October
15, 2009
Jim B.
Rosenberg
Senior
Assistant Chief Accountant
United
States Securities and Exchange Commission
100 F
Street, N.E.
Washington,
D.C. 20549
|
Re:
|
The
Quigley Corporation
|
|
|
Form
10-K for the Fiscal Year Ended December 31,
2008
|
|
|
Filed
March 9, 2009
|
|
|
Definitive
Proxy Statement on Schedule 14A
|
|
|
Filed
April 2, 2009
|
File Number:
000-21617
Dear Mr.
Rosenberg:
On behalf
of The Quigley Corporation (the “Company”) we hereby transmit via EDGAR the
following responses to the Staff’s comment letter of October 5,
2009. To assist your review, we have retyped the text of the Staff’s
comments in bold face type.
Form
10-K for Fiscal Year Ended December 31, 2008
Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting
Estimates, page 27
|
|
1.
|
Please
refer to your revised proposed disclosures in response to prior comment
five. Please clarify what you mean by “non-routine” returns,
“obsolete” product and “product mix realignment” and address how these
items relate to the main components of the Company’s return policy for
which you will accept returns as disclosed in your proposed disclosure to
comment four. Please separately disclose the amount of the
increase in the 2008 return provision attributed to each of the
following: non-routine returns of obsolete product, product mix
realignment and returns or return reserves for new products of the company
which carry a shelf-life expiration
date.
|
Response:
The
Company does not impose a period of time within which product may be
returned. All requests for product returns must be submitted to the
Company for pre-approval. The main components of the Company’s
returns policy are: the Company will accept returns that are (i) due to damaged
product that is un-saleable and such return request activity fall within an
acceptable range, (ii) for products of the Company that have reached or exceeded
designated expiration dates, (iii) in the event that the Company discontinues a
product, the customer will have the right to return only such item that it
purchased directly from the Company. The Company will not accept
return requests pertaining to customer inventory “Overstocking” or
“Resets”. The Company will only accept return requests for
product in its intended package configuration. The Company reserves
the right to terminate shipment of product to customers who have made
unauthorized deductions contrary to the Company’s Return Policy or pursue other
methods of reimbursement. The Company compensates the customer for authorized
returns by means of a credit applied to amounts owed or to be owed and in the
case of discontinued product only, also by way of an exchange. The
Company does not have any significant product exchange history.
KELLS
BUILDING · 621 N.
Shady Retreat Road ·
PO Box1349 ·
Doylestown, PA 18901-1349 · U.S.A
Telephone:
215-345-0919 · Fax:
215-345-5920 · For
information: www.quigleyco.com
The
increase in the fiscal 2008 return provision was principally due to non-routine
returns, obsolete product and product mix realignment by certain of our
customers.
“Non-routine”
returns are defined as product returned to the Company as a consequence of
unanticipated circumstances principally due to (i) retail store closings or (ii)
unexpected poor retail sell through to consumers causing the Company to
discontinue the product.
“Obsolete”
returns are defined as product returned to the Company as a consequence of
product shelf-life “use by” expiration date.
“Product mix realignment”
returns are defined as product returned to the Company due to initiatives by the
trade to discontinue purchasing certain of the Company’s
products. Product mix realignment returns are generally nominal and
are frequently related to discontinued or soon to be discontinued
products.
The
Company’s return policy accommodates returns for (i) discontinued products, (ii)
store closings and (iii) products that have reached or exceeded designated
expiration date.
The
following is a summary of the change in the return provision for the year ended
December 31, 2008:
|
Return
provision at December 31, 2008
|
$ | 1,427,045 | ||
|
Return
provision at December 31, 2007
|
295,606 | |||
|
Increase
in the return provision at
December 31, 2008
|
$ | 1,131,439 |
For the
year ended December 31, 2008, the return provision increased by $1,131,439 to
$1,427,045. The return provision increase of $1,131,439 was principally due to
(i) an aggregate provision for returns of $586,528 attributable to new product
introductions as a consequence of (a) poor retail sell through to consumers
(resulting in non-routine returns) and (b) the decreasing shelf-life of the
products as expiration dates came due (resulting in obsolete returns), and (ii)
an aggregate provision for returns of $544,911 due principally to discontinued
product (resulting in non-routine returns).
We will
provide disclosure of the above-mentioned definitions in future filings, as well
as other subject matters discussed in this response if we determine that a
reasonable investor would consider such information to be material to an
investment decision.
2
|
|
2.
|
Disclose
the net sales that you recognized in each of the three years presented for
the new products of the company which carry a shelf-life expiration
date. You state in your disclosure that “there are no material
charges to net income in the current period, related to sales from a prior
period.” Tell us the amount of the change in your provision
recorded in 2008 related to sales made in periods before January 1,
2008.
|
Response:
For the
year ended December 31, 2008, 2007 and 2006, net sales of products with limited
shelf-life and expiration dates were $265,095, $2,389,095 and $317,403,
respectively.
Approximately
$551,000 of the increase in the Company’s return provision at December 31, 2008
as compared to the return provision at December 31, 2007, was attributable to a
new product with a shelf-life expiration date that was launched by the Company
during fiscal 2007. The Company determined in fiscal 2008 to
discontinue this product due to poor retail sell through to
consumers. This increase in the return provision for the year ended
December 31, 2008 represented, as a percentage of net sales (i) 2.7% of the
Company’s fiscal 2008 net sales from continuing operations of $20,506,612, and
(ii) 2.0% of the Company’s fiscal 2007 net sales from continuing operations of
$28,241,502.
Item 8. Financial
Statements and Supplementary Data
Consolidated Financial
Statements
Consolidated Statements of
Cash Flows, page F-4
|
|
3.
|
Please
refer to the revised Statements of Cash flows for the three year fiscal
period ended December 31, 2008 and the quarterly period ended March 31,
2009 in response to prior comment seven. Please tell us why the
modification of the cash flow statements to present the cash flows from
discontinued operations within the cash flows from operating, investing
and financing activities, resulted in a change to the net (decrease)
increase in cash and cash equivalents and to the beginning and ending cash
and cash equivalents balances for the periods
presented.
|
Response:
The
change to the net (decrease) increase in cash and cash equivalents and to the
beginning and ending cash and cash equivalent balances for the periods presented
was due to treatment of cash held by the discontinued
operation. At December 31, 2007 and 2006, the Company
included as a component of assets of discontinued operations, cash of $951,736
and $1,466,140, respectively, attributable to the underlying subsidiary held for
sale. As a consequence of the revised presentation of the statement
of cash flows, the beginning and ending cash and cash equivalents were adjusted
to include cash balances related to discontinued operations at the respective
period ended.
To
clarify the impact of cash flows on cash and cash equivalents we propose to
revise the cash flows presentation previously provided to you as
follows:
3
1. Years ended December 31, 2008, 2007 and
2006:
THE
QUIGLEY CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS (REVISED)
|
Year
Ended
|
Year
Ended
|
Year
Ended
|
||||||||||
|
Dec 31, 2008
|
Dec 31, 2007
|
Dec 31, 2006
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
loss
|
$ | (5,534,286 | ) | $ | (2,458,337 | ) | $ | (1,748,345 | ) | |||
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||||||
|
Loss
on asset impairment
|
100,000 | - | - | |||||||||
|
Depreciation
and amortization
|
745,386 | 996,161 | 1,326,920 | |||||||||
|
Loss
on the sales of fixed assets
|
26,925 | 19,737 | - | |||||||||
|
Sales
allowance and provision for bad debts
|
1,282,599 | (297,777 | ) | (340,726 | ) | |||||||
|
Inventory
valuation provision
|
332,093 | 437,784 | (680,290 | ) | ||||||||
|
(Increase)
decrease in assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
866,745 | 182,261 | 1,663,519 | |||||||||
|
Inventory
|
1,478,533 | (987,307 | ) | 318,250 | ||||||||
|
Prepaid
expenses and other current assets
|
80,405 | (48,421 | ) | 365,754 | ||||||||
|
Other
assets
|
87,760 | 82,841 | (69,282 | ) | ||||||||
|
Accounts
payable
|
155,976 | (347,785 | ) | 113,829 | ||||||||
|
Accrued
royalties and sales commissions
|
(289,566 | ) | 328,439 | 451,048 | ||||||||
|
Accrued
advertising
|
(73,420 | ) | (770,498 | ) | (710,155 | ) | ||||||
|
Other
current liabilities
|
(3,267,699 | ) | 1,551,304 | 266,421 | ||||||||
|
Net
cash (used in) provided by operating activities
|
(4,008,549 | ) | (1,311,598 | ) | 956,943 | |||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Capital
expenditures
|
(200,544 | ) | (533,034 | ) | (697,479 | ) | ||||||
|
Proceeds
from the sale of fixed assets
|
16,698 | - | 118,276 | |||||||||
|
Net
cash flows used in investing activities
|
(183,846 | ) | (533,034 | ) | (579,203 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Principal
payments on debt
|
- | - | (1,464,286 | ) | ||||||||
|
Stock
options and warrants exercised
|
63,909 | 173,155 | 1,958,135 | |||||||||
|
Net
cash provided by financing activities
|
63,909 | 173,155 | 493,849 | |||||||||
|
Net
(decrease) increase in cash and cash equivalents
|
(4,128,486 | ) | (1,671,477 | ) | 871,589 | |||||||
|
Cash
and cash equivalents at beginning of period
|
15,133,546 | 16,290,619 | 16,383,887 | |||||||||
|
Add:
cash and cash equivalents of discontinued operations
at beginning of period
|
951,736 | 1,466,140 | 501,283 | |||||||||
|
Net
(decrease) increase in cash and cash equivalents
|
(4,128,486 | ) | (1,671,477 | ) | 871,589 | |||||||
|
Less:
cash and cash equivalents of discontinued operations
at end of period
|
- | (951,736 | ) | (1,466,140 | ) | |||||||
|
Cash
and cash equivalents at end of period
|
$ | 11,956,796 | $ | 15,133,546 | $ | 16,290,619 | ||||||
|
Supplemental
disclosures of cash flow information:
|
||||||||||||
|
Interest
|
$ | - | $ | - | $ | 21,644 | ||||||
|
Taxes
|
$ | - | $ | - | $ | 88,599 | ||||||
4
2. Three
month periods ended March 31, 2009 and 2008:
THE
QUIGLEY CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (REVISED)
(unaudited)
|
Three Months
|
Three Months
|
|||||||
|
Ended March
31, 2009
|
Ended March
31, 2008
|
|||||||
|
Cash
Flows from operating activities:
|
||||||||
|
Net
loss
|
$ | (2,199,065 | ) | $ | (1,569,450 | ) | ||
|
Adjustments
to reconcile net loss to net cash provided by (used in) continuing
operations:
|
||||||||
|
Depreciation
and amortization
|
157,209 | 182,213 | ||||||
|
Loss
on the sales of fixed assets
|
- | 16,723 | ||||||
|
Sales
allowance and provision for bad debts
|
(536,413 | ) | (277,004 | ) | ||||
|
Inventory
valuation provision
|
(175,445 | ) | (477,135 | ) | ||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
3,263,560 | 3,570,548 | ||||||
|
Inventory
|
(69,202 | ) | 976,286 | |||||
|
Accounts
payable
|
(402,902 | ) | (60,386 | ) | ||||
|
Accrued
royalties and sales commissions
|
(157,632 | ) | (297,172 | ) | ||||
|
Accrued
advertising
|
(213,903 | ) | (172,262 | ) | ||||
|
Other
operating assets and liabilities, net
|
692,551 | (1,708,495 | ) | |||||
|
Net
cash provided by operating activities
|
358,758 | 183,866 | ||||||
|
Cash
flows from (used by) investing activities:
|
||||||||
|
Capital
expenditures
|
(71,327 | ) | (12,025 | ) | ||||
|
Net
cash flows provided by (used in) investing activities
|
(71,327 | ) | (12,025 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||
|
Stock
options and warrants exercised
|
- | 7,911 | ||||||
|
Net
cash provided by financing activities
|
- | 7,911 | ||||||
|
Net
increase in cash and cash equivalents
|
287,431 | 179,752 | ||||||
|
Cash
and cash equivalents at beginning of period
|
11,956,796 | 15,133,546 | ||||||
|
Add:
cash and cash equivalents of discontinued operations at beginning of
period
|
- | 951,736 | ||||||
|
Net
increase in cash and cash equivalents
|
287,431 | 179,752 | ||||||
|
Less:
cash and cash equivalents of discontinued operations at end of
period
|
- | - | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 12,244,227 | $ | 16,265,034 | ||||
|
Supplemental
disclosures of cash flow information:
|
||||||||
|
Interest
|
$ | - | $ | - | ||||
|
Taxes
|
$ | - | $ | - | ||||
5
Definitive
Proxy Statement on Schedule 14A
Executive
Compensation
Compensation Discussion and
Analysis
|
|
4.
|
We
note your response to Comment 12 and your statement that “the new
Compensation Committee may set incentive programs and thresholds during
2009.” Please confirm that you will provide the following
disclosure, to the extent applicable, in your 2009 Proxy Statement if
incentive programs are used to provide compensation to named executive
officers:
|
|
|
·
|
All corporate, business unit or
departmental and individual performances
criteria;
|
|
|
·
|
The established threshold,
target and maximum levels of achievement for each criteria, quantifying
them to the extent they are
quantifiable;
|
|
|
·
|
An explanation of how the level
of achievement will affect actual bonuses paid,
and;
|
|
|
·
|
The actual levels of
achievement with respect to
objectives
|
Response:
In
response to the Staff’s comment, the Company will provide the disclosure
requested, to the extent applicable, in the Company’s 2009 Proxy
Statement.
|
|
5.
|
We
note your response to Comment 13. Please provide proposed
disclosure for your 2009 proxy statement which includes the
following:
|
|
|
·
|
Identification of the
independent consultant firm;
|
|
|
·
|
Discussion as to whether the
Committee uses benchmarking in setting each major component of executive
compensation, and, if so;
|
|
|
·
|
The peer group companies and
related data used, and
|
|
|
·
|
How this information is used in
the process of setting executive compensation for each component in which
benchmarking is a factor.
|
If
you have not yet determined whether you will rely on benchmarking to set
compensation levels for your named executive officers, please confirm that you
will provide all of the disclosure requested in this comment in your 2009 Proxy
Statement to the extent that you determine to engage in any benchmarking of
compensation for your named executive officers in 2009.
6
Response:
The
Company recently retained an independent consulting firm, Buck Consulting, to
assist the Company’s Compensation Committee with its role of establishing future
executive officer compensation. At this time, the Company is in the
initial stages of reviewing and formulating a comprehensive compensation
program. The Company will consider benchmarking executive
compensation and identifying peer group companies as part of formulating an
executive compensation program.
The
Company confirms that it will provide the commensurate required disclosures in
the Company’s 2009 Proxy Statement to the extent that the Company engages in any
benchmarking of compensation for named executive officers in 2009.
|
|
6.
|
We
note that your response to Comment 14. Please provide proposed
disclosure for your 2009 proxy statement which discusses the process by
which the compensation is set for your current CEO and CFO and whether
your current CEO and CFO recommend compensation for themselves to the
Compensation Committee.
|
Response:
The
Company’s executive compensation program is designed to attract, retain,
motivate and reward executives with the skills and dedication necessary to
provide the leadership, strategic direction and vision to anticipate and respond
to current and future market opportunities or trends. The executive
compensation program design considers (i) issues pertaining to policies for
allocating long-term incentive and currently paid-out compensation, (ii) the
manner in which compensation is allocated between cash and non-cash
compensation, (iii) an executive officer’s current and future roles,
responsibilities and expectations, and (iv) an executive officer’s performance
individually and as a part of the management team.
The
compensation components for the Company’s executives include (i) salary, (ii)
merit based performance bonuses, (iii) long term equity compensation via grants
of restricted shares of our common stock and/or stock options, (iv) employee
fringe benefits including health, life and disability insurance and
participation in our 401(k) savings and profit sharing plan, and (v)
perquisites. The Company’s compensation program is designed to
strengthen the relationship between compensation, both cash and equity-based,
and performance, by emphasizing variable, at-risk compensation that is dependent
upon the successful achievement of specified corporate, business unit and
individual performance goals. The Company’s compensation program is
characterized by a balance between at-risk incentive cash and equity-based
compensation pursuant to an available equity compensation plan or employment
contract, on the one hand, and an executive’s base compensation, on the other
hand. The Company’s compensation program is designed to be
competitive with corresponding programs of other peer group businesses within
the pharmaceutical and consumer products industries while also providing
consideration to each executive’s unique skills and contributions to our long
term strategic goals.
7
Each
fiscal year, the Compensation Committee meets, together with the Company’s
executive management, in order to (i) discuss corporate and individual
performance objectives for the previous year, (ii) review the performance
against the objectives as well as the specific management responsibilities,
(iii) establish current year corporate and individual performance objectives,
and (iv) review management strategies to achieve such
objectives. Through this process, the compensation elements for
executives are aligned with the long term interests of our stockholders in order
to maximize stockholder value. Base compensation for
each executive is established either via a mutually agreed-upon employment
contract between the Company and the executive or at a scheduled meeting of our
Compensation Committee. All executive employment agreements are
negotiated, reduced to writing, reviewed and approved by the Compensation
Committee and confirmed by our Board of Directors prior to execution by the
Company. As part of this process, neither the CEO nor the CFO will
recommend compensation for themselves to the Compensation
Committee.
If you
have any questions or comments with respect to the company’s responses, please
contact the undersigned at (215) 345-0919, our attorneys, Mr. Aron Izower at
(212) 549-0393 or Mr. Herbert Kozlov at (212) 549-0241.
|
Sincerely,
|
|
/s/
Gerard M. Gleeson
|
|
Gerard
M. Gleeson
|
|
Chief
Financial
Officer
|
|
cc:
|
United
States Securities and Exchange
Commission
|
Dana
Hartz, Staff Accountant
Don
Abbott, Review Accountant
Bryan
Pitko, Staff Attorney
Jeffrey
Riedler, Assistant Director
The Quigley Corporation
Ted Karkus, Chief Executive
Officer
Robert V. Cuddihy, Jr., Chief Operating
Officer
Reed Smith LLP
Herbert F. Kozlov, Esq.
Aron Izower, Esq.
8