THE QUIGLEY CORPORATION
KELLS BUILDING
621 SHADY RETREAT ROAD
DOYLESTOWN, PENNSYLVANIA 18901
TEL. 215-345-0919
FAX 215-345-5920
December 5, 2005
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549-601
Attention: Jim B. Rosenberg
Re: The Quigley Corporation ("TQC")
Form 10-K for the fiscal year ended December 31, 2004
FILE NO. 000-21617
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Ladies and Gentlemen:
Pursuant to discussions with Ms. Amy C. Bruckner, Staff Accountant, Division of
Corporation Finance, with the Securities and Exchange Commission (the
"Commission") on October 11, 25, and November 22, 2005, we are providing
ADDITIONAL COMMENTARY TO SUPPLEMENT, WHICH SHOULD BE CONSIDERED AS PART OF AN
ENTIRE RESPONSE, AND NOT REPLACE OUR PREVIOUS RESPONSES to the letter of comment
dated August 4, 2005 from the Commission (the "Commission Letter") filed on
August 29, 2005 and additional commentary filed on October 17 and November 7,
2005 with the Commission. We have reviewed the additional commentary with our
auditors and the following reflect our further responses to the Commission
Letter. The following future suggested disclosure supplements our previous
suggested disclosure for our next annual report on Form 10-K for the fiscal year
ended December 31, 2005, which utilizes as a basis, our annual report on Form
10-K for the fiscal year ended December 31, 2004 filed with the Commission on
March 31, 2005.
TQC RESPONSE (ADDITIONAL COMMENTARY NO. 3)
In consideration of previous submissions, the disclosure for "Critical
Accounting Policies" as presented on page 18 that was included in our annual
report on Form 10-K for the fiscal year ended December 31, 2004 filed with the
Commission on March 31, 2005 can be expanded with the next annual filing with
the Commission to reflect disclosures as follows:
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
The Company is organized into four different but related business segments,
Cold-Remedy, Health and Wellness, Contract Manufacturing and Ethical
Pharmaceutical. When providing for the appropriate sales returns, allowances,
cash discounts and cooperative advertising costs, each segment applies a uniform
and consistent method for making certain assumptions for estimating these
provisions that are applicable to that specific segment. Traditionally, these
provisions are not material to net income in the Health and Wellness and
Contract Manufacturing segments. The Ethical Pharmaceutical segment does not
have any revenues.
The product in the Cold-Remedy segment, Cold-Eeze, has been clinically proven in
two double-blind studies to reduce the severity and duration of common cold
symptoms. Accordingly, factors considered in estimating the appropriate sales
returns and allowances for this product include it being: a unique product with
limited competitors; competitively priced; promoted; unaffected for remaining
shelf life as there is no expiration date; monitored for inventory levels at
major customers and third-party consumption data, such as Information Resources,
Inc. ("IRI").
At December 31, 2004 and 2003 the Company includes reductions to accounts
receivable for sales returns and allowances of $1,109,000 and $404,000,
respectively, and cash discounts of $92,000 and $115,000, respectively.
Additionally, current liabilities at December 31, 2004 and 2003 include $743,000
and $1,295,000, respectively for cooperative advertising costs.
The roll-forward of the sales returns and allowance reserve ending at December
31 is as follows:
ACCOUNT - SALES RETURNS & ALLOWANCES 2004 2003
- ---------------------------------------------------------------------------------- --------------- -------------
Beginning balance $403,850 $426,557
Provision made for future charges relative to sales for each period presented 1,414,796 937,738
Current provision related to discontinuation of Cold-Eeze nasal spray 625,756 -
Actual returns & allowances recorded in the current period presented (1,335,231) (960,445)
--------------- -------------
Ending balance $1,109,171 $403,850
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Management believes there are no material charges to net income (loss) in the
current period, related to sales from a prior period.
REVENUE
Provisions to reserves to reduce revenues for cold remedy products that do not
have an expiration date, include the use of estimates, which are applied or
matched to the current sales for the period presented. These estimates are based
on specific customer tracking and an overall historical experience to obtain an
effective applicable rate, which is tested on an annual basis and reviewed
quarterly to ascertain the most applicable effective rate. Additionally, the
monitoring of current occurrences, developments by customer, market conditions
and any other occurrences that could affect the expected provisions relative to
net sales for the period presented are also performed.
A one percent deviation for these consolidated reserve provisions for the fiscal
years presented December 31, 2004, 2003 and 2002 would affect net sales by
approximately $481,000, $455,000 and $331,000, respectively for sales returns
and $275,000, $241,000 and $175,000, respectively for cooperative advertising
costs.
The 2004 results include a returns provision of approximately $626,000 in the
event of future product returns following the discontinuation of the
Cold-Eeze(R) Cold Remedy Nasal Spray product in September 2004.
INCOME TAXES
The Company has recorded a valuation allowance against its net deferred tax
assets. Management believes that this allowance is required due to the
uncertainty of realizing these tax benefits in the future. The uncertainty
arises because the Company may incur substantial research and development costs
in its Ethical Pharmaceutical segment.
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COST OF SALES
For the Cold Remedy Segment, in accordance with contract terms, payments
calculated based upon net sales collected to the patent holder of the Cold-Eeze
formulation and payments to the corporation founders and developers of the final
saleable Cold-Eeze product amounting to $2,052,746, $1,805,294 and $1,421,475,
respectively, at December 31, 2004, 2003 and 2002 are presented in the financial
statements as cost of sales.
In the Health and Wellness Segment, agreements with Independent Distributor
Representatives ("IR's") require payments to them to be calculated based upon
net sales collected and in accordance with our policy and procedures for IR's,
among other factors that include the IR's taking title to the products, are
related to expand the cycle of additional IR's and are for maintaining the
distribution channel for this segment's products. Accordingly, such distribution
payments amounting to $9,053,612, $9,439,100 and $6,813,114, respectively, at
December 31, 2004, 2003 and 2002 are presented in the financial statements as
cost of sales.
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The Company acknowledges that 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 the Company will 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.
Sincerely,
/s/ George J. Longo
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George J. Longo
Vice President and Chief Financial Officer
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