FORM
10-Q
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
x
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended
September 30,
2009
OR
¨
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF
1934
For the
transition period from ______________ to ______________
Commission
file number
0-21617
THE QUIGLEY CORPORATION
(Exact
Name of Registrant as Specified in Its Charter)
Nevada
|
|
23-2577138
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer Identification No.)
|
incorporation
or organization)
|
|
|
(MAILING
ADDRESS: PO Box 1349, Doylestown, PA 18901.)
Kells Building, 621 Shady Retreat
Road, Doylestown, Pennsylvania 18901
(Address
of principal executive
office) (Zip
Code)
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or shorter period that the registration was
required to submit and post such
files). Yes
x
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company (See
definition of “large accelerated filer”, "accelerated filer”, “non-accelerated
filer" and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Class
|
|
Outstanding at November 13,
2009
|
Common
Stock, $0.0005 par value
|
|
13,
033,383
|
THE
QUIGLEY CORPORATION AND SUBSIDIARIES
TABLE
OF CONTENTS
|
|
|
PAGE
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of September 30, 2009
(unaudited)
|
|
3
|
|
and
December 31, 2008
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations for the Three Months and Nine
Months
|
|
|
|
Ended
September 30, 2009 and 2008 (unaudited)
|
|
4
|
|
|
|
|
|
Condensed
Consolidated Statement of Stockholders’ Equity for the Nine Months Ended
September 30, 2009 (unaudited)
|
|
5
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the Nine Months
|
|
|
|
Ended
September 30, 2009 and 2008 (unaudited)
|
|
6
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
|
7
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
21
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
34
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
|
34
|
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
|
36
|
Item
1A.
|
Risk
Factors
|
|
36
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
38
|
Item
3.
|
Defaults
Upon Senior Securities
|
|
38
|
Item
4.
|
Submission
of Matters to a Vote of Securities Holders
|
|
38
|
Item
5.
|
Other
Information
|
|
38
|
Item
6.
|
Exhibits
|
|
39
|
|
|
|
|
Signatures
|
|
|
40
|
|
|
|
|
Certifications
|
|
|
41
|
PART
I. FINANCIAL INFORMATION
Item
1. Financial
Statements
THE
QUIGLEY CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except share and per share amounts)
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents (Note 2)
|
|
$
|
8,945
|
|
|
$
|
11,957
|
|
Accounts
receivable, net of doubtful accounts of $12 and
|
|
|
|
|
|
|
|
|
$131,
respectively (Note 2)
|
|
|
2,487
|
|
|
|
4,524
|
|
Inventory,
net (Note 2)
|
|
|
3,180
|
|
|
|
3,001
|
|
Prepaid
expenses and other current assets
|
|
|
633
|
|
|
|
1,185
|
|
Assets
held for sale (Note 2)
|
|
|
199
|
|
|
|
-
|
|
Total
current assets
|
|
|
15,444
|
|
|
|
20,667
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net of accumulated depreciation
|
|
|
|
|
|
|
|
|
of
$4,000 and $4,870, respectively (Note 2)
|
|
|
2,710
|
|
|
|
3,667
|
|
Other
assets
|
|
|
34
|
|
|
|
35
|
|
|
|
$
|
18,188
|
|
|
$
|
24,369
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
346
|
|
|
$
|
694
|
|
Accrued
royalties and sales commissions (Note 5)
|
|
|
3,719
|
|
|
|
3,792
|
|
Accrued
advertising
|
|
|
826
|
|
|
|
1,306
|
|
Other
current liabilities
|
|
|
1,020
|
|
|
|
803
|
|
Total
current liabilities
|
|
|
5,911
|
|
|
|
6,595
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contigencies (Note 5)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
Common
Stock, $.0005 par value; authorized 50,000,000;
|
|
|
|
|
|
|
|
|
issued:
17,679,436 and 17,554,436 shares, respectively (Note 6)
|
|
|
9
|
|
|
|
9
|
|
Additional
paid-in-capital
|
|
|
37,725
|
|
|
|
37,599
|
|
Retained
earnings (deficit)
|
|
|
(269
|
)
|
|
|
5,354
|
|
Treasury
stock, at cost, 4,646,053 and 4,646,053 shares,
respectively
|
|
|
(25,188
|
)
|
|
|
(25,188
|
)
|
Total
stockholders' equity
|
|
|
12,277
|
|
|
|
17,774
|
|
|
|
$
|
18,188
|
|
|
$
|
24,369
|
|
See
accompanying notes to condensed consolidated financial
statements
THE
QUIGLEY CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in
thousands, except per share amounts)
(unaudited)
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales (Note 2)
|
|
$
|
4,977
|
|
|
$
|
6,354
|
|
|
$
|
10,712
|
|
|
$
|
13,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales (Note 2)
|
|
|
1,362
|
|
|
|
2,272
|
|
|
|
4,454
|
|
|
|
5,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
3,615
|
|
|
|
4,082
|
|
|
|
6,258
|
|
|
|
8,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
607
|
|
|
|
652
|
|
|
|
3,424
|
|
|
|
3,450
|
|
Administration
|
|
|
1,470
|
|
|
|
1,661
|
|
|
|
7,502
|
|
|
|
6,200
|
|
Research
and development
|
|
|
341
|
|
|
|
955
|
|
|
|
975
|
|
|
|
3,630
|
|
|
|
|
2,418
|
|
|
|
3,268
|
|
|
|
11,901
|
|
|
|
13,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
1,197
|
|
|
|
814
|
|
|
|
(5,643
|
)
|
|
|
(4,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
|
5
|
|
|
|
65
|
|
|
|
20
|
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
before income taxes
|
|
|
1,202
|
|
|
|
879
|
|
|
|
(5,623
|
)
|
|
|
(4,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (benefit) (Note 7)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
1,202
|
|
|
|
879
|
|
|
|
(5,623
|
)
|
|
|
(4,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations (Note 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of health and wellness operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
736
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
139
|
|
Net
income (loss)
|
|
$
|
1,202
|
|
|
$
|
879
|
|
|
$
|
(5,623
|
)
|
|
$
|
(3,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
|
$
|
(0.43
|
)
|
|
$
|
(0.35
|
)
|
Income
from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.07
|
|
Net
income (loss)
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
|
$
|
(0.43
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
|
$
|
(0.43
|
)
|
|
$
|
(0.35
|
)
|
Income
from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.07
|
|
Net
income (loss)
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
|
$
|
(0.43
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12,996
|
|
|
|
12,885
|
|
|
|
12,940
|
|
|
|
12,869
|
|
Diluted
|
|
|
13,110
|
|
|
|
13,140
|
|
|
|
12,940
|
|
|
|
12,869
|
|
See
accompanying notes to condensed consolidated financial
statements
THE
QUIGLEY CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF
STOCKHOLDERS’
EQUITY
(in
thousands, except share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Par
|
|
|
Paid-In
|
|
|
(Accumulated
|
|
|
Treasury
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Stock
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
12,908,383
|
|
|
$
|
9
|
|
|
$
|
37,599
|
|
|
$
|
5,354
|
|
|
$
|
(25,188
|
)
|
|
$
|
17,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,623
|
)
|
|
|
|
|
|
|
(5,623
|
)
|
Proceeds
from exercise of stock options
|
|
|
125,000
|
|
|
|
-
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
Tax
benefits from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
Tax
benefit allowance
|
|
|
|
|
|
|
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2009
|
|
|
13,033,383
|
|
|
$
|
9
|
|
|
$
|
37,725
|
|
|
$
|
(269
|
)
|
|
$
|
(25,188
|
)
|
|
$
|
12,277
|
|
See
accompanying notes to condensed consolidated financial
statements
THE
QUIGLEY CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
(unaudited)
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
Flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,623
|
)
|
|
$
|
(3,569
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
provided
by (used in) continuing operations:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
424
|
|
|
|
556
|
|
Loss
(gain) on the sales of fixed assets
|
|
|
(38
|
)
|
|
|
34
|
|
Sales
allowance and provision for bad debts
|
|
|
265
|
|
|
|
490
|
|
Inventory
valuation provision
|
|
|
(124
|
)
|
|
|
(322
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,772
|
|
|
|
684
|
|
Inventory
|
|
|
(55
|
)
|
|
|
60
|
|
Accounts
payable
|
|
|
(348
|
)
|
|
|
89
|
|
Accrued
royalties and sales commissions
|
|
|
(73
|
)
|
|
|
(364
|
)
|
Accrued
advertising
|
|
|
(480
|
)
|
|
|
(308
|
)
|
Other
operating assets and liabilities, net
|
|
|
770
|
|
|
|
(2,474
|
)
|
Net
cash used in operating activities
|
|
|
(3,510
|
)
|
|
|
(5,124
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from (used by) investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(103
|
)
|
|
|
(149
|
)
|
Proceeds
sales of assets
|
|
|
475
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows provided by (used in) investing activities
|
|
|
372
|
|
|
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Stock
options and warrants exercised
|
|
|
126
|
|
|
|
58
|
|
Net
cash provided by financing activities
|
|
|
126
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
$
|
(3,012
|
)
|
|
$
|
(5,205
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
$
|
11,957
|
|
|
$
|
15,134
|
|
|
|
|
|
|
|
|
|
|
Add:
cash and cash equivalents of discontinued operations at beginning of
period
|
|
|
-
|
|
|
|
951
|
|
|
|
|
|
|
|
|
|
|
Net
decrease to cash and cash equivalents
|
|
|
(3,012
|
)
|
|
|
(5,205
|
)
|
|
|
|
|
|
|
|
|
|
Less:
cash and cash equivalents of discontinued operations at end of
period
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
8,945
|
|
|
$
|
10,880
|
|
|
|
|
|
|
|
|
|
|
Suplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income
taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to condensed consolidated financial
statements
The
Quigley Corporation and Subsidiaries
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 (i) a manufacturer, marketer and distributor of a diversified range
of homeopathic and health products that are offered to the general public and
(ii) engaged in the research and development of potential natural base health
products, including but not limited to prescription medicines along with
supplements and cosmeceuticals for human and veterinary use. The
Company has been historically organized into three business segments: (i) cold
remedy, (ii) contract manufacturing and (iii) ethical
pharmaceutical. The Company historically managed each of its segments
separately as a consequence of different marketing, manufacturing and/or
research and development strategies. For the three months and nine
months ended September 30, 2009 and 2008, the Company’s revenues have come
principally from the Company’s cold remedy segment.
The
Company’s principal cold-remedy product, Cold-EEZE
Ò
,
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.
In
January 2001, the Company formed an ethical pharmaceutical segment, now known as
Quigley Pharma, Inc. (“Pharma”), a wholly owned subsidiary of the
Company. The result of Pharma’s research and development activity may
enable the Company to diversify its operations into the prescription drug market
along with supplements and/or cosmeceuticals for human and veterinary
use.
On
February 29, 2008, the Company sold its wholly owned subsidiary, Darius
International, Inc. (“Darius”), the former health and wellness segment of the
Company (see Note 3), to InnerLight Holdings, Inc. (“InnerLight”). On
February 29, 2008, Kevin P. Brogan, the then president of Darius was a
significant shareholder of InnerLight. In addition, Mr. Gary Quigley,
an employee and stockholder of The Quigley Corporation and also the brother of
Mr. Guy Quigley, the Company’s then Chairman, President and Chief Executive
Officer (as well as a shareholder of The Quigley Corporation), became a
significant shareholder of Innerlight either before or shortly after the sale of
Darius. Mr. Gary Quigley was also a principal of Scandasystems, Ltd.
(“Scandasystems”), which entered into an agreement to receive royalties from
Innerlight.
The
results and balances associated with Darius are presented as discontinued
operations in the condensed consolidated statements of operations.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation
The unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial statements and within the rules of
the Securities and Exchange Commission applicable to interim financial
statements and therefore do not include all disclosures that might normally be
required for financial statements prepared in accordance with generally accepted
accounting principles. The accompanying unaudited condensed
consolidated financial statements have been prepared by management without audit
and should be read in conjunction with the Company’s consolidated financial
statements, including the notes thereto, appearing in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2008. 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 and nine months ended September 30, 2009 are
not necessarily indicative of operating results that may be achieved over the
course of the full year.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Note
2 – Summary of Significant Accounting Policies - continued
Use
of Estimates
The
preparation of financial statements and the accompanying notes thereto, in
conformity with generally accepted accounting principles, requires management to
make estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the respective reporting periods. Examples include the provision for
bad debt, sales returns and allowances, inventory obsolescence, useful lives of
property and equipment and intangible assets, impairment of property and
equipment and intangible assets, income tax valuations and assumptions related
to accrued advertising. These estimates and assumptions are based on
historical experience, current trends and other factors that management believes
to be relevant at the time the financial statements are
prepared. Management reviews the accounting policies, assumptions,
estimates and judgments on a quarterly basis. Actual results could
differ from those estimates.
The Company is organized into three
different but related business segments, (i) cold remedy, (ii) contract
manufacturing and (iii) ethical pharmaceutical. When providing for
the appropriate sales returns, allowances, cash discounts and cooperative
incentive promotion costs (“Sales Allowances”), 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
primary product in the cold remedy segment, Cold-EEZE
Ò
,
has been clinically proven 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 (i) a
unique product with limited competitors, (ii) competitively priced, (iii)
promoted, (iv) unaffected for remaining shelf-life as there is no product
expiration date, and (v) monitored for inventory levels at major customers and
third-party consumption data. The Company added new products to the
cold remedy segment in fiscal 2007 and fiscal 2008 such as Kids-EEZE
Ò
Chest Relief, ISC-10 immune product and Organix Organic Cough and Sore Throat
Drops. Each of these new products do carry shelf-life expiration
dates for which the Company aggregates such new product market experience data
and updates its sales returns and allowances estimates
accordingly. Sales Allowances estimates are tracked at the specific
customer and product line levels and are tested on an annual historical basis,
and reviewed quarterly. 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.
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, if appropriate, inventory valuation reserves are
established. The consolidated financial statements include a specific
reserve for excess or obsolete inventory of approximately $1.1 million
and $1.2 million as of September 30, 2009 and December 31, 2008,
respectively. Raw material, work in progress and packaging inventory
aggregated approximately $693,000 and $975,000 at September 30, 2009 and
December 31, 2008, respectively. Finished goods inventory was $2.5
million and $2.0 million at September 30, 2009 and December 31, 2008,
respectively.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Note
2 – Summary of Significant Accounting Policies - continued
Assets
Held for Sale
In June
2009, the Company concluded the closing of the Company’s Elizabethtown
manufacturing facility. At September 30, 2009, the Company’s
reported assets include
Assets
Held For Sale aggregating
$199,000 related to the land and buildings of
the Elizabethtown manufacturing facility. These assets have been
recorded at their estimated fair value, less estimated costs to
sell.
As
codified under Accounting Standards Codification (“ASC”) ASC-820,
“Fair Value Measurements and
Disclosure”
(formerly Statement of Financial Accounting Standard (“SFAS”)
No. 157
“Fair Value
Measurements”
) fair value is based on the prices that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. In order to increase
consistency and comparability in fair value measurements, ASC-820 establishes a
three-tier fair value hierarchy that prioritizes the inputs used to measure fair
value. These tiers include: Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than quoted prices in
active markets that are either directly or indirectly observable; and Level 3,
defined as unobservable inputs for which little or no market data exists,
therefore requiring an entity to develop its own assumptions.
The fair value of the reported
Assets Held For Sale
was
arrived at through bids generated from interested third party purchasers and
guidance from a third party real estate advisor thereby relating to Level 3 fair
value hierarchy.
Property,
Plant and Equipment
Property,
plant and equipment is recorded at cost. The Company uses a
combination of straight-line and accelerated methods in computing depreciation
for financial reporting purposes. Depreciation expense is 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. As of September 30, 2009, the Company’s cash balance was $8.9
million and the bank balance was $9.2 million. Of the total bank
balance, $7.7 million was covered by federal depository insurance and $1.5
million was uninsured.
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. For the nine months ended
September 30, 2009 and 2008, all of the Company’s net sales were related to
domestic markets.
The
Company’s sales are principally generated from the sale of the cold remedy
products, which approximated 98% and 87% of net sales for the nine months ended
September 30, 2009 and 2008, respectively. Net sales of the contract
manufacturing segment were approximately 2% and 13% of the Company’s net sales
for the nine months ended September 30, 2009 and 2008,
respectively.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Note
2 – Summary of Significant Accounting Policies - continued
The
principal sales generating product of the Company’s cold remedy segment is the
Cold-EEZE
Ò
zinc gluconate glycine lozenge product which is available in various flavors for
purchase by the consumer at retail stores. The Company also produces
zinc private label lozenge products for sale to certain retail
customers. The Company’s zinc lozenge products are manufactured
principally by QMI. The constituent raw materials and packaging used
in the manufacture and presentation of these items are procured from various
sources with additional suppliers having been identified in the event that
alternatives are required. While the absence of a current raw
materials or packaging source may cause short term interruption, identified
alternative sources would fill the Company’s needs in a short time and any
transition period would be mitigated by adequate levels of finished product
available for sale. Other products within the cold remedy segment
such as Cold-EEZE
Ò
Sugarfree
tablets, Kids-EEZE
Ò
Chest Relief and Immune Support Complex 10 are manufactured for the Company by
third party contract manufacturers and while currently purchased from single
sources do not constitute a material revenue risk to the Company if product
availability was jeopardized.
Long-lived
Assets
The Company reviews its carrying value
of its
long-lived
assets with definite lives whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. When
indicators of impairment exist, the Company determines whether the estimated
undiscounted sum of the future cash flows of such assets is less than their
carrying amounts. If less, an impairment loss is recognized in the
amount, if any, by which the carrying amount of such assets exceeds their
respective fair values. The determination of fair value is based on
quoted market prices in active markets, if available, or independent appraisals;
sales price negotiations; or projected future cash flows discounted at a rate
determined by management to be commensurate with the Company’s business
risk. The estimation of fair value utilizing discounted forecasted
cash flows includes significant judgments regarding assumptions of revenue,
operating and marketing costs; selling and administrative expenses; interest
rates; property and equipment additions and retirements; industry competition;
and general economic and business conditions, among other factors.
At
December 31, 2008, the Company recorded impairment charges of $200,000 for
inventory and $100,000 for land and building assets of the Company’s
Elizabethtown manufacturing facility. The aggregate impairment charge
of $300,000 was recorded as a component of cost of sales and the charges were
necessary, due to adverse profit margins related to the hard candy
business. As of September 30, 2009, the Company’s Elizabethtown land
and building assets are reported as an asset held for sale at its fair value,
less the cost of disposal.
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.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Note
2 – Summary of Significant Accounting Policies - continued
Revenue
Recognition
Sales are
recognized at the time ownership is transferred to the customer, (i) which for
the cold remedy segment is the time the shipment is received by the customer and
(ii) for the contract manufacturing segment, when the product is shipped to the
customer. Sales are 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 sales. Sales
Allowances estimates are tracked at the specific customer and product line
levels and are tested on an annual historical basis, and reviewed quarterly to
ascertain the most effective rate.
Currently,
the Company does not impose a period of time within which product may be
returned. All requests for product returns must be submitted to the
Company for pre-approval. The main components of the Company’s
returns policy are: (i) the Company will accept returns that are due to damaged
product that is un-saleable and such return request activity fall within an
acceptable range, (ii) the Company will accept returns for products that have
reached or exceeded designated expiration dates and (iii) the Company will
accept returns in the event that the Company discontinues a product such that
the customer will have the right to return only such items that it purchased
directly from the Company. The Company will not accept return
requests pertaining to customer inventory “Overstocking” or
“Resets”. The Company will only accept return requests for
product in its intended package configuration. The Company reserves
the right to terminate shipment of product to customers who have made
unauthorized deductions contrary to the Company’s Return Policy or pursue other
methods of reimbursement. The Company compensates the customer for authorized
returns by means of a credit applied to amounts owed or to be owed and in the
case of discontinued product only, also by way of an exchange. The
Company does not have any significant product exchange history.
As of
September 30, 2009, the Company included a provision for Sales Allowances of
$1.9 million for future sales returns and $148,000 for other allowances which is
reported as a reduction to accounts receivable. As of December 31, 2008, the
Company’s included a provision for Sales Allowances of $1.4 million for future
sales returns and $281,000 for other allowances which is reported as a reduction
to accounts receivable. Additionally, current liabilities as of
September 30, 2009 and December 31, 2008 include $702,000 and $1.1 million,
respectively, for cooperative incentive promotion costs. The Company
also included an estimate of the uncollectability of the Company’s accounts
receivable as an allowance for doubtful accounts of $12,000 and $131,000 as of
September 30, 2009 and December 31, 2008, respectively.
Operating
Expenses
The
Company has agreements with a major national sales brokerage firm under which
this brokerage firm markets the Company’s products to retail
customers. The compensation and related costs for the brokerage firm
are classified as selling expenses.
Shipping
and Handling
Product
sales relating to the cold remedy segment include shipping and handling charges
to the purchaser as part of the invoiced price and these charges are classified
as sales. In all cases, shipping and handling costs related to these
sales are recorded as cost of sales.
Stock
Compensation
The
Company recognizes all share-based payments to employees, including grants of
employee stock options, as compensation expense in the financial statements
based on their fair values. Fair values of stock options are
determined through the use of the Black-Scholes option pricing
model. The compensation cost is recognized as an expense over the
requisite service period of the award, which usually coincides with the vesting
period.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Note
2 – Summary of Significant Accounting Policies - continued
Stock
options and warrants for purchase of the Company’s common stock have been
granted to both employees and non-employees. Options and warrants are
exercisable during a period determined by the Company, but in no event later
than ten years from the date granted. No stock options or warrants to
purchase the Company’s common stock have been granted since January 1,
2006. As a consequence, there is no stock compensation expense for
the three months or nine months ended September 30, 2009 or 2008,
respectively.
Variable
Interest Entity
ASC-810
establishes criterion and implementation guidance for the consolidation of
variable interest entities (“VIE”). Effective March 31, 2004, the
Company adopted the standards codified by ASC-810. As a consequence,
the Company 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. Effective January 1, 2008, the
Company determined that the conditions that applied in the past giving rise to
the application of ASC-810 to the relationship between the Company and
Scandasystems no longer applied. As a consequence of this
determination, Scandasystems balances are no longer consolidated with the
Company’s financial results and balances.
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 (i) media
advertising, presented as a component of sales and marketing expense; (ii)
cooperative incentive promotions and coupon program expenses, which are
accounted for as a component of net sales; and (iii) free product, which is
accounted for as a component of cost of sales. Advertising and
incentive promotion costs incurred for the three months ended September 30, 2009
and 2008 were $1.1 million and $822,000, respectively. Advertising
and incentive promotion costs incurred for the nine months ended September 30,
2009 and 2008 were $3.6 million and $3.8 million,
respectively. Included in prepaid expenses and other current assets
was zero and $242,000 at September 30, 2009 and December 31, 2008, respectively,
relating to prepaid advertising and promotion expense.
Research
and Development
Research and development costs are
charged to operations in the period incurred. Research and development costs for
the three months ended September 30, 2009 and 2008 were $341,000 and $955,000,
respectively. Research and development costs for the nine months
ended September 30, 2009 and 2008 were $975,000 and $3.6 million,
respectively. Research and development costs are principally related
to Pharma’s study activities and costs associated with the development of
potential ethical pharmaceuticals, supplements and/or cosmeceuticals for human
and veterinary use.
The
Company reported for the three months and nine months ended September 30, 2009 a
decline in research and development costs as compared to the three month and
nine months ended September 30, 2008 as a consequence of the completion of the
Phase IIb study for QR-333 Diabetic Peripheral Neuropathy in November 2008 and a
subsequent reduction in related spending pending the availability of the final
results of the QR-333 study which were announced by the Company on July 22,
2009.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Note
2 – Summary of Significant Accounting Policies - continued
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 7).
The
Company utilizes a two-step approach to recognizing and measuring uncertain tax
positions. 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.
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. The tax years 2006-2008 remain open to examination by the
major taxing jurisdictions to which the Company is subject.
Recently
Issued Accounting Standards
Effective
July 2009, the Company adopted the “FASB Accounting Standards Codification” and
the Hierarchy of Generally Accepted Accounting Principles (ASC-105), (formerly
SFAS No. 168,
The “FASB
Accounting Standards Codification” and the Hierarchy of Generally Accepted
Accounting Principles
). This standard establishes only two levels of U.S.
generally accepted accounting principles (“GAAP”), authoritative and
nonauthoritative. The Financial Accounting Standard Board (“FASB”) Accounting
Standards Codification (the “Codification”) became the source of authoritative,
nongovernmental GAAP, except for rules and interpretive releases of the SEC,
which are sources of authoritative GAAP for SEC registrants. All other
non-grandfathered, non-SEC accounting literature not included in the
Codification became nonauthoritative. The Company began using the new
guidelines and numbering system prescribed by the Codification when referring to
GAAP for the three months and nine months ended September 30,
2009. As the Codification was not intended to change or alter
existing GAAP, it did not have any impact on the Company’s consolidated
financial statements.
In
February 2008, the FASB issued an accounting standard update that delayed the
effective of fair value measurements accounting for all non-financial assets and
non-financial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually),
until fiscal years beginning after November 15, 2008. These include
goodwill and other non-amortizable intangible assets. The Company adopted this
accounting standard update effective January 1, 2009. The adoption of this
update to non-financial assets and liabilities, as codified in ASC-820 (formerly
FSP 157-2, “
Effective Date of
FASB Statement No. 157
”), has not had a significant impact on the
Company’s consolidated financial position, results of operations or cash
flows.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Note
2 – Summary of Significant Accounting Policies - continued
Effective
January 2009, the Company adopted a new accounting standard update regarding
business combinations. As codified under ASC-805 (formerly SFAS No. 141R, “
Business Combinations
”), this
update requires an entity to recognize the assets acquired, liabilities assumed,
contractual contingencies, and contingent consideration at their fair value on
the acquisition date. It further requires that acquisition-related
costs be recognized separately from the acquisition and expensed as incurred;
that restructuring costs generally be expensed in periods subsequent to the
acquisition date; and that changes in accounting for deferred tax asset
valuation allowances and acquired income tax uncertainties after the measurement
period be recognized as a component of provision for taxes. In
addition, acquired in-process research and development is capitalized as an
intangible asset and amortized over its estimated useful life. With the adoption
of this accounting standard update, any tax related adjustments associated with
acquisitions that closed prior to January 1, 2009 will be recorded through
income tax expense, whereas the previous accounting treatment would require any
adjustment to be recognized through the purchase price. This
accounting standard update 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. The adoption of these
accounting updates has not had a significant impact on the Company’s
consolidated financial position, results of operations or cash
flows.
Effective
January 2009, the Company adopted an accounting standard which establishes
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary, as codified in ASC-810
(formerly SFAS No. 160,
Accounting and Reporting on
Non-controlling Interest in Consolidated Financial Statements, an Amendment of
ARB 51
”). This accounting standard states that accounting and reporting
for minority interests are to be recharacterized as noncontrolling interests and
classified as a component of equity. The calculation of earnings per
share continues to be based on income amounts attributable to the
parent. The adoption of these accounting updates has not had a
significant impact on the Company’s consolidated financial position, results of
operations or cash flows.
Effective
January 2009, the Company adopted an accounting standard update regarding the
determination of the useful life of intangible assets. As codified in ASC-350
(formerly FSP No. 142-3, “
Determination of the Useful Life of
Intangible Assets
”), this update amends the factors considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under intangibles accounting. It also requires a
consistent approach between the useful life of a recognized intangible asset
under prior business combination accounting and the period of expected cash
flows used to measure the fair value of an asset under the new business
combinations accounting (as currently codified under ASC-850). The
update also requires enhanced disclosures when an intangible asset’s expected
future cash flows are affected by an entity’s intent and/or ability to renew or
extend the arrangement. The adoption of these accounting updates has
not had a significant impact on the Company’s consolidated financial position,
results of operations or cash flows.
Effective
January 2009, the Company adopted a new accounting standard update from the
Emerging Issues Task Force (“EITF”) consensus regarding the accounting of
defensive intangible assets. This update, as codified in ASC-350 (formerly EITF
No. 08-7, “
Accounting for
Defensive Intangible Assets
”), clarifies accounting for defensive
intangible assets subsequent to initial measurement. It applies to acquired
intangible assets which an entity has no intention of actively using, or intends
to discontinue use of, the intangible asset but holds it to prevent others from
obtaining access to it (i.e., a defensive intangible asset). Under this update,
a consensus was reached that an acquired defensive asset should be accounted for
as a separate unit of accounting (i.e., an asset separate from other assets of
the acquirer); and the useful life assigned to an acquired defensive asset
should be based on the period during which the asset would diminish in value.
The adoption of these accounting updates has not had a significant impact on the
Company’s consolidated financial position, results of operations or cash
flows.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Note
2 – Summary of Significant Accounting Policies - continued
Effective
April 2009, the Company adopted a new accounting standard for subsequent events,
as codified in ASC-855 (formerly SFAS No. 165,
Subsequent Events
). The
update modifies the names of the two types of subsequent events either as
recognized subsequent events (previously referred to in practice as Type I
subsequent events) or non-recognized subsequent events (previously referred to
in practice as Type II subsequent events). In addition, the standard
modifies the definition of subsequent events to refer to events or transactions
that occur after the balance sheet date, but before the financial statements are
issued (for public entities) or available to be issued (for nonpublic entities).
It also requires the disclosure of the date through which subsequent events have
been evaluated. The update did not result in significant changes in the practice
of subsequent event disclosures, and therefore the adoption has not had a
significant impact on the Company’s consolidated financial position, results of
operations or cash flows. As a consequence of the adoption of
ASC-855, the Company has evaluated subsequent events relating to the three
months and nine months ended September 30, 2009 through to and including
November 13, 2009, the date of issue of the Company’s Condensed Consolidated
Financial Statements.
Effective
April 2009, the Company adopted three accounting standard updates which were
intended to provide additional application guidance and enhanced disclosures
regarding fair value measurements and impairments of securities. They also
provide additional guidelines for estimating fair value in accordance with fair
value accounting. The first update, as codified in ASC-820 (formerly
FASB Staff Positions (“FSP”) No. 157-4,
Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly
), provides
additional guidelines for estimating fair value in accordance with fair value
accounting. The second accounting update, as codified in ASC-320
(formerly FSP No. 115-2,
Recognition and Presentation of
Other-Than-Temporary Impairments)
, changes accounting requirements for
other-than-temporary-impairment (OTTI) for debt securities by replacing the
current requirement that a holder have the positive intent and ability to hold
an impaired security to recovery in order to conclude an impairment was
temporary with a requirement that an entity conclude it does not intend to sell
an impaired security and it will not be required to sell the security before the
recovery of its amortized cost basis. The third accounting update, as codified
in ASC-825 (formerly Accounting Principles Board (“APB”) Opinion No. 28-1,
Interim Disclosures about Fair
Value of Financial Instruments)
, increases the frequency of fair value
disclosures. These updates were effective for fiscal years and interim periods
ended after June 15, 2009. The adoption of these accounting updates has not had
a significant impact on the Company’s consolidated financial position, results
of operations or cash flows.
Note
3 – Discontinued Operations
On
February 29, 2008, the Company sold Darius to InnerLight Holdings,
Inc. Darius was formed by the Company as a wholly own subsidiary in
fiscal 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. The terms of the sale agreement included a cash purchase price
of $1.0 million by InnerLight Holdings, Inc. for the stock of Darius and its
subsidiaries without guarantees, warranties or indemnifications. For
the three months ended March 31, 2008, the Company recorded a gain on the
disposal of Darius of $736,000 and classified the results of operations of
Darius as discontinued operations.
Darius’ net sales for the period
January 1, 2008 until date of disposal on February 29, 2008, were
$2.2 million. Net income for the period January 1, 2008 until
date of disposal on February 29, 2008 was $139,000. Results of
operations for Darius in fiscal 2008 are presented as discontinued operations in
the Condensed Consolidated Statements of Operations and Cash
Flows.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Note
4 – Other Current Liabilities
At
September 30, 2009 and December 31, 2008, included in other current liabilities
are accrued compensation of $340,000 and $215,000, respectively.
Note
5 – Commitments and Contingencies
The
Company 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
agreed to 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.
On July
2, 2008, the Company entered into an agreement (“Royalty Agreement”) with Dr.
Richard Rosenbloom, the then Executive Vice President and Chief Operating
Officer of Pharma, whereby the Company agreed to compensate Dr. Rosenbloom for
assigning, to the Company, the entire right, title and interest in and to Dr.
Rosenbloom’s concepts and/or inventions made prior to the date he became an
employee of the Company (“Inventions”). In consideration of, and as
full compensation for, the covenants made in the agreement, the Company agreed
to pay Dr. Rosenbloom compensation in the amount of five percent (5%) of net
sales collected, less certain deductions, of royalty-bearing products (“Royalty
Fee”). Effective October 22, 2009, the employment of Dr.
Rosenbloom was terminated when the position of Executive Vice President of the
subsidiary was eliminated.
In July
2008, the Company entered into an agreement with a vendor to purchase a minimum
amount of product, over a three year period in its capacity as an exclusive
reseller, marketer and distributor of a cough and cold product incorporating a
patented, proprietary delivery system. This agreement was amended in
July 2009 resulting in (i) a reduction in the term of the agreement, (ii)
reduction of the exclusivity coverage and (iii) an adjustment to the remaining
purchase commitment to approximately $866,000 over the term of the
contract.
Certain
operating leases for office and warehouse space maintained by the Company
resulted in rent expense for the three month periods ended September 30, 2009
and 2008 of $10,000 and $12,000, respectively. Rent expense for the
nine month periods ended September 30, 2009 and 2008 were $40,000 and $40,000,
respectively. The Company has estimated future obligations over the
next five years, including the remainder of fiscal 2009, as follows (in
thousands):
Year
|
|
Employment
Contracts
|
|
|
Advertising
|
|
|
Product
Purchases
|
|
|
Total
|
|
2009
|
|
$
|
269
|
|
|
$
|
475
|
|
|
$
|
-
|
|
|
$
|
744
|
|
2010
|
|
|
1,075
|
|
|
|
160
|
|
|
|
866
|
|
|
|
2,101
|
|
2011
|
|
|
1,075
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,075
|
|
2012
|
|
|
672
|
|
|
|
-
|
|
|
|
-
|
|
|
|
672
|
|
2013
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
3,091
|
|
|
$
|
635
|
|
|
$
|
866
|
|
|
$
|
4,592
|
|
Additional
research and development and advertising costs are expected to be incurred
during the remainder of fiscal 2009.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Note
5 – Commitments and Contingencies – continued
In April
2009, a group of shareholders of the Company, including Mr. Ted Karkus, (the
“Karkus Group”) filed with the Securities and Exchange Commission a preliminary
Proxy Statement proposing an alternative slate of board of directors for the
Company (the “Alternative Ballot”) to the slate nominated by the Company’s
incumbent Board of Directors (the “Incumbent Ballot”) for vote at the May 20,
2009 annual meeting of stockholders, (“Annual Meeting”).
Stockholders
of the Company were solicited by both the Company and the Karkus Group (the
“Proxy Contest”) to support either the Incumbent Ballot or the Alternative
Ballot prior to the Company’s Annual Meeting.
As a
consequence of the Proxy Contest, the Company was involved in three litigation
matters during the three months ending June 30, 2009 in the Unites States
District Court for the Eastern District of Pennsylvania. In
The Quigley Corporation v.
Karkus, et al., No. 09-1725
, and
The Quigley Corporation v. Karkus,
et al., 09-2438
, the Company sought injunctive relief in federal court
based on claims under the Securities Exchange Act of 1934 and rules promulgated
thereunder. In both cases, the court denied the relief requested
following expedited proceedings. Both cases have been dismissed
voluntarily. In the third matter,
Karkus v. The Quigley Corporation,
et al., No. 09-2239
, Mr. Karkus sued the Company and its former Chief
Executive Officer asserting violations of the Securities Exchange Act of 1934
and for alleged breach of fiduciary duty. This case, too, has been dismissed
voluntarily.
As a
consequence of the outcome of the Annual Meeting and the decision of the court,
the slate of directors nominated pursuant to the Alternative Ballot was elected
to the Board of Directors of the Company.
Note
6 – Transactions Affecting Stockholders’ Equity
Stockholder
Rights Plan
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”) payable to the stockholders of record on September
25, 1998, thereby creating a Stockholder Rights Plan (the “Rights
Agreement”). The Plan was amended effective May 23, 2008 (“First
Amendment”) and further amended effective August 18, 2009 (“Second
Amendment”). The Rights Agreement, as amended, provides that 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 Rights Agreement, as amended,
includes a provision pursuant to which the Company's Board of Directors may
exempt from the provisions of the Rights Agreement an offer for all outstanding
shares of the Company's common stock that the directors determine to be fair and
not inadequate and to otherwise be in the best interests of the Company and its
stockholders, after receiving advice from one or more investment banking firms.
The expiration date of the Rights Agreement, as amended, is September 25,
2018.
Stock
Option Exercise
For the
nine months ended September 30, 2009 and 2008, the Company derived net proceeds
of $126,000 and $58,000, respectively, as a consequence of the exercise of
options to acquire 125,000 and 50,250, shares, respectively, of the Company’s
common stock.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Note
7 – Income Taxes
The
Company accounts for income taxes in accordance with ASC-740 (formerly SFAS No.
109, “Accounting for Income Taxes”). In accordance with ASC-740,
deferred tax assets and liabilities are computed based on the difference between
the financial statement and income tax bases of assets and liabilities using the
enacted marginal tax rate. ASC-740 requires that the net deferred tax
asset be reduced by a valuation allowance if, based on the weight of available
evidence, it is more likely than not that some portion or all of the net
deferred tax asset will not be realized. The Company has further
adopted the provisions of ASC-740 (formerly Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes – An interpretation of FASB Statement No.
109”). As required by ASC-740, the Company recognizes the financial
statement benefit of a tax position only after determining that the relevant tax
authority would more likely than not sustain the position following an
audit. For tax positions meeting the more-likely-than-not threshold,
the amount recognized in the financial statements is the largest benefit that
has a greater than 50 percent likelihood of being realized upon ultimate
settlement with the relevant tax authority. The Company’s assessments
of its tax positions in accordance with ASC-740 did not result in changes that
had a material impact on results of operations, financial condition or
liquidity. As of September 30, 2009 and December 31, 2008, the Company had no
unrecognized tax benefits. While the Company does not have any interest and
penalties in the periods presented, the Company’s policy is to recognize such
expenses as tax expense.
The
Company files U.S. federal income tax returns with the Internal Revenue Service
(“IRS”) as well as income tax returns in various states. The Company may be
subject to examination by the IRS for tax years 2006 through 2008. Additionally,
the Company may be subject to examinations by various state taxing jurisdictions
for tax years 2005 through 2008. The Company is currently not under examination
by the IRS or any state tax jurisdiction.
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 $6.8 million are deferred and will be credited to
additional-paid-in-capital when the net operating loss carryforward attributable
to these exercises are utilized. Consequently, these net operating
loss carryforward will not be available to offset current income tax
expense. As of December 31, 2008, the Company has net operating loss
carry-forwards of approximately $21.8 million for federal purposes that will
expire beginning in fiscal 2020 through 2029. Additionally, there are
net operating loss carry-forwards of $20.9 million for state purposes that will
expire beginning in fiscal 2018 through 2029. 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 $110,000 are assured, a
valuation allowance equaling the total deferred tax asset is being
provided.
Note
8 – Earnings (Loss) Per Share
Basic
earnings per share is computed by dividing net income or loss to common
stockholders by the weighted-average number of shares of the Company’s common
stock outstanding for the period. Diluted earnings per share 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 earnings per share 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. Options and warrants outstanding at September 30, 2009 and
2008 were 1,487,750 and 2,427,750, respectively.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Note
8 – Earnings (Loss) Per Share - continued
For the
nine months ended September 30, 2009 and 2008, dilutive earnings per share is
the same as basic earnings per share due to (i) the inclusion of common stock,
in the form of stock options and warrants (“Common Stock Equivalents”), would
have an anti-dilutive effect on the loss per share or (ii) there were no
Common Stock Equivalents for the respective period. For the three
months ended September 30, 2009 and 2008, there were 113,427 and 255,765 Common
Stock Equivalents, respectively, which were in the money, that were included in
the earnings per share computation.
A
reconciliation of the applicable numerators and denominators of the income
statement periods presented, as reflected in the results of continuing
operations, is as follows (in thousands, except per share amounts):
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
Income
|
|
|
Shares
|
|
|
EPS
|
|
|
Income
|
|
|
Shares
|
|
|
EPS
|
|
|
Loss
|
|
|
Shares
|
|
|
EPS
|
|
|
Loss
|
|
|
Shares
|
|
|
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share
|
|
$
|
1,202
|
|
|
|
12,996
|
|
|
$
|
0.09
|
|
|
$
|
879
|
|
|
|
12,885
|
|
|
$
|
0.07
|
|
|
$
|
(5,623
|
)
|
|
|
12,940
|
|
|
$
|
(0.43
|
)
|
|
$
|
(3,569
|
)
|
|
|
12,869
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options/Warrants
|
|
|
-
|
|
|
|
114
|
|
|
|
-
|
|
|
|
-
|
|
|
|
255
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share
|
|
$
|
1,202
|
|
|
|
13,110
|
|
|
$
|
0.09
|
|
|
$
|
879
|
|
|
|
13,140
|
|
|
$
|
0.07
|
|
|
$
|
(5,623
|
)
|
|
|
12,940
|
|
|
$
|
(0.43
|
)
|
|
$
|
(3,569
|
)
|
|
|
12,869
|
|
|
$
|
(0.28
|
)
|
Note
9 – Segment Information
Segments
are defined by ASC-280 (formerly SFAS No. 131, “Disclosures about Segments of an
Enterprise and Related Information”) as components of a company in which
separate financial information is available and is evaluated by the chief
operating decision maker, or a decision making group, in deciding how to
allocate resources and in assessing performance.
The
Company divides its operations into three reportable segments as follows: (i)
cold remedy, whose main product is Cold-EEZE
Ò
,
a proprietary zinc gluconate glycine lozenge for the common cold; (ii) contract
manufacturing, which is the manufacturing services provided to third party
customers, and (iii) ethical pharmaceutical, currently involved in research and
development activity to develop patent applications and innovations for
potential pharmaceutical products.
The
segment operating loss consists of the revenues generated by a segment, less the
direct costs of revenue and selling, general and administrative costs that are
incurred directly by the segment. Unallocated corporate costs include
costs related to administrative functions that are performed in a centralized
manner that are not attributable to a particular segment. These
administrative function costs include costs for corporate office support, all
office facility costs, costs relating to accounting and finance, human
resources, legal, marketing, information technology and company-wide business
development functions, as well as costs related to overall corporate
management.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Note
9 – Segment Information - continued
The
following table presents information about reported segments along with the
items necessary to reconcile the segment information to the totals reported in
the accompanying consolidated financial statements (in thousands):
|
|
|
|
|
Contract
|
|
|
Ethical
|
|
|
Corporate
|
|
|
|
|
|
|
Cold Remedy
|
|
|
Manufacturing
|
|
|
Pharmaceutical
|
|
|
and Other
|
|
|
Total
|
|
For the three months ended September
30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
- domestic
|
|
$
|
4,861
|
|
|
$
|
116
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating profit (loss)
|
|
$
|
1,439
|
|
|
$
|
210
|
|
|
$
|
(422
|
)
|
|
$
|
(30
|
)
|
|
$
|
1,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September
30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
- domestic
|
|
$
|
5,668
|
|
|
$
|
686
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating profit (loss)
|
|
$
|
2,027
|
|
|
$
|
(131
|
)
|
|
$
|
(1,082
|
)
|
|
$
|
-
|
|
|
$
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
- domestic
|
|
$
|
9,402
|
|
|
$
|
1,310
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating profit (loss)
|
|
$
|
(3,845
|
)
|
|
$
|
(655
|
)
|
|
$
|
(1,276
|
)
|
|
$
|
133
|
|
|
$
|
(5,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
- domestic
|
|
$
|
11,913
|
|
|
$
|
1,815
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating profit (loss)
|
|
$
|
70
|
|
|
$
|
(656
|
)
|
|
$
|
(4,085
|
)
|
|
$
|
(59
|
)
|
|
$
|
(4,730
|
)
|
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Item
2.
General
The
Quigley Corporation (the “Company”), organized under the laws of the State of
Nevada, is (i) a manufacturer, marketer and distributor of a diversified range
of homeopathic and health products that are offered to the general public and
(ii) engaged in the research and development of potential natural base health
products, including but not limited to prescription medicines along with
supplements and cosmeceuticals for human and veterinary use. The
Company has been historically organized into three business segments: (i) cold
remedy, (ii) contract manufacturing and (iii) ethical
pharmaceutical. The Company historically managed each of its segments
separately as a consequence of different marketing, manufacturing and/or
research and development strategies.
The
Company’s primary business is the manufacture and distribution of
over-the-counter cold remedy products to consumers through national chain,
regional, specialty and local retail stores. One of the Company’s
principal products in its cold remedy segment is Cold-EEZE
Ò
,
a zinc gluconate glycine product proven in clinical studies to reduce the
duration and severity of the common cold symptoms by nearly half. Cold-EEZE
Ò
is an established product in the health care and cold remedy
market. For the three months and nine months ended September 30, 2009
and 2008, the Company’s revenues have come principally from the Company’s cold
remedy segment.
Recent
Developments
Proxy
Contest
In April
2009, a group of shareholders of the Company, including Mr. Ted Karkus, (the
“Karkus Group”) filed with the Securities and Exchange Commission a preliminary
Proxy Statement proposing an alternative slate of board of directors for the
Company (the “Alternative Ballot”) to the slate nominated by the Company’s
incumbent Board of Directors (the “Incumbent Ballot”) for vote at the May 20,
2009 annual meeting of stockholders’ (“Annual Meeting”). The reason
for the Karkus Group’s Alternative Ballot was that the Karkus Group believed it
was time for a change in the Company. The Alternative Ballot indicated, among
other matters, that over the past three fiscal years, the Company’s management
delivered declining revenues, declining gross and net profits (increasing net
losses), declining stockholders’ equity, declining stock price, with excessive
compensation paid to the Company’s management and their family
members.
Stockholders
of the Company were solicited by both the Company and the Karkus Group (the
“Proxy Contest”) to support either the Incumbent Ballot or the Alternative
Ballot prior to the Company’s Annual Meeting. The results
were certified by the independent director of elections on June 1, 2009, showing
that the Alternative Ballot received more votes than the Incumbent
Ballot. However, due to litigation initiated by the Company, the
election was contested by the Company and made subject to a Standstill Order by
a District Court Judge in the United States District Court for the Eastern
District of Pennsylvania (“District Court”). On Friday, June 12,
2009, the District Court issued a decision and order rejecting the last of the
Company’s challenges to the election results of the Annual
Meeting. As a consequence of this decision, the slate of directors
nominated pursuant to the Alternative Ballot was elected to the Board of
Directors of the Company.
On June
12, 2009, Mr. Guy Quigley, then Chairman, President and Chief Executive Officer
of the Company, resigned his positions with the Company. Mr.
Quigley’s resignation had been preceded by the resignation of Mr. Charles
Phillips, formerly the Executive Vice President and Chief Operating Officer of
the Company, effective May 29, 2009.
The
Quigley Corporation and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(unaudited)
Additionally
on June 12, 2009, following the seating of the newly elected board of directors
of the Company, Mr. Karkus was elected Chairman of the Board of Directors and
the board elected members to its audit committee, compensation committee, and
corporate governance and nominating committee. Subsequently, Mr.
Karkus was appointed interim Chief Executive Officer of the Company effective
June 18, 2009. Effective July 15, 2009, the Company appointed (i) Mr.
Karkus as the permanent Chief Executive Officer and (ii) Mr. Robert V. Cuddihy,
Jr. as the Executive Vice President and Chief Operating
Officer. Effective October 21, 2009, Mr. Cuddihy also was named the
Company’s interim Chief Financial Officer.
As a
consequence of the Proxy Contest between the Incumbent Ballot and the
Alternative Ballot, for the nine months ended September 30, 2009 the Company
charged to operations approximately $2.5 million in costs associated with the
proxy solicitation and related litigation.
Manufacturing Facility
Consolidation
The
Company’s wholly owned subsidiary, Quigley Manufacturing, Inc. (“QMI”), produces
the Cold-EEZE
®
lozenge
products along with performing such operational tasks as warehousing and
shipping the Company’s Cold-EEZE
®
and
other cold remedy products. Additionally, QMI maintains a United
States Food and Drug Administration (“FDA”) approved facility that engages in
contract manufacturing and distribution activities of lozenge-based products for
unaffiliated third parties. QMI also produces and sells therapeutic
lozenges to whole sale and distribution outlets. On February 2, 2009,
the Company announced its intention to close QMI’s hard and organic candy
production facility in Elizabethtown, Pennsylvania and consolidate its
manufacturing operations at its Lebanon, Pennsylvania
facility. Effective in June 2009, the QMI Elizabethtown facility was
closed and as a result QMI is evaluating opportunities to outsource the
production of its organic candy products to third party contract
manufacturers. QMI’s Lebanon facility continues its production and
distribution of the Cold-EEZE
®
brand
and other cold remedy products. Total annualized cost savings to the
Company as a result of this facility consolidation is estimated to be
$750,000.
Research and
Development
On April
30, 2009, the Company announced preliminary results that the Diabetic Peripheral
Neuropathy Phase IIb clinical study demonstrated a significant improvement in
two key measures of distal sensory nerve function in the group treated with its
investigational new drug, QR-333. The compound was applied topically to the feet
of subjects suffering from painful diabetic neuropathy and over the course of 12
weeks, significantly improved both maximal conduction velocity and compound
sensory amplitude in the sural nerve. The mean improvement in nerve
conduction velocity exceeded the change considered by thought leaders to be
“clinically meaningful” in clinical studies. The sural nerve carries
sensation from the feet and its pathology is the fundamental cause of foot pain
and ultimately foot ulcers and amputation in some diabetic
subjects.
On July
22, 2009, the Company announced the final results from its Phase IIb
double-blind, placebo-controlled, study of topical compound QR-333 for the
treatment of symptomatic diabetic peripheral neuropathy. The study was completed
with fewer than expected evaluable patients with the final and comprehensive
conclusions revealing that (i) the compound is safe and well tolerated, and (ii)
there were nominal trends, but no statistical differences, between active and
placebo groups for the primary and secondary endpoints measuring efficacy by (a)
the reduction of pain, (b) symptomatic improvements, (c) improved quality of
life and (d) improved sleep.
However,
the Company is encouraged by the positive, clinical and statistically
significant improvement for efficacy in sural nerve conduction velocity and
amplitude unexpectedly found in a sub-set of the patient
population. Those data may indicate the potential benefit of this
compound as a disease modifying agent which, if validated through additional
clinical trials, potentially broadens the therapeutic market opportunity.
Additional clinical work would be required and future study considerations might
include, a longer duration period to improve patient compliance as well as an
assessment of sural nerve function and measures of distal nerve sensory
thresholds in the feet to provide more detail to the potential for disease
modification. There can be no assurance the Company will undertake additional
clinical studies or that the results thereof would lead to a marketable product
that can achieve regulatory approvals.
The
Quigley Corporation and Subsidiaries
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
A
preliminary analysis of the lack of adequate primary and secondary end point
data indicates that the results may have been attributed to fewer than expected
evaluable patients due to a shortage of drug and a high number of patients
terminated early due to a lack of compliance with application and usage
protocols.
All
required end of study regulatory and reporting documentation and procedures will
be completed. The Company will continue to consider licensing, partnering or
collaborative relationship opportunities to further the development and
potential commercialization of the QR-333 candidate and other
formulations.
Ethical
Pharmaceutical
The
current activity of the Company’s wholly-owned subsidiary, Quigley Pharma Inc.
(“Pharma”), is the research and development of potential natural base health
products, including, but not limited to, prescription medicines along with
supplements and cosmeceuticals for human and veterinary use. Research
and development activities focus on the identification, isolation and direct use
of active medicinal substances. One aspect of Pharma’s research focus
is on the potential synergistic benefits of combining isolated active
constituents and whole plant components. The Company searches 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. 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 its patent
applications into commercial products. The Company has invested
significantly in ongoing research and development activities.
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.
The
operations of the Company support 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. Such funding through equity means would
result in the dilution of stockholder ownership in the
Company. Should research activity progress on certain formulations,
resulting expenditures may require substantial financial support and may
necessitate the consideration of alternative approaches such as, licensing,
joint venture, or partnership arrangements that meet the Company’s long term
goals and objectives. Ultimately, should internal working capital be
insufficient and external funding methods or other business arrangements become
unattainable, such eventualities would likely result in the deferral or
abandonment of future growth and development relative to current and prospective
Pharma formulations.
The
Company recently engaged an independent consultant to conduct a thorough review
of the entire research and development portfolio of potential products in the
Pharma pipeline. The Company will wait for this review to be
completed before determining the next steps in the development of products such
as QR-333 and other product formulations still under development and/or testing
phases.
The
Quigley Corporation and Subsidiaries
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
Certain
Risk Factors
The
Company makes no representation that the 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
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 this filing as well as in other documents the Company files
from time to time with the Securities and Exchange Commission.
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.
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 capability and the requirements
associated with the development of Pharma’s potential prescription drugs and
other medicinal products in order to continue to compete on a national and
international level. The business development of the Company is
dependent on continued conformity with government regulations, a reliable
information technology system capable of supporting continued growth and
continued reliable sources for product and materials to satisfy consumer
demand.
Critical Accounting
Policies
The
preparation of financial statements in conformity with generally accepted
accounting principles require management to make estimates and
assumptions. Those estimates and assumptions affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities, and the reported revenues and expenses of the
Company. The Company’s significant accounting policies are
described in Note 2 of Notes to Condensed Consolidated Financial Statements
included under Item 1 of this Part I. However, certain
accounting policies are deemed “critical”, as they require management’s highest
degree of judgment, estimates and assumptions. These accounting
estimates and disclosures have been discussed with the Audit Committee of the
Company’s Board of Directors. A discussion of the Company’s critical
accounting policies, the judgments and uncertainties affecting their application
and the likelihood that materially different amounts would be reported under
different conditions or using different assumptions are as follows:
Revenue Recognition – Sales
Allowances
The
Company is organized into three different but related business segments, (i)
cold remedy, (ii) contract manufacturing and (iii) ethical pharmaceutical. When
providing for the appropriate sales returns, allowances, cash discounts and
cooperative incentive promotion costs (“Sales Allowances”), 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
Quigley Corporation and Subsidiaries
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
The
primary product in the cold remedy segment, Cold-EEZE
Ò
,
has been clinically proven 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 (i) a unique product
with limited competitors, (ii) competitively priced, (iii) promoted, (iv)
unaffected for remaining shelf-life as there is no product expiration date, and
(v) monitored for inventory levels at major customers and third-party
consumption data. The Company added new products to the cold remedy
segment in fiscal 2007 and fiscal 2008 such as Kids-EEZE
Ò
Chest Relief, ISC-10 immune product and Organix Organic Cough and Sore Throat
Drops. Each of these new products do carry shelf-life expiration
dates for which the Company aggregates such new product market experience data
and updates its sales returns and allowances estimates
accordingly. Sales Allowances estimates are tracked at the specific
customer and product line levels and are tested on an annual basis, and reviewed
quarterly to ascertain the most 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.
Currently,
the Company does not impose a period of time within which product may be
returned. All requests for product returns must be submitted to the
Company for pre-approval. The main components of the Company’s
returns policy are: (i) the Company will accept returns that are due to damaged
product that is un-saleable and such return request activity fall within an
acceptable range, (ii) the Company will accept returns for products that have
reached or exceeded designated expiration dates and (iii) the Company will
accept returns in the event that the Company discontinues a product such that
the customer will have the right to return only such items that it purchased
directly from the Company. The Company will not accept return
requests pertaining to customer inventory “Overstocking” or
“Resets”. The Company will only accept return requests for
product in its intended package configuration. The Company reserves
the right to terminate shipment of product to customers who have made
unauthorized deductions contrary to the Company’s Return Policy or pursue other
methods of reimbursement. The Company compensates the customer for authorized
returns by means of a credit applied to amounts owed or to be owed and in the
case of discontinued product only, also by way of an exchange. The
Company does not have any significant product exchange history.
As of
September 30, 2009, the Company included a provision for Sales Allowances of
$1.9 million for future sales returns and $148,000 for other allowances which is
reported as a reduction to accounts receivable. As of December 31,
2008, the Company included a provision for Sales Allowances of $1.4 million for
future sales returns and $281,000 for other allowances which is reported as a
reduction to accounts receivable. Additionally, current liabilities
as of September 30, 2009 and December 31, 2008 include $702,000 and $1.1
million, respectively, for cooperative incentive promotion costs.
A one
percent deviation for these Sales Allowance provisions for the three months
ended September 30, 2009, and 2008 would affect net sales by approximately
$127,000 and $143,000, respectively, and for the nine months periods ended
September 30, 2009 and 2008 by approximately $277,000 and $315,000,
respectively.
Income
Taxes
As of
December 31, 2008, the Company has net operating loss carry-forwards of
approximately $21.8 million for federal purposes that will expire beginning in
fiscal 2020 through 2029. Additionally, there are net operating loss
carry-forwards of $20.9 million for state purposes that will expire beginning in
fiscal 2018 through 2029. 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 $110,000 are assured, a valuation allowance equaling the total
deferred tax asset is being provided. 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.
The
Quigley Corporation and Subsidiaries
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
Financial
Condition and Results of Operations
Results
from Operations for the Three months Ended September 30, 2009
as
Compared to the Three Months Ended September 30, 2008
For the
three months ended September 30, 2009, the Company generated net sales of $5.0
million, a decrease of $1.4 million as compared to $6.4 million for the three
months ended September 30, 2008. For the three months ended
September 30, 2009, the cold remedy segment generated net sales of $4.9 million,
a decrease of $807,000, or 14.2%, as compared to net sales of $5.7 million for
three months ended September 30, 2008. For the three months ended
September 30, 2009 and 2008, the contract manufacturing segment generated net
sales to third party customers of $116,000 and $686,000,
respectively.
The cold
remedy segment net sales decline of $807,000 for the three months ended
September 30, 2009 as compared to the three months ended September 30, 2008 is
due principally to (i) inventory reduction programs maintained by the Company’s
larger retailer customers, (ii) retail purchase decision delays or deferrals as
a consequence of the incidence and timing of the cold and flu season, (iii)
general economic weakness in the marketplace and (iv) the Company’s newer
products have experienced lower net sales than initial estimates and may have
required additional advertising and promotional support. The Company
continues to strongly promote its cold remedy products through media and
in-store marketing along with direct-to-the-consumer promotional
programs.
The
contract manufacturing segment net sales decline of $570,000 for the three
months ended September 30, 2009 as compared to September 30, 2008 is due
principally to (i) the decline in candy product sales as a consequence of the
closure of the Elizabethtown manufacturing facility and (ii) fluctuations in
contract manufacturing orders from non-related third party entities to produce
lozenge-based products.
Cost of
sales for the three months ended September 30, 2009 were $1.4 million as
compared to $2.3 million for the three months ended September 30,
2008. The Company realized a gross margin of 72.9% and 64.2%, an 8.7%
gross margin improvement, for the three months ended September 30, 2009 and
2008, respectively. The 8.7% increase in the gross margin was
principally due to the net effect of (i) the elimination of the production and
facility overhead expenses attributable to the closing of the Elizabethtown
manufacturing facility, (ii) improved production margins of the cold remedy
segment, offset by (iii) an adverse impact to net sales as a consequence of the
inventory reduction programs maintained by the Company’s larger retail
customers. Gross margins are influenced by fluctuations in
quarter-to-quarter production volume, fixed production costs and related
overhead absorption, and the timing of shipments to customers which are factors
of the seasonality of the Company’s sales activities and products.
Sales and
marketing expense for the three months ended September 30, 2009 decreased
$45,000 to $607,000, as compared to $652,000 for the three months ended
September 30, 2008. The decrease in sales and marketing expense for the three
months ended September 30, 2009 as compared to the three months ended September
30, 2008 was principally due to a decrease in expenditures associated with
product promotions and advertising.
General
and administration expense for the three months ended September 30, 2009
decreased $191,000 to $1.5 million as compared to $1.7 million for the three
months ended September 30, 2008. The decrease in general and
administration expense for the three months ended September 30, 2009 as compared
to the three months ended September 30, 2008 was principally due to a decrease
in personnel costs as a consequence of a decrease in executive salaries, bonuses
and head count.
The
Quigley Corporation and Subsidiaries
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
Research
and development costs during the three months ended September 30, 2009 decreased
$614,000 to $341,000 as compared to $955,000 for the three months ended
September 30, 2008. The decrease of $614,000 in research and
development costs for the three months ended September 30, 2009 period as
compared to the three months ended September 30, 2008 was due to the completion
of the Phase IIb study for QR-333 Diabetic Peripheral Neuropathy in November
2008 and a subsequent slowdown in related fiscal 2009 spending pending the
availability of the final results of the study (see above for the results of the
study). Research and development costs are principally related to
Pharma’s study activities and costs associated with the development of potential
ethical pharmaceuticals and other related products.
Interest
and other income for the three months ended September 30, 2009 was $5,000 as
compared to $65,000 for the three months ended September 30,
2008. The decrease of $60,000 for the three months ended September
30, 2009 as compared to the three months ended September 30, 2008 was due to the
decrease in deposit interest rates and a reduction in invested cash
balances.
As a
consequence of the effects of the above, the net income for the three months
ended September 30, 2009, was $1.2 million, or $0.09 per share, as compared to a
net income of $879,000, or $0.07 per share, for the three months ended September
30, 2008.
Financial
Condition and Results of Operations
Results
from Operations for the Nine months Ended September 30, 2009
as
Compared to the Nine Months Ended September 30, 2008
For the
nine months ended September 30, 2009, the Company generated net sales of $10.7
million, a decrease of $3.0 million as compared to net sales of $13.7 million
for the nine months ended September 30, 2008. For the nine
months ended September 30, 2009, the cold remedy segment generated net sales of
$9.4 million, a decrease of $2.5 million, or 21.0%, as compared to net sales of
$11.9 million for nine months ended September 30, 2008. For the nine
months ended September 30, 2009 and 2008, the contract manufacturing segment
generated net sales of $1.3 million and $1.8 million, respectively.
The cold
remedy segment net sales decline of $2.5 million for the nine months ended
September 30, 2009 as compared to the nine months ended September 20,
2008 is principally due to (i) the impact of the lower
incidence of the common cold over during the fiscal 2009 as compared to fiscal
2008, (ii) inventory reduction programs maintained by the Company’s larger
retailer customers, (iii) retail purchase decision delays or deferrals as a
consequence of the incidence and timing of the cold and flu season, (iv) general
economic weakness in the marketplace, (v) an increase in Sales Allowances of
$1.2 million principally due to the new products introduced to retailers which
carry shelf-life expiration dates such as Kids-EEZE
Ò
Chest Relief, ISC-10 immune product and Organix Organic Cough and Sore Throat
Drops and (vi) the Company’s newer products have experienced lower net sales
than initial estimates and may have required additional advertising and
promotional support. Information Resources, Inc, a retail sales data
service provider, reports during fiscal 2008 and continuing into most of fiscal
2009 indicated reduced unit consumption of Cold-EEZE
Ò
and considerable consumption fluctuations within the cough/cold retail category
in general. The Company continues to strongly promote its cold remedy
products through media and in-store marketing along with direct-to-the-consumer
promotional programs.
The
contract manufacturing segment net sales decline of $506,000 for the nine months
ended September 30, 2009 as compared to the nine months ended September 30, 2008
is due principally to (i) the decline in candy product sales as a consequence of
the closure of the Elizabethtown manufacturing facility and (ii) fluctuations in
contract manufacturing orders from non-related third party entities to produce
lozenge-based products.
The
Quigley Corporation and Subsidiaries
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
Cost of
sales for the nine months ended September 30, 2009 were $4.5 million as compared
to $5.2 million for the nine months ended September 30, 2008. The
Company realized a gross margin of 58.4% and 62.3%, a 3.9% decline, for the nine
months ended September 30, 2009 and 2008, respectively. The gross
margin decrease of 3.9% for the nine months ended September 30, 2009 as compared
to the nine months ended September 30, 2008 was principally due to the net
effect of (i) an increase in Sales Allowances (see discussion above), (ii) an
adverse impact to net sales as a consequence of the inventory reduction programs
maintained by the Company’s larger retail customers, (iii) the Elizabethtown
manufacturing facility closing costs, off set by (iv) the elimination of the
production and facility overhead expenses attributable to the Elizabethtown
manufacturing facility. Gross margins are influenced by fluctuations
in quarter-to-quarter production volume, fixed production costs and related
overhead absorption, and the timing of shipments to customers which are factors
of the seasonality of the Company’s sales activities and products.
Sales and
marketing expense for the nine months ended September 30, 2009 decreased $26,000
to $3.4 million, as compared to $3.4 million for the nine months ended September
30, 2008. The decrease in sales and marketing expense was principally
due to the net effect of (i) a reduction of advertising and brokerage costs,
offset by, (ii) an increase in product promotion.
General
and administration expense for the nine month period ended September 30, 2009
increased by $1.3 million to $7.5 million as compared to $6.2 million for the
nine months ended September 30, 2008. The increase in general and
administration expense for the nine months ended September 30, 2009 as compared
to the nine months ended September 30, 2008 was principally due to the net
effect of (i) an increase in stock promotion costs of $2.3 million, primarily
related to the Proxy Contest, offset by, (ii) a decrease in personnel costs of
$987,000 principally due to a decrease in executive salaries, bonuses and head
count.
Research
and development expenses decreased by $2.7 million to $975,000 for the nine
months ended September 30, 2009 as compared to $3.6 million for the nine months
ended September 30, 2008. The decreased spending for the nine months
ended September 30, 2009 as compared to the nine months ended September 30, 2008
was principally due to (i) the completion of the Phase IIb study for QR-333
Diabetic Peripheral Neuropathy in November 2008 and (ii) a subsequent slowdown
in related fiscal 2009 spending pending the availability of the final results of
the study (see above for the results of the study). Research and
development costs are principally related to Pharma’s study activities and costs
associated with the development of potential ethical pharmaceuticals and other
related products.
Interest
and other income for the nine months ended September 30, 2009 was $20,000 as
compared to $286,000 for the nine months ended September 30,
2008. The decrease of $266,000 for the nine months ended September
30, 2009 as compared to the nine months ended September 30, 2008 was due to the
decrease in deposit interest rates and a reduction in invested cash
balances.
On
February 29, 2008, the Company sold Darius to InnerLight Holdings,
Inc. For the nine months ended September 30, 2008, the Company
classified the results from operations of this former business segment for the
two month period ended February 29, 2008 as discontinued
operations.
As a
consequence of the effects of the net loss for the nine months ended September
30, 2009, was $5.6 million, or ($0.43) per share, as compared to a net loss
of $3.6 million, or ($0.28) per share, for the nine months ended September
30, 2008.
The
Quigley Corporation and Subsidiaries
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
Seasonality
of the Business
The
Company’s net sales are derived principally from its cold remedy
segment. Currently, the Company’s sales are influenced by and subject
to fluctuations in the timing of purchase and the ultimate level of demand for
its products which are a function of the timing, length and severity of each
cold season. Generally, a cold season is defined as the period of
September to March when the incidence of the common cold rises as a consequence
of the change in weather and other factors. The Company generally
experiences in the fourth quarter higher levels of net sales along with a
corresponding increase in marketing and advertising expenditures designed to
promote its products during the cold season. Revenues and related marketing
costs are generally at its lowest levels in the second quarter when consumer
demand generally declines. The Company tracks health and wellness
trends and develops retail promotional strategies to align its production
scheduling, inventory management and marketing programs to optimize consumer
purchases.
Liquidity
and Capital Resources
The
aggregate cash and cash equivalents as of September 30, 2009 were $8.9 million
compared to $11.9 million at December 31, 2008. The Company’s working
capital was $9.5 million and $14.1 million as of September 30, 2009 and December
31, 2008, respectively. Changes
in working capital for the nine months ended
September 30, 2009
were primarily due to (i) cash used
in operations of $3.5 million due to seasonal factors including $2.5 million of
costs incurred as a consequence of the Proxy Contest, (ii) capital expenditures
of $103,000, offset by (iii) net proceeds of $475,000 realized from the sale of
fixed assets relating to the closure of the Elizabethtown manufacturing facility
of QMI in June 2009 and (iv) proceeds of $126,000 from the exercise of stock
options. Significant factors impacting working capital for the nine
months ended September 30, 2009 included (i) an increase in accounts receivable
balances and (ii) an increase in other operating assets and liabilities, each
reflective of seasonal factors and that the fiscal third quarter historically
contributes greater revenue than the first six months of each fiscal
year.
Management
believes that its strategy to maintain Cold-EEZE
Ò
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 support 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 product
development research, new product acquisitions or a venture investment or
acquisition. Such funding through equity would result in the dilution
of stockholder ownership in the Company. Should the Company’s product
development initiatives progress on certain formulations, additional development
expenditures may require substantial financial support and may necessitate the
consideration of alternative approaches such as, licensing, joint venture, or
partnership arrangements that meet the Company’s long term goals and
objectives. Ultimately, should internal working capital be
insufficient and external funding methods or other business arrangements become
unattainable, such eventualities would likely result in the deferral or
abandonment of future development relative to current and prospective product
development initiatives and 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 (i) short-term or
long-term liquidity, or (ii) 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. The Company’s business is subject to seasonal variations
thereby impacting liquidity and working capital during the course of the
Company’s fiscal year.
The
Quigley Corporation and Subsidiaries
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
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. However, in the
longer term, as previously discussed, the Company may require additional capital
to support, among other items, (i) new product introductions, (ii) expansion of
the Company’s product marketing and promotion activities, (iii) additional
research development activities, (iv) venture investments or acquisitions and/or
(v) support current operations. During fiscal 2009, there has been
substantial volatility and a decline in the capital and financial markets
due at least in part to the constricted global economic environment resulting in
substantial uncertainty and access to financing is uncertain. Moreover, consumer
and as a consequence, customer, spending habits may be adversely affected by the
current economic crisis. These conditions could have an adverse effect on
the Company’s industry and business, including the Company’s financial
condition, results of operations and cash flows.
To the
extent that the Company does not generate sufficient cash from operations, it
may need to incur indebtedness to finance plans for growth. Recent turmoil in
the credit markets and the potential impact on the liquidity of major financial
institutions may have an adverse effect on the Company’s ability to fund its
business strategy through borrowings, under either existing or newly created
instruments in the public or private markets on terms that the Company believes
to be reasonable, if at all.
Capital
Expenditures
Capital
expenditures during the remainder of fiscal 2009 are not expected to be
material.
Other
As a
consequence of the recent Proxy Contest the former Chief Executive Officer and
former Chief Operating Officer of the Company resigned without the benefit of a
transition period between the effective date of their respective resignation and
the recruitment of new management. The Company has filled both these
positions with personnel who are new to the Company. Due to the lack of
continuity of management, with limited/no transition or consultation period with
prior management, current management may have similar as well as different
strategic vision and/or initiatives than that of previous
management.
Due to
the management changes, new management is conducting a review of all of its
documentation and structure of current and prior business dealings and
transactions. To date, new management has (i) retained a new
marketing agency to assist the Company in the promotion of the Company’s
products, (ii) retained a pharmaceutical research expert to assist the Company
in its evaluation of its ethical pharmaceutical product development pipeline,
(iii) restructured certain operations to eliminate redundant costs, (iv)
restructured certain vendor supply or service agreements with terms more
favorable to the Company and (v) has met with and continues to meet with various
customers to review current and future business opportunities to improve the
Company’s products and services.
The
Quigley Corporation and Subsidiaries
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
Recently
Issued Accounting Standards
Effective
July 2009, the Company adopted the “FASB Accounting Standards Codification” and
the Hierarchy of Generally Accepted Accounting Principles (ASC 105), (formerly
SFAS No. 168,
The “FASB
Accounting Standards Codification” and the Hierarchy of Generally Accepted
Accounting Principles
). This standard establishes only two levels of U.S.
generally accepted accounting principles (“GAAP”), authoritative and
nonauthoritative. The Financial Accounting Standard Board (“FASB”) Accounting
Standards Codification (the “Codification”) became the source of authoritative,
nongovernmental GAAP, except for rules and interpretive releases of the SEC,
which are sources of authoritative GAAP for SEC registrants. All other
non-grandfathered, non-SEC accounting literature not included in the
Codification became nonauthoritative. The Company began using the new
guidelines and numbering system prescribed by the Codification when referring to
GAAP for the three months and nine months ended September 30,
2009. As the Codification was not intended to change or alter
existing GAAP, it did not have any impact on the Company’s consolidated
financial statements.
In
February 2008, the FASB issued an accounting standard update that delayed the
effective of fair value measurements accounting for all non-financial assets and
non-financial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually),
until fiscal years beginning after November 15, 2008. These include
goodwill and other non-amortizable intangible assets. The Company adopted this
accounting standard update effective January 1, 2009. The adoption of this
update to non-financial assets and liabilities, as codified in ASC-820 (formerly
FSP 157-2, “
Effective Date of
FASB Statement No. 157
”), has not had a significant impact on the
Company’s consolidated financial position, results of operations or cash
flows.
Effective
January 2009, the Company adopted a new accounting standard update regarding
business combinations. As codified under ASC-805 (formerly SFAS No. 141R, “
Business Combinations
”), this
update requires an entity to recognize the assets acquired, liabilities assumed,
contractual contingencies, and contingent consideration at their fair value on
the acquisition date. It further requires that acquisition-related
costs be recognized separately from the acquisition and expensed as incurred;
that restructuring costs generally be expensed in periods subsequent to the
acquisition date; and that changes in accounting for deferred tax asset
valuation allowances and acquired income tax uncertainties after the measurement
period be recognized as a component of provision for taxes. In
addition, acquired in-process research and development is capitalized as an
intangible asset and amortized over its estimated useful life. With the adoption
of this accounting standard update, any tax related adjustments associated with
acquisitions that closed prior to January 1, 2009 will be recorded through
income tax expense, whereas the previous accounting treatment would require any
adjustment to be recognized through the purchase price. This
accounting standard update 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. The adoption of these
accounting updates has not had a significant impact on the Company’s
consolidated financial position, results of operations or cash
flows.
Effective
January 2009, the Company adopted an accounting standard which establishes
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary, as codified in ASC-810
(formerly SFAS No. 160,
Accounting and Reporting on
Non-controlling Interest in Consolidated Financial Statements, an Amendment of
ARB 51
”). This accounting standard states that accounting and reporting
for minority interests are to be recharacterized as noncontrolling interests and
classified as a component of equity. The calculation of earnings per
share continues to be based on income amounts attributable to the
parent. The adoption of these accounting updates has not had a
significant impact on the Company’s consolidated financial position, results of
operations or cash flows.
The
Quigley Corporation and Subsidiaries
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
Effective
January 2009, the Company adopted an accounting standard update regarding the
determination of the useful life of intangible assets. As codified in ASC-350
(formerly FSP No. 142-3, “
Determination of the Useful Life of
Intangible Assets
”), this update amends the factors considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under intangibles accounting. It also requires a
consistent approach between the useful life of a recognized intangible asset
under prior business combination accounting and the period of expected cash
flows used to measure the fair value of an asset under the new business
combinations accounting (as currently codified under ASC-850). The
update also requires enhanced disclosures when an intangible asset’s expected
future cash flows are affected by an entity’s intent and/or ability to renew or
extend the arrangement. The adoption of these accounting updates has
not had a significant impact on the Company’s consolidated financial position,
results of operations or cash flows.
Effective
January 2009, the Company adopted a new accounting standard update from the
Emerging Issues Task Force (“EITF”) consensus regarding the accounting of
defensive intangible assets. This update, as codified in ASC-350 (formerly EITF
No. 08-7, “
Accounting for
Defensive Intangible Assets
”), clarifies accounting for defensive
intangible assets subsequent to initial measurement. It applies to acquired
intangible assets which an entity has no intention of actively using, or intends
to discontinue use of, the intangible asset but holds it to prevent others from
obtaining access to it (i.e., a defensive intangible asset). Under this update,
a consensus was reached that an acquired defensive asset should be accounted for
as a separate unit of accounting (i.e., an asset separate from other assets of
the acquirer); and the useful life assigned to an acquired defensive asset
should be based on the period during which the asset would diminish in value.
The adoption of these accounting updates has not had a significant impact on the
Company’s consolidated financial position, results of operations or cash
flows.
Effective
April 2009, the Company adopted a new accounting standard for subsequent events,
as codified in ASC-855 (formerly SFAS No. 165,
Subsequent Events
). The
update modifies the names of the two types of subsequent events either as
recognized subsequent events (previously referred to in practice as Type I
subsequent events) or non-recognized subsequent events (previously referred to
in practice as Type II subsequent events). In addition, the standard
modifies the definition of subsequent events to refer to events or transactions
that occur after the balance sheet date, but before the financial statements are
issued (for public entities) or available to be issued (for nonpublic entities).
It also requires the disclosure of the date through which subsequent events have
been evaluated. The update did not result in significant changes in the practice
of subsequent event disclosures, and therefore the adoption has not had a
significant impact on the Company’s consolidated financial position, results of
operations or cash flows. As a consequence of the adoption of
ASC-855, the Company has evaluated subsequent events relating to the three
months and nine months ended September 30, 2009 through to and including
November 13, 2009, the date of issue of the Company’s Condensed Consolidated
Financial Statements.
Effective
April 2009, the Company adopted three accounting standard updates which were
intended to provide additional application guidance and enhanced disclosures
regarding fair value measurements and impairments of securities. They also
provide additional guidelines for estimating fair value in accordance with fair
value accounting. The first update, as codified in ASC-820 (formerly
FASB Staff Positions (“FSP”) No. 157-4,
Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly
), provides
additional guidelines for estimating fair value in accordance with fair value
accounting. The second accounting update, as codified in ASC-320
(formerly FSP No. 115-2,
Recognition and Presentation of
Other-Than-Temporary Impairments)
, changes accounting requirements for
other-than-temporary-impairment (OTTI) for debt securities by replacing the
current requirement that a holder have the positive intent and ability to hold
an impaired security to recovery in order to conclude an impairment was
temporary with a requirement that an entity conclude it does not intend to sell
an impaired security and it will not be required to sell the security before the
recovery of its amortized cost basis. The third accounting update, as codified
in ASC-825 (formerly Accounting Principles Board (“APB”) Opinion No. 28-1,
Interim Disclosures about Fair
Value of Financial Instruments)
, increases the frequency of fair value
disclosures. These updates were effective for fiscal years and interim periods
ended after June 15, 2009. The adoption of these accounting updates has not had
a significant impact on the Company’s consolidated financial position, results
of operations or cash flows.
The
Quigley Corporation and Subsidiaries
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
Forward-Looking
Statements
Some of
the information in this Quarterly Report on Form 10-Q (including the section
titled Management’s Discussion and Analysis of Financial Condition and Results
of Operations) contains forward looking statements within the meaning of the
federal securities laws that relate to future events or our future financial
performance and involve known and unknown risks, uncertainties and other factors
that may cause the Company or the Company’s industry’s actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
the forward-looking statements. You should not rely on
forward-looking statements in this report. Forward-looking statements
typically are identified by use of terms such as “anticipate”, “believe”,
“plan”, “expect”, “intend”, “may”, “will”, “should”, “estimate”, “predict”,
“potential”, “continue” and similar words, although some forward-looking
statements are expressed differently. This report may contain
forward-looking statements attributed to third parties relating to their
estimates regarding the growth of the Company’s markets or other
factors. All forward-looking statements address matters that involve
risk and uncertainties, and there are many important risks, uncertainties and
other factors that could cause the Company’s actual results as well as those of
the markets it serves, levels of activity, performance, achievements and
prospects to differ materially from the forward-looking statements contained in
this report. You should also consider carefully the statements under
other sections of this report that address additional factors that could cause
our actual results to differ from those set forth in any forward-looking
statements. The Company undertakes no obligation to publicly update
or review any forward-looking statements, whether as a result of new
information, future developments or otherwise. Additional
factors
that could cause actual results to differ materially from those expressed in
these forward-looking statements include, among others, the
following:
|
·
|
the
loss of, or failure to replace, significant
customers;
|
|
·
|
the
loss of significant product vendors, raw material vendors, manufacturing
sources or the Company’s manufacturing
facility;
|
|
·
|
the
ineffectiveness of our sales and marketing strategies as pertains to the
Company’s primary product Cold-EEZE
Ò
,
particularly during the cough/cold season;
|
|
·
|
a
cough/cold season with low levels of incidences of the common
cold;
|
|
·
|
inability
of the Company to develop existing or future formulations related to the
ethical pharmaceutical segment due to inadequate funding, insufficient
scientific data, lack of a sufficient market, or challenges to
intellectual property;
|
|
·
|
changes
to government regulations or actions by regulatory bodies such as the Food
and Drug Administration, the Federal Trade Commission, the Consumer
Product Safety Commission, the United States Department of Agriculture,
the Unites States Environmental Protection Agency or the Occupational
Safety and Health Administration;
|
|
·
|
the
effective recruitment, integration and/or success of new key management
following the recent Proxy Contest;
|
|
·
|
the
inability to successfully resolve pending and unanticipated legal
matters;
|
|
·
|
a
continued downturn in industry and general economic or business
conditions.
|
In light
of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this report will prove to be accurate.
We undertake no obligation to publicly update or revise any forward-looking
statements, or any facts, events, or circumstances after the date hereof that
may bear upon forward-looking statements.
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.
Current
economic conditions may cause a decline in business and consumer spending which
could adversely affect the Company’s business and financial performance
including the collection of accounts receivables, realization of inventory and
recoverability of assets. In addition, the Company’s business and
financial performance may be adversely affected by current and future economic
conditions, including due to a reduction in the availability of credit,
financial market volatility and recession.
Item
4. Controls and Procedures
Disclosure Controls and
Procedures
The
Company maintains disclosure controls and procedures designed to provide
reasonable assurance that material information required to be disclosed by the
Company in the reports filed or submitted under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission (“SEC”) rules and forms, and
that the information is accumulated and communicated to our management,
including our Chief Executive Officer and Interim Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. The Company
performed an evaluation, under the supervision and with the participation of our
management, including the Chief Executive Officer and Interim Chief Financial
Officer of the Company, of the effectiveness of the design and operation of the
disclosure controls and procedures as of the end of the period covered by this
report. Based on the existence of the material weaknesses discussed below under
the heading “Material Weaknesses” the Company’s management, including our Chief
Executive Officer and Interim Chief Financial Officer, concluded that the
Company’s disclosure controls and procedures were not effective at the
reasonable assurance level as of the end of the period covered by this
report.
The
Company does not expect that its disclosure controls and procedures will prevent
all errors and all instances of fraud. Disclosure controls and procedures, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the disclosure controls and
procedures are met. Further, the design of disclosure controls and procedures
must reflect the fact that there are resource constraints, and the benefits must
be considered relative to their costs. Because of the inherent limitations in
all disclosure controls and procedures, no evaluation of disclosure controls and
procedures can provide absolute assurance that the Company has detected all of
its control deficiencies and instances of fraud, if any. The design of
disclosure controls and procedures also is based partly on certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions.
Material
Weaknesses
As a
consequence of management’s review of its effectiveness of the design and
operation of the disclosure controls and procedures, and management’s
determination of the existence of material weaknesses, the Company’s management,
including our Chief Executive Officer and Interim Chief Financial Officer,
concluded that the Company’s disclosure controls and procedures were not
effective at the reasonable assurance level as of the end of the period covered
by this report. A material weakness is a significant
deficiency, or a combination of significant deficiencies, that results in more
than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected.
Material Weakness – Control
environment
Lack of management continuity due to
changes in executive management of the Company.
As a
consequence of the recent Proxy Contest the former Chief Executive Officer and
former Chief Operating Officer of the Company resigned without the benefit of a
transition period between the effective date of their respective resignation and
the recruitment of new management. The Company has filled both these
positions with personnel who are new to the Company. Additionally, in October,
the employment of the Company’s Chief Financial Officer ended and the role was
consolidated with the Company’s new Chief Operating Officer. As a
consequence of a lack of continuity of management with limited/no transition or
consultation period with prior management, current management has concluded that
this control deficiency constitutes a material weakness.
Lack of documentation and/or the
availability of documentation or records in the Company’s files of business
transactions, contracts and/or evaluations engaged by the
Company.
As new management was installed by the Board of
Directors, it was discovered during the second quarter of 2009 that the Company
was either missing or lacked pertinent information regarding its operations,
including but not limited to certain business commitments to product supply
agreements, advertising programs, product placement initiatives and other
promotional initiatives, and asset sales. As a consequence of this
lack of documentation or availability of documentation or records, management
has concluded that this control deficiency constitutes a material
weakness.
Lack of sufficient subject matter
expertise.
Management has determined that it lacks certain
subject matter expertise in at least two of the following significant areas: (i)
accounting for and the disclosure of complex transactions and (ii) the
selection, monitoring and evaluation of certain vendors that provided services
to Quigley Pharma. The financial staff of the Company currently lacks
sufficient training or experience in accounting for complex transactions and the
required disclosure therein.
The new
management of the Company as part of their review of the Company’s internal
control over financial reporting identified the above material
weaknesses. New management has not concluded their review and as this
review continues additional material weaknesses may be identified.
Other
matters
Furthermore,
as previously reported by the Company, on May 19, 2009, Quigley Pharma’s
Executive Vice President and Chief Operating Officer, Dr. Richard Rosenbloom was
suspended from the Company for allegedly receiving payments from external
sources, including vendors of the Company, without disclosure to the Company’s
management. On June 23, 2009, the Board of Directors of the Company
agreed to reinstate Dr. Rosenbloom and to form a Special Committee of the Board
of Directors to investigate the allegations with respect to Dr. Rosenbloom’s
alleged receipt of payments and in due course to report its findings and
recommendations to the full Board of Directors. Effective October 22, 2009, the
employment of Dr. Rosenbloom was terminated when the position of Executive Vice
President of the subsidiary was eliminated.
Remediation Plan for
Material Weaknesses
The
material weaknesses described above comprise control deficiencies that we
discovered during the financial close process for the June 30, 2009 fiscal
period.
As the
new management becomes familiar with the administration of the business of the
Company, the Company will formulate a remediation plan and implement remedial
action to address the above material weaknesses. Management is making
progress on its remediation plan which includes (i) obtaining and reviewing the
underlying documentation for significant agreements, contracts, transactions and
other material commitments entered into by the Company, (ii) the addition of a
financial and operations professional, Robert V. Cuddihy, Jr., to the Company’s
executive management, (iii) reorganization of the financial staff, including
personnel changes and recruitment, (iv) the implementation of a training program
for the Company’s financial staff, (v) retention of outside financial
consultants to augment the financial staff of the Company with certain subject
matter expertise, (vi) meeting with retail customers and vendors and (vii)
reorganization of Quigley Pharma staff and the retention of outside consultants
to augment such Quigley Pharma staff with certain subject matter expertise and
to conduct a thorough review of the entire research and development portfolio of
potential products.
The
Company believes that these measures, if effectively implemented and maintained,
will remediate the material weaknesses discussed above.
Changes in Internal Control
Over Financial Reporting
The
Company is currently undertaking a number of measures to remediate the material
weaknesses discussed under “Management’s Report on Internal Control Over
Financial Reporting” above. Those measures, described under
“Remediation Plan for Material Weaknesses,” to be implemented during the third
and fourth quarter of fiscal year 2009, will materially affect, or are
reasonably likely to materially affect, our internal control over financial
reporting. Other than as described above, there have been no changes in our
internal control over financial reporting during the three months or nine months
ended September 30, 2009 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
Part II. Other
Information
Item
1. Legal Proceedings
In
November 2004, The Quigley Corporation vs. John C. Godfrey, ET AL. (Bucks Co.
CCP, No. 04-07776) action, commenced. 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.
The
discovery phase of pre-trial discovery is nearing
completion. Defendants moved for partial summary judgment, and the
Company filed a response and cross-motion for summary judgment. On
August 21, 2008, the court denied both motions for summary
judgment. The case has not been assigned to a trial calendar,
although it is possible that the case will be listed for trial in
2010.
At this
time no prediction as to the outcome of this action can be made.
Item
1A.
Risk
Factors
The
Change in Executive Management Due to the Change in Management of the Company
Resulting From the Recent Proxy Contest.
The
recent Proxy Contest resulted in the resignation of the former Chief Executive
Officer and former Chief Operating Officer of the Company with both these
positions now being occupied by personnel who are new to the
Company. Additionally, in October, the employment of the Company’s
Chief Financial Officer ended and the role was consolidated with the Company’s
new Chief Operating Officer. This change in management may cause some
concern amongst vendors, customers, investors or stockholders during the period
of time within which the new management becomes familiar with the administration
of the business of the Company.
The
Company Will Need to Obtain Additional Capital to Support Long-Term Product
Development and Commercialization Programs.
The
Company’s ability to achieve and sustain operating profitability depends in
large part on the ability to commence, execute and complete clinical programs
and obtain additional regulatory approvals for prescription medications acquired
or developed by Pharma, particularly in the United States and
Europe. There is no assurance that the Company will ever obtain such
approvals or achieve significant levels of sales. The current sales
levels of Cold-EEZE
®
products
may not generate all the funds the Company anticipates will be needed to support
current plans for product development.
The
Company may need to obtain additional financing to support the cold remedy
segment and its long-term product development and commercialization
programs. Additional funds may be sought through public and private
stock offerings, arrangements with corporate partners, borrowings under lines of
credit or other sources and any equity financing would necessarily dilute
stockholder ownership in the Company. Access to, and availability of
funding for such activities may prove difficult or unattainable due to, among
other reasons, weak current and future economic conditions, reduction in the
availability of credit, financial market volatility and the current economic
recession.
The
amount of capital that may be needed to complete the Company’s product
development initiatives will depend on many factors, including;
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the
cost involved in applying for and obtaining FDA and international
regulatory approvals;
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whether
the Company elects to establish partnering arrangements for development,
sales, manufacturing and marketing of such
products;
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the
level of future sales of Cold-EEZE
®
products, and expense levels for international sales and marketing
efforts;
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whether
the Company can establish and maintain strategic arrangements for
development, sales, manufacturing and marketing of its products;
and
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whether
any or all of the outstanding options are exercised and the timing and
amount of these exercises.
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Many of
the foregoing factors are not within the Company’s control. If
additional funds are required and such funds are not available on reasonable
terms, the Company may have to reduce its capital expenditures, scale back its
development or acquisition of new products, reduce its workforce and out-license
to others, products or technologies that the Company otherwise would seek to
commercialize itself. Any additional equity financing will be
dilutive to stockholders, and any debt financing, if available, may include
restrictive covenants. Should research activity progress on certain
formulations, resulting expenditures may require substantial financial support
and may necessitate the consideration of alternative approaches such
as, licensing, joint venture, or partnership arrangements that meet the
Company’s long term goals and objectives.
Instability
and Volatility in the Financial Markets Could Have a Negative Impact on the
Company’s Business, Financial Condition, Results of Operations and Cash
Flows
.
During
recent months, there has been substantial volatility and a decline
in financial markets due at least in part to the deteriorating global
economic environment. In addition, there has been substantial uncertainty in the
capital markets and access to financing is uncertain. Moreover, customer
spending habits may be adversely affected by the current economic crisis.
These conditions could have an adverse effect on the Company’s industry and
business, including the Company’s financial condition, results of operations and
cash flows.
To the
extent that the Company does not generate sufficient cash from operations, it
may need to incur indebtedness to finance plans for growth. Recent turmoil in
the credit markets and the potential impact on the liquidity of major financial
institutions may have an adverse effect on the Company’s ability to fund its
business strategy through borrowings, under either existing or newly created
instruments in the public or private markets on terms that the Company believes
to be reasonable, if at all.
The Company has identified material
weaknesses in its internal control environment for the period from April 1, 2009
through September 30, 2009
.
These
material weaknesses, if not properly remediated, could result in material
misstatements in the Company’s financial statements in future periods and impair
its ability to comply with the accounting and reporting requirements applicable
to public companies. A material weakness is a control deficiency, or combination
of control deficiencies, that results in more than a remote likelihood that a
material misstatement of financial statements will not be prevented or detected
by our internal controls.
In
relation to the condensed consolidated financial statements for the period from
April 1, 2009 through September 30, 2009, the Company identified material
weaknesses in its internal control environment as follows: (i)
lack of management
continuity due to changes in executive management of the Company, (ii) lack of
documentation and/or the availability of documentation or records in the
Company’s files of business transactions, contracts and/or evaluations engaged
by the Company and (iii) lack of sufficient subject matter expertise in at least
two of the following significant areas: (a) accounting for and the disclosure of
complex transactions and (b) the selection, monitoring and evaluation of certain
vendors that provided services to Quigley Pharma.
Following
the identification of these material weaknesses in the Company’s internal
control environment, management took measures and plans to continue to take
measures to remediate these weaknesses and deficiencies. However, the
implementation of these measures may not fully address these weaknesses. A
failure to correct these weaknesses or other control deficiencies or a failure
to discover and address any other control deficiencies could result in
inaccuracies in the Company’s condensed consolidated financial statements and
could impair its ability to comply with applicable financial reporting
requirements and related regulatory filings on a timely basis and could cause
investors to lose confidence in the Company’s reported financial information,
which could have a negative impact on our financial condition and stock price.
Management of the Company identified the above material weaknesses as part of
their review of the Company’s internal control over financial
reporting. Management has not concluded their review and as this
review continues additional material weaknesses may be identified.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not
applicable
Item
3. Defaults Upon Senior Securities.
Not
applicable
Item
4. Submission of Matters to a Vote of Security Holders
Not
applicable
Item
5. Other Information
As
previously reported on the Company’s Current Report on Form 8-K filed on August
18, 2009, the Board of Directors of the Company (the “Board”) approved and
adopted on August 18, 2009, the Amended and Restated By-Laws of the Company (the
“2009 Amended By-Laws”) which amended the By-Laws dated December 16, 2008 that
were in effect prior to the August 18, 2009 amendments. The 2009
Amended By-Laws added new sections to require advance notice of stockholder
nominations for directors. These new articles provide for the
following:
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§
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providing
mandatory deadlines for stockholders to make proposals of business and
nominations of directors at special or annual meetings of stockholders,
generally between ninety (90) and one hundred twenty (120) days before a
special meeting, and ninety (90) days nor more than one hundred twenty
(120) days prior to the one-year anniversary of the preceding year’s
annual meeting;
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§
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including
a requirement that director nominees complete a questionnaire, designed to
elicit information such as his or her qualifications, conflicts of
interests and independence, including a description of all direct and
indirect compensation and other material monetary agreements, arrangements
and understandings during the past three years, and any other material
relationships, between or among the nominating stockholders, on the one
hand, and each proposed nominee, his or her respective affiliates and
associates and any other persons with whom such proposed nominee (or any
of his or her respective affiliates and associates) is Acting in Concert
(as defined therein);
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§
|
requiring
director nominees to sign an agreement that they will not join in
undisclosed voting agreements, that they will not enter into undisclosed
indemnification or compensation agreements, and that they will comply with
all Company policies and guidelines applicable to
directors;
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§
|
requiring
nominating stockholders to disclose not only their beneficial ownership
position but also any derivative
positions;
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§
|
requiring
each stockholder making nominating directors to include any person with
whom the proposing stockholder or beneficial owner is Acting in Concert
and require proponent stockholders to disclose any such persons;
and
|
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§
|
requiring
stockholders to update and supplement such notice prior to the initial
submission and the date of the stockholder
meeting.
|
Item
6.
|
Exhibits
|
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(1)
|
Exhibit
31.1
|
Certification
by the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
(2)
|
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
|
SIGNATURES
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
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By:
|
/s/ Ted Karkus
|
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Ted
Karkus
|
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Chairman
of the Board and Chief Executive Officer
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(Principal
Executive Officer)
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Date:
November 13, 2009
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By:
|
/s/ Robert V. Cuddihy, Jr.
|
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Robert
V. Cuddihy, Jr.
|
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Chief
Operating Officer and Interim Chief Financial Officer
|
|
|
|
(Principal
Accounting and Financial Officer)
|
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Date:
November 13, 2009
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