS
NUTRA 693 43,189 7,162
Total 32,603 440,431 402,053
Jamaica
2005 2004 2003
SUDDEN CHANGE 3,500 7,000 17,500
IPR 207
HAIR OFF 471
NUTRA 1,520 4,305
PLUS WHITE 7,276 14,162
SOLAR SENSE 151 302
Total 3,500 15,947 36,947
EXHIBIT D
South Africa
2005 2004 2003
SUDDEN CHANGE 10,728
HAIR OFF 4,190
NUTRA 4,963
BIKINI ZONE 6,005
Total 25,886 - -
Ireland
2005 2004 2003
SUDDEN 760 7,327 7,652
IPR 2,760 986
HAIR OFF 10,054 67,405 31,375
NUTRA 2,163 10,557 13,638
PLUS WHITE 3,888 13,567 8,865
SOLAR SENSE 3,185
SWEET ENDERS 2,016
BIKINI ZONE 1,210
Total 16,865 106,011 64,532
Trinidad
2005 2004 2003
PLUS WHITE 1,645
Total - 1,645 -
Czech Republic
2005 2004 2003
PLUS WHITE 12,241
Total - 12,241 -
Bahrain
2005 2004 2003
PLUS WHITE 630 201
Total - 630 201
Viet Nam
2005 2004 2003
MEGA 14,107
PLUS WHITE 351
SWEET ENDERS 504
Total - 14,962 -
EXHIBIT D
Turkey
2005 2004 2003
PLUS WHITE 69,825
Total - - 69,825
Hungary
2005 2004 2003
PLUS WHITE 70,924
Total - - 70,924
Peru
2005 2004 2003
HAIR OFF 3,758
PLUS WHITE 39,480
BIKINI ZONE 8,856
Total - - 52,094
Hong Kong
2005 2004 2003
BIKINI ZONE 202
DIET 1,663
HAIR OFF 504
SWEET ENDERS 252
PLUS WHITE 9,373
SUDDEN CHANGE 3,380
Total - - 15,374
EXHIBIT D
Market Volatility
Market volatility is an uncontrollable and unpredictable risk
associated with investing. Though each individual stock has it's
own volatility pattern, certain stocks' prices fluctuate daily
while others vary incrementally. The volatility of the market as
a whole is usually not as dramatic as an individual stock. In
addition, different market sectors also have varying levels of
volatility. There are several factors that play into market
movements including politics, interest rates, and spending
trends. Understanding how these factors can potentially impact
the market can help you reduce potential risk when making
investment decisions.
Causes of Volatility
Professional traders who participate in a continuous stream of
buying and selling maneuvers often create a condition called
'arbitrage'. Arbitrage occurs when a security is bought and sold
simultaneously at two different prices in two different markets.
Because this activity causes stock prices fluctuate rapidly, what
may have seemed like a good buy at first may turn into a
disadvantage. Thus, arbitrage is one of the forces behind market
volatility. Another consequential factor is the dissemination of
information available through the media. Public reports on
corporate earnings estimates, management changes, product and
service issues, along with political policies and regulations,
compounded with rumors and speculation can influence the buying
or selling of any stock.
Measuring Stock Volatility
Standard Deviation
The most common and basic measure of volatility is called
standard deviation, where volatility is measured in relation to a
defined time frame. It takes into account the way a security has
performed in the past, and estimates the probability as the
whether it will perform in the same manner in the future. The
most common way to calculate standard deviation is to determine
the deviation from an average monthly return over a 36-month time
period, and then annualize that number. As a general rule, the
higher the standard deviation, the more volatile the security.
However, standard deviation is not a 'relative measure', and has
no base reference point by which to compare. Thus, the logical
way to use standard deviation is to compare one security's
standard deviation to that of a similar security.
The Beta Coefficient
Beta is used to measure the volatility of a security in relation
to that of the stock market as a whole. To determine the beta of
any security, you need to know the security's monthly returns and
the returns of a benchmark index. For stocks and mutual funds
that hold stocks, the Standard & Poor's 500 Stock Index is the
most frequently used index, and is assigned a beta coefficient of
one (1.0). For bonds and bond mutual funds, the Lehman Brothers
Aggregate Bond Index is the most prevalent benchmark, and is also
assigned a beta coefficient of one also. Any security with a beta
higher than one is more volatile than the relative market index,
while any security with a beta less than one is less volatile
than the index. Like standard deviation, beta is typically
measured using data over a 36-month period. Beta is useful in
providing a measurement of a security's past volatility relative
a specific benchmark or index, but it's important to verify that
the most relevant benchmark is used.
R-Squared
Whenever beta is used to measure volatility, you are likely to
find an R-squared statistic as well. Where the beta coefficient
EXHIBIT E
to measure volatility, R-squared measures the reliability of the
information used to determine beta. The lower the R-squared
figure (on a scale of 1 - 100), the less reliable the
information.
Volatility and Your Time Horizon
Negative market volatility tends to hit short-term investors the
hardest because they are looking for more immediate, positive
results. Because long-term investors have a longer time horizon,
they are better able to 'ride out' down markets and stay invested
for subsequent recovery and growth opportunities. Attempting to
time the market (the proverbial 'buy low, sell high' approach) is
extremely difficult and even professional traders are not always
successful. If market volatility is one of your main investing
concerns, talk with a professional financial adviser for help
creating a personal asset allocation profile that can help meet
your financial goals, and provide protection against market
volatility. You may never be able to insulate your portfolio
100%, but taking steps such as diversifying your portfolio
through asset allocation will give you a better chance of
deflecting some of the potential volatility that is inherent in
investing.
EXHIBIT E