THE
QUIGLEY CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND
BUSINESS
The
Quigley Corporation (the “Company”), organized under the laws of the state of
Nevada, is engaged in the development, manufacturing, and marketing of
homeopathic and health products that are being offered to the general public
along with the research and development of potential prescription products. The
Company is organized into three business segments: Cold Remedy, Contract
Manufacturing and Ethical Pharmaceutical. For the fiscal periods presented, the
majority of the Company’s revenues have come from the Company’s Cold Remedy
segment.
The
Company’s principal cold-remedy product, Cold-Eeze®, a zinc gluconate
glycine formulation (ZIGG™) is an over-the-counter consumer product used to
reduce the duration and severity of the common cold. The
lozenge form of the product is manufactured by Quigley Manufacturing Inc.
(“QMI”), a wholly owned subsidiary of the Company, which was formed following
the acquisition of certain assets and assumption of certain liabilities of JoEl,
Inc., the contract manufacturer of the lozenge product prior to October 1,
2004.
In
January 2001, the Company formed an Ethical Pharmaceutical segment which is now
Quigley Pharma Inc. (“Pharma”), a wholly-owned subsidiary of the
Company. The result of that segment’s research and development
activity may enable the Company to diversify into the prescription drug
market.
On
February 29, 2008, the Company sold Darius International Inc. (“Darius”) to
InnerLight Holdings, Inc., whose major shareholder is Mr. Kevin P. Brogan, the
then president of Darius. Darius marketed health and wellness
products through its wholly-owned subsidiary, Innerlight Inc. that constituted
the Health and Wellness segment of the Company. The terms of the sale
agreement included a cash purchase price of $1,000,000 by InnerLight Holdings,
Inc. for the stock of Darius and its subsidiaries without guarantees, warranties
or indemnifications. See discussion in Note 3 to Condensed
Consolidated Financial Statements.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
Condensed Consolidated Financial Statements include the accounts of the Company
and its wholly owned subsidiaries. All inter-company transactions and balances
have been eliminated. Effective March 31, 2004, the financial
statements include consolidated variable interest entities (“VIEs”) of which the
Company is the primary beneficiary (see discussion in Note 4, “Variable Interest
Entity”). The business activity that gave rise to the VIE accounting
was discontinued on March 31, 2008 and therefore this accounting requirement is
no longer reflected in the financial statements of the Company.
On
February 29, 2008, the Company sold Darius, the former health and wellness
segment of the Company. Results and balances associated with Darius
are presented as discontinued operations in the Condensed Consolidated
Statements of Operations and the Condensed Consolidated Balance
Sheets.
These
financial statements have been prepared by management without audit and should
be read in conjunction with the Consolidated Financial Statements and notes
thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2007. In the opinion of management, all adjustments necessary for a
fair presentation of the consolidated financial position, consolidated results
of operations and consolidated cash flows, for the periods indicated, have been
made. The results of operations for the three months ended March 31,
2008 and 2007 are not necessarily indicative of the results to be expected for
the entire year or any other period.
Use
of Estimates
The
Company’s Condensed Consolidated Financial Statements are prepared in accordance
with generally accepted accounting principles (“GAAP”) in the United Sates of
America. In connection with the preparation of the Condensed Consolidated
Financial Statements, the Company is required to make assumptions and estimates
about future events, and apply judgments that affect the reported amounts of
assets, liabilities, revenue, expenses and related disclosures. These
assumptions, estimates and judgments are based on historical experience, current
trends and other factors that management believes to be relevant at the time the
Condensed Consolidated Financial Statements are prepared. Management reviews the
accounting policies, assumptions, estimates and judgments on a quarterly basis
to ensure the financial statements are presented fairly and in accordance with
GAAP. However, because future events and their effects cannot be determined with
certainty, actual results could differ from these assumptions and estimates, and
such differences could be material.
The
Company is organized into three different but related business segments,
Cold-Remedy, Contract Manufacturing and Ethical Pharmaceutical. When providing
for the appropriate sales returns, allowances, cash discounts and cooperative
incentive promotion costs, each segment applies a uniform and consistent method
for making certain assumptions for estimating these provisions that are
applicable to each specific segment. Traditionally, these provisions are not
material to reported revenues in the Contract Manufacturing segment and the
Ethical Pharmaceutical segment does not have any revenues.
Provisions
to these reserves within the Cold Remedy segment include the use of such
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 applicable effective rate. Estimates
for sales returns are tracked at the specific customer level and are tested on
an annual historical basis, and reviewed quarterly, as is the estimate for
cooperative incentive promotion costs. Cash discounts follow the terms of sales
and are taken by virtually all customers. Additionally, the monitoring of
current occurrences, developments by customer, market conditions and any other
occurrences that could affect the expected provisions for any future returns or
allowances, cash discounts and cooperative incentive promotion costs relative to
net sales for the period presented are also performed.
Cash
Equivalents
The
Company considers all highly liquid investments with an initial maturity of
three months or less at the time of purchase to be cash
equivalents. Cash equivalents include cash on hand and monies
invested in money market funds. The carrying amount approximates the fair market
value due to the short-term maturity of these investments.
Inventory
Valuation
Inventory
is valued at the lower of cost, determined on a first-in, first-out basis
(FIFO), or market. Inventory items are analyzed to determine cost and the market
value and appropriate valuation reserves are established. The Consolidated
Financial Statements include a specific reserve for excess or obsolete inventory
of $391,575 and $368,491 as of March 31, 2008 and December 31, 2007,
respectively. Inventories included raw material, work in progress and
packaging amounts of approximately $1,426,000 and $1,197,000 at March 31, 2008
and December 31, 2007, respectively, with the remainder comprising finished
goods.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost. The Company uses a
combination of straight-line and accelerated methods in computing depreciation
for financial reporting purposes. The annual provision for
depreciation has been computed in accordance with the following ranges of
estimated asset lives: building and improvements - twenty to thirty-nine years;
machinery and equipment - five to seven years; computer software - three years;
and furniture and fixtures – seven years.
Concentration
of Risks
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash investments and trade accounts
receivable.
The
Company maintains cash and cash equivalents with several major financial
institutions. Since the Company maintains amounts in excess of guarantees
provided by the Federal Depository Insurance Corporation, the Company performs
periodic evaluations of the relative credit standing of these financial
institutions and limits the amount of exposure with any one
institution.
Trade
accounts receivable potentially subject the Company to credit
risk. The Company extends credit to its customers based upon an
evaluation of the customer’s financial condition and credit history and
generally does not require collateral. It is not anticipated that any one
customer will exceed 10% of consolidated sales in 2008. The Company’s
broad range of customers includes many large wholesalers, mass merchandisers and
multi-outlet pharmacy chains, five of which account for a significant percentage
of sales volume, representing 42% and 44% of sales volume for the respective
three month periods ended March 31, 2008 and 2007,
respectively. Customers comprising the five largest accounts
receivable balances represented 46% and 48% of total trade receivable balances
at March 31, 2008 and 2007, respectively. During the three month periods ended
March 31, 2008 and 2007, all of the Company’s net sales for each period were
related to domestic markets.
The
Company’s revenues are currently generated from the sale of the Cold-Remedy
products which approximated 89% and 90% of total revenues in the three month
periods ended March 31, 2008 and 2007, respectively. The Contract
Manufacturing segment approximated 11% and 10% for the respective three month
periods.
Raw
materials used in the production of the products are available from numerous
sources. Raw materials for the Cold-Eeze® lozenge product
is currently procured from a single vendor in order to secure purchasing
economies. In a situation where this one vendor is not able to supply
QMI with the ingredients, other sources have been identified. Should
these product sources terminate or discontinue for any reason, the Company has
formulated a contingency plan in order to prevent such discontinuance from
materially affecting the Company’s operations. Any such termination
may, however, result in a temporary delay in production until the replacement
facility is able to meet the Company’s production requirements.
Long-lived
Assets
The
Company reviews its long-lived assets with definite lives for impairment on an
exception basis whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable through future cash
flows. If it is determined that an impairment loss has occurred based
on the expected discounted cash flows compared to the related asset value, an
impairment loss is recognized in the Statement of Operations.
Revenue
Recognition
Sales are
recognized at the time ownership is transferred to the customer, which for the
Cold Remedy segment is the time the shipment is received by the customer and for
the Contract Manufacturing segment, when the product is shipped to the
customer. Revenue is reduced for trade promotions, estimated sales
returns, cash discounts and other allowances in the same period as the related
sales are recorded. The Company makes estimates of potential future product
returns and other allowances related to current period revenue. The Company
analyzes historical returns, current trends, and changes in customer and
consumer demand when evaluating the adequacy of the sales returns and other
allowances. The Consolidated Fiancial Satements include reserves of $290,444 for
future sales returns and $273,438 for other allowances as of March 31, 2008 and
$295,606 and $347,102 at December 31, 2007, respectively. The
reserves also include an estimate of the uncollectability of accounts receivable
resulting in a reserve of $175,393 and $178,144 at March 31, 2008 and December
31, 2007, respectively.
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
amounting to zero and $257,996 respectively, for the three month periods ended
March 31, 2008 and 2007 are presented in the financial statements as cost of
sales (see also Note 5).
Operating
expenses
Agreements
relating to the Cold Remedy segment with a major national sales brokerage firm
are for this firm to sell the manufactured Cold-Eeze® product to our
customers. Such related costs are presented in the financial statements as
selling expenses.
Shipping
and Handling
Product
sales relating to the Cold Remedy and Contract Manufacturing segments include
shipping and handling charges to the purchaser as part of the invoiced price,
which is classified as revenue. In all cases costs related to this
revenue are recorded in cost of sales.
Stock
Compensation
Stock
options and warrants for purchase of the Company’s common stock have been
granted to both employees and non-employees since the date the Company became
publicly traded. Options and warrants are exercisable during a period
determined by the Company, but in no event later than ten years from the date
granted.
As of
January 1, 2006, the Company adopted SFAS 123R, “Shared Based Payment”. The
adoption of SFAS 123R did not have an impact on the Company’s financial position
or results of operations in the 2006 and subsequent periods
reported.
No stock
options were granted in the three month periods ended March 31, 2008 and
2007. All stock options granted prior to January 1, 2006 were fully
vested.
Advertising
and Incentive Promotions
Advertising
and incentive promotion costs are expensed within the period in which they are
utilized. Advertising and incentive promotion expense is comprised of media
advertising, presented as part of sales and marketing
expense; cooperative incentive promotions and coupon
program expenses, which are
accounted for as part of net sales; and free product,
which is accounted for as part of cost of sales. Advertising and
incentive promotion costs incurred for the three month periods ended March 31,
2008 and 2007 were $2,472,761 and $2,590,416, respectively. Included
in prepaid expenses and other current assets was zero and $158,428 at March 31,
2008 and December 31, 2007, respectively, relating to prepaid advertising and
promotion expenses.
Research
and Development
Research
and development costs are charged to operations in the period incurred.
Expenditures for the three month periods ended March 31, 2008 and 2007 were
$1,410,302 and $1,151,381, respectively. Principally, research and
development costs are related to Pharma’s study activities and costs associated
with Cold-Eeze®
products.
Income
Taxes
The
Company utilizes the asset and liability approach which requires the recognition
of deferred tax assets and liabilities for the future tax consequences of events
that have been recognized in the Company’s financial statements or tax returns.
In estimating future tax consequences, the Company generally considers all
expected future events other than enactments of changes in the tax law or
rates. Until sufficient taxable income to offset the temporary timing
differences attributable to operations and the tax deductions attributable to
option, warrant and stock activities are assured, a valuation allowance equaling
the total deferred tax asset is being provided. See Note 9 - Income
Taxes, for further discussion.
Effective
January 1, 2007, the Company adopted Financial Interpretation ("FIN") No. 48,
Accounting for Uncertainty in
Income Taxes-An Interpretation of FASB Statement No. 109. This
interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The interpretation contains a two-step
approach to recognizing and measuring uncertain tax positions accounted for in
accordance with SFAS No. 109. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest amount which is
more than fifty percent likely of being realized upon ultimate settlement. The
interpretation also provides guidance on derecognition, classification, interest
and penalties, and other matters. The adoption did not have an effect on the
Consolidated Financial Statements.
As a
result of the Company’s continuing tax losses, the Company has recorded a full
valuation allowance against a net deferred tax asset. Additionally,
the Company has not recorded a liability for unrecognized tax benefits
subsequent to the adoption of FIN 48.
The tax
years 2004-2007 remain open to examination by the major taxing jurisdictions to
which the Company is subject.
Fair
Value of Financial Instruments
Cash and
cash equivalents, accounts receivable and accounts payable are reflected in the
Consolidated Financial Statements at carrying value which approximates fair
value because of the short-term maturity of these
instruments.
Recently
Issued Accounting Standards
In
September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 157, “Fair Value
Measurements”. SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles (GAAP) and
expands disclosures about fair value measurements. SFAS 157 is effective
for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The adoption of this standard has not had a
significant impact on the Company’s consolidated financial position, results of
operations or cash flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities,” including an amendment of FASB No. 115
("FAS 159"). The Statement permits companies to choose to measure many financial
instruments and certain other items at fair value in order to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. FAS 159 is effective for the Company beginning January 1, 2008. The
adoption of this standard has not had a significant impact on the Company’s
consolidated financial position, results of operations or cash
flows.
In
December 2007, the FASB issued Statement of Financial Accounting Standard
No. 160, “Noncontrolling
Interests in Consolidated Financial Statements — an amendment of ARB
No. 51” (“FAS 160”). FAS 160 establishes accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
retained interest and gain or loss when a subsidiary is deconsolidated. This
statement is effective for financial statements issued for fiscal years
beginning on or after December 15, 2008 with earlier adoption prohibited.
In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations,"
(“SFAS 141R”) which establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree. SFAS 141R also establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business combination. SFAS
141R applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008, and interim periods within those fiscal
years.
NOTE
3 – DISCONTINUED OPERATIONS
On
February 29, 2008, the Company sold Darius to InnerLight Holdings, Inc., whose
major shareholder is Mr. Kevin P. Brogan, the then president of
Darius. Darius was formed by The Quigley Corporation in 2000 to
introduce new products to the marketplace through a network of independent
distributor representatives. Darius marketed health and wellness
products through its wholly-owned subsidiary, Innerlight Inc. that constituted
the Health and Wellness segment of the Company. The terms of the sale
agreement include a cash purchase price of $1,000,000 by InnerLight Holdings,
Inc. for the stock of Darius and its subsidiaries without guarantees, warranties
or indemnifications.
Sales of
Darius in 2008 until date of disposal on February 29, 2008 and for the three
month period ended March 31, 2007 were, respectively, $2,188,815 and
$2,927,925. Net income (losses) for 2008 until date of disposal on
February 29, 2008 and for the three month period ended March 31, 2007, were
$139,264 and ($287,421), respectively. Results of Darius are
presented as discontinued operations in the Condensed Consolidated Statements of
Operations and Cash Flows and in the Condensed Consolidated Balance Sheets. The
major classes of balance sheet items of discontinued operations at December 31,
2007 were cash, inventory, prepaid expenses and other current
liabilities.
The
Company recorded a gain on the disposal of Darius of $736,252, as a result of
sales proceeds of $1,000,000 less residual investment of $5,000 and net assets
of Darius of $258,748 on the date of sale.
NOTE
4 – VARIABLE INTEREST ENTITY
In
December 2003, the Financial Accounting Standards Board (FASB or the “Board”)
issued FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest
Entities (FIN 46R), to address certain implementation
issues. FIN 46R varies significantly from FASB Interpretation No. 46,
Consolidation of Variable
Interest Entities (“VIE”) (FIN 46), which it supersedes. FIN
46R requires the application of either FIN 46 or FIN 46R by “Public
Entities” to
all Special Purpose Entities (“SPEs”)
at the end of the first interim or annual
reporting period ending after December 15, 2003. FIN 46R is
applicable to all non-SPEs created prior to February 1, 2003 by Public Entities
that are not small business issuers at the end of the first interim or annual
reporting period ending after March 15, 2004. Effective March 31,
2004, the Company adopted FIN 46R for VIE’s formed prior to February 1,
2003. The Company had determined that Scandasystems, a related party,
qualified as a variable interest entity and the Company consolidated
Scandasystems beginning with the quarter ended March 31, 2004. Due to
the fact that the Company had no long-term contractual commitments or
guarantees, the maximum exposure to loss was insignificant.
The
Company has determined that the conditions that applied in the past giving rise
to the application of FIN 46R to the relationship between the Company and
Scandasystems no longer apply. Therefore, effective with quarter
ended March 31, 2008, Scandasystems balances will no longer be consolidated with
the Company’s financial results and balances.
NOTE
5 – PATENT RIGHTS AND RELATED ROYALTY COMMITMENTS
The
Company has maintained a separate representation and distribution agreement
relating to the development of the zinc gluconate glycine product
formulation. In return for exclusive distribution rights, the Company
must pay the developer a 3% royalty and a 2% consulting fee based on sales
collected, less certain deductions, throughout the term of this agreement, which
expired in May 2007. However, the Company and the developer are in
litigation and as such no potential offset from such litigation for these fees
have been recorded.
The
expenses for the respective periods relating to such agreement amounted to zero
and $257,996, for the three month periods ended March 31, 2008 and 2007. Amounts
accrued for these expenses at both March 31, 2008 and December 31, 2007 were
$3,524,031.
NOTE
6 – OTHER CURRENT LIABILITIES
Included
in other current liabilities are $684,904 and $1,240,767 related to accrued
compensation at March 31, 2008 and December 31, 2007, respectively.
NOTE 7 – COMMITMENTS
AND CONTINGENCIES
Certain
operating leases for office and warehouse space maintained by the Company
resulted in rent expense for the three month periods ended March 31, 2008 and
2007 of $13,693 and $17,275, respectively. The Company has approximate future
obligations over the next five years as follows:
|
Year
|
|
Research
and Development
|
|
|
Property
and
Other
Leases
|
|
|
Advertising
|
|
|
Other
|
|
|
Total
|
|
|
2008
|
|
$ |
2,868,232 |
|
|
$ |
32,387 |
|
|
$ |
145,000 |
|
|
$ |
- |
|
|
$ |
3,045,619 |
|
|
2009
|
|
|
151,511 |
|
|
|
19,406 |
|
|
|
- |
|
|
|
- |
|
|
|
170,917 |
|
|
2010
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
2011
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
2012
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total
|
|
$ |
3,019,743 |
|
|
$ |
51,793 |
|
|
$ |
145,000 |
|
|
$ |
- |
|
|
$ |
3,216,536 |
|
Additional
advertising and research and development costs are expected to be incurred
during the remainder of 2008.
The
Company has several licensing and other contractual agreements, see Note
5.
THE
QUIGLEY CORPORATION VS. JOHN C. GODFREY, ET AL.
(Bucks
Co. CCP, No. 04-07776)
In this
action, which was commenced in November 2004, the Company is seeking declaratory
and injunctive relief against John C. Godfrey, Nancy Jane Godfrey, and Godfrey
Science and Design, Inc. requesting injunctive relief regarding the
Cold-Eeze®
trade name and trademark; injunctive relief relating to the Cold-Eeze® formulations and
manufacturing methods; injunctive relief for breach of the duty of loyalty, and
declaratory judgment pending the Company's payment of commissions to
defendants. The Company's Complaint is based in part upon the
Exclusive Representation and Distribution Agreement and the Consulting Agreement
(together the "Agreements") entered into between the defendants and the
Company. The Company terminated the Agreements for the defendants'
alleged material breaches of the Agreements. Defendants have answered
the complaint and asserted counterclaims against the Company seeking remedies
relative to the Agreements. The Company believes that the defendants'
counterclaims are without merit and is vigorously defending those counterclaims
and is prosecuting its action on its complaint. Discovery and
depositions have been partially completed. On February 14, 2008,
the Company filed a motion for summary judgment on its complaint,
which has been briefed. Arguments on the motions for summary judgment
are contemplated to be held on or before August 1, 2008.
At this time no prediction as to the
outcome of this action can be made.
Non-Affiliated
Litigation
On
February 29, 2008, the Company sold Darius to InnerLight Holdings,
Inc. The terms of the sale agreement included a cash purchase price
of $1,000,000 by InnerLight Holdings, Inc. for the stock of Darius and its
subsidiaries without guarantees, warranties or
indemnifications. Therefore, the following litigation, as disclosed
in the Company’s 2007 Form 10-K filing, is no longer the Company’s
responsibility:
Darius
International Inc., ET AL. vs. Robert O. Young ET AL. (Federal District Court –
Eastern District, PA)
Robert O.
and Shelley Young vs. Darius International Inc. and Innerlight Inc., (Utah Third
Party Complaints)
Innerlight
Inc., vs. The Matrix Group, LLC (Fourth Judicial District Court, Utah County,
State of Utah)
Innerlight
Inc. vs. Readycash Holdings, LLC and Global Trade Solutions, Inc. DBA Readycash
(Fourth Judicial District Court, Utah County, State of Utah)
The
Matrix Group, LLC vs. Innerlight Inc. (U.S. District Court for the Southern
District of Florida)
NOTE
8 – TRANSACTIONS AFFECTING STOCKHOLDERS’ EQUITY
On
September 8, 1998, the Company’s Board of Directors declared a dividend
distribution of Common Stock Purchase Rights (individually, a “Right”
and collectively, the “Rights”),
thereby creating a Stockholder Rights Plan (the
“Plan”). The dividend was payable to the
stockholders of record on September 25, 1998. Each Right entitles the
stockholder of record to
purchase
from the Company that number of common shares having a
combined market value equal to two times the Rights
exercise price of $45. The Rights are not exercisable until the
distribution date, which will be the earlier of a public announcement that a
person or group of affiliated or associated persons has acquired 15% or more of
the outstanding common shares, or the announcement of an intention by a
similarly constituted party to make a tender or exchange offer resulting in
the
ownership
of 15% or more of the outstanding common shares. The dividend
has the effect of giving the stockholder a 50% discount on the share’s current
market value for exercising such right. In the event of a cashless exercise of
the Right, and the acquirer has acquired less than 50% beneficial ownership of
the Company, a stockholder may exchange one Right for one common share of the
Company. The final expiration date of the Plan is September 25,
2008.
Since the
inception of the stock buy-back program in January 1998, the Board has
subsequently increased the authorization on five occasions, for a total
authorized buy-back of 5,000,000 shares or approximately 38% of the previous
shares outstanding. Such shares are reflected as treasury stock and
will be available for general corporate purposes. From the initiation
of the plan until March 31, 2008, 4,159,191 shares have been repurchased at a
cost of $24,042,801 or an average cost of $5.78 per share. No shares
were repurchased during 2007 or 2008 to date.
During
the three months ended March 31, 2008, a total of 7,000 options were
exercised.
NOTE
9 – INCOME TAXES
Certain
exercises of options and warrants, and restricted stock issued for services that
became unrestricted resulted in reductions to taxes currently payable and a
corresponding increase to additional-paid-in-capital for prior
years. In addition, certain tax benefits for option and warrant
exercises totaling $6,742,604 are deferred and will be credited to
additional-paid-in-capital when the NOL’s attributable to these exercises are
utilized. As a result, these NOL’s will not be available to offset
income tax expense. The net operating loss carry-forwards that
currently approximate $17.0 million for federal purposes will be expiring
through 2028. Additionally, there are net operating loss
carry-forwards of $18.3 million for state purposes that will be expiring through
2018. Until sufficient taxable income to offset the temporary timing
differences attributable to operations, the tax deductions attributable to
option, warrant and stock activities and alternative minimum tax credits of
$110,270 are assured, a valuation allowance equaling the total deferred tax
asset is being provided.
NOTE
10 – EARNINGS PER SHARE
Basic
loss per share (“EPS”) excludes dilution and is computed by dividing income
available to common stockholders by the weighted - average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that shared in the earnings of the entity. Diluted EPS also
utilizes the treasury stock method which prescribes a theoretical
buy-back of shares from the theoretical proceeds of all options and warrants
outstanding during the period. Since there is a large number of
options and warrants outstanding, fluctuations in the actual market price can
have a variety of results for each period presented.
A reconciliation of the applicable
numerators and denominators of the income statement periods presented, as
reflects the results of continuing operations, is as follows (millions, except
per share amounts):
|
|
|
March
31, 2007
|
|
|
March
31, 2008
|
|
|
|
|
Net
Loss
|
|
|
Shares
|
|
|
EPS
|
|
|
Net
Loss
|
|
|
Shares
|
|
|
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
$ |
(2.4 |
) |
|
|
12.8 |
|
|
$ |
(0.19 |
) |
|
$ |
(1.6 |
) |
|
|
12.7 |
|
|
$ |
(0.13 |
) |
|
Dilutives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options/Warrants
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
$ |
(2.4 |
) |
|
|
12.8 |
|
|
$ |
(0.19 |
) |
|
$ |
(1.6 |
) |
|
|
12.7 |
|
|
$ |
(0.13 |
) |
Options
and warrants outstanding at March 31, 2008 and 2007 were 2,475,000 and 3,597,000
respectively. They were not included in the computation of diluted earnings for
the periods with a net loss because the effect would be
anti-dilutive.
NOTE
11 – RELATED PARTY
TRANSACTIONS
The
Company may continue the process of acquiring licenses in certain countries
through related party entities whose stockholders include Mr. Gary Quigley, a
relative of the Company’s Chief Executive Officer. Fees amounting to zero and
$30,750 have been paid to a formerly related entity during the three month
periods ended March 31, 2008 and 2007, respectively. This expenditure is related
to the regulatory aspects of obtaining such licenses.
NOTE
12 – SEGMENT INFORMATION
The basis
for presenting segment results generally is consistent with overall Company
reporting. The Company reports information about its operating segments in
accordance with Financial Accounting Standard Board Statement No. 131, “Disclosure About Segments of an
Enterprise and Related Information,” which establishes standards for
reporting information about a company’s operating segments. All consolidating
items are included in Corporate & Other.
The
Company divides its operations into three reportable segments as follows: The
Quigley Corporation (Cold-Remedy), whose main product is Cold-Eeze®, a proprietary
zinc gluconate glycine lozenge for the common cold; Quigley Manufacturing
(Contract Manufacturing), which is the production facility for the
Cold-Eeze®
lozenge product and also performs contract manufacturing services for third
party customers, and Pharma, (Ethical Pharmaceutical), currently involved in
research and development activity to develop patent applications for potential
pharmaceutical products.
Financial
information relating to 2008 and 2007 continuing operations, by business
segment, follows:
|
For
the three months ended March 31, 2008
|
|
Cold
Remedy
|
|
|
Contract
Manufacturing
|
|
|
Ethical
Pharmaceutical
|
|
|
Corporate
&
Other
|
|
|
Total
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers-domestic
|
|
$ |
4,712,134 |
|
|
$ |
592,900 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,305,034 |
|
|
Inter-segment
|
|
$ |
- |
|
|
$ |
1,050,051 |
|
|
$ |
- |
|
|
$ |
(1,050,051 |
) |
|
$ |
- |
|
|
Segment
operating profit
(loss)
|
|
$ |
(817,838 |
) |
|
$ |
(287,654 |
) |
|
$ |
(1,578,718 |
) |
|
$ |
102,979 |
|
|
$ |
(2,581,231 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, 2007
|
|
Cold
Remedy
|
|
|
Contract
Manufacturing
|
|
|
Ethical
Pharmaceutical
|
|
|
Corporate
&
Other
|
|
|
Total
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers-domestic
|
|
$ |
5,540,640 |
|
|
$ |
609,311 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
6,149,951 |
|
|
Inter-segment
|
|
$ |
- |
|
|
$ |
1,183,350 |
|
|
$ |
- |
|
|
$ |
(1,183,350 |
) |
|
$ |
- |
|
|
Segment
operating profit
(loss)
|
|
$ |
(459,929 |
) |
|
$ |
(226,673 |
) |
|
$ |
(1,254,869 |
) |
|
$ |
92,234 |
|
|
$ |
(1,849,237 |
) |
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking
Statements
In
addition to historical information, this Report contains forward-looking
statements. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in these forward-looking statements. Factors that might cause such a
difference include, but are not limited to, management of growth, competition,
pricing pressures on the Company’s products, industry growth and general
economic conditions. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management’s opinions only as of the
date hereof. The Company undertakes no obligation to revise or publicly release
the results of any revision to these forward-looking statements.
Certain Risk
Factors
The
Quigley Corporation makes no representation that the United States Food and Drug
Administration (“FDA”) or any other regulatory agency will grant an
Investigational New Drug (“IND”) or take any other action to allow its
formulations to be studied or/and for any granted IND to be
marketed. Furthermore, no claim is made that potential medicine
discussed herein is safe, effective, or approved by the
FDA. Additionally, data that demonstrates activity or effectiveness
in animals or in vitro tests do not necessarily mean such formula test compound,
referenced herein, will be effective in humans. Safety and
effectiveness in humans will have to be demonstrated by means of adequate and
well controlled clinical studies before the clinical significance of the formula
test compound is known. Readers should carefully review the risk
factors described in other sections of the filing as well as in other documents
the Company files from time to time with the Securities and Exchange Commission
(“SEC”).
Overview
The Company, headquartered in Doylestown, Pennsylvania, is a leading manufacturer, marketer and distributor of a
diversified range of homeopathic and health products which comprise the Cold
Remedy and Contract Manufacturing segments. The Company is also
involved in the research and development of potential prescription products that
comprise the Ethical Pharmaceutical segment.
The
Company’s primary business is the manufacture and distribution of cold remedy
products to the consumer through the over-the-counter marketplace. One of the
Company’s key products in its Cold Remedy segment is Cold-Eeze®, a zinc gluconate
glycine product proven in two double-blind clinical studies to reduce the
duration and severity of the common cold symptoms by nearly half. Cold-Eeze® is an
established product in the health care and cold remedy market. During
the third quarter of 2007, the Company commenced shipping two new Cold-Eeze® brand
extensions. These brand extensions are Organix™ Cough and Sore Throat
Drops and Cold-Eeze®
Immune Support Complex-10. Organix Cough and Sore Throat Drops is a
proprietary product manufactured at the Company’s certified organic
manufacturing facility, the first facility of its kind to obtain USDA organic
certification. Cold-Eeze® Immune Support
Complex-10 will compete in the growing immune boosting dietary supplement
marketplace.
The
manufacturing entity, called Quigley Manufacturing Inc. (“QMI”), a wholly-owned
subsidiary of the Company, manufactures the Cold-Eeze® lozenge product
along with performing such operational tasks as warehousing and shipping the
Company’s Cold-Eeze®
products. In addition, QMI, which is an FDA approved facility,
produces a variety of hard and organic candy for sale to third party customers
in addition to performing contract manufacturing activities for non-related
entities.
The
Cold-Remedy segment reported a decrease in net sales in the first quarter 2008
as compared to the same period in 2007. The decrease in net sales
resulted from the continuing effects of the least incidence of colds by
consumers in the last eight years, which started to improve by the end of the
cold season, but was too late to impact sales for the first quarter of
2008. The 2008 quarter was assisted through sales of the
Organix Cough and Sore Throat Drops and Cold-Eeze® ISC-10, both of
which were introduced to the marketplace during the third quarter of 2007, along
with the impact of the Cold-Eeze® price increase
that commenced in July 2007.
The
Contract Manufacturing segment reported a decrease in net sales in the first
quarter 2008 as compared to sales in the 2007 comparative period. The
primary function of the manufacturing segment is the production, warehousing and
shipping of Cold-Eeze® related products,
however, sales to third party customers may reflect some incremental
fluctuation.
On
February 29, 2008, the Company sold Darius to InnerLight Holdings, Inc., whose
major shareholder is Mr. Kevin P. Brogan, the then president of
Darius. The terms of the agreement included a cash purchase price of
$1,000,000 by InnerLight Holdings,
Inc., for the stock of Darius and its subsidiaries without guarantees,
warranties or indemnifications. Darius marketed health and wellness
products through its wholly-owned subsidiary, Innerlight Inc., which constituted
the Health and Wellness segment of the Company. Losses from this
segment in recent times resulted in reduced resources available for the research
and development activities of the Pharma segment. Additionally, the
divestiture of Darius will provide clarity to the Company’s strategic plan to
focus its future endeavors in a pharmaceutical entity with OTC products and a
pipeline of potential formulations that may lead to prescription
products. The sale of this former business segment is reported as
discontinued operations.
In
January 2001, the Company formed an Ethical Pharmaceutical segment, Quigley
Pharma Inc. (“Pharma”), that is under the direction of its Executive Vice
President and Chairman of its Medical Advisory Committee. Pharma was
formed for the purpose of developing naturally derived prescription
drugs. Pharma is currently
undergoing research and development
activity in compliance with
regulatory requirements. The Company is in the initial stages of what
may be a lengthy process to develop these patent applications into commercial
products. The Company continues to invest significantly in ongoing
research and development activities of this segment. Such investment
amounted to $1,578,718 in the first quarter 2008, compared to $1,254,869 in the
2007 comparative period.
Future
revenues, costs, margins, and profits will continue to be influenced by the
Company’s ability to maintain its manufacturing availability and capacity
together with its marketing and distribution capabilities and the requirements
associated with the development of Pharma’s potential prescription drugs in
order to continue to compete on a national and international level.
Cold-Remedy
Products
In May
1992, the Company entered into an exclusive agreement for the worldwide
representation, manufacturing and marketing of Cold-Eeze® products in the
United States. Cold-Eeze®, a zinc gluconate
glycine formulation (ZIGG™), is an over-the-counter consumer product used to
reduce the duration and severity of the common cold and is available in lozenge,
sugar-free tablet and gum form. The Company has substantiated the
effectiveness of Cold-Eeze® through a variety
of studies. A randomized double-blind placebo-controlled study,
conducted at Dartmouth College of Health Science, Hanover, New Hampshire,
concluded that the lozenge formulation treatment, initiated within 48 hours of
symptom onset, resulted in a significant reduction in the total duration of the
common cold.
On May 22, 1992, “Zinc and the Common
Cold, a Controlled Clinical Study,” was published in England in the
“Journal of International Medical Research,” Volume 20, Number 3, Pages
234-246. According to this publication, (a) flavorings used in other
Zinc lozenge products (citrate, tartrate, separate, orotate, picolinate,
mannitol or sorbitol) render the Zinc inactive and unavailable to the patient’s
nasal passages, mouth and throat where cold symptoms have to be treated, (b)
this patented formulation delivers approximately 93% of the active Zinc to the
mucosal surfaces and (c) the patient has the same sequence of symptoms as in the
absence of treatment but goes through the phases at an accelerated rate and with
reduced symptom severity.
On July
15, 1996, results of a new randomized double-blind placebo-controlled study on
the common cold, which commenced at the Cleveland Clinic Foundation
on October 3, 1994, were published. The study called “Zinc Gluconate Lozenges for Treating
the Common Cold” was completed and published in the Annals of Internal Medicine – Vol.
125 No. 2. Using a 13.3mg lozenge (almost half the strength of
the lozenge used in the Dartmouth Study), the result still showed a 42%
reduction in the duration of common cold symptoms.
In April
2002, the Company announced the statistical results of a retrospective clinical
adolescent study at the Heritage School facility in Provo, Utah that suggests
that Cold-Eeze® is also an
effective means of preventing the common cold and statistically (a) lessens the
number of colds an individual suffers per year, reducing the median from 1.5 to
zero and (b) reduces the use of antibiotics for respiratory illnesses from 39.3%
to 3.0% when Cold-Eeze® is administered
as a first line treatment approach to the common cold.
In April
2002, the Company was assigned a Patent Application which was filed with the
Patent Office of the United States Commerce Department for the use of
Cold-Eeze® as
a prophylactic for cold prevention. The new patent application
follows the results of the adolescent study at the Heritage School
facility.
In May
2003, the Company announced the findings of a prospective study, conducted at
the Heritage School facility in Provo, Utah, in
which 178 children, ages 12 to 18 years, were given Cold-Eeze® lozenges both
symptomatically and prophylactically from October 5, 2001 to May 30, 2002. The
study found a 54% reduction in the most frequently observed cold
duration.
Those
subjects not receiving treatment most frequently experienced symptom duration of
11 days compared with 5 days when Cold-Eeze® lozenges were
administered, a reduction of 6 days.
The
business of the Company is subject to federal and state laws and regulations
adopted for the health and safety of users of the Company’s products.
Cold-Eeze® is
a homeopathic remedy that is subject to regulations by various federal, state
and local agencies, including the FDA and the Homeopathic Pharmacopoeia of the
United States.
Contract
Manufacturing
From
October 1, 2004, this manufacturing entity, now called QMI, a wholly owned
subsidiary of the Company, has continued to produce lozenge product along with
performing such operational tasks as warehousing and shipping the Company’s
Cold-Eeze®
products. In addition to that function, QMI produces a variety of
hard and organic candy for sale to third party customers in addition to
performing contract manufacturing activities for non-related
entities. QMI is an FDA-approved facility.
Ethical
Pharmaceutical
Pharma’s
current activity is the research and development of naturally-derived
prescription drugs with the goal of improving the quality of life and health of
those in need. Research and development will focus on the
identification, isolation and direct use of active medicinal
substances. One aspect of Pharma’s research will focus on the
potential synergistic benefits of combining isolated active constituents and
whole plant components. The Company will search for new natural sources of
medicinal substances from plants and fungi from around the world while also
investigating the use of traditional and historic medicinals and
therapeutics.
The
pre-clinical development, clinical trials, product manufacturing and marketing
of Pharma's
potential new products are subject to federal and state regulation in the United
States and other countries. Obtaining FDA regulatory approval for these
pharmaceutical products can require substantial resources and take several
years. The length of this process depends on the type, complexity and
novelty of the product and the nature of the disease or other indications to be
treated. If the Company cannot obtain regulatory approval of these new products
in a timely manner or if the patents are not granted or if the patents are
subsequently challenged, these possible events could have a material effect on
the business and financial condition of the Company. The strength of
the Company’s patent position may be important to its long-term
success. There can be no assurance that these patents and patent
applications will effectively protect the Company’s products from duplication by
others. Additionally, the operations of the Company contribute
to the current research and development expenditures of the Ethical
Pharmaceutical segment. In addition to the funding from
operations, the Company may in the short and long term raise capital through the
issuance of equity securities or secure other financing resources to support
such research. As research progresses on certain formulations,
expenditures of the Pharma segment will require substantial financial support
and would necessitate the consideration of other approaches such as, licensing
or partnership arrangements that meet the Company’s long term goals and
objectives. Ultimately, should internal working capital or internal
funding be insufficient, there is no guarantee that other financing resources
will become available, thereby deferring future growth and development of
certain formulations.
Patents
and chronological summary of QR formulations, which may or may not be areas of
current focus, are:
|
|
·
|
A
Patent (No. 6,555,573 B2) entitled “Method and Composition for the Topical
Treatment of Diabetic Neuropathy.” The patent extends through March 27,
2021.
|
|
|
·
|
A
Patent (No. 6,592,896 B2) entitled “Medicinal Composition and Method of
Using It” (for Treatment of Sialorrhea and other Disorders) for a product
to relieve sialorrhea (drooling) in patients suffering from Amyotrophic
Lateral Sclerosis (ALS), otherwise known as Lou Gehrig’s
Disease. The patent extends through August 5,
2021.
|
|
|
·
|
A
Patent (No. 6,596,313 B2) entitled “Nutritional Supplement and Method of
Using It” for a product to relieve sialorrhea (drooling) in patients
suffering from Amyotrophic Lateral Sclerosis (ALS), otherwise known as Lou
Gehrig’s Disease. The patent extends through April 14,
2022.
|
|
|
·
|
A
Patent (No. 6,753,325 B2) entitled “Composition and Method for Prevention,
Reduction and Treatment of Radiation Dermatitis,” a composition for
preventing, reducing or treating radiation dermatitis. The
patent extends through November 5,
2021.
|
|
|
·
|
A
Patent (No. 6,827,945 B2) entitled “Nutritional Supplements and Method of
Using Same” for a method for treating at least one symptom of
arthritis. The patent extends through April 22,
2023.
|
|
|
·
|
A
Patent (No. 7,083,813 B2) entitled “Methods for The Treatment of
Peripheral Neural and Vascular Ailments.” The patent extends
through August 4, 2023.
|
|
|
·
|
A
Patent (No. 10/165,151) entitled “Methods for The Treatment of Peripheral
Neural and Vascular Ailments.” The patent extends through March
27, 2021.
|
|
|
·
|
A
Patent (No. 7,166,435 B2) entitled “Compositions and Methods for Reducing
the Tranmissivity of Illnesses.” This patent will provide
additional protection to an existing composition patent (number
6,592,896), which the Company received in July 2003 and will support
on-going investigations and potential commercialization opportunities. The
Company will be continuing its studies to test the effects of the
referenced compound against avian flu and human influenza. The patent
extends through November 5, 2021.
|
|
|
·
|
A
Patent (No. 7,175,987 B2) entitled “Compositions and Methods for The
Treatment of Herpes.” The patent extends through November 5,
2021.
|
|
|
·
|
A
Patent (No. 11,158,986) entitled “Methods for the Treatment of Scar
Tissue” The patent extends through September 5,
2026.
|
|
|
·
|
A
Mexican Patent (No. 236311) entitled “Method and Composition for the
Treatment of Diabetic Neuropathy.” The patent extends through
December 18, 2020.
|
|
|
·
|
A
New Zealand Patent (No. 533439) entitled “Methods for The Treatment of
Peripheral Neural and Vascular Ailments.” The patent extends
through November 6, 2022.
|
|
|
·
|
A
New Zealand Patent (No. 526041) entitled “Method and Composition for the
Treatment of Diabetic Neuropathy.” The patent extends through December 18,
2021.
|
|
|
·
|
A
New Zealand Patent (No. 530187) entitled “Nutritional Supplements and
Methods of Using Same.” The patent extends through August 6,
2022.
|
|
|
·
|
A
New Zealand Patent (No. 537821) entitled “Anti-Microbial Compositions and
Methods of Using Same.” The patent extends through July 23,
2023.
|
|
|
·
|
An
Australian Patent (No. 2002231095) entitled “Method and Composition for
the Treatment of Diabetic Neuropathy.” The patent extends through December
18, 2021.
|
|
|
·
|
An
Australian Patent (No. 2002352501) entitled “Method for The Treatment of
Peripheral Neural and Vascular Ailments.” The
patent extends through November 5,
2022.
|
|
|
·
|
An
Australian Patent (No. 2002232464) entitled “Nutritional Supplements and
Methods of Using Same.” The
patent extends through August 5,
2022.
|
|
|
·
|
An
Australian Patent (No. 2002365155) “Topical Compositions and Methods for
Treatment of Adverse Effects of Ionizing Radiation,” the patent extends
through November 5, 2022.
|
|
|
·
|
An
Australian Patent (No. 2002309615) “Nutritional Supplements and Methods
for Prevention, Reduction and Treatment of Radiation Injury” the patent
extends through April 30, 2022.
|
|
|
·
|
A
South African Patent (No. 2003/4247) entitled “Methods and Composition for
the Treatment of Diabetic Neuropathy.” The
patent extends through December 18,
2021.
|
|
|
·
|
A
South African Patent (No. 2004/3364) “Nutritional Supplements and Methods
for Prevention, Reduction and Treatment of Radiation Injury” the patent
extends through May 1, 2022.
|
|
|
·
|
A
South African Patent (No. 2003/9802) entitled “Nutritional Supplements and
Methods of Using Same” for a method for treating at least one symptom of
arthritis. The patent extends through August 5,
2022.
|
|
|
·
|
A
South African Patent (No. 2004/4614) entitled “Methods for The Treatment
of Peripheral Neural and Vascular Ailments.” The patent extends
through November 5, 2022.
|
|
|
·
|
A
South African Patent (No. 2005/0517) entitled “Anti-Microbial Compositions
& Methods for Using Same,” the patent extends through July 23,
2023.
|
|
|
·
|
A
South African Patent (No. 2004/3365) “Topical Compositions and Methods for
Treatment of Adverse Effects of Ionizing Radiation,” the patent extends
through November 5, 2022.
|
|
|
·
|
A
South African Patent (No. 2004/3364) “Nutritional Supplements and Methods
for Prevention, Reduction and Treatment of Radiation Injury” the patent
extends through May 1, 2022.
|
|
|
·
|
An
Israeli Patent (No. 159357) entitled “Nutritional Supplements and Methods
of Using Same,” the patent extends through August 6,
2022.
|
|
|
·
|
An
Indian Patent (No. 00004/MUMP/2004) entitled “A Nutritional
Supplement.” The patent extends through August 6,
2022.
|
QR-333 – In April 2002, the
Company initiated a Proof of Concept Study in France for treatment of diabetic
neuropathy, which was concluded in 2003. In April 2003, the Company
announced that an independently monitored analysis of the
Proof of Concept Study concluded that subjects using
this formulation had 67% of their
symptoms improve, suggesting efficacy. In March 2004, the Company
announced that it had completed its first meeting at the FDA prior to submitting
the Company’s IND application for the relief of symptoms of diabetic symmetrical
peripheral neuropathy. The FDA’s pre-IND meeting programs are
designed to provide sponsors with advance guidance and input on drug development
programs. In September 2005, the Company announced that a preliminary
report of its topical compound for the treatment of diabetic neuropathy was
recently featured in the Journal of Diabetes and Its
Complication. Authored by Dr. C. LeFante and Dr. P. Valensi,
the article appeared in the June 1, 2005 issue, and included findings that
showed the compound reduced the severity of numbness, and irritation from
baseline values. In October 2005, the Company announced the results
of pre-clinical toxicology studies that showed no irritation, photo
toxicity, contact hypersensitivity or photo allergy when applied topically to
hairless guinea pigs and another study that showed no difference in the dermal
response of the compound or placebo when applied to Gottingen Minipigs. (Both
animal models are suggested for the evaluation of topical drugs, by
the FDA). In March 2006, the Company announced the filing of an IND
application with the FDA for its topical compound for
the treatment of Diabetic Peripheral Neuropathy. This
filing allowed the Company to begin human clinical trials following a 30-day
review period. If no further comments were forthcoming from the FDA,
studies with human subjects could commence pending the availability of study
drug. This application included a compilation of all of the
supporting development data and regulatory documentation required to file an IND
application with the FDA. In April 2006, upon FDA approval for its IND, the
Company announced its intent to commence human studies on its
formulation.
The
Company also announced that in anticipation of receiving this IND, it had
previously held its investigators meeting to organize its multi-center Phase II
(b) trials. This would allow the Company to begin these trials as soon as study
drug is available.
In May
2006, the Company announced that it had begun screening patients to start
testing their investigational new drug QR-333 and patients suffering from
diabetic peripheral neuropathy would be given doses in an escalating fashion to
provide pharmacokinetics data.
In
September 2006, the Company announced that the results from its human study,
titled "Single Center, Dose Escalating, Safety, Tolerability, And
Pharmacokinetics Study Of QR-333 In Subjects With Diabetic Peripheral
Neuropathy", demonstrated that QR-333 can be administered safely to patients
suffering from diabetic peripheral neuropathy and it would proceed to conducting
Phase II (b) clinical trials. The essential CMC (Chemistry
Manufacturing and Controls) stage would provide the Company with the necessary
information needed to produce larger quantities of drug for the Phase II (b)
trial involving approximately 180 patients.
The
pharmacokinetics trial was the first study in the U.S. conducted under the FDA
issued IND. The positive data showed that QR-333 is safe, it is not systemically
absorbed and it is well tolerated after multiple doses. These findings are
consistent with prior animal toxicity data and the human proof of concept study
performed in France.
In
November 2006, the Company announced that patient enrollment in a Phase II (b)
multi center clinical study of QR-333 for the treatment of symptomatic Diabetic
Peripheral Neuropathy (DPN) had commenced. The Phase II (b) trial
will evaluate the safety and efficacy of QR-333 applied three times daily
compared to placebo-treated patients over 12 weeks. Efficacy will be determined
by Symptom Assessment Scores, a Visual Analogy Scale (VAS), Quality of Life and
Sleep Questionnaires. Safety will be determined by medical history, physical
examination, vital signs, 12-lead ECG, laboratory tests and nerve conduction
studies. The study will involve 150-180 randomized male and female patients with
Type 1 & 2 diabetes, as defined by the ADA (American Diabetes Association)
and distal symmetric diabetic polyneuropathy.
The Study
Chairman is Dr. Philip Raskin, Professor of Medicine University of Texas
Southwestern Medical Center at Dallas Texas. The study protocol was approved by
the FDA as a part of Quigley Pharma’s IND submission and has been approved by
the required Investigational Review Boards. The completion of the study is
dependent upon enrollment rates that may affect the overall length of the study
and the communication of its results.
In
September 2007, the Company issued an update on a Phase II (b) Clinical Study of
QR-333 on Diabetic Peripheral Neuropathy. The update on the study
noted that over 100 subjects have been enrolled, 52 subjects have completed
treatment and over 225 subjects have been screened for the Phase II (b) study
designed to evaluate the safety and efficacy of the topical formulation on
subjects with diabetic peripheral neuropathy. Subject screening and
enrollment will continue to ensure a 140 evaluable patient study
population. Once enrolled, subject treatment time is 12
weeks. To date the in-progress safety profile for this study has been
consistent with the findings from the favorable safety results of the previous
human proof of concept study conducted in France. Subsequently, in
March 2008, the Company indicated that the number of subjects increased in the
study.
QR-336 – In April 2004, the
Company announced the results of a preliminary, pre-clinical animal study which
measured the effect of its proprietary patent applied for formulation against
ionizing (nuclear) radiation. This study determined that parenteral
(injection) administration of the study compound was protective against the
effects of a lethal, whole body ionizing
radiation
dose in a mouse model. This compound is being investigated to
potentially reduce the effects of radiation exposure on humans.
In April
2006, the Company announced that it signed an agreement with Dr. William H.
McBride, the Vice Chair of Research, Department of Oncology at UCLA to help
develop an appropriate animal model radio protective research program for QR-336
to comply with New Food and Drug Administration animal efficacy rules for
radio-protective pharmacological compounds.
In
October 2006, the Company announced that it had received significant data
identifying 50 microliters as the least toxic and most effective
radiation protection dose in mice when administered ip (intraperitoneal), po (by
mouth) or sc (under the skin) prior to radiation exposure. These experiments
were essential for providing the Company with data to optimize the formulation
for efficacy and route of administration, which is required for filing under the
FDA’s "Animal Efficacy Rule".
QR-337 – In September 2003,
the Company announced its intention to file for permission to study its patent
pending potential treatment for psoriasis and other skin
disorders. Continued testing will therefore have to be conducted
under an IND application following positive preliminary results.
QR-435 – In May 2004, the
Company announced that an intranasal spray application of the anti-viral test
compound demonstrated efficacy by significantly reducing the severity of illness
in ferrets that had been infected with the Influenza A virus. In pre-clinical
studies, the antiviral formulation demonstrates antiviral activity against
Ocular and Genital Herpes, indicating a new research and development path for
the versatile compound. The Company is pleased with the progress and indicated
that continued research is required to confirm the compound's safety and
efficacy profiles.
In May
2006, the Company announced that it would begin a series of studies to evaluate
the ocular antiviral efficacy and toxicity of its naturally-derived topical
compound QR-435. Studies will be completed at The Campbell Ophthalmic
Microbiology Laboratory at the University of Pittsburgh in the same lab where
previous successful in vitro studies of QR-435 were performed.
In
December 2006, the Company announced that a series of studies were conducted on
the advice of Campbell Laboratories, University of Pittsburgh, to assess QR-435
(Quigley Pharma’s broad spectrum anti-viral) potential for treating Herpes
Keratitis.
While the
in-vitro studies were very successful at killing the herpes virus on direct
contact, the HSV-1/NZW rabbit keratitis model study showed that the compound, in
its aqueous form, did not remain in the eye long enough to penetrate the corneal
epithelial cells where the virus resides in an infection. The HSV-1/NZW rabbit
keratitis model is a recognized standard for evaluating potential therapeutic
agents in this class and is only utilized based on prior positive
experimentation, as was the case.
Quigley
Pharma may continue to pursue research and development objectives of this
compound in the treatment of respiratory viruses on the strength of prior
successful in-vitro and ferret model in-vivo studies. The Company's naturally
derived formula has shown significant antiviral properties against various
strains of H3N2 and H5N1 Influenza viruses in these studies.
QR-437 – In January 2004, the
Company reported that its compound, which was demonstrating antiviral activity,
had shown virucidal and virustatic activity against the strain 3B of the Human
Immunodeficiency Virus Type 1 (HIV-1) in an in-vitro
study. Additionally, the Company decided that the derivative
compound of the anti-viral formulation previously found to be effective for
treating Sialorrhea would probably postpone further development on the
Sialorrhea indication and concentrate on further qualification and development
of the anti-viral capabilities of the compound in humans.
QR-439 – In December 2003, the
Company announced positive test results of a preliminary independent in vitro
study indicating that a test compound of the Company previously tested on the
Influenza virus showed “significant virucidal activity against a strain of the
Severe Acute Respiratory Syndrome (SARS) virus.”
In
January 2004, the Company announced that it would conduct two further studies
evaluating the compound which had shown activity against Influenza and
SARS. The first study was intended to repeat the previously announced
results, which demonstrated the compound to be 100 percent effective in
preventing non-infected ferrets in close proximity to an infected ferret from
becoming infected with the Influenza A virus. The second study was a
dose ranging study on the test compound. Upon dosage determination and
confirmation results from these forthcoming animal model studies, a human proof
of concept study using a virus challenge with Influenza A virus in a quarantine
unit would be a viable next step.
QR-440 (a) – The Company received an additional
Investigational New Animal Drug (INAD) number from the Center for Veterinary
Medicine of the FDA. In previous studies, QR-440 has been shown to reduce
inflammation and also suggests possible disease-modifying
potential.
QR-441(a) – In November 2005,
the Company was assigned nine INADs for a broad anti-viral agent by the Center
for Veterinary Medicine of the FDA. Eight of the INADs are for investigating the
compound use against avian flu H5N1 virus in chickens, turkeys, ducks, pigs,
horses, dogs, cats and non-food birds. In January 2006, a ninth INAD
was assigned for investigating its compound for treating arthritis in dogs. In
March 2006, the Company announced that it is planning a series of controlled
experiments designed to test its all natural broad spectrum anti-viral compound
in poultry stocks. The Company also announced that Dr. Timothy S.
Cummings, MS, DVM, ACPV Clinical Poultry Professor at the College of Veterinary
Medicine at Mississippi State University and Thomas G. Voss, Ph.D. Assistant
Professor Tulane University School of Medicine will be assisting the Company in
the development of the INAD bird challenge studies.
In July
2006, the Company announced that it has obtained positive results that support
Quigley Pharma's continued progress in developing the natural broad spectrum
anti-viral QR441(a) for use in preventing the spread of avian flu in poultry
stocks. The results of the healthy chicken medical feed study confirmed that
food or water dose forms provide an opportunity for potential commercialization
if the compound demonstrates efficacy within these dose forms. The
results clearly showed that the chickens tolerated and consumed all
concentrations of QR441 (a) in the medicated feed. They also tolerated and
consumed the low concentration of drug in the medicated water.
In
January 2007, the Company announced positive results from a study evaluating its
anti-viral compound QR-441(a) in embryonating egg and VERO E6 cell test models.
The preliminary study demonstrated QR-441(a) as a potential antiviral agent in
reducing Infectious Bronchitis and New Castle Disease, two viral poultry
diseases that have a significant economic impact to the poultry industry on an
annual basis. Previous in vitro studies have demonstrated that QR-441(a) to be a
potent antiviral agent against H5N1 (Avian Flu).
In
February 2007, the Company announced that it had signed an agreement with the
State of Israel Ministry of Agriculture & Rural Development (MOAG) and the
Kimron Veterinary Institute to conduct a clinical trial testing the anti-viral
capacity of the Quigley compound QR-441(a) administered as a medical feed and
water to chickens exposed to HPAI (Highly Pathogenic Avian Influenza)
H5N1.
If
successful this study could potentially provide data on the efficacy of
QR-441(a) in preventing the infection of food grade poultry through the use of
formulated feed and water. Positive data could be used to continue the
development of the compound in the U.S with guidance from the FDA under the
INAD’s issued to Quigley in 2005 and might also be useful for development
outside the United States, where the impact of disease has already been
felt.
QR-443 – In August 2006, the
Company announced that it had obtained positive results for its QR-443 compound
for the treatment of Cachexia. Cachexia is an extremely debilitating
and life threatening, wasting syndrome associated with chronic diseases such as
cancer, AIDS, chronic renal failure, COPD and rheumatoid arthritis, where
inflammation has a significant impact and patients experience loss of weight,
muscle atrophy, fatigue, weakness and decreased appetite. The results of an
animal study found a 75% efficacy rate in the treatment of mice with this
condition.
In
January 2007, the Company announced that it had completed a preliminary follow
up Cachexia study, evaluating weight loss in mice. The tumor burden Cachexia
model study concluded that QR-443 was as effective in delaying the progression
of Cachexia when
given orally as it had been shown to be when administered intra-peritoneally in
a previous study.
The new
data compliments the previous study results demonstrating a correlation between
effectiveness and the frequency of administration of the QR-443
compound.
On June
20, 2007, the Company announced that it had completed a follow-up study to
evaluate the impact of QR-443 on levels of a pro-inflammatory cytokine
Interleukin-6 (IL-6) in a cachexia model. This new data concluded that
responding mice had lower levels of serum IL-6 when administered QR-443 orally
than mice that received placebo. This reduction in IL-6 suggests a method of
action for the delayed onset and reduced severity of cachexia observed in this
study as well as the previously conducted cachexia model study.
Recently
Issued Accounting Standards
In
September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 157, “Fair Value
Measurements”. SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles (GAAP) and
expands disclosures about fair value measurements. SFAS 157 is effective
for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The adoption of this standard has not had a
significant impact on the Company’s consolidated financial position, results of
operations or cash flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities,” including an amendment of FASB No. 115
("FAS 159"). The Statement permits companies to choose to measure many financial
instruments and certain other items at fair value in order to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. FAS 159 is effective for the Company beginning January 1, 2008. The
adoption of this standard has not had a significant impact on the Company’s
consolidated financial position, results of operations or cash
flows.
In
December 2007, the FASB issued Statement of Financial Accounting Standard
No. 160, “Noncontrolling
Interests in Consolidated Financial Statements — an amendment of ARB
No. 51” (“FAS 160”). FAS 160 establishes accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
retained interest and gain or loss when a subsidiary is deconsolidated. This
statement is effective for financial statements issued for fiscal years
beginning on or after December 15, 2008 with earlier adoption prohibited.
The Company is currently evaluating the impact, if any, of FAS 160 on its
operating results and financial position.
In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations,"
(“SFAS 141R”) which establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree. SFAS 141R also establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business combination. SFAS
141R applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008, and interim periods within those fiscal years.
Critical Accounting
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 three different but related business segments, Cold
Remedy, Contract Manufacturing and Ethical Pharmaceutical. When providing for
the appropriate sales returns, allowances, cash discounts and cooperative
incentive promotion 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 Contract Manufacturing segment. 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; and
monitored for inventory levels at major customers and third-party consumption
data, such as Information Resources, Inc. (“IRI”).
At March
31, 2008 and December 31, 2007, the Company included reductions to accounts
receivable for sales returns and allowances of $290,000 and $296,000,
respectively, and cash discounts of $98,000 and $169,000, respectively.
Additionally, current liabilities at March 31, 2008 and December 31, 2007
include $1,077,000 and $1,137,650, respectively, for cooperative incentive
promotion costs.
Management
believes there are no material charges to net income 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 three month
periods ended March 31, 2008, and 2007 would affect net sales by approximately
$66,000 and $72,000, respectively. A one percent deviation for cooperative
incentive promotion reserve provisions for the three month periods ended March
31, 2008 and 2007 would affect net sales by approximately $60,000 and $66,000,
respectively.
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 largely due to substantial research and development costs in
the Company’s Ethical Pharmaceutical segment.
Three months ended March 31,
2008 compared with three months ended March 31, 2007
Net sales
for the three month period ended March 31, 2008 were $5,305,034, reflecting a
decrease of $844,917 over the net sales of $6,149,951 for the comparable three
month period ended March 31, 2007. The Cold Remedy segment
reported net sales in the 2008 period of $4,712,134 a decrease of $828,506, or
15.0%, over the comparable 2007 period of $5,540,640. The Contract
Manufacturing segment reported net sales of $592,900 in the 2008 period compared
to $609,311 in the comparable 2007 period, a decrease of $16,411 or
2.7%.
The 2008
sales of the Cold Remedy indicate reduced unit sales of Cold-Eeze® to retail which
is reflective of Information Resources Inc. (“IRI”) reports indicating a
substantial decrease in unit consumption of Cold-Eeze® in 2007 and
continuing into the first quarter of 2008. Available IRI reports
indicate that the cough/cold season commencing in late 2007 had the lowest
reported incidence of the common cold in over eight years, a factor which had
consequences across the cough/cold category. Sales performance in the
2008 quarter was assisted through sales of the Organix Cough and Sore Throat
Drops and Cold-Eeze® ISC-10, both of
which were introduced to the marketplace during the third quarter of 2007, along
with the impact of the Cold-Eeze® price increase
that commenced in July 2007, combining to contribute approximately $717,000 in
net sales during the first quarter of 2008.
Net sales
of the Contract Manufacturing segment reported a small decrease in
2008. The primary purpose of the Contract Manufacturing segment is to
manufacture, warehouse and distribute Cold-Eeze®. Other
contract manufacturing is performed for non-related third party entities to
compensate for the necessary fixed costs associated with this
segment.
Cost of
sales as a percentage of net sales for the three months ended March 31, 2008 was
32.7% compared to 36.0% for the comparable 2007 period, a decrease of
3.3%. The Cold Remedy segment’s cost of sales in the 2008 period was
28.9% compared to 33.9% in the 2007 comparable period, a decrease of 5.0%,
largely due to the absence of a royalty and consulting charge in the
2008 period, a reduction to cost of sales of approximately 4.1%; the Cold Eeze
price increase had the effect of reducing the cost of sales by approximately
4.7%; the coupon program had the effect of raising the cost of sales by
approximately 1.6%; and the impact of the Organix and the ISC-10 was to increase
cost of sales by approximately 2.0%. The Contract Manufacturing
segment had a negative impact to cost of sales overall which is a factor of
production volume and fixed costs. On consolidation, the cost of
sales was favorably affected primarily by the influence of the cold remedy
factors.
Sales and
marketing expense for the three month period ended March 31, 2008 were
$2,232,241, a decrease of $258,593 over the comparable 2007 period amount of
$2,490,834. The decrease was primarily due to reduced media
advertising expense in 2008 of $244,489.
General
and administration costs for the three month period ended March 31, 2008 was
$2,508,206 compared to $2,145,183 for the 2007 period, an increase of $363,023
between the periods. The increase in 2008 was primarily due to
increased legal, payroll and stock promotion costs of $95,234, $177,873 and
$55,858, respectively.
Research
and development costs during the three months ended March 31, 2008 were $1,410,
302 compared to $1,151,381 during the 2007 comparable period, reflecting an
increase in 2008 of $258,921, primarily as a result of increased Pharma segment
costs.
Liquidity and Capital
Resources
The
Company had working capital of $17,416,742 and $18,577,624 at March 31, 2008 and
December 31, 2007, respectively.
Changes in working capital overall have been primarily due to the following items: cash balances increased
by $1,131,488; account receivable balances decreased by $3,269,219 due to
seasonal factors and effective collection practices; inventory increased by
$176,965; accrued advertising decreased by $162,260 due to the seasonal nature
of the Cold-Remedy segment, accrued royalties, consulting fees and sales
commissions decreased by $75,374 largely due to sales related seasonal
factors. Total cash balances at March 31, 2008 were $16,265,034
compared to $15,133,546 at December 31, 2007. Other current
liabilities decreased by $887,365 mainly due to decreased payroll related
balances. Liquidity in the first quarter of 2008 was assisted by the
sale of Darius which resulted in cash proceeds of $1,000,000.
Management
believes that its strategy to establish Cold-Eeze® as a recognized
brand name, its broader range of products, its adequate manufacturing capacity,
together with its current working capital, should provide an internal source of
capital to fund the Company’s normal business operations. The
operations of the Company contribute to the current research and development
expenditures of the Ethical Pharmaceutical segment. In addition
to the funding from operations, the Company may in the short and long term raise
capital through the issuance of equity securities or secure other financing
resources to support such research. As research progresses on certain
formulations, expenditures of the Pharma segment will require substantial
financial support and would necessitate the consideration of other approaches
such as licensing or partnership arrangements that meet the Company’s long term
goals and objectives. Ultimately, should internal working capital or
internal funding be insufficient, there is no guarantee that other financing
resources will become available, thereby deferring future growth and development
of certain formulations.
Management
is not aware of any trends, events or uncertainties that have or are reasonably
likely to have a material negative impact upon the Company’s (a) short-term or
long-term liquidity, or (b) net sales or income from continuing
operations. Any challenge to the Company’s patent rights could have a
material adverse effect on future liquidity of the Company; however, the Company
is not aware of any condition that would make such an event
probable.
Management
believes that cash generated from operations, along with its current cash
balances, will be sufficient to finance working capital and capital expenditure
requirements for at least the next twelve months.
Capital
Expenditures
Capital
expenditures during the remainder of 2008 are not expected to be
material.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
The
Company's operations are not subject to risks of material foreign currency
fluctuations, nor does it use derivative financial instruments in its investment
practices. The Company places its marketable investments in instruments that
meet high credit quality standards. The Company does not expect material losses
with respect to its investment portfolio or exposure to market risks associated
with interest rates. The impact on the Company's results of one percentage point
change in short-term interest rates would not have a material impact on the
Company’s future earnings, fair value, or cash flows related to investments in
cash equivalents or interest-earning marketable securities.
Item 4T. Controls and Procedures
Based on
their evaluation as of the end of the period covered by this report, the
Company’s Chief Executive Officer and Chief Financial Officer have
concluded that the Company’s disclosure controls and procedures (as defined in
Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended)
are effective. There have been no significant changes in internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses. In accordance with the
Sarbanes-Oxley Act of 2002, as amended, the Company has included an assessment
of its internal control over financial reporting and attestation from an
independent registered public accounting firm in its Annual Reports on Form 10-K
commencing with the
fiscal
year ended December 31, 2006. The Company has undergone an ongoing
comprehensive effort in preparation for compliance with Section 404 of the
Sarbanes-Oxley Act of 2002. This has involved the documentation, testing and
review of our internal controls under the direction of senior
management.
Part
II. Other Information
Item 1. Legal
Proceedings
THE
QUIGLEY CORPORATION VS. JOHN C. GODFREY, ET AL.
(Bucks
Co. CCP, No. 04-07776)
In this
action, which was commenced in November 2004, the Company is seeking declaratory
and injunctive relief against John C. Godfrey, Nancy Jane Godfrey, and Godfrey
Science and Design, Inc. requesting injunctive relief regarding the
Cold-Eeze®
trade name and trademark; injunctive relief relating to the Cold-Eeze
formulations and manufacturing methods; injunctive relief for breach of the duty
of loyalty, and declaratory judgment pending the Company's payment of
commissions to defendants. The Company's Complaint is based in part
upon the Exclusive Representation and Distribution Agreement and the Consulting
Agreement (together the "Agreements") entered into between the defendants and
the Company. The Company terminated the Agreements for the
defendants' alleged material breaches of the Agreements. Defendants
have answered the complaint and asserted counterclaims against the Company
seeking remedies relative to the Agreements. The Company believes
that the defendants' counterclaims are without merit and is vigorously defending
those counterclaims and is prosecuting its action on its
complaint. Discovery and depositions have been partially
completed. On February 14, 2008, the Company filed a motion for
summary judgment on its complaint, which has been briefed. Arguments
on the motions for summary judgment are contemplated to be held on or before
August 1, 2008.
At this time no prediction as to the
outcome of this action can be made.
Non-Affiliated
Litigation
On
February 29, 2008, the Company sold Darius to InnerLight Holdings,
Inc. The terms of the sale agreement included a cash purchase price
of $1,000,000 by InnerLight Holdings, Inc. for the stock of Darius and its
subsidiaries without guarantees, warranties or
indemnifications. Therefore, the following litigation, as disclosed
in the Company’s 2007 Form 10-K filing, is no longer the Company’s
responsibility:
Darius
International Inc., ET AL. vs. Robert O. Young ET AL. (Federal District Court –
Eastern District, PA)
Robert O.
and Shelley Young vs. Darius International Inc. and Innerlight Inc., (Utah Third
Party Complaints)
Innerlight
Inc., vs. The Matrix Group, LLC (Fourth Judicial District Court, Utah County,
State of Utah)
Innerlight
Inc. vs. Readycash Holdings, LLC and Global Trade Solutions, Inc. DBA Readycash
(Fourth Judicial District Court, Utah County, State of Utah)
The
Matrix Group, LLC vs. Innerlight Inc. (U.S. District Court for the Southern
District of Florida)
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(1)
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Exhibit
31.1
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Certification
by the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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|
(2)
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Exhibit
31.2
|
Certification
by the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
(3)
|
Exhibit
32.1
|
Certification
by the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
(4)
|
Exhibit
32.2
|
Certification
by the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
THE
QUIGLEY CORPORATION
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
George
J. Longo
|
|
|
Vice
President, Chief Financial Officer
|
Date: May
1, 2008