UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

                        Annual Report Pursuant to SectionFOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 orOR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) of the Securities Exchange Act ofOF THE  SECURITIES  EXCHANGE
     ACT OF 1934

          For the Fiscalfiscal year ended December 31, 2003

                          COMMISSION FILE NO.2005
                                    -----------------
                                       OR
[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

          For the transition period from ______ to ______

     Commission file number 01-21617

                             THE QUIGLEY CORPORATION
                             -----------------------
             (Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Its Charter)

            NEVADA                                 23-2577138
            - --------------------------------------------------------------------------------------                                 ----------
(State or other jurisdictionOther Jurisdiction                   (I.R.S. Employer
of (IRS Employer
 incorporationIncorporation or organization)Organization)             Identification Number)

              (MAILING ADDRESS: PO Box 1349, Doylestown, PA 18901)No.)

  KELLS BUILDING, 621 SHADY RETREAT ROAD, P.O. BOX 1349, DOYLESTOWN, PA 18901
  - -----------------------------------------------------------------------------------------------------------------------------------------------------------
         (Address of principle executive offices)Principal Executive Offices)          (Zip Code)

(215) 345-0919
                                 --------------
              (Registrant'sRegistrant's telephone number, including area code)

       SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE

SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:code (215) 345-0919
                                                   --------------

Securities registered pursuant to Section 12(b) of the Act:  None
                                                             ----

Securities registered pursuant to Section 12(g) of the Act:

               Title of each class                    Name of each exchange on which registered

    COMMON STOCK, ($.0005$.0005 PAR VALUE)VALUE PER SHARE                   NASDAQ NATIONAL MARKET
- -------------------------------------------------   ----------------------------------------------

          COMMON SHARE PURCHASE RIGHTS                             NOT APPLICABLE
- -------------------------------------------------   ----------------------------------------------

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act.
Yes [   ] No [X]

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes [   ] No [X]

Indicate by check mark whether the Registrantregistrant (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. |X| Yes |_|[X] No [ ]

Indicate by the check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-XS-K (ss.  229.405 of this chapter) is not contained  herein,  and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendmentsamendment to this Form 10-K. |_|[ ]



Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):

Large accelerated filer [ ]  Accelerated filer [ ]  Non-accelerated filer [X]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934)Act).
|_| Yes |X|[   ] No [X]

The  aggregate   market  value  of  the   registrant's   common  stock  held  by
non-affiliates  was $59,305,107$66,267,472 as of June 30, 2003,2005,  based on the closing price
of the common stock on the NasdaqThe NASDAQ National Stock Market.

Number of shares of each of the Registrant'sregistrant's  classes of securities  (all of one
class  ofoutstanding
on March 23, 2006:

          Common stock, $.0005 par value per share:   11,678,478.
          Common Stock)  outstanding  on March  12,  2004:
11,512,755.share purchase rights:       0

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by reference in this Report
on Form 10-K:

1.

Information  set forth in Part III of this report is  incorporated  by reference
from  the   Registrant's  Proxy  Statementregistrant's   proxy  statement  for  the  2004  Annual
      Meeting2006  annual  meeting  of
Stockholders.

                  THE EXHIBIT INDEX IS LOCATED ON PAGES 23-24.stockholders.




                                    TABLE OF CONTENTS

Part I  Page
                                                                           ----PAGE

     Item   1.     Description of Business                                                        32 - 109

            1A.    Risk Factors                                                   9 - 14

            1B.    Unresolved Staff Comments                                          14

            2.     Description of Properties                                                         1015

            3.     Legal Proceedings                                             1015 - 1220

            4.     Submission of Matters to a Vote byof Security Holders                1220

Part II

            5.     Market for the Company'sRegistrant's Common Equity, and Related Stockholder
                     Matters 12and Issuer Purchases of Equity Securities           21 - 1322

            6.     Selected Financial Data                                       1422 - 23

            7.     Management's Discussion and Analysis of Financial Condition
                     and Results of Operations and Financial Condition                  15Operation                                    23 - 2029

            7A.    Quantitative and Qualitative DisclosureDisclosures About Market Risk         2029

            8.     Financial Statements 21and Supplementary Data                        30

            9.     ChangeChanges in and Disagreements with Accountants on
                     Accounting and Financial Disclosure                              2231

            9A.    Controls and Procedures                                            2231

            9B.    Other Information                                                  32

Part III

            10.    Directors and Executive Officers of the Registrant                 2232

            11.    Executive Compensation                                             2232

            12.    Security Ownership of Certain Beneficial Owners and
                     Management 22and Related Stockholder Matters                       32

            13.    Certain Relationships and Related Transactions                     2232

            14.    Principal Accountant Fees and Services                             2232

Part IV

            15.    Exhibits and Financial Statement Schedules                    and Reports
                     on Form 8-K                                         2332 - 2434


Signatures                                                                           25


                                       -2-35


                                          -1-


FORWARD-LOOKING STATEMENTS

In addition to  historical  information,  this Report  contains  forward-looking
statements.  These  forward-looking  statements are subject to certain risks and
uncertainties  that could cause actual results to differ  materially  from those
reflected in these forward-looking  statements.  Factors that might cause such a
difference include,  but are not limited to, management of growth,  competition,
pricing  pressures  on the  Company's  product,products,  industry  growth  and  general
economic conditions.  Readers are cautioned not to place undue reliance on these
forward-looking  statements,  which reflect management's opinions only as of the
date hereof.  The Company undertakes no obligation to revise or publicly release
the results of any revision to these forward-looking statements.

CERTAIN RISK FACTORS

The Quigley  Corporation makes no representation that the USUnited States Food and
Drug  Administration  ("FDA")  or any  other  regulatory  agency  will  grant an
Investigational  New Drug ("IND") or take any other action to allow its  formulations to
be studied or marketed.  Furthermore,  no claim is made that potential  medicine
discussed  herein  is  safe,  effective,  or  approved  by  the  Food  and  Drug
Administration.  Additionally,  data that demonstrates activity or effectiveness
in animals or in vitro tests do not necessarily mean thesuch formula test compound,
referenced  herein,  will be effective in humans.  Safety and  effectiveness  in
humans will have to be  demonstrated  by means of adequate  and well  controlled
clinical  studies before the clinical  significance of the formula test compound
is known.  Readers should carefully  review the risk factors  described in other
sections of the filing as well as in other documents the Company files from time
to time with the Securities and Exchange Commission.Commission ("SEC").

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

BUSINESS DEVELOPMENT

The  Quigley  Corporation  (WWW.QUIGLEYCO.COM,  hereinafter  referred  to as the
"Company")Company,   headquartered   in  Doylestown,   Pennsylvania,   is  a  Nevada  corporationleading
manufacturer, marketer and distributor of a diversified range of homeopathic and
health products which was organized on August 24, 1989comprise the Cold Remedy, Health and commenced business operationsWellness and Contract
Manufacturing  segments.  The  Company  is also  involved  in October 1989.the  research  and
development  of  potential  prescription  products  that  comprise  the  Ethical
Pharmaceutical segment.

The Company's business is the development, manufacture, sale and distribution of
cold-remedyover the counter  (OTC) cold remedy  products, to the consumer through the over-the-counter market place together with
the sale of  proprietary  health and wellness
products through its direct selling  subsidiary.  Thesubsidiary and the research and development
of natural-source derived pharmaceuticals.

Cold-Eeze(R) is one of the Company's key product  Cold-Eeze(R),  acold remedy OTC products whose benefits
are derived from its proprietary zinc gluconate  glycine
lozenge,  is provenformulation.  The product's  effectiveness
has  been  substantiated  in two  double-blind  clinical  studies  to reduceproving  that
Cold-Eeze(R)  reduces the duration  and severity of the common cold  symptoms by
nearly half. The Cold Remedy segment,  where  Cold-Eeze(R)  is  now an
established productrepresented,  is
reviewed  regularly  to  realize  any  new  consumer  opportunities  in  flavor,
convenience  and  packaging  to help improve  market share for the  health careCold-Eeze(R)
product.  Additionally,  the  Company  is  constantly  active in  exploring  and
cold-remedy market.

Darius Internationaldeveloping new products  consistent  with its brand image and standard of proven
consumer benefit.

Effective October 1, 2004, the Company acquired  substantially all of the assets
of JoEl,  Inc., the previous  manufacturer of the  Cold-Eeze(R)  lozenge product
assuring a future manufacturing  capability necessary to support the business of
the  Cold  Remedy  segment.   This  manufacturing  entity,  now  called  Quigley
Manufacturing  Inc.  ("Darius"QMI"), the Health and Wellness segment,  a wholly owned  subsidiary  of the Company,  will
continue to produce lozenge product along with performing such operational tasks
as warehousing and shipping the Company's  Cold-Eeze(R)  products.  In addition,
QMI  produces  a  variety  of hard and  organic  candy  for sale to third  party
customers  in addition  to  performing  contract  manufacturing  activities  for
non-related entities.

Our Health and Wellness  segment is operated through Darius  International  Inc.
("Darius"), a wholly owned subsidiary of the Company which was formed in January
2000  to  introduce  new  products  to the  marketplace  through  a  network  of
independent distributors.distributor representatives. Darius is a direct selling organization
specializing in proprietary  healthnutritional and wellness  products,  which commenced  shipping product to customers in the third
quarter of 2000. On January 2, 2001,  the Company  acquired  certain  assets and
assumed certain  liabilities of a privately held company  involved in the direct
marketing and distribution ofdietary supplement based health and
wellness products.  The formation of Darius has provided  diversification to the
Company in both the  method of product  distribution  and the  broader  range of
products  available  to the  marketplace,  serving as a balance to the  seasonal
revenue cycles of the Cold-Eeze(R) branded products.


                                          -2-
In January 2001, the Company formed an Ethical Pharmaceutical  Unit,segment,  Quigley
Pharma  the
Ethical  Pharmaceutical  segment,Inc.  ("Pharma"),  that is under the  direction  of its  Executive  Vice
President and Chairman of its Medical Advisory Committee.  The formation of
Pharma follows  the Patent  Office of The  United  States  Commerce  Department
confirming the assignment to the Company of a Patent Applicationwas formed for
the  "Methodpurpose of  developing  naturally  derived  prescription  drugs.  Pharma is
currently  undergoing  research  and  Composition  for the Topical  Treatment of Diabetic  Neuropathy"  which was
issued and extends through  December 21, 2020. The  establishment of a dedicated
pharmaceutical   subsidiary  may  enable  the  Company  to  diversify  into  the
prescription drug market and to ensure safe and effective  distribution of these
important  potential new products  currently  under  development.development  activity in  compliance  with
regulatory  requirements.  At this  time,  threefive  patents  have been  issued  and
assigned to the Company  resulting from research  activity of Pharma. During 2000,In certain
instances where a critical mass of positive scientific data has been established
for  compounds  that the Company  acquired a 60% ownership  position in Caribbean Pacific
Natural Products, Inc. ("CPNP"), a leading developer and marketer of all-natural
sun-care and skincare products for luxury resorts, theme parks and spas. In


                                       -3-


December  2002,  the Board of Directors  of the Company  approved a plandoes not envision  bringing to market,  it may
decide to sell CPNP. On January 22, 2003,  the Company  completed the sale of the Company's 60%
equity interest in CPNP to Suncoast Naturals, Inc. ("Suncoast").  See discussion
in Notes to Financial Statements, Note 3 - Discontinued Operations.or license its technology.

DESCRIPTION OF BUSINESS OPERATIONS

Since  its  inception,  the  Company  has  continued  to  conduct  research  and
development  into various types of  health-related   food  supplements  and homeopathic
cold  remedies.   Initially,  the  Company's  business  was  the  marketing  and
distribution   of  a  line  of  nutritious   health   supplements   (hereinafter
"Nutri-Bars").  During  1995,  the  Company  reduced the  marketing  emphasis in the marketing of
the
Nutri-Bars  and commenced  focusing its marketing and research and  development  and marketing
resources towardson the Company's  patented  Cold-Eeze(R)  zinc gluconate  glycine cold
relief products.

Prior to the fourth  quarter  1996,  the Company had minimal  revenues  and as a
result  suffered  continued  losses due to ongoing  research and development and
operating expenses. However, 1997 resulted in significant revenue increases as a
result of the Company's  nationwide  marketing campaign and the increased public
awareness through media public service announcements of the Cold-Eeze(R) lozenge
product.

Since  June  1996,  the  cold-remedyCold  Remedy  segment  has  concentrated  its  business
operations on the  manufacturing,  marketing and  development of its proprietary
Cold-Eeze(R)  cold-remedy lozenge products and on development of various product
extensions.  These products are based upon a proprietary zinc gluconate  glycine
formula,  which in two  double-blind  clinical  studies  has shownbeen proven to reduce the  duration  and  severity of the common
cold symptoms.  The Quigley  Corporation  acquired  worldwide  manufacturing and
distribution rights to this formulation in 1992 and commenced national marketing
in 1996. The demand for the Company's  cold-remedy  products is seasonal,  where
the third and fourth  quarters  generally  represent  the largest  sales volume for cold-remedy.volume.
Prior to October 1, 2004, the  manufacture  of the lozenge form of  Cold-Eeze(R)
was  outsourced.  Since that date,  the lozenge  form of  Cold-Eeze(R)  has been
manufactured by a subsidiary of the Company.

Darius is a direct selling  organization  specializing in proprietary health and
wellness  products,  which commenced  shipping product to customers in the third
quarter of 2000.

Pharma was formed for the purpose of developing  naturally derived  prescription
drugs, cosmeceuticals,  and dietary supplements.  Pharma is currently  undergoinginvolved in the lengthy process of conducting  research and
development  activityon certain of its  patented  formulations  in  compliance  with regulatory  requirements.FDA
regulations  required for bringing  prescriptions and botanical drugs to market.
The Company is atin the initial stages of what may be a lengthy process to develop
these patent applications into potential commercial products.

During 2003,2005,  approximately 97%92% of the Company's  revenues from Cold-Eeze(R) and
Darius originatedwere generated in the
United States with the  remainder  being  attributable  to  international  trade.trade
compared to 93% in 2004.

Financial information regarding the Company's operating segments is set forth in
Item 8, Notes to Financial Statements, Note 416 - Segment Information.

PRODUCTS

COLD-REMEDY PRODUCTS

In May 1992,  the Company  entered into an  exclusive  agreement  for  worldwide
representation,  manufacturing, marketing of Cold-Eeze(R) products in the United
States.  Cold-Eeze(R),  a zinc gluconate glycine formulation  (ZIGG(TM)),  is an
over-the-counter  consumer  product  used to reduce the duration and severity of
the common cold and is soldavailable in lozenge, sugar-free tablet and nasal spray forms.
During 2003gum form. The
Company has substantiated the Company  launchedeffectiveness of Cold-Eeze(R) through a Cold-Eeze(R)  nasal spray and  Kidz-Eeze(TM)
Sore Throat Pops. The nasal spray product,  a nasal spray  containing the active
ingredient  Zinc  Gluconate and also  containing  Aloe Vera,  began  shipping to
retail during the second halfvariety of
2003.

In May 1992,  the Company  entered into an  exclusive  agreement  for  worldwide
representation,  manufacturing,  marketing  and  distribution  rights  to a zinc
gluconate  glycine lozenge  formulation which was patented in the United States,
United Kingdom, Sweden, France, Italy, Canada, Germany, and is pending in Japan.
This product and  extensions,  are presently  being  marketed by the Company and
also through  independent  brokers and  marketers in the United States under the
trade name Cold-Eeze(R).studies.  A  randomized  double-blind  placebo-controlled  study,  conducted  at
Dartmouth College of Health Science, Hanover, New Hampshire,  concluded that the
lozenge  formulation  treatment,  initiated  within 48 hours of  symptom  onset,
resulted in a significant reduction in the total duration of the common cold.

-4-
On May 22, 1992,  "ZINC AND THE COMMON COLD, A CONTROLLED  CLINICAL  STUDY," was
published in England in the "Journal of International  Medical Research",Research," Volume
20, Number 3, Pages 234-246. According to this publication,  (a) flavorings used
in  other  Zinc  lozenge  products  (citrate,   tartrate,   separate,   orotate,
picolinate,  mannitol or sorbitol)  render the Zinc inactive and  unavailable to


                                          -3-
the patient's  nasal  passages,  mouth and throat where cold symptoms have to be
treated, (b) this patented  zinc  gluconate  glycine formulation delivers  approximately 93% of the active
Zinc to the  mucosal  surfaces  and (c) the  patient  has the same  sequence  of
symptoms  as in the  absence  of  treatment  but goes  through  the phases at an
accelerated rate and with reduced symptom severity.

On July 15, 1996,  results of a new randomized  double-blind  placebo-controlled
study on the common cold, were published, which commenced at the CLEVELAND CLINIC  FOUNDATION on
October 3, 1994.1994, were published.  The study called "ZINC GLUCONATE  LOZENGES FOR
TREATING THE COMMON COLD" was  completed and published in THE ANNALS OF INTERNAL
MEDICINE - VOL. 125 NO. 2. Using a 13.3mg  lozenge  (almost half the strength of
the  lozenge  used in the  Dartmouth  Study),  the  result  still  showed  a 42%
reduction in the duration of the common cold symptoms.

In April 2002, the Company announced the statistical  results of a retrospective
clinical  adolescent  study at the Heritage School facility in Provo,  Utah that
suggests that  Cold-Eeze(R)  is also an effective means of preventing the common
cold.  This  adolescent  study  indicated that when taken
daily,  Cold-Eeze(R)cold and statistically (a) lessens the number of colds an individual suffers per
year,  reducing  the  median  from  1.5 to  zero.  These findings are the
result of analyzing three years of clinical data at the Heritage School facility
in Provo,  Utah.  The study also found that the use of  Cold-Eeze(R)  to treat a
cold statisticallyzero  and  (b)  reduces  the  use of
antibiotics  for respiratory  illnesses from 39.3% to 3.0% when  Cold-Eeze(R) is
administered as a first line treatment approach to the common cold.  Additionally,  the study  reinforces  the original
clinical trials,  concluding that Cold-Eeze(R)  reduces the median duration of a
cold by four days.

In April 2002,  the Company was  assigned a Patent  Application  which was filed
with the Patent Office of the United States  Commerce  Department for the use of
Cold-Eeze(R) as a prophylactic for cold prevention.  The new patent  application
follows the results of the adolescent study at the Heritage School facility.

In May  2003,  the  Company  announced  the study  findings  of a  prospective  study,
conducted at the Heritage School facility in Provo, Utah, in which 178 children,
ages 12 to 18 years, were given Cold-Eeze(R)  lozenges both  symptomatically and
prophylactically  from  October 5, 2001 to May 30,  2002.  The study found a 54%
reduction in the most  frequently  observed cold  duration.  Those  subjects not
receiving  treatment most  frequently  experienced  symptom  duration atof 11 days
compared with 5 days when Cold-Eeze(R)  lozenges were administered,  a reduction
of 6 days.

In the second half of 1998, the Company  launched  Cold-Eeze(R)  in a sugar free
version of the product to benefit  diabetics and other consumers  concerned with
their sugar intake.

The business of the Company is subject to federal and state laws and regulations
adopted  for  the  health  and  safety  of  users  of  the  Company's  products.
Cold-Eeze(R)  is a homeopathic  remedy that is subject to regulations by various
federal,  state and local  agencies,  including  the FDAUnited States Food and Drug
Administration ("FDA") and the Homeopathic Pharmacopoeia of the United States.

HEALTH AND WELLNESS

Darius,  through  Innerlight  Inc.,  its wholly  owned  subsidiary,  is a direct
selling company  specializing in the development and distribution of proprietary
health and wellness products,  including herbal vitamins and dietary supplements
for the human condition, primarily within the United States and since the second
quarter of 2003, internationally.

The continued  success of this segment is dependent,  among other things, on the
Company's ability:

     o    To  maintain  existing  independent  distributor  representatives  and
          recruit additional successful independent distributor representatives.
          Additionally,  the loss of key  high-level  distributors  or  business
          contributors  as a result of  business  disagreements,  litigation  or
          otherwise could negatively impact future growth and revenues;

     o    To continue to develop and make  available new and desirable  products
          at an acceptable cost;

     o    To maintain  safe and reliable  multiple-location  sources for product
          and materials;

     o    To  maintain a reliable  information  technology  system and  internet
          capability.  The Company competes with suppliers varying in range and sizehas expended significant resources on systems
          enhancements  in the cold-remedy
products  arena.  Cold-Eeze(R),  which  has  been  clinically  proven,  offerspast and will  continue to do so to ensure prompt
          customer response times,  business  continuity and reliable  reporting
          capabilities.  Any  interruption  to computer  systems for an extended
          period of time could be harmful to the business;

     o    To execute conformity with various federal, state and local regulatory
          agencies both within the United States and abroad.  With the growth of
          international   business,   difficulties   with   foreign   regulatory
          requirements  could  have a  significant  advantage over other suppliersnegative  impact  on  future
          growth.  Any inquiries  from  government  authorities  relating to the
          Company's  business and compliance with laws and regulations  could be
          harmful to the Company;


                                      -4-


     o    To compete with larger more mature organizations  operating within the
          same market and to remain  competitive  in terms of product  relevance
          and business opportunity;

     o    To successfully  implement  methods for progressing the over-the-counter  cold-remedy
market.  The  managementdirect selling
          philosophy internationally; and

     o    To plan strategically for general economic conditions.

Any or all of the above risks could result in significant reductions in revenues
and profitability of the Health and Wellness segment.

CONTRACT MANUFACTURING

From October 1, 2004, this manufacturing  entity, now called QMI, a wholly owned
subsidiary of the Company,  believes  there  should  be no future
impediment on the abilityhas continued to compete in the marketplace now, or in the immediate
future,  since factors concerning theproduce  lozenge product along with
performing  such  operational  tasks as  price,  product quality,
availability,  reliability, credit terms, name recognition, deliverywarehousing  and support
are all properly  positioned.  The Company has several  Broker,  Distributor and
Representative  Agreements,  both nationally and internationally and the product
is  distributed  through  numerous  independent,  chain drug,  food and discount
stores throughout the United States.

The  Company  continues  to  use  the  resources  of  independent  national  and
international  brokers complementing its own in-house personnel to representshipping the Company's
over-the-counter  products,  thereby saving capitalCold-Eeze(R)  products. In addition to that function,  QMI produces a variety of
hard and  other ongoing
expenditures that would otherwise be incurred.organic  candy  for sale to  third  party  customers  in  addition  to
performing contract manufacturing activities for non-related entities. QMI is an
FDA-approved facility.

ETHICAL PHARMACEUTICAL PRODUCTS

Pharma's current  activity is the research and development of  naturally-derived
prescription  drugs with the goal to improveof improving the quality of life and health of
those  in need
through scientific research and development.need.  Research  and  development  will  focus on the  identification,
isolation and direct use of active medicinal substances.  One aspect of Pharma's
research will focus on the combinationpotential  synergistic benefits of combining isolated
active constituents and whole plant components.  The Company will search for new
natural  sources of medicinal  substances  will  focus not only onfrom plants and fungi from around the
world plants,  fungi,while also  investigating  the use of traditional and other
natural substances, but an intense investigation into traditionalhistoric  medicinals
and historic therapeutics.


                                       -5-


Pharma is currently  undergoing research and development  activity in compliance
with regulatory requirements. During the course of its research and development,
certain  formulas  have led to three  patents and several  patent  applications,
which the Patent Office of the United States  Commerce  Department has confirmed
the assignment to the Company.  The Company,  through Pharma,  is at the initial
stages of what may be a lengthy  process to  develop  these  patents  and patent
applications into commercial products.

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.

In April 2002, the Company initiated a Phase II proof of concept study in France
for treatment of diabetic neuropathy,  which was concluded in 2003. It indicated
that  subjects  using  this  formulation  had  67% of  their  symptoms  improve,
suggesting   efficacy.   Because  the  Company's   formulation   for  relief  of
diabetes-related pain is a topical treatment and its ingredients are GRAS listed
(Generally  Regarded As Safe) as identified in the Code of Federal  Regulations,
FDA  approval  could  potentially  be  obtained  earlier  than what is  normally
required in the FDA process.

In July  2002,  the  Company  announced  the  commencement  of  testing on a new
formulation  being  developed  by the  Company  to  relieve  Sialorrhea  (excess
secretions of the salivary glands,  causing drooling) in patients suffering from
diseases including  Amyotrophic Lateral Sclerosis (ALS),  otherwise known as Lou
Gehrig's Disease, Cerebral Palsy, Parkinson's Disease, and Muscular Dystrophy.

In September 2003, the Company announced its intention to file for permission to
study its  patent  pending  potential  treatment  for  psoriasis  and other skin
disorders.  Continued  testing  will  therefore  have to be  conducted  under an
Investigational  New  Drug  (IND)  application  following  positive  preliminary
results.

In December 2003, the Company  announced  positive test results of a preliminary
independent in vitro study  indicating  that a Quigley test compound  previously
tested on the Influenza virus showed  "significant  virucidal activity against a
strain of the Severe Acute Respiratory Syndrome (SARS) virus."

HEALTH AND WELLNESS PRODUCTS

Darius,  through  Innerlight  Inc.,  its wholly  owned  subsidiary,  is a direct
selling company  specializing in the development and distribution of proprietary
health  and  wellness  products  primarily  within the  United  States  with the
commencement  of  international  business  activity during the second quarter of
2003.  The  Company   develops  and  markets  products  that  are  suitable  for
distribution within a direct selling business environment. The products marketed
and sold by Darius are herbal  vitamins  and dietary  supplements  for the human
condition.

Within the framework of a direct selling business environment,  Darius sells its
products through a network of independent representatives, who are not employees
of Darius.  These purchases by the independent  representatives  may be used for
personal   consumption  or  used  for  resale  to  consumers.   The  independent
representatives receive compensation for sales achieved by means of a commission
structure  or  compensation  plan  based on their  product  sales  and  those of
personnel  within their down-line  independent  representative  network.  As the
independent  representatives  pay for product by credit card for shipments made,
the accounts receivable balances at any time are negligible.

The continued  success of this segment is dependent upon,  amongst other things,
the Company's ability:

            o     To maintain existing  independent  representatives and recruit
                  additional     successful     independent     representatives.
                  Additionally,  the loss of key high-level  distributors  could
                  negatively impact future growth and revenues;

            o     To continue to develop and make  available  new and  desirable
                  products at an acceptable cost;

            o     To maintain  safe and reliable  multiple-location  sources for
                  product and materials;


                                       -6-


            o     To  maintain  a  reliable  information  technology  system and
                  internet  capability.  The  Company has  expended  significant
                  resource on systems enhancements in the past and will continue
                  to do so to ensure prompt customer  response  times,  business
                  continuity   and   reliable   reporting   capabilities.    Any
                  interruption  to computer  systems  for an extended  period of
                  time could be harmful to the business;

            o     To execute  conformity with various  federal,  state and local
                  regulatory  agencies both within the United States and abroad.
                  With the commencement of international business,  difficulties
                  with foreign regulatory  requirements could have a significant
                  negative   impact  on  future   growth.   Any  inquiries  from
                  government authorities relating to our business and compliance
                  with laws and regulations could be harmful to the Company;

            o     To compete  with larger more  mature  organizations  operating
                  within the same market and to remain  competitive  in terms of
                  product relevance and business opportunity;

            o     To successfully  implement  methods for progressing the direct
                  selling philosophy internationally; and

            o     To plan strategically for general economic conditions.

Any or all of the above risks could result in significant reductions in revenues
and profitability of the Health and Wellness segment.

PATENTS, TRADEMARKS, ROYALTY AND COMMISSION AGREEMENTS

The Company  currently owns no patents for cold-remedy  products.  However,  the
Company has been assigned patent  applications  which are hereinafter  discussed
and has been  granted  an  exclusive  agreement  for  worldwide  representation,
manufacturing,  marketing and  distribution  rights to a zinc gluconate  glycine
lozenge formulation, which are patented as follows:

United States:    No. 4 684 528 (August 4, 1987)              Sweden: No. 0 183 840 (March 2, 1994)
                  No. 4 758 439 (July 19, 1988)               Canada: No. 1 243 952 (November 1, 1988)
                  Germany: No. 3,587,766 (March 2, 1994)      Great Britain: No. 2 179 536 (December 21, 1988)
                  Japan: Pending                              France & Italy: No. EP 0 183 840 B1 (March 2, 1994)

The following patents have been assigned to the Company in relation to Pharma:

United States:    No. 6 555 573 B2 (April 29, 2003)
                  No. 6 592 896 B2 (July 15, 2003)
                  No. 6 596 313 B2 (July 22, 2003)

In 1996, the Company also acquired an exclusive license for a United States ZINC
GLUCONATE  USE PATENT NUMBER RI 33,465 from the patent  holder.  This use patent
gives the Company  exclusive  rights to both the use and formulation  patents on
zinc  gluconate  for  reducing  the  duration  and  severity  of the common cold
symptoms.  This patent and exclusive  license expired in March 2002. The Company
does not anticipate  any material  impact on the financial  statements  from the
expiration of the patent.

The  Cold-Eeze(R)  product  is  manufactured  for  the  Company  by  a  contract
manufacturer  and  marketed  by the  Company in  accordance  with the terms of a
licensing  agreement  (between the Company and the  developer).  The contract is
assignable by the Company with the developer's consent.  Throughout the duration
of the  agreement,  the  developer is to receive a three percent (3%) royalty on
sales  collected,  less  certain  deductions.  A separate  consulting  agreement
between the parties referred to directly above was similarly entered into on May
4, 1992,  whereby the  developer is to receive a  consulting  fee of two percent
(2%) on sales collected, less certain deductions, for consulting services to the
Company with respect to such product.

Pursuant  to the  License  Agreement  entered  into  between the Company and the
patent  holder,  which expired in March 2002, the Company has paid a royalty fee
to the patent  holder of three  percent  (3%) on sales  collected,  less certain
deductions.

During 1997,  the Company  obtained a trademark for the major  components of its
lozenge,  ZIGG(TM) (denoting zinc gluconate glycine),  to set Cold-Eeze(R) apart
from the imitations proliferating the marketplace.


                                       -7-


An  agreement  between the Company and its  founders was entered into on June 1,
1995.  The  founders,   both  officers  and  stockholders  of  the  Company,  in
consideration of the acquisition of the Cold-Eeze(R)  cold therapy product,  are
to receive a total  commission of five percent (5%),  on sales  collected,  less
certain deductions until the termination of this agreement on May 31, 2005.

In August 2003,  the Company  entered into a licensing  agreement  with a patent
holder  relating to utilizing a nasal spray product in the treatment of symptoms
of the common  cold.  The  Company  has  agreed to pay the  patent  holder a two
percent royalty on net sales of nasal spray products,  less certain  deductions,
throughout the term of this agreement, expiring no later than April 2014.

During 2003 the  following  patents were granted to the Company  relating to the areas of focus of the Ethical Pharmacutical segment:are:

     o    A Patent (No.  6,555,573 B2) entitled  "Method and Composition for the
          Topical Treatment of Diabetic  Neuropathy." The patent extends through
          December 21, 2020.March 27, 2021.

     o    A Patent (No. 6,592,896 B2) entitled "Medicinal Composition and Method
          of Using It" (for Treatment of Sialorrhea  and other  Disorders) for a
          product to relieve  sialorrhea  (drooling) in patients  suffering from
          Amyotrophic  Lateral Sclerosis (ALS),  otherwise known as Lou Gehrig's
          Disease. The patent extends through August 6, 2021.

     o    A Patent (No.  6,596,313  B2)  entitled  "Nutritional  Supplement  and
          Method of Using It" for a product to relieve sialorrhea  (drooling) in
          patients suffering from Amyotrophic Lateral Sclerosis (ALS), otherwise
          known as Lou Gehrig's  Disease.  The patent extends  through April 15,
          2022.

     o    A Patent  (No.  6,753,325  B2)  entitled  "Composition  and Method for
          Prevention,  Reduction  and  Treatment  of  Radiation  Dermatitis,"  a
          composition for preventing, reducing or treating radiation dermatitis.
          The patent extends through November 5, 2021.

     o    A Patent (No.  6,827,945  B2)  entitled  "Nutritional  Supplement  and
          Method of Using It" for a method for  treating at least one symptom of
          arthritis. The patent extends through April 22, 2023.

     o    In September  2002,  the Company  filed a foreign  patent  application
          entitled "Method and Composition for the Topical Treatment of Diabetic
          Neuropathy" in Europe and other foreign markets.


                                      -5-


In April 2002, the Company initiated a Phase II Proof of Concept Study in France
for  treatment of diabetic  neuropathy,  which was  concluded in 2003.  In April
2003, the Company  announced  that an  independently  monitored  analysis of the
Phase II Proof of Concept Study  concluded that subjects using this  formulation
had 67% of their  symptoms  improve,  suggesting  efficacy.  In March 2004,  the
Company  announced  that it had  completed its first meeting at the FDA prior to
submitting the Company's  Investigational  New Drug ("IND")  application for the
relief of symptoms  of diabetic  symmetrical  peripheral  neuropathy.  The FDA's
pre-IND meeting  programs are designed to provide sponsors with advance guidance
and input on drug development programs. In September 2005, the Company announced
that a preliminary  report of its topical compound for the treatment of diabetic
neuropathy   was   recently   featured  in  the  JOURNAL  OF  DIABETES  AND  ITS
COMPLICATION.  Authored  by Dr. C.  LeFante  and Dr.  P.  Valensi,  the  article
appeared  in the June 1, 2005  issue,  and  included  findings  that  showed the
compound reduced the severity of numbness,  and irritation from baseline values.
In October 2005, the Company  announced the results of  pre-clinical  toxicology
studies that showed no irritation,  photo toxicity,  contact hypersensitivity or
photo allergy when applied  topically to hairless  guinea pigs and another study
that showed no difference in the dermal response of the compound or placebo when
applied  to  Gottingen  Minipigs.  (Both  animal  models are  suggested  for the
evaluation of topical drugs, by the FDA).

In  March  2006,  the  Company  and  Pharma  announced  their  filing  of an IND
application  with the FDA for its topical compound for the treatment of Diabetic
Peripheral Neuropathy.  This filing allows Pharma to begin human clinical trials
following a 30-day review period.  If the FDA has no further  comments,  studies
with human subjects will commence as soon as possible  pending the  availability
of study drug. This application  includes a compilation of all of the supporting
development  data  and  regulatory   documentation   required  to  file  an  IND
application with the FDA.

In September 2003, the Company announced its intention to file for permission to
study its  patent  pending  potential  treatment  for  psoriasis  and other skin
disorders.  Continued  testing will therefore have to be conducted  under an IND
application following positive preliminary results.

In December 2003, the Company  announced  positive test results of a preliminary
independent  in vitro  study  indicating  that a test  compound  of the  Company
previously tested on the Influenza virus showed "significant  virucidal activity
against a strain of the Severe Acute Respiratory Syndrome (SARS) virus."

In January 2004, the Company announced that it would conduct two further studies
evaluating the compound which had shown activity against Influenza and SARS. The
first  study was  intended to repeat the  previously  announced  results,  which
demonstrated the compound to be 100 percent effective in preventing non-infected
ferrets in close proximity to an infected ferret from becoming infected with the
Influenza  A  virus.  The  second  study  was a dose  ranging  study on the test
compound.   Upon  dosage  determination  and  confirmation  results  from  these
forthcoming  animal model studies,  a human proof of concept study using a virus
challenge  with  Influenza A virus in a  quarantine  unit would be a viable next
step.

At  this  time,  the  Company  also  reported  that  its  compound,   which  was
demonstrating  antiviral  activity,  had shown virucidal and virustatic activity
against the strain 3B of the Human  Immunodeficiency  Virus Type 1 (HIV-1) in an
in-vitro study.  Additionally,  the Company decided that the derivative compound
of the  anti-viral  formulation  previously  found to be effective  for treating
Sialorrhea  would  probably  postpone  further  development  on  the  Sialorrhea
indication  and  concentrate  on further  qualification  and  development of the
anti-viral capabilities of the compound in humans.

In May 2004, the Company  announced that an intranasal spray  application of the
anti-viral test compound  demonstrated  efficacy by  significantly  reducing the
severity  of illness in ferrets  that had been  infected  with the  Influenza  A
virus.

In November  2005,  the Company was  assigned  nine  Investigational  New Animal
Drugs, ("INADs"), a broad anti-viral agent by the Center for Veterinary Medicine
of the FDA. Eight of the INAD's are for  investigating  the compound use against
avain flu H5N1virus in chickens,  turkeys,  ducks, pigs, horses,  dogs, cats and
non-food birds. In January 2006, a ninth INAD was assigned for investigating its
compound for treating arthritis in dogs.

In April 2004, the Company announced the results of a preliminary,  pre-clinical
animal study which  measured the effect of its  proprietary  patent  applied for
formulation  against ionizing  (nuclear)  radiation.  This study determined that
parenteral  (injection)  administration  of the study  compound  was  protective
against the effects of a lethal,  whole body ionizing  radiation dose in a mouse
model. This compound is being  investigated to potentially reduce the effects of
radiation exposure on humans.


                                      -6-


PATENTS, TRADEMARKS, ROYALTY AND COMMISSION AGREEMENTS

The Company  currently owns no patents for cold-remedy  products.  However,  the
Company has been assigned patent  applications  which are hereinafter  discussed
and has been  granted  an  exclusive  agreement  for  worldwide  representation,
manufacturing,  marketing and  distribution  rights to a zinc gluconate  glycine
lozenge formulation, which are patented as follows:

United States:    No. 4 684 528 (August 4, 1987, expired August 2004)
                  No. 4 758 439 (July 19, 1988, expired August 2004)

Canada:           No. 1 243 952 (November 1, 1988, expired June 2005)

Great Britain:    No. 2 179 536 (December 21, 1988, expired June 2005)

Germany:          No. 3,587,766 (March 2, 1994, expired June 2005)

Sweden:           No. 0 183 840 (March 2, 1994, expired June 2005)

France & Italy:   No. EP 0 183 840 B1 (March 2, 1994, expired June 2005)

Japan:            Pending

The  following  patents have been assigned to the Company in relation to Pharma,
together with issue date:

United States: No. 6 555 573 B2 (April 29, 2003)
               No. 6 592 896 B2 (July 15, 2003)
               No. 6 596 313 B2 (July 22,  2003)
               No. 6 753 325 B2 (June 22, 2004)
               No. 6 827 945 B2 (December 7, 2004)

The  Cold-Eeze(R)  products are marketed by the Company in  accordance  with the
terms of a licensing  agreement  (between  the Company and the  developer).  The
contract is assignable by the Company with the  developer's  consent.  In return
for  exclusive  distribution  rights,  the Company  must pay the  developer a 3%
royalty  and  a 2%  consulting  fee  based  on  sales  collected,  less  certain
deductions,  throughout  the term of this  agreement,  which is due to expire in
2007.  However,  the Company and the developer are in litigation  and as such no
potential offset from such litigation for these fees has been recorded.

During 1997,  the Company  obtained a trademark for the major  components of its
lozenge,  ZIGG(TM) (denoting zinc gluconate glycine),  to set Cold-Eeze(R) apart
from the imitations then proliferating the marketplace.

An  agreement  between the Company and its  founders was entered into on June 1,
1995.  The  founders,   both  officers  and  stockholders  of  the  Company,  in
consideration of the acquisition of the Cold-Eeze(R) cold therapy product,  have
received a total  commission  of five percent  (5%),  on sales  collected,  less
certain deductions. This agreement expired on May 31, 2005.

PRODUCT DISTRIBUTION AND CUSTOMERS

The Company has several Broker, Distributor and Representative Agreements,  both
nationally and internationally,  which provide for commission compensation based
on sales performance.

The Cold-Eeze(R)  products are distributed through numerous food, chain drug and
mass merchandisers  throughout the United States, including Walgreens,Walgreen Co., Ahold,
Albertsons, CVS, RiteAid, Publix, EckerdBrooks Drug, Company, B.J's Wholesale Club, Inc., Sam's
Club,  Winn-Dixie Stores,  Inc., Wal-Mart,  Target, The Kroger Company,  Safeway
Inc., Costco Wholesale, Kmart Corporation, and wholesale distributors including,
AmerisourceBergen and Cardinal Distribution  and  McKesson  Supply
Solutions.Distribution.

The  Company is not  dependent  on any  single  customer  as the broad  range of
customers includes many large wholesalers, mass merchandisers,  and multi-outlet
pharmacy  chains,  five of which account for a  significant  percentage of sales
volume. The top five customers of the Company represent 23%29%, 23%27%, and 35%23% of its
continuing  consolidated  gross  revenues for the years ended December 31, 2005,
2004 and 2003, 2002 and 2001, respectively.


                                      -7-


Darius is a direct selling  organization  specializing in proprietary health and
wellness  products  and the  introduction  of new  products  to the  marketplace
through a network of independent distributors. This method of distribution is in
contrast to traditional  distribution  channels using independent and chain drug
and  discount  stores  as  utilized  by  the  Company  in the  promotion  of the
cold-remedy products.

Pharma  currently has no sales since it is undergoing  research and  development
activity in compliance with regulatory requirements and is at the initial stages
of what may be a lengthy process to develop commercial products.

RESEARCH AND DEVELOPMENT

The Company's  research and  development  costs for the years ended December 31,
2005, 2004 and 2003 2002were  $3,784,221,  $3,232,569 and 2001 were $3,365,698,  $2,663,291, and $1,331,639,  respectively.
Future research and development expenditures are anticipated in order to develop
extensions  of the  Cold-Eeze(R)  product,  including  potential  unrelated  new
products in the consumer health care industry,  that are primarily  supported by
clinical studies,  for efficacious  long-term  products that can be coupled with
possible line extension  derivatives for a family of products.  Clinical studies
and testing are anticipated in connection  with Pharma,  such as the formulation
of products for diabetic use, radiation  dermatitis,  influenza A, arthritis and sialorrhea and


                                       -8-

other disorders.  Principally, the increase of research and development costs in
2003 was due to expenses  incurred as part of the product research costs related
to Pharma and study costs  associated  with  Cold-Eeze(R).  Pharma is currently  involved in research  activity  following
patent  applications  that have  been  assigned  to the  Company has
acquired and researchCompany.  Research  and
development  costs,  relating to  potential  products,  are expected to increase
significantly  over time as product  researchmilestones in the development and testing
continues.regulatory process
may be achieved.

REGULATORY MATTERS

The business of the Company is subject to federal and state laws and regulations
adopted  for the  health  and  safety of users of the  Company's  products.  The
Company's  Cold-Eeze(R)  product is a  homeopathic  remedy,  which is subject to
regulation by various federal,  state and local agencies,  including the FDA and
the Homeopathic Pharmacopoeia of the United States. These regulatory authorities
have broad  powers,  and the Company is subject to  regulatory  and  legislative
changes that can affect the  economics  of the industry by requiring  changes in
operating  practices  or by  influencing  the  demand  for,  and the  costs  of,
providing  its products.  Management  believes that the Company is in compliance
with all such laws,  regulations and standards currently in effect including the
Food,  Drug  and  Cosmetics  Act  of  1938  and  the  Homeopathic  Pharmacopoeia
Regulatory  Service.  Although it is possible that future  results of operations
could be  materially  affected  by the future  costs of  compliance,  management
believes  that the future costs will not have a material  adverse  effect on the
Company's financial position or competitive position.

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 all 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.

COMPETITION

The Company competes with other suppliers of cold-remedy and health and wellness
products.   These  suppliers  range  widely  in  size.  Some  of  the  Company's
competitors  have  significantly  greater  financial,   technical  or  marketing
resources than the Company.  Management believes that its Cold-Eeze(R)  product,
which has been  clinically  proven in two  double-blind  studies  to reduce  the
severity and duration of the  common cold  symptoms,  offers a significant  advantage
over  many  of its  competitors  in  the  over-the-counter  cold-remedy  market.
Management further believes that Darius' direct marketing  distribution  methods
offer a significant advantage over many of its competitors. The Company believes
that its  ability to compete  depends on a number of factors,  including  price,
product quality, availability,  andspeed to market, reliability, credit terms, name
recognition,  delivery time and post-sale service and support. Effective October
1, 2004, a subsidiary of the Company  commenced  manufacturing  the Cold-Eeze(R)
lozenge product.  This subsidiary assures future production  capabilities of the
lozenge product which constitutes primarily all of the cold remedy revenue.


                                      -8-
EMPLOYEES

At December 31, 20032005 the Company employed 63150 full-time persons, primarily allthe majority of
whomwhich were  employed at the  Company's  manufacturing  facility in a  production
function.   The  remainder   were   involved  in  an  executive,   marketing  or
administrative  capacity.  None of the  Company's  employees  are  covered  by a
collective bargaining agreement or is a memberare members of a union.

SUPPLIERS

Prior to October 1, 2004, the  manufacturing of the lozenge form of Cold-Eeze(R)
was outsourced,  but is now under the control of the Company. The Company  currently  uses  separate  suppliersother forms of
Cold-Eeze(R)  and  remaining  products  of both the cold  remedy  and health and
wellness segments continue to produce  Cold-Eeze(R)  in
lozenge,  sugar-free  tablet and nasal  spray  form.  The  Cold-Eeze(R)  lozenge
product isbe manufactured by a contract manufacturer,  a significant  amount of
whose  revenues are from the Company.manufacturers.  Should
these third party  relationships  terminate or discontinue  for any reason,  the
Company has  formulated a  contingency  plan  necessary in order to prevent such
discontinuance  from  materially  affecting the Company's  operations.  Any such
termination  may,  however,  result in a temporary delay in production until the
replacement facility is able to meet the Company's production requirements.

Raw materials used in the production of the  cold-remedy  products are available
from numerous sources.  Currently,  they are being procured from a single vendor
in order to secure purchasing economies.economies and qualitative security. In a situation
where this one vendor is not able to supply the contract manufacturer with the ingredients,  other sources have
been  identified.  Any  situation  where the  vendor  is not able to supply  the
contract  manufacturer  with  the  ingredients  may  result in a  temporary  delay in
production  until  replacement  supplies  are  obtained  to meet  the  Company's
production requirements.

ITEM 1A. RISK FACTORS

WE HAVE A  HISTORY  OF  LOSSES  AND  LIMITED  WORKING  CAPITAL  AND WE EXPECT TO
INCREASE OUR SPENDING.

We have  experienced  net  losses  for  three of our past  seven  fiscal  years.
Although  we  earned  net  income  of  approximately  $3,217,000,  $453,000  and
$675,000, respectively, in our most recent fiscal years ended December 31, 2005,
December 31, 2004 and 2003, we incurred net losses of $6,454,000, $5,196,000 and
$4,204,000,  respectively, in the fiscal years ended December 31, 2002, December
31, 2000 and December 31, 1999.  In the fiscal year ended  December 31, 2001, we
earned net income of $216,000,  but that amount included net settled  litigation
payments paid to us of  approximately  $700,000 related to licensing fees. As of
December 31, 2005, we had working capital of approximately $20,682,000. Since we
continue to increase our spending on research and development in connection with
Pharma's  product  development,  we  are  uncertain  whether  we  will  generate
sufficient revenues to meet expenses or to operate profitably in the future.

WE HOLD PATENTS WHICH WE MAY NOT BE ABLE TO DEVELOP INTO PHARMACEUTICAL MEDICATIONS.

Our  success  depends  in part on  Pharma's  ability  to  research  and  develop
prescription medications based on our patents which are:

     o    A Patent (No.  6,555,573 B2) entitled  "Method and Composition for the
          Topical Treatment of Diabetic  Neuropathy." The patent extends through
          March 27, 2021.

     o    A Patent (No. 6,592,896 B2) entitled "Medicinal Composition and Method
          of Using It" (for Treatment of Sialorrhea  and other  Disorders) for a
          product to relieve  Sialorrhea  (drooling) in patients  suffering from
          Amyotrophic  Lateral Sclerosis (ALS),  otherwise known as Lou Gehrig's
          Disease. The patent extends through August 6, 2021.

     o    A Patent (No.  6,596,313  B2)  entitled  "Nutritional  Supplement  and
          Method of Using It" for a product to relieve Sialorrhea  (drooling) in
          patients suffering from Amyotrophic Lateral Sclerosis (ALS), otherwise
          known as Lou Gehrig's  Disease.  The patent extends  through April 15,
          2022.

     o    A Patent  (No.  6,753,325  B2)  entitled  "Composition  and Method for
          Prevention,  Reduction  and  Treatment  of  Radiation  Dermatitis,"  a
          composition  for  the  preventing,   reducing  or  treating  radiation
          dermatitis. The patent extends through November 5, 2021.

     o    A Patent (No. 6,827,945 B2) entitled "Nutritional Supplement & Methods
          of Using  Same" for a naturally  derived  compound  developed  for the
          treatment of arthritis and related inflammatory disorders.  The patent
          extends through August 22, 2023.


                                      -9-


These potential new products are in the development stage and we cannot give any
assurances  that we can develop  commercially  viable products from these patent
applications.  Prior to any new product  being  ready for sale,  we will have to
commit substantial  resources for research,  development,  preclinical  testing,
clinical  trials,  manufacturing  scale-up  and  regulatory  approval.  We  face
significant  technological  risks inherent in developing these products.  We may
abandon some or all of our proposed new products before they become commercially
viable.  Even if we develop and obtain  approval of a new product,  if we cannot
successfully  commercialize  it in a timely  manner,  our business and financial
condition may be materially adversely affected.

WE  WILL  NEED  TO  OBTAIN  ADDITIONAL  CAPITAL  TO  SUPPORT  LONG-TERM  PRODUCT
DEVELOPMENT AND COMMERCIALIZATION PROGRAMS.

Our ability to achieve and sustain operating profitability depends in large part
on our ability to commence,  execute and  complete  clinical  programs  for, and
obtain additional regulatory approvals for,  prescription  medications developed
by Pharma,  particularly  in the U.S. and Europe.  We cannot  assure you that we
will ever obtain such  approvals  or achieve  significant  levels of sales.  Our
current sales levels of Cold-Eeze(R)  products and health and wellness  products
may not  generate  all the funds we  anticipate  will be needed to  support  our
current  plans  for  product  development.  We may  need  to  obtain  additional
financing to support our long-term  product  development  and  commercialization
programs.  We may  seek  additional  funds  through  public  and  private  stock
offerings,  arrangements  with  corporate  partners,  borrowings  under lines of
credit or other sources.

The amount of capital we may need to complete  product  development  of Pharma's
products will depend on many factors, including;

     o    the cost involved in applying for and obtaining FDA and  international
          regulatory approvals;

     o    whether we elect to establish partnering arrangements for development,
          sales, manufacturing and marketing of such products;

     o    the level of future sales of our  Cold-Eeze(R) and health and wellness
          products,  expense  levels for our  international  sales and marketing
          efforts;

     o    whether we can  establish  and  maintain  strategic  arrangements  for
          development, sales, manufacturing and marketing of our products; and

     o    whether  any or  all  of our  outstanding  options  and  warrants  are
          exercised and the timing and amount of these exercises.

Many of the  foregoing  factors are not within our control.  If we need to raise
additional  funds and such funds are not available on reasonable  terms,  we may
have to reduce  our  capital  expenditures,  scale back our  development  of new
products,   reduce  our  workforce  and   out-license  to  others   products  or
technologies  that we  otherwise  would  seek to  commercialize  ourselves.  Any
additional  equity  financing  will be  dilutive to  stockholders,  and any debt
financing, if available, may include restrictive covenants.

OUR CURRENT  PRODUCTS  AND  POTENTIAL  NEW  PRODUCTS  ARE  SUBJECT TO  EXTENSIVE
GOVERNMENTAL REGULATION.

Our business is regulated by various agencies of the states and localities where
our products are sold.  Governmental  regulations in foreign  countries where we
plan to  commence  or expand  sales may  prevent or delay entry into a market or
prevent or delay the introduction,  or require the reformulation,  of certain of
our products.  In addition,  we cannot  predict  whether new domestic or foreign
legislation regulating our activities will be enacted. Any new legislation could
have  a  material  adverse  effect  on our  business,  financial  condition  and
operations.  Non-compliance  with any applicable  requirements may subject us or
the  manufacturers  of our products to  sanctions,  including  warning  letters,
fines, product recalls and seizures.

COLD REMEDY AND HEALTH AND WELLNESS  PRODUCTS.  The  manufacturing,  processing,
formulation,  packaging,  labeling and advertising of our cold remedy and health
and wellness  products are subject to  regulation by several  federal  agencies,
including:

     o    the FDA;

     o    the Federal Trade Commission ("FTC");


                                      -10-


     o    the Consumer Product Safety Commission;

     o    the United States Department of Agriculture;

     o    the United States Postal Service;

     o    the United States Environmental Protection Agency; and

     o    the Occupational Safety and Health Administration.

In  particular,  the FDA  regulates  the safety,  labeling and  distribution  of
dietary  supplements,  including  vitamins,  minerals and herbs, food additives,
food supplements, over-the-counter and prescription drugs and cosmetics. The FTC
also has  overlapping  jurisdiction  with the FDA to regulate the  promotion and
advertising  of  vitamins,  over-the-counter  drugs,  cosmetics  and  foods.  In
addition,  our cold remedy products are homeopathic remedies which are regulated
by the Homeopathic  Pharmacopoeia of the United States  ("HPUS").  HPUS sets the
standards for source,  composition and preparation of homeopathic remedies which
are officially recognized in the Federal Food, Drug and Cosmetics Act of 1938.

PHARMA. The preclinical 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. Clinical trials and product
marketing  and  manufacturing  are subject to the  rigorous  review and approval
processes of the FDA and foreign regulatory authorities. Obtaining FDA and other
required  regulatory  approvals is lengthy and expensive.  Typically,  obtaining
regulatory approval for pharmaceutical  products requires substantial  resources
and takes  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
indication to be treated.  Preclinical studies must comply with FDA regulations.
Clinical  trials  must also comply with FDA  regulations  and may require  large
numbers of test  subjects,  complex  protocols  and possibly  lengthy  follow-up
periods.  Consequently,  satisfaction of government regulations may take several
years,  may cause delays in introducing  potential new products for considerable
periods of time and may require imposing costly  procedures upon our activities.
If we cannot obtain regulatory approval of new products in a timely manner or at
all we could be  materially  adversely  affected.  Even if we obtain  regulatory
approval of new products,  such approval may impose limitations on the indicated
uses for  which  the  products  may be  marketed  which  could  also  materially
adversely affect our business, financial condition and future operations.

OUR  BUSINESS  IS  VERY  COMPETITIVE  AND  INCREASED  COMPETITION  COULD  HAVE A
SIGNIFICANT IMPACT ON OUR EARNINGS.

Both the non-prescription  healthcare product and pharmaceutical  industries are
highly competitive.  Many of our competitors have substantially  greater capital
resources,  research and development  staffs,  facilities and experience than we
do.  These and other  entities may have or may develop new  technologies.  These
technologies may be used to develop products that compete with ours.

We believe that our primary cold remedy product, Cold-Eeze(R), has a competitive
advantage over other cold remedy products because it has been clinically  proven
to reduce the severity and duration of common cold  symptoms.  We believe Darius
has an advantage over its competitors  because it directly sells its proprietary
health and  wellness  products  through  its  extensive  network of  independent
distributors.  Competition in Pharma's  expected product areas would most likely
come  from  large   pharmaceutical   companies  as  well  as  other   companies,
universities  and research  institutions,  many of which have  resources  far in
excess of our resources.

The Company believes that its ability to compete depends on a number of factors,
including price, product quality, availability, reliability and name recognition
of its cold  remedy,  health  and  wellness  products  and  Pharma's  ability to
successfully  develop  and  market  prescription  medications.  There  can be no
assurance that we will be able to compete  successfully in the future. If we are
unable to compete, our earnings may be significantly impacted.

OUR FUTURE  SUCCESS IS  DEPENDENT  ON THE  CONTINUED  SERVICES OF KEY  PERSONNEL
INCLUDING OUR CHAIRMAN OF THE BOARD OF DIRECTORS,  PRESIDENT AND CHIEF EXECUTIVE
OFFICER.

Our future  success  depends in large part on the  continued  service of our key
personnel.  In  particular,  the loss of the  services  of Guy J.  Quigley,  our
Chairman  of the  Board,  President  and Chief  Executive  Officer  could have a
material adverse effect on our operations.  We have an employment agreement with
Mr.  Quigley which expired on December 31, 2005.  Our future  success and growth
also depends on our ability to continue to attract,  motivate and retain  highly
qualified employees. If we are unable to attract,  motivate and retain qualified
employees, our business and operations could be materially adversely affected.


                                      -11-


OUR FUTURE SUCCESS DEPENDS ON THE CONTINUED EMPLOYMENT OF RICHARD A. ROSENBLOOM,
M.D., PH.D., WITH PHARMA.

Pharma's  potential new products are being developed  through the efforts of Dr.
Rosenbloom. The loss of his services could have a material adverse effect on our
product development and future operations.

OUR FUTURE  SUCCESS  IS  DEPENDENT  ON THE  CONTINUED  ACCEPTANCE  OF THE DIRECT
SELLING  PHILOSOPHY,  THE  MAINTENANCE  OF OUR NETWORK OF  EXISTING  INDEPENDENT
DISTRIBUTOR   REPRESENTATIVES  AND  THE  RECRUITMENT  OF  ADDITIONAL  SUCCESSFUL
INDEPENDENT DISTRIBUTOR REPRESENTATIVES.

Darius markets and sells herbal  vitamins and dietary  supplements for the human
condition through its network of independent  distributor  representatives.  Its
products are sold to independent distributor  representatives who either use the
products for their own personal  consumption  or resell them to  consumers.  The
independent distributor  representatives receive compensation for sales achieved
by means of a commission structure or compensation plan on certain product sales
of  certain   personnel   within  their   downstream   independent   distributor
representative  network. Since the independent  distributor  representatives are
not employees of Darius,  they are under no  obligation  to continue  buying and
selling  Darius'  products  and the loss of key  high-level  distributors  could
negatively impact our future growth and profitability.

OUR FUTURE SUCCESS DEPENDS ON THE CONTINUED SALES OF OUR PRINCIPAL PRODUCT.

For  the  fiscal  year  ended  December  31,  2005,  our  Cold-Eeze(R)  products
represented approximately 55% of our total sales. While we have diversified into
health and wellness products,  our line of Cold-Eeze(R) products continues to be
a major part of our  business.  Accordingly,  we have to depend on the continued
acceptance of Cold-Eeze(R) products by our customers.  However,  there can be no
assurance  that our  Cold-Eeze(R)  products  will  continue  to  receive  market
acceptance.  The inability to  successfully  commercialize  Cold-Eeze(R)  in the
future,  for resaleany reason,  would have a material  adverse effect on our financial
condition, prospects and ability to continue operations.

WE HAVE A CONCENTRATION  OF SALES TO AND ACCOUNTS  RECEIVABLE FROM SEVERAL LARGE
CUSTOMERS.

Although  we  have  a  broad  range  of  customers   that  includes  many  large
wholesalers,  mass  merchandisers and multiple outlet pharmacy chains,  our five
largest customers account for a significant  percentage of our sales. These five
customers  accounted  for 29% of total sales for the fiscal year ended  December
31, 2005 and 29% of total sales for the fiscal year ended  December 31, 2004. In
addition,  customers  comprising the five largest accounts  receivable  balances
represented  47% and 48% of total accounts  receivable  balances at December 31,
2005 and 2004,  respectively.  We extend credit to our  customers  based upon an
evaluation  of their  financial  condition  and  credit  history,  and we do not
generally require collateral. If one or more of these large customers cannot pay
us, the write-off of their  accounts  receivable  would have a material  adverse
effect on our operations and financial  condition.  The loss of sales to any one
or more of these large  customers  would also have a material  adverse effect on
our operations and financial condition.

WE ARE DEPENDENT ON THIRD-PARTY  MANUFACTURERS  AND SUPPLIERS FOR OUR HEALTH AND
WELLNESS  PRODUCTS  AND  THIRD-PARTY  SUPPLIERS  FOR  CERTAIN OF OUR COLD REMEDY
PRODUCTS.

We do not  manufacture  any of  our  Health  and  Wellness  products,  nor do we
manufacture any of the ingredients in these products.  In addition,  we purchase
all  active  ingredients  that are sourcedraw  materials  used in  connection  with our
Cold-Eeze(R)  product from several  suppliers.  Ina single unaffiliated  supplier.  Should any of these
relationships  terminate,  we believe that the  contingency  plans which we have
formulated would prevent a termination from materially affecting our operations.
However,  if any of these  relationship  is  terminated,  there may be delays in
production of our products until an acceptable  replacement facility is located.
We continue to look for safe and reliable multiple-location sources for products
and raw  materials so that we can continue to obtain  products and raw materials
in the  event of a  disruption  in our  business  relationship  with any  single
manufacturer or supplier. While we have identified secondary sources for some of
our products and raw materials,  our inability to find other sources for some of
our other  products and raw materials may have a material  adverse effect on our
operations.  In addition,  the terms on which  manufacturers  and suppliers will
make products and raw materials  available to us could have a material effect on
our success.

WE ARE UNCERTAIN AS TO WHETHER WE CAN PROTECT OUR PROPRIETARY RIGHTS.

The strength of our patent  position may be important to our long-term  success.
We  currently  own five  patents  in  connection  with  products  that are being
developed by Pharma.  In addition,  we have been granted an exclusive  agreement
for worldwide representation,  manufacturing,  marketing and distribution rights
to a  zinc/gluconate/glycine  lozenge  formulation.  That  formulation  has been
patented in the United States, Germany, France, Italy, Sweden, Canada and Great


                                      -12-


Britain  and a patent is pending in Japan.  However,  this  patent in the United
States  expired in August 2004 and expired in June 2005 in all countries  except
Japan.

There can be no  assurance  that these  patents and our  exclusive  license will
effectively protect our products from duplication by others. In addition, we may
not be able to afford the expense of any  litigation  which may be  necessary to
enforce  our rights  under any of our  patents.  Although  we  believe  that our
current  and future  products do not and will not  infringe  upon the patents or
violate  the  proprietary  rights of  others,  if any of our  current  or future
products do infringe upon the patents or  proprietary  rights of others,  we may
have to modify our products or obtain an additional  license for the manufacture
and/or  sale of such  products.  We could also be  prohibited  from  selling the
infringing  products.  If we are found to infringe on the proprietary  rights of
others, we are uncertain whether we will be able to take corrective actions in a
timely manner, upon acceptable terms and conditions,  or at all, and the failure
to do so could have a  material  adverse  effect  upon our  business,  financial
condition and operations.

We also use non-disclosure agreements with our employees, suppliers, consultants
and customers to establish and protect the ideas,  concepts and documentation of
our confidential non-patented and non-copyright protected proprietary technology
and know-how.  However, these methods may not afford complete protection.  There
can  be  no  assurance   that  third  parties  will  not  obtain  access  to  or
independently   develop  our  technologies,   know-how,   ideas,   concepts  and
documentation,  which  could have a  material  adverse  effect on our  financial
condition.

THE SALES OF OUR PRIMARY PRODUCT FLUCTUATES BY SEASON.

A  significant  portion of our business is highly  seasonal,  which causes major
variations  in operating  results from quarter to quarter.  The third and fourth
quarters  generally  represent  the  largest  sales  volume for our cold  remedy
products.  There can be no assurance  that we will be able to manage our working
capital needs and our inventory to meet the fluctuating demand for our products.
Failure to  accurately  predict and  respond to consumer  demand may cause us to
produce excess inventory.  Conversely,  if products achieve greater success than
anticipated for any given quarter, we may not have sufficient  inventory to meet
customer demand.

OUR  EXISTING  PRODUCTS  AND OUR NEW  PRODUCTS  UNDER  DEVELOPMENT  EXPOSE US TO
POTENTIAL PRODUCT LIABILITY CLAIMS.

Our  business  exposes us to an inherent  risk of  potential  product  liability
claims,  including claims for serious bodily injury or death caused by the sales
of our existing products and the clinical trials of our products which are being
developed.  These claims could lead to substantial  damage awards.  We currently
maintain product liability insurance in the amount of, and with a maximum payout
of, $15 million.  A successful claim brought against us in excess of, or outside
of, our insurance  coverage could have a material  adverse effect on our results
of operations and financial  condition.  Claims against us,  regardless of their
merit or  eventual  outcome,  may also  have a  material  adverse  effect on the
consumer demand for our products.

WE ARE  INVOLVED  IN  LAWSUITS  REGARDING  CLAIMS  RELATING  TO  CERTAIN  OF OUR
COLD-EEZE(R) PRODUCTS.

We are,  from time to time,  subject to various  legal  proceedings  and claims,
either  asserted or unasserted.  Any such claims,  including  those contained in
Item 3 of this report,  whether with or without merit,  could be  time-consuming
and expensive to defend and could divert  management's  attention and resources.
While  management   believes  we  have  adequate   insurance  coverage  and,  if
applicable,  accrued loss contingencies for all known matters,  we cannot assure
that the  outcome of all current or future  litigation  will not have a material
adverse effect on us.

A SUBSTANTIAL AMOUNT OF OUR OUTSTANDING COMMON STOCK IS OWNED BY OUR CHAIRMAN OF
THE BOARD AND PRESIDENT AND OUR EXECUTIVE  OFFICERS AND DIRECTORS AS A GROUP CAN
SIGNIFICANTLY INFLUENCE ALL MATTERS VOTED ON BY OUR STOCKHOLDERS.

Guy J.  Quigley,  our  Chairman  of the  Board,  President  and Chief  Executive
Officer,  through his beneficial ownership,  has the power to vote approximately
33.2% of our common  stock.  Mr.  Quigley and our other  executive  officers and
directors collectively beneficially own approximately 48.7% of our common stock.
These  individuals  have  significant  influence over the outcome of all matters
submitted  to  stockholders  for  approval,  including  election  of  directors.
Consequently,  they exercise substantial control over all of our major decisions
which could prevent a change of control of us.


                                      -13-


OUR STOCK PRICE IS VOLATILE.

The market price of our common  stock has  experienced  significant  volatility.
From January 1, 2002 to March 10, 2006,  our per share bid price has ranged from
a low of  approximately  $2.03  to a high of  approximately  $16.94.  There  are
several factors which could affect the price of our common stock,  some of which
are announcements of technological innovations for new commercial products by us
or our competitors,  developments  concerning  propriety rights,  new or revised
governmental  regulation  or general  conditions in the market for our products.
Sales of a substantial number of shares by existing stockholders could also have
an adverse effect on the market price of our common stock.

FUTURE SALES OF SHARES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD  ADVERSELY
AFFECT THE TRADING  PRICE OF SHARES OF OUR COMMON STOCK AND OUR ABILITY TO RAISE
FUNDS IN NEW STOCK OFFERINGS.

Future sales of substantial  amounts of shares of our common stock in the public
market,  or the  perception  that such sourcessales are likely to occur,  could  affect
prevailing trading prices of our common stock and, as a result, the value of the
notes.  As of  March  10,  2006,  we  had  11,678,478  shares  of  common  stock
outstanding.

We also have outstanding options to purchase an aggregate of 3,068,750 shares of
common  stock at an average  exercise  price of $7.58 per share and  outstanding
warrants to purchase an  aggregate  of  1,555,000  shares of common  stock at an
exercise price of $4.76 per warrant. If the holders of these shares,  options or
warrants were no longerto attempt to sell a substantial amount of their holdings at once,
the  market  price of our common  stock  would  likely  decline.  Moreover,  the
perceived risk of this potential dilution could cause stockholders to attempt to
sell their  shares and  investors  to "short" the stock,  a practice in which an
investor  sells shares that he or she does not own at prevailing  market prices,
hoping to purchase  shares later at a lower price to cover the sale.  As each of
these events would cause the number of shares of our common stock being  offered
for sale to increase,  the common  stock's  market  price would  likely  further
decline.  All of these events could combine to make it very  difficult for us to
sell equity or equity-related  securities in the future at a time and price that
we deem appropriate.

WE DO NOT INTEND TO PAY CASH DIVIDENDS IN THE FORESEEABLE FUTURE.

We have not paid cash  dividends  on our common  stock since our  inception.  We
currently intend to retain earnings,  if any, for use in our business and do not
anticipate  paying any cash  dividends to our  stockholders  in the  foreseeable
future.

OUR ARTICLES OF INCORPORATION AND BY-LAWS CONTAIN CERTAIN PROVISIONS THAT MAY BE
BARRIERS TO A TAKEOVER.

Our Articles of Incorporation  and By-laws contain certain  provisions which may
deter,  discourage,  or make it  difficult  to assume  control  of us by another
corporation or person through a tender offer,  merger,  proxy contest or similar
transaction  or  series of  transactions.  These  provisions  may deter a future
tender offer or other takeover  attempt.  Some  stockholders may believe such an
offer to be in their best  interest  because it may  include a premium  over the
market price of our common stock at the time. In addition,  these provisions may
assist our current management in retaining its position and place it in a better
position  to  supply  Dariusresist  changes  which  some  stockholders  may  want  to  make if
dissatisfied with product,the conduct of our business.

WE HAVE AGREED TO INDEMNIFY OUR OFFICERS AND DIRECTORS FROM LIABILITY.

Sections  78.7502 and 78.751 of the Nevada General  Corporation  Law allow us to
indemnify  any person who is or was made a party to, or is or was  threatened to
be made a party to,  any  pending,  completed,  or  threatened  action,  suit or
proceeding because he or she is or was a director, officer, employee or agent of
ours or is or was  serving at our request as a  director,  officer,  employee or
agent of any corporation, partnership, joint venture, trust or other vendors have been identified as reliable alternativesenterprise.
These  provisions  permit us to  advance  expenses  to an  indemnified  party in
connection with minimal adverse
lossdefending any such proceeding, upon receipt of business.an undertaking by
the indemnified  party to repay those amounts if it is later determined that the
party is not entitled to  indemnification.  These provisions may also reduce the
likelihood  of  derivative   litigation   against  directors  and  officers  and
discourage or deter  stockholders  from suing directors or officers for breaches
of their  duties  to us,  even  though  such an  action,  if  successful,  might
otherwise  benefit us and our stockholders.  In addition,  to the extent that we
expend funds to indemnify directors and officers,  funds will be unavailable for
operational purposes.

ITEM 1B.          UNRESOLVED STAFF COMMENTS

Not Applicable


                                      -14-


ITEM 2.  DESCRIPTION OF PROPERTYPROPERTIES

The corporate office of The Quigley  Corporation is located at 621 Shady Retreat
Road,  Doylestown,  Pennsylvania.  This property,  with an area of approximately
13,000 square feet, was purchased in November 1998 and refurbished  during 1999.
The Company occupies  warehouse space in Las Vegas,  Nevada at a current monthly
cost of $2,396.$2,537. This Nevada location has a three-year lease that expires in July
2006.  In  addition  to storage  facilities  at the  contract   manufacturers'manufacturing  subsidiary's
locations,  the Company also stores product in a number of additional warehouses
in Pennsylvania  with storage charges based upon the quantities of product being
stored.

The manufacturing facilities of the Company are located in each of Elizabethtown
and Lebanon,  Pennsylvania.  The facilities were purchased  effective October 1,
2004. In total, the facilities have a total area of approximately  73,000 square
feet, combining both manufacturing and office space.

The Darius business in Utah is located at 867 East 2260 South, Provo, Utah, with
an area of  approximately  24,70028,350 square feet. The current monthly lease cost of
this office and warehouse space is $10,713$11,772 with the leases  that are set to expire in September 2005 and July
2007,  respectively.2007. The Company expects that these leases will be renewed or that  alternative
spaces will be obtained.

The Company believes that its existing facilities are adequate at this time.

ITEM 3.  LEGAL PROCEEDINGS

         TESAURO AND ELEY VS. THE QUIGLEY CORPORATION

In September,  2000, the Company was sued by two individuals  (Jason Tesauro and
Elizabeth Eley, both residents of Georgia), on behalf of a "nationwide class" of
"similarly  situated  individuals," in the Court of Common Pleas of Philadelphia
County,  Pennsylvania.  The  Complaint  alleges  that the  Plaintiffs  purchased
certain Cold-Eeze(R)  products between August,  1996, and November,  1999, based
upon  cable  television,  radio  and  internet  advertisements  which  allegedly
misrepresented  the  qualities  and  benefits  of the  Company's  products.  The
Complaint   requests  an  unspecified   amount  of  damages  for  violations  of
Pennsylvania's   consumer   protection   law,  breach  of  warranty  and  unjust
enrichment, as well as a judicial determination that the action be maintained as
a class action.

In October,  2000,  the Company  filed  Preliminary  Objections to the Complaint
seeking dismissal of the action.  The Court sustained certain objections thereby
narrowing  Plaintiffs'  Complaint.  In May, 2001,  Plaintiffs  filed a Motion to
Certify the Alleged Class.  The Company opposed the Motion.  In November,  2001,
the Court  held a hearing on  Plaintiffs'  Motion  for Class  Certification.  In
January,  2002,  the Court  denied in part and  granted in part the  Plaintiffs'
Motion.  The  Court  denied  Plaintiffs'  Motion  to  Certify  a Class  based on
Plaintiffs' claim under the Pennsylvania  Consumer Protection Law; however,  the
Court  certified  the class based on  Plaintiffs'  breach of warranty and unjust
enrichment claims.

Discovery  has been  completed and trial that was  originally  scheduled for May
2004 has been scheduled to commence in May
2004.continued pending  determination of certain dispositive  pre-trial
motions  filed by the  Company  which have been argued and briefed and have been
pending  before the Court for  determination  since March  2005.  The Company is
vigorously defending this lawsuit and believes that the action lacks merit.

         PAIGE D. DAVISON VS. THE QUIGLEY CORPORATION

On  February  26,  2004,  the  plaintiff  filed an action  against  The  Quigley
Corporation  (the  "Company"),  which was not served  until  April 5, 2004.  The
action  alleges that the  plaintiff  suffered  certain  losses and injuries as a
result of using the Company's nasal spray product.  Among the allegations of the
plaintiff  are that the nasal spray was defective  and  unreasonably  dangerous,
lacked proper and adequate warnings and/or instructions, and was not fit for the
purposes and uses intended.

The Company has investigated the claims and believes they are without merit. The
Company  believes  plaintiff's  claims  are  without  merit  and  is  vigorously
defending those claims. Based upon the information the Company has at this time,
it believes the action will not have a material impact to the Company.  However,
at this time no prediction as to the outcome can be made.  GOLDBLUM AND WAYNE

A Special Meeting ofDefense counsel takes
the  Quigley  stockholders  was held on October 15, 1999, at
which a majority ofposition  that the shares  entitled  to vote  adopted a  Corrective  Action
Proposal  (initially  reportedscience  proposed in the  Company's Form 10-Q forlitigation  appears to be more
advanced  than the  quarter ending
June 30, 1999) to ratify actions previously taken byscience  which  exists in peer  reviewed  medical  journals.
Whether  the Companycourt will  admit the  testimony  relating  to the  1990 1 for 2.74 reverse  split,  the 1995 1 for 10 reverse  split (the  "Reverse
Splits") and the 1997 1 for 2 forward split (the "Forward  Split").  Pursuant to
the October 15, 1999 Special  Meeting,  the Company  authorized  the filing ofscience  behind
plaintiff's claims, is not a declaratory  judgmentmatter which we can predict at this time.


                                      -15-


                       POLSKI VS. THE QUIGLEY CORPORATION

On August 12, 2004, plaintiff filed an action against The Quigley Corporation in Nevada to determine  the  effectiveness  of the
Corrective Action.

In August 2000,
the District Court of Clarkfor Hennepin  County,  Nevada,  held that it had
jurisdiction to decide the Company's declaratory judgment action filed in April,
2000,  against two putative  shareholders  (Thomas Goldblum and Alan Wayne),  inMinnesota,  which was not served until
September 2, 2004.  On September 17, 2004,  the Company  seeks a  judicial  declaration  that,  based on  stockholder
approval ofremoved the Corrective Action Proposal,case to the
Reverse Splits and Forward Split
satisfy  and/or  comply with Nevada law and that the  capitalization  of Quigley
evidenced by the issued and outstanding  shares of common stock and common stock
warrants is as reflected on Quigley's  stock  transfer  ledger on September  10,
1999, the record date of the Special Meeting. TheUnited States  District Court for the District of Clark County
heldMinnesota.  The action alleges
that plaintiff suffered certain losses and injuries as a hearing  on this  matter  on March  19,  2002 and  ruled in favor of The
Quigley Corporation. A final judgment has been entered of record by the Court on
June 21, 2002.  The period for appeal of this order to the Nevada  Supreme Court
has expired.


                                      -10-


An underlying  claim filed by Goldblum and Wayne in the Court of Common Pleas of
Montgomery  County,  Pennsylvania on March 17, 1996 alleging that the plaintiffs
became owners of 500,000  shares eachresult of the Company's
common stock in or about
1990 and  requested  damages in excessnasal spray product. Among the allegations of $100,000  forplaintiff are negligence, products
liability,  alleged  breach of contractexpress  and conversion.implied  warranties,  and an alleged
breach of the Minnesota Consumer Fraud Statute. Discovery should be completed in
this matter within 120 days and trial is scheduled for October 2006.

The  Company  believedhas  investigated  the claims and  believes  that the plaintiffs'  claims werethey are without
merit,  barred by
the applicable  statutes of  limitations,  and that the plaintiffs  were, in any
event, limited to claims for approximately 36,000 shares.merit.  The  Company  vigorously  defended this lawsuit through trial during January 2004,
when a jury  returned a unanimous  verdict in favor of the Company.  Thereafter,
the plaintiffs  filed a motion for  post-trial  relief as a first step toward an
appeal, which the Company regards asbelieves  plaintiff's  claims  are  without  merit  and will oppose. Although the
Company  regards any effort by  plaintiffs  to pursue an appeal as lacking merit
and basedis
vigorously defending those claims. Based upon the information the Company has at
this  time,  it  believes  the  action  will not have a  material  impact to the
Company.  However,  at this time no  prediction  as to the  outcome of this appeal can be made.
Defense  counsel takes the position that the science  proposed in the litigation
appears to be more  advanced  than the  science  which  exists in peer  reviewed
medical  journals.  Whether the court will admit the  testimony  relating to the
science behind plaintiff's  claims, is not a matter which we can predict at this
time.

      ANGELFIRE, ARVIN, BELL, BROWN, EDWARDS, HOHNSTEIN, HOFFMAN, LAURENT,
                  MARTIN, RICHARDSON, RIGSBY, SEONE, SMALLEY,
              VAN BENTHEM AND WILLIAMS VS. THE QUIGLEY CORPORATION

On November 4, 2004, seven (7) plaintiffs filed an action in the Court of Common
Pleas of Bucks  County,  Pennsylvania,  against the Company.  The  complaint was
amended  on March 11,  2005 to add an  additional  eight (8)  plaintiffs  in the
action. The action alleges that plaintiffs  suffered certain losses and injuries
as a result of using the Company's nasal spray product. Among the allegations of
plaintiffs  are  claims  that the  Company  is liable to them  based on  alleged
negligence,  alleged strict  products  liability  (failure to warn and defective
design), alleged breach of express warranty,  alleged breach of implied warrant,
and an alleged violation of the Pennsylvania Unfair Trade Practices and Consumer
Protection Law and other consumer protection statutes.

At the present time,  the matter is being  defended by the  Company's  insurance
carrier.  An answer  stating  affirmative  defenses  has been  filed.  Pre-trial
discovery is being scheduled.

The Company  believes  plaintiffs'  claims are without  merit and is  vigorously
defending those claims. Based upon the information the Company has at this time,
it believes the action will not have a material impact to the Company.  However,
at this time no prediction as to the outcome can be made.  Defense counsel takes
the  position  that the science  proposed in the  litigation  appears to be more
advanced  than the  science  which  exists in peer  reviewed  medical  journals.
Whether  the court will  admit the  testimony  relating  to the  science  behind
plaintiffs' claims, is not a matter which we can predict at this time.

               THE QUIGLEY CORPORATION VS. JOHN C. GODFREY, ET AL

This action was commenced in November 2004 in the Court of Common Pleas of Bucks
County,  Pennsylvania.  In that action,  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(R)
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 has moved to dismiss  portions of defendant's  counterclaims  on the
grounds that they are meritless.

At the present time,  discovery is being  conducted by the Company on its claims
and on the counterclaims brought by John C. Godfrey, et al.

The Company believes  Defendant's claims are without merit, and it is vigorously
defending the counterclaims prosecuting its action on its complaint.  Based upon
the  information  the Company has at this time,  it believes the action will not
have a material impact to the Company. However, at this time no prediction as to
the outcome can be made.


                                      -16-


            AXIS SPECIALTY INSURANCE CO. VS. THE QUIGLEY CORPORATION

         This action,  filed in January 2005,  stems from a dispute  between the
Company and one of its excess liability insurance carriers, who seeks a judicial
declaration of its insurance  coverage  obligations  concerning  certain product
liability  claims related to the Company's  nasal spray  product.  The carrier's
action  follows a  complaint  by the  Company  filed in  December  2004 with the
Pennsylvania  Insurance  Commission,  which ultimately sided with the Company in
determining  that the carrier failed to observe proper  notification  procedures
when it first sought to limit,  or  alternatively  to insure at a  substantially
higher premium, its coverage obligations.

The Company  denied the material  allegations  of the carrier's  complaint,  and
asserted its own counterclaim also seeking  declaratory  relief to establish the
extent of its excess  liability  coverage.  Thereafter,  the parties  engaged in
discovery  to  establish a record  upon which the court could  decide the matter
based on summary  judgment  motions on the  carrier's  claims and the  Company's
counterclaims.  Both parties sought summary judgment in motions submitted to the
court in the fall of 2005.  On  February  16,  2006,  the court  handed down its
ruling, in which the court granted in part and denied in part both the carrier's
motion and the Company's  motion.  The effect of the court's  ruling is that the
plaintiff insurer's  responsibility for excess coverage is limited to claims for
damages for bodily injury or property  damage that occurred on or after April 6,
2004,  but leaves  uncertain  coverage  for claims  filed after April 6, 2004 by
persons  who  contacted  the  Company  before  then.  Although  the  Company  is
evaluating grounds for appeal, and cannot rule out an appeal by the carrier, the
court's  ruling  both  clarifies  the  Company's  potential  exposure as well as
establishes a basis for the Company to seek redress  against  parties liable for
any lack of adequate excess insurance coverage for this exposure.

Based upon the  information the Company has at this time relative to the defense
of claims  occurring  before April 6, 2004, the Company believes that the claims
are without merit and is fully defending those claims through insurance counsel.
However,  at this  time no  prediction  as to the  outcome  can be made of these
claims and whether insurance  coverage from the period prior to April 6, 2004 is
adequate for coverage of all claims.

                CYNTHIA AARON VS. THE QUIGLEY CORPORATION, ET AL

On March 15,  2005, a complaint  was filed in the  Superior  Court for San Diego
County, California.  This complaint was served on the Company on April 21, 2005.
The plaintiff's  complaint  consists of causes of action sounding in negligence,
negligent products liability,  breach of warranty of merchantability,  breach of
express  warranty,  strict  products  liability and failure to warn.  The action
alleges that the plaintiff  suffered  certain losses and injuries as a result of
using  the  Company's  nasal  spray  product.  Discovery  in this  case  will be
completed within 120 days and trial is scheduled for September 18, 2006.

The Company  believes  plaintiff's  claims are without  merit and is  vigorously
defending those claims. Based upon the information the Company has at this time,
it believes the action will not have a material impact on the Company.  However,
at this time no  prediction  as to the  outcome can be made.  Insurance  defense
counsel  has  informed  the  Company  that  counsel  is unable to  evaluate  the
likelihood of an  unfavorable  outcome at this time.  Defense  counsel takes the
position that the science proposed in the litigation appears to be more advanced
than the science which exists in peer  reviewed  medical  journals.  Whether the
court  will admit the  testimony  relating  to the  science  behind  plaintiff's
claims, is not a matter which we can predict at this time.

                    DOLORES SMITH VS. THE QUIGLEY CORPORATION

On May 25,  2005,  a complaint  was filed in the Court of Common  Pleas of Bucks
County,  Pennsylvania.  The complaint was served on the Company on or about June
14, 2005. The  plaintiff's  complaint  consists of counts of negligence,  strict
product liability,  breach of express warranty,  breach of implied warranty, and
violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law
and other  Consumer  Protection  Statutes  relating to the use of the  Company's
COLD-EEZE Nasal Spray Product.

The Company  believes  plaintiff's  claims are without  merit and is  vigorously
defending those claims. Based upon the information the Company has at this time,
it believes the action will not have a material impact on the Company.  However,
at this time no prediction as to the outcome can be made.  Defense counsel takes
the  position  that the science  proposed in the  litigation  appears to be more
advanced  than the  science  which  exists in peer  reviewed  medical  journals.
Whether  the court will  admit the  testimony  relating  to the  science  behind
plaintiff's claims, is not a matter which we can predict at this time.

                RICHARD FLYNN VS. THE QUIGLEY CORPORATION, ET AL

On May 20, 2005, a complaint was filed in the Superior  Court of Orange  County,
California. This complaint was served on the Company on June 2, 2005. The action


                                      -17-


alleges that the plaintiff  suffered  certain losses and injuries as a result of
using the Company's  nasal spray  product.  The complaint  consists of causes of
action sounding in negligence, products liability, and punitive damages.

The Company  believes  plaintiff's  claims are without  merit and is  vigorously
defending those claims. In particular,  much of the complaint references acts of
the Company during a period of time when it did not offer for sale the COLD-EEZE
Nasal Spray Product which is the basis of the plaintiff's  claim. Based upon the
information the Company has at this time, it believes the action will not have a
material  impact on the Company.  However,  at this time no prediction as to the
outcome  can be made.  Defense  counsel  takes  the  position  that the  science
proposed in the  litigation  appears to be more  advanced than the science which
exists in peer  reviewed  medical  journals.  Whether  the court  will admit the
testimony  relating to the science behind  plaintiff's  claims,  is not a matter
which we can predict at this time.

               KEITH J. KOCHIE VS. THE QUIGLEY CORPORATION, ET AL

On August 2, 2005, a complaint was filed in the United States District Court for
the Eastern  District of New York. The complaint was served on the Company on or
about  September  1, 2005.  The  plaintiff's  complaint  consists  of counts for
negligence,  strict product  liability,  breach of express  warranty,  breach of
implied  warranties,   fraudulent  misrepresentation,   fraudulent  concealment,
negligent  misrepresentation,  and fraud and deceit  relating  to the use of the
Company's COLD-EEZE Nasal Spray Product.

The Company  believes  plaintiff's  claims are without  merit and is  vigorously
defending  those  actions.  Based upon the  information  the Company has at this
time,  it believes  the action will not have a material  impact on the  Company.
However,  at this time no  prediction  as to the  outcome  can be made.  Defense
counsel takes the position that the science  proposed in the litigation  appears
to be more  advanced  than the science  which  exists in peer  reviewed  medical
journals.  Whether  the court will admit the  testimony  relating to the science
behind plaintiff's claims, is not a matter which we can predict at this time.

            DOMINIC DOMINIJANNI, SONJA FORSBERG-WILLIAMS, VINT PAYNE,
                       MURRAY LOU ROGERS, AND RANDY STOVER
                           VS. THE QUIGLEY CORPORATION

On January 6, 2006,  five (5) plaintiffs  filed an action in the Court of Common
Pleas of Bucks County,  Pennsylvania,  against the Company.  The action  alleges
that the plaintiff suffered certain losses and injuries as a result of using the
Company's  nasal  spray  product.  The  complaint  was served on the  Company on
January 31,  2006.  Plaintiffs'  complaint  consists  of counts for  negligence,
strict  products  liability   (failure  to  warn),   strict  products  liability
(defective  design),  breach of express and implied  warranties,  and a claim of
violations under the Pennsylvania Unfair Trade Practices and Consumer Protection
Law and other consumer protection statutes.

The Company  believes  plaintiffs'  claims are without  merit and is  vigorously
defending  those  actions.  Based upon the  information  the Company has at this
time,  it believes  the action will not have a material  impact on the  Company.
However,  at this time no  prediction  as to the  outcome  can be made.  Defense
counsel takes the position that the science  proposed in the litigation  appears
to be more  advanced  than the science  which  exists in peer  reviewed  medical
journals.

Whether  the court will  admit the  testimony  relating  to the  science  behind
plaintiffs' claims, is not a matter which we can predict at this time.

                  GREG SCRAGG VS THE QUIGLEY CORPORATION, ET AL

On November 30, 2005,  an action was brought in the Colorado  District  Court in
Denver,  Colorado. The complaint was served on the Company soon thereafter.  The
action  alleges that the  plaintiff  suffered  certain  losses and injuries as a
result of using the Company's  nasal spray  product.  The complaint  consists of
counts   for   fraud   and   deceit    (fraudulent    concealment),    negligent
misrepresentation,  strict  liability  (failure  to warn),  and  strict  product
liability (design defect).  On January 13, 2006, the case was removed to Federal
District Court.

The Company  believes  plaintiff's  claims are without  merit and is  vigorously
defending those claims. Based upon the information the Company has at this time,
it believes the action will not have a material impact on the Company.  However,
at this time no prediction as to the outcome can be made.  Defense counsel takes
the  position  that the science  proposed in the  litigation  appears to be more
advanced  than the  science  which  exists in peer  reviewed  medical  journals.
Whether  the court will  admit the  testimony  relating  to the  science  behind
plaintiff's claims, is not a matter which we can predict at this time.


                                      -18-


               GARRY KOMINAKIS VS. THE QUIGLEY CORPORATION, ET AL

On December 13, 2005,  an action was brought in the Superior  Court of the State
of California (Western Division - Los Angeles).  The complaint was served on the
Company on December 27, 2005. The case was removed to Federal  District Court on
January 25, 2006. The action alleges that the plaintiff  suffered certain losses
and  injuries  as a result of using  the  Company's  nasal  spray  product.  The
complaint  consists  of  counts  for  strict  liability  (products   liability),
negligence, and breach of implied and express warranties.

The Company  believes  plaintiff's  claims are without  merit and is  vigorously
defending those claims. Based upon the information the Company has at this time,
it believes the action will not have a material impact on the Company.  However,
at this time no prediction as to the outcome can be made.  Defense counsel takes
the  position  that the science  proposed in the  litigation  appears to be more
advanced  than the  science  which  exists in peer  reviewed  medical  journals.
Whether  the court will  admit the  testimony  relating  to the  science  behind
plaintiff's claims, is not a matter which we can predict at this time.

          DARIUS INTERNATIONAL INC., AND INNERLIGHT INC., F/K/A DARIUS
             MARKETING INC. VS. ROBERT O. YOUNG AND SHELLEY R. YOUNG
                 (FEDERAL DISTRICT COURT - EASTERN DISTRICT, PA)

In this action, the Company seeks injunctive relief and monetary damages against
two individuals for violation of a  non-competition  agreement  between a wholly
owned subsidiary of the Company,  Innerlight  Inc., and the defendants,  each of
whom are also under agreement to serve as consulting to the Company.

In late November,  2005, the Company  learned that the defendants had launched a
line of nutritional  supplement products that competed with Innerlight products.
Defendants promoted their line of products by a website,  among other means. The
Company moved for a temporary  restraining  order against the defendants,  which
the court denied; however, the court ordered expedited discovery and scheduled a
preliminary  injunction  hearing.  Before the hearing,  the Company  amended its
complaint to add counts  against  defendants for unfair  competition,  trademark
infringement and other causes, which the court allowed. In response,  defendants
initially  moved to dismiss  the case.  While not ruling on  defendants'  motion
formally,  the court stated that it was inclined to deny the motion.  Defendants
answered the  complaint and asserted nine  counterclaims,  including:  breach of
contract;  breach of covenant of good faith and fair dealing; unjust enrichment;
conversion; common law trademark infringement; common law violation of the right
to publicity;  violation of abuse of personal identity act;  injunctive  relief;
and declaratory relief.

After the preliminary  injunction hearing,  the parties briefed the court on the
significance  of the hearing  evidence in  relation to the  parties'  respective
claims.  On February  17, 2006,  the court held oral  argument on the motion for
preliminary injunction. A ruling is expected by mid-March, 2006.

The Company believes that the defendants' counterclaims are without merit and is
vigorously  defending those  counterclaims  and is prosecuting its action on its
complaint.  Based upon the information the Company has at this time, it believes
the counterclaim actions are without merit.  However, at this time no prediction
as to the outcome can be made.

            ROBERT O. AND SHELLEY YOUNG VS. DARIUS INTERNATIONAL INC.
               AND INNERLIGHT INC., (UTAH THIRD PARTY COMPLAINTS)

On September 14, 2005, a third-party  complaint was filed by Shelley R. Young in
Fourth  District  Court in Provo,  Utah against  Innerlight  Inc. and its parent
company,  Darius.  Robert O. Young has filed a motion to  intervene to join as a
third-party  plaintiff with Shelley R. Young.  On November 3, 2005,  Shelley and
Robert Young filed a parallel suit also in Fourth District Court in Provo, Utah.
The allegations in both complaints  include,  but are not limited to, an alleged
breach of contract by  Innerlight  Inc.  for  alleged  failures to make  certain
payments  under  an  asset  purchase  agreement  entered  into  by all  parties.
Additional  allegations  stem from this  alleged  breach of  contract  including
unjust  enrichment,  trademark  infringement and alleged  violation of rights of
publicity.  The  plaintiffs  are seeking both  monetary and  injunctive  relief.
Innerlight Inc. has objected to the complaint in the third-party action based on
procedural  deficiencies  and other grounds.  In the second action the Court has
granted Innerlight Inc. and Darius permission to defer answering until the court
can  determine  whether or not Provo,  Utah,  is the proper  venue to hear these
allegations.

In connection with the Utah actions the Company has sued the Youngs in Equity in
the Court of Common  Pleas of  Philadelphia  County,  PA,  and in United  States
District Court for the Eastern District of Pennsylvania. The Company has alleged
breach of  contract,  including  but not  limited  to breach of  non-competition
provisions  in a  consulting  agreement  between  the  parties  and  is  seeking
unspecified  damages and injunctive relief. The Company believes the plaintiff's


                                      -19-


allegations  against Innerlight Inc. and Darius in Provo, Utah are without merit
and it is vigorously defending against these claims.  Innerlight Inc. and Darius
have filed motions to stay both actions filed in Utah pending  resolution of the
litigation in PA.  Further,  the Company is actively  prosecuting  its state and
federal actions in PA. However, at this time no prediction as to the outcome can
be made.

          BRIGITTE YVON & KLAUS YVON VS. THE QUIGLEY CORPORATION, ET AL

On October 12, 2005,  the  Plaintiffs  instituted  an action  against  Caribbean
Pacific Natural  Products,  Inc. and other defendants for personal injuries as a
result of being hit by a chair on the pool deck of Waikoloa Beach Marriott Hotel
d/b/a Outrigger Enterprises,  Inc. in Honolulu, Hawaii. On December 9, 2005, the
Company was added as an additional  defendant  without  notice to this case. The
main defendant in the case is Caribbean Pacific Natural Products,  Inc. in which
the Company  formerly held stock.  On January 22, 2003,  all  Caribbean  Pacific
Natural  Products  Inc.  shares  owned  by the  Company  were  sold to  Suncoast
Naturals, Inc. in return for stock of Suncoast Naturals, Inc. At the time of the
accident,  the Company had no ownership  interest in Caribbean  Pacific  Natural
Products, Inc.

The  Company  believes  that the  plaintiffs'  claims are  without  merit and is
vigorously  defending  this  action.  At the  present  time this matter is being
defended by the Company's liability insurance carrier and a motion to dismiss is
pending before the Federal District Court in Honolulu, Hawaii.

                 NICODROPS, INC. VS. QUIGLEY MANUFACTURING INC.

On  January  30,  2006,  QMI was put on  notice  of a claim by  Nicodrops,  Inc.
Nicodrops,  Inc. has claimed that the packaging contained  incorrect  expiration
dates and caused it to lose sales through two (2)  retailers.  The total alleged
sales  of  Nicodrops  was  approximately  $250,000  and  Nicodrops  is  claiming
unspecified damages exceeding $2,000,000.

No suit has been filed.  The Company is investigating  this claim.  Based on its
investigation to date, the Company believes the claim is without merit. However,
at this time no prediction can be made as to the outcome of this case.

                          TERMINATED LEGAL PROCEEDINGS

                          LITIGATION - FORMER EMPLOYEEEMPLOYEES

On April 12, 2002,  the Company  commenced a complaint in Equity in the Court of
Common  Pleas of Bucks  County,  PAPennsylvania,  against the former  President of
Darius International Inc., its wholly owned subsidiary, following termination of
such President.  The allegations in the complaint include,included, but arewere not limited
to, an alleged breach of fiduciary duty owed to the Company.  The Company is seekingsought
both  injunctive  and monetary  relief.  On or about May 1, 2002,  the defendant
filed a counterclaim  requesting  that the Court declare him the lawful owner of
55,000 stock options,  unspecified  damages  relating to an alleged breach of an
oral contract and for  commissions  allegedly  owed. In addition,  the Defendant
requestsdefendant
requested  the return of certain  intellectual  property  used to  commence  and
continue  Darius'  operations.  The  Corporation  believes  Defendant's  claims are without merit, is vigorously
defending the  counterclaims  and is  prosecuting  its action on its  complaint.
Based upon the  information the Company has at this time, it believes the action
will not  have a  material  impact  to the  Company.  However,  at this  time no
prediction as to the outcome can be made.

                             TERMINATED PROCEEDINGS

                        MIKE FORAN VS. INNERLIGHT, INC.,
                         DARIUS INTERNATIONAL, INC., AND
                             THE QUIGLEY CORPORATION

On August 1, 2003, an action was filed with the American Arbitration Association
by Mike Foran  against  Innerlight  Inc.,  a wholly owned  subsidiary  of Darius
International  Inc., which is a wholly owned subsidiary of the Company.  After a
hearing  before the  United  States  District  Court for the  District  of Utah,
Central Division,  Foran withdrew his complaint against The Quigley  Corporation
and the matter was remanded to arbitration.  Discovery began on December 1, 2003
and was  completed  on  December  22,  2003.  Based on the  discovery  of all of
defendants'  documents  and  defendants'   depositions  and  after  interviewing
Innerlight  Inc.'s  witnesses,  the Company  upon advice of counsel  settled the
action for $290,000 and reinstated Foran as an independent representative.

Negotiations  leading to  settlement  were  completed by December 31, 2003 andApril 15, 2005, a  Settlement  Agreement  and
Mutual  Release was  entered  effective  January 18, 2004.  As partexecuted  between the  Company,  its  subsidiaries  and the
defendants,  Ronald Howell,  Deborah Howell, Pro Pool, LLC, One Source, LLC, Pro
Marketing LLC, and Eric Kaytes. All of defendants'  counterclaims were withdrawn
and dismissed with prejudice. In addition to the monetary consideration,  Howell
surrendered  to the  Company for  cancellation  40,993  shares of the  Settlement  Agreement,  Mr. Foran completely releasedCompany's
common stock and agreed to forego any claim for any additional stock,  warrants,
stock options or other securities of or interest in the Company,  Darius, Darius
Marketing  Inc.,  and  Innerlight  Inc. and The
Quigley  Corporation from any claim arising out of the action  instituted by him
on August 1, 2003 and also any  claim he maythat were or could have asserted  against  Innerlight
Inc. or The Quigley Corporation.

                                INTERVENTION INC.

An action was filed by Intervention, Inc. on July 2, 2002 in Contra Costa County
Superior  Court  under the  California  Unfair  Competition  Law,  Business  and
Professions Code, Section 17200. The Complaint claims that COLD-EEZE(R) does not
contain  ionic zinc and therefore  does not have the unique  quality the Company
asserts for it. The  Complaint  purports to attack The  Cleveland  Clinic  Study
titled ZINC  GLUCONATE  LOZENGES FOR TREATING THE COMMON COLD and the  Dartmouth
Study,  ZINC AND THE COMMON COLD, A CONTROLLED  CLINICAL  STUDY.  The  plaintiff
claims that the Dartmouth Study is not double-blind  and is not randomized.  The
plaintiff  also claims that The  Cleveland  Clinic Study is untrue and deceptive
because it did not conclude that patients "starting  treatments" with zinc had a
42%  reduction  in  duration  of the  common  cold and,  also,  because  the 42%
reduction in common cold duration is not a reference to average of cold duration
but rather is a reference to the reduction in median  duration.  There is also a
claim by the  plaintiff  that there is an implied  claim that the resultsbeen made in the
studies have been confirmed by repetition which plaintiff contests.


                                      -11-


Onlawsuits. Defendant Kaytes surrendered options/warrants in the 3rd day of July, 2003, the Contra Costa County Superior Court upon Motion
of The  Quigley  Corporation  issued a Summary  Judgment in favor of The Quigley
Corporation.  On October  24,  2003,  Intervention  Inc.  filed an appeal to the
California  Court of Appeals  from the Summary  Judgment  issued in favor of The
Quigley Corporation. In March 2004, the appeal was withdrawn, with prejudice.Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None


                                      -20-
PART II

ITEM 5.  MARKET FOR COMPANY'SREGISTRANT'S COMMON EQUITY, AND RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

         MARKET INFORMATION

The Company's Common Stock,  $.0005 par value, is currently traded on theThe NASDAQ
National  Market  under the  trading  symbol  "QGLY"."QGLY." The price set forth in the
following table  represents the high and low bid prices for the Company's common
stock.Common
Stock.
                                          Common Stock
                                          ------------
                              2003                       2002
                                    ----------------         -------------------2005                           2004
                      -----------------------     ---------------------------
     Quarter Ended       High        Low             High           Low
     -------------       ----        ---             ----           ---

     March 31             $7.76     $4.71         $7.20         $2.03$8.85     $7.27             $10.89       $8.50
     June 30              $8.22     $5.39         $8.82         $5.40$9.28     $7.79             $10.29       $6.92
     September 30        $10.51     $6.75         $8.00         $3.05$10.50     $8.41              $9.94       $7.35
     December 31         $11.12     $7.32         $7.05         $2.40$16.94     $7.25              $9.92       $7.56

Such quotations  reflect  inter-dealer  prices,  without  mark-up,  mark-down or
commission and may not represent actual transactions.

The  Company's   securities  are  traded  on  theThe  NASDAQ  National  Market  and
consequently  stock  prices  are  available  daily as  generated  by theThe  NASDAQ
National Market established quotation system.

HOLDERS

As of December 31, 2003,2005, there were  approximately  360325 holders of record of the
Company's  Common Stock,  including  brokerage firms,  clearing  houses,  and/or
depository firms holding the Company's  securities for their respective clients.
The exact number of beneficial  owners of the Company's  securities is not known
but exceeds 400.

DIVIDENDS

The Company has not declared,  nor paid, any cash dividends on its Common Stock.
At this time the Company intends to retain its earnings to finance future growth
and maintain liquidity.

-12-
WARRANTS AND OPTIONS

In addition to the Company's outstanding Common Stock, there are, as of December
31, 2003,2005, issued and outstanding Common Stock Purchase Warrants and Options that
are exercisable at the price-per-share  stated and expire on the date indicated,
as follows:

    Description          Number      Exercise Price      Expiration Date
    -----------          ------      --------------      ---------------
      Warrants            250,000            $8.5000           March 7, 2004
      Warrants            250,000            $9.5000           March 7, 2004
      Warrants            250,000           $11.5000           March 7, 2004
      CLASS "E"         850,000805,000         $1.7500           June 30, 2006
      CLASS "F"         225,000200,000         $2.5000           November 4, 2006
      CLASS "G"         585,000550,000        $10.0000           May 5, 2007
      Option Plan       396,500         $9.6800           December 1, 2007
      Option Plan       331,000         $5.1250           April 6, 2009
      Option Plan       263,000260,750         $0.8125           December 20, 2010
      Option Plan       324,500278,500         $1.2600           December 10, 2011
      Option Plan       350,000314,500         $5.1900           July 30, 2012
      Option Plan        102,00062,500         $5.4900           December 17, 2012
      Option Plan       424,000415,000         $8.1100           October 29, 2013
      Option Plan       490,000         $9.5000           October 26, 2014
      Option Plan       520,000        $13.8000           December 11, 2015

At December 31, 2003,2005,  there were 4,601,0004,623,750  unexercised  and vested options and
warrants of the Company's stockCommon Stock available for exercise.


                                      -21-


SECURITIES AUTHORIZED UNDER EQUITY COMPENSATION

The following  table sets forth certain  information  regarding stock option and
warrant grants made to employees, directors and consultants:

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
                                                         Weighted
                                                         Number of          AverageWeighted          Number of Securities
                                                     Securities to be       ExerciseAverage         Remaining Available for
                                                        Issued Upon      Exercise Price of   Future Issuance Under Equity
                                                        Exercise of      of Outstanding     Equity       Compensation Plans
                  Plan Category
                                                        Outstanding         Options &        (Excluding Securities
                  Plan Category                     Options & Warrants      Warrants         Reflected in Column A)
                                                            (A)               (B)                      ( C )(C)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------------- --------------- -- -------------------------

Equity Plans Approved by Security Holders (1)            2,191,000           $5.46                  700,0003,068,750           $7.58                 1,184,000

Equity Plans Not Approved by Security Holders (2)        2,410,000           $6.34                     --1,555,000           $4.76                     -

Total                                                    4,601,000           $5.92                  700,0004,623,750           $6.63                 1,184,000

     (1)  An incentive  stock  option plan was  instituted  in 1997,  (the "1997
          Stock Option Plan") and approved by the stockholders in 1998.  Options
          pursuant to the 1997 Stock Option Plan have been granted to directors,
          executive officers, and employees.

     (2)  Other grants of warrants  are  specific and not part of a plan.  These
          specific grants were to executive officers,  employees and consultants
          for services.


                                      -13-
services in 1996 and 1997.

ITEM 6.   SELECTED FINANCIAL DATA

The following  table sets forth the selected  financial  data of the Company for
and at the end of the years ended December 31, 2005, 2004, 2003, 2002 2001, 2000 and 1999.2001.

The data  presented  below  should  be read in  conjunction  with  "Management's
Discussion and Analysis of Financial Condition and Results of Operations"Operation" and the
Company's financial statements and notes thereto appearing elsewhere herein.

(Amounts in thousands, exceptThousands, Except                   Year Ended      Year Ended      Year Ended       Year Ended       Year Ended
 Per share data)Share Data)                                December 31,    December 31,    December 31,     December 31,     December 31,
                                                   2005            2004            2003             2002             2001
                                                 2000            1999
                                               --------------------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF INCOME DATA:
Net Salessales                                        $53,658         $43,948         $41,499          $29,272          $21,226
$15,527         $21,574
Total Revenuerevenue                                     53,658          43,948          41,499           29,421           22,772
15,527          21,574
Gross Profitprofit                                      27,834          20,375          20,011           12,212           12,551
9,411          13,240
Income (Loss)(loss) - continuing operations              3,217             453             729           (5,132)             934        (5,059)         (4,204)
Loss - discontinued operations (1)                  --              --               (54)          (1,322)            (718)

(137)             --
Net Income (Loss)income (loss)                                  3,217             453             675           (6,454)             216

(5,196)         (4,204)

Basic earnings (Loss)(loss) per share:
       Continuing operations                       $0.28           $0.04           $0.06           ($0.47)           $0.09

       ($0.48)         ($0.37)
       Discontinued operations                      --              --              --             ($0.12)          ($0.07)
       ($0.01)             --
       Net income (Loss)(loss)                           $0.28           $0.04           $0.06           ($0.59)           $0.02

($0.49)         ($0.37)
Diluted earnings (Loss)(loss) per share:
       Continuing operations                       $0.24           $0.03           $0.05           ($0.47)           $0.09

       ($0.48)         ($0.37)
       Discontinued operations                      --              --              --             ($0.12)          ($0.07)
       ($0.01)             --
       Net income (Loss)(loss)                           $0.24           $0.03           $0.05           ($0.59)           $0.02        ($0.49)         ($0.37)

Weighted average shares outstanding:
       Basic                                      11,661          11,541          11,467           10,894           10,675
       10,551          11,352
       Diluted                                    13,299          14,449          14,910           10,894           10,751        10,551          11,352


                                                  As of           As of           As of            As of            As of
                                                December 31,    December 31,    December 31,     December 31,     December 31,
                                                   2005            2004            2003             2002             2001
                                                          2000            1999
                                                              (Restated -
                                                              Note 15) (2)
                                               -------------------------------------------------------------------------------------- ------------- ------------- -------------- -------------
BALANCE SHEET DATA:
Working capital                                  $20,682         $17,853         $18,257          $16,662          $18,626
$18,622         $23,621
Total assets                                      35,976          31,530          26,270           24,935           24,756
26,056          33,271Debt                                               1,464           2,893              --               --               --
Stockholders' equity                             $25,320         $21,902         $20,787          $19,121          $21,200

                                      $20,971         $26,216-22-



(1) In December 2002,  the Board of Directors of the Company  approved a plan to
sell Caribbean Pacific Natural Products, Inc. ("CPNP"). On January 22, 2003, the
Board of Directors of the Company completed the sale of the Company's 60% equity
interest in CPNP to Suncoast  Naturals,  Inc.  The sale of this segment has been
treated  as  discontinued   operations  and  all  periods  presented  have  been
reclassified.


(2) As  further  discussed  in Note  15,  the  Company  has  restated  its  2002
consolidated  financial  statements in order to properly  reflect the accounting
for certain warrants issued in 2002.


                                      -14-
ITEM 7.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
          RESULTS OF OPERATIONSOPERATION

OVERVIEW

The  Quigley   Corporation,   (the  "Company"),Company,   headquartered   in  Doylestown,   Pennsylvania,   is  a  leading
manufacturer, marketer and distributor of a diversified range of homeopathic and
health products which comprise the Cold Remedy, Health and homeopathic products.Wellness and Contract
Manufacturing  segments.  The  Company  is also  involved  in the  research  and
development  of  potential  prescription  products  that  comprise  the  Ethical
Pharmaceutical segment.

The  Company's  business  interests  comprise three segments,  being cold-remedy,
healthis the  manufacture  and  wellness and ethical pharmaceutical.

The Cold-Eeze(R)  product continues to be the primary productdistribution  of the cold-remedy
segment and is available in lozenge, sugar-free tablet and nasal spray form. The
Cold-Eeze(R)  Nasal Spray and the  Kidz-Eeze(TM)  Sore Throatcold remedy
products were both
launched in the third quarter of 2003 in  preparation  for the cold season.  The
efficacy of the Cold-Eeze(R)  product was established  following the publication
of the second  double blind study in July 1996. A 2002 study also found that the
use of Cold-Eeze(R) to treat a cold statistically reduced the use of antibiotics
for  respiratory  illnesses by 92% when  Cold-Eeze(R) is administered as a first
line treatment  approach to the common cold. In May 2003,consumer through the Company  announcedover-the-counter  marketplace together with
the findings of a prospective  study,  conducted at the Heritage School facility
in  Provo,  Utah,  in  which  178  children  ages  12 to  18  years  were  given
Cold-Eeze(R)  lozenges both symptomatically and prophylactically from October 5,
2001 to May 30, 2002.  The study found a 54%  reduction  in the most  frequently
observed cold duration.  Those subjects not receiving  treatment most frequently
experienced  symptom duration at 11 days compared with 5 days when lozenges were
administered, a reduction of 6 days.

Cold-Eeze(R) is distributed through numerous  independent,  chain drug, food and
discount  stores  throughout  the United  States.  Net sales of the  cold-remedy
segment  increased  46% in 2003 over the prior year,  resulting  in net sales in
2003 of $20,474,969  compared to $14,050,967 in 2002. This increase reflects the
strategic  decision by  management  to provide  improved  support to the segment
through increased media advertising and co-operative advertising promotions with
our customer  base.  Additionally,  revenues  were  assisted by media  attention
afforded to potential cold and influenza outbreaks that were expected during the
2003/2004 cold season.

The  Company  continues  to  use  the  resources  of  independent  national  and
international brokers to represent the Company's  Cold-Eeze(R)  products,  which
provides cost efficiencies that benefit the Company.

During  2003,  the  Company  continued  the process of the  registration  of the
Cold-Eeze(R)  products  in the United  Kingdom as a pharmacy  drug and  incurred
approximately $400,000 in related expenses.

Darius, through Innerlight Inc., is a direct selling company specializing in the
development  and  distributionsale of proprietary  health and wellness products primarily  within the  United  States  with the  commencement  of  international
business activity during the second quarter of 2003. Net salesthrough its direct selling
subsidiary.  One of the  Company's  key  products in its Cold Remedy  segment is
Cold-Eeze(R),  a zinc  gluconate  glycine  product  proven  in two  double-blind
clinical studies to reduce the duration and severity of the common cold symptoms
by nearly half.  Cold-Eeze(R)  is now an established  product in the health care
and wellness  segment in 2003 were  $21,024,194 an increasecold  remedy  market.  Effective  October  1,  2004,  the  Company  acquired
substantially all of 38% over the 2002 net
salesassets of $15,220,813. The growthJoEl, Inc., the previous  manufacturer of this segment in 2003 was attributablethe
Cold-Eeze(R)  lozenge product.  This  manufacturing  entity,  now called Quigley
Manufacturing  Inc.  ("QMI"),  a wholly owned  subsidiary  of the Company,  will
continue to the
recruitment of increasing  numbers of active independent  representativesproduce lozenge product along with performing such operational tasks
as warehousing and shipping the Company commencing  international business duringCompany's  Cold-Eeze(R)  products.  In addition,
QMI, which is an FDA approved  facility,  produces a variety of hard and organic
candy for sale to third  party  customers  in addition  to  performing  contract
manufacturing  activities for non-related  entities.  The Cold-Eeze(R)  products
reported an improved sales  performance in 2005 due to effective product support
by means of media and in-store advertising; the second quarterintroduction of 2003.

The establishment of an ethical  pharmaceutical  subsidiary,  Pharma, may enablenew Cold-Eeze(R)
flavors;  and  increased  consumer  demand  for  Cold-Eeze(R)  as  indicated  by
Information  Resources  Incorporated  (IRI) data. During 2005, the Company to diversify  into the  prescription  drug market and to ensure safe
and effective  distribution of these important  potential new products currently
under  development.  During the course of 2003,  the Company was assigned  three
patents and filed three patent  applications,  two with the Patent Officemargin of the
United  States  Commerce  Department  and one  within  the  European  Community.
Research and development  costs relating to projects being  undertaken by Pharma
increased in 2003 over the prior yearCold Remedy  segment was improved as a result of increased study activitythe impact of the  Cold-Eeze(R)
now being  produced by the  manufacturing  subsidiary  and  forming  part of the
consolidated  results  of the  Company.  However,  these  gains  were  offset by
substantially lower gross profit margins on the Contract Manufacturing segment's
non cold remedy sales and non-manufacturing operating costs of the manufacturing
subsidiary  being  included in various areascurrent  operations  rather than being carried as
inventory and cost of interest.

Manufacturing  for allsales as was the Company's  productscase prior to October 1, 2004.

Our Health and Wellness  segment is done by outside  sources.  The
lozenge formoperated through Darius  International  Inc.
("Darius"), a wholly owned subsidiary of  Cold-Eeze(R)  is  manufactured  by a contract  manufacturer,  a
significant amount of whose revenues are from the Company with other formswhich was formed in January
2000  to  introduce  new  products  to the  marketplace  through  a  network  of
independent distributor representatives. Darius is a direct selling organization
specializing  in  proprietary  health and wellness  products.  The  formation of
Darius has provided diversification to the Company in both the method of product
distribution  and the broader  range of products  produced by different manufacturers.

Operating  expenses  during 2003  increased  over thoseavailable to the  marketplace,
serving as a balance to the seasonal revenue cycles of 2002the Cold-Eeze(R)  branded
products.  This segment's 2005 net sales remained relatively  unchanged compared
to  2004  due  to increased
advertisinga  decline  in  the  number  of  active  domestic  independent
distributor  representatives,  which  was  offset  by  this  segment's  gain  in
international sales of 54.3%.

In January 2001, the Company formed an Ethical Pharmaceutical  segment,  Quigley
Pharma  Inc.  ("Pharma"),  that is under the  direction  of its  Executive  Vice
President and increasedChairman of its Medical Advisory Committee.  Pharma was formed for
the  purpose of  developing  naturally  derived  prescription  drugs.  Pharma is
currently  undergoing  research  and  development  costs relatedactivity in  compliance  with
regulatory  requirements.  The Company is in the initial stages of what may be a
lengthy process to the studydevelop these patent  applications into commercial  products.
The  Company  continues  to  invest  significantly  with  ongoing  research  and
development activities of Pharma.this segment.

Future revenues,  costs,  margins, and profits will continue to be influenced by
the Company's  ability to maintain its  manufacturing  availability and capacity
together with its marketing and  distribution  capabilities and the requirements
associated  with the  development of Pharma's  potential  prescription  drugs in
order to  continue  to


                                      -15-
  compete  on a  national  and  international  level.  In December 2002, the BoardThe
continued  expansion of Directors ofDarius is dependent  on the Company  approved a plan to sell
Caribbean  Pacific Natural  Products,  Inc.  ("CPNP").  On January 22, 2003, the
Board of Directors of the Company completed the sale of the Company's 60% equity
interest in CPNP to Suncoast Naturals,  Inc.  ("Suncoast").  In exchange for its
60% equity  interest in CPNP, the Company shall  receive:  (i) 750,000 shares of
Suncoast's  common stock,  which Suncoast has agreed,  at its costretaining  existing
independent   distributor   representatives  and  recruiting  additional  active
representatives  both  internationally  and within 60
days from the closing,United States,  continued
conformity with government regulations, a reliable information technology system
capable of  supporting  continued  growth and  continued  reliable  sources  for
product and materials to register  for public  resale  through an  appropriate
registration  statement  (this  registration  statement  has not  been  declared
effective by the Securities and Exchange  Commission) and (ii) 100,000 shares of
Suncoast's Series A Redeemable  Preferred Stock,  which bears interest at a rate
of 4.25% per annum and which is  redeemable  from time to time  after  March 31,
2003 in such  amounts  as is equal  to 50% of the free  cash  flow  reported  by
Suncoast in the immediately  preceding quarterly financial statements divided by
the redemption  price of $10.00 per share.  The Company owns 19.5% of Suncoast's
issued and outstanding  capital stock,  which investment is accounted for on the
cost basis method.satisfy consumer demand.


                                      -23-


EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

FIN 46R, CONSOLIDATION OF VARIABLE INTEREST ENTITIES -- AN INTERPRETATION OF ARB
51 (REVISED DECEMBER 2003)

In December, 2003 the Financial Accounting Standards Board (FASB or the "Board")
issued FASB  Interpretation  No. 46 (revised  December 2003),  CONSOLIDATION  OF
VARIABLE INTEREST ENTITIES (FIN 46R), to address certain  implementation issues.
FIN 46R varies  significantly from FASB Interpretation No. 46,  CONSOLIDATION OF
VARIABLE INTEREST  ENTITIES (FIN 46), which it supersedes.  FIN 46R requires the
application  of either FIN 46 or FIN 46R by  "Public  Entities"  to all  Special
Purpose  Entities  ("SPEs") at the end of the first interim or annual  reporting
period  ending after  December 15, 2003.  FIN 46R is  applicable to all non-SPEs
created prior to February 1, 2003 by Public Entities that are not small business
issuers at the end of the first interim or annual  reporting period ending after
March 15, 2004. The Company has determined that  Scandasystems,  a related party
(See note 14), may qualify as a variable  interest  entity and we may  initially
consolidate  Scandasystems beginning with our quarter ending March 31, 2004. Due
to the  fact  that the  company  has no  long-term  contractual  commitments  or
guarantees, our maximum exposure to loss is insignificant.

SFAS NO. 150, "ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS
OF BOTH LIABILITIES AND EQUITY." (SFAS NO. 150)

In May 2003,November 2004, the FASB issued SFAS NO. 151,  "INVENTORY COSTS" ("SFAS 151").
SFAS 151 amends the guidance in Chapter 4 of  Accounting  Research  Bulletin No.
150,  "Accounting43,  "Inventory  Pricing" to clarify the accounting for Certain  Financial
Instruments with  Characteristicsamounts of Both Liabilitiesidle facility
expense,  freight,  handling costs and Equity."wasted  material.  SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It151 requires that
an issuer classify a financial instrument that is within its scopethese types of items be recognized as a liability (or an asset in some  circumstances).current period charges as they occur.  The
provisions of SFAS No.
150151 are effective for financial  instruments  entered into or modified after May
31, 2003,  and  otherwise is  effective  at the  beginning of the first  interim
periodinventory  costs incurred during fiscal
years  beginning  after June 15,  2003.2005.  The  adoption  of this  standard is not
expected to have an impact on the  Company's  consolidated  financial  position,
results of operations or cash flows.

In December  2004,  the FASB issued  Statement  123 (revised  2004),"SHARE-BASED
PAYMENT." The standard eliminates the  disclosure-only  election under the prior
SFAS 123 and requires the recognition of compensation  expense for stock options
and  other  forms  of  equity  compensation  based  on  the  fair  value  of the
instruments  on the date of grant.  The standard is  effective  for fiscal years
beginning  after  June 15,  2005.  In March  2005,  the  Securities  &  Exchange
Commission (the "SEC") issued Staff  Accounting  Bulletin No. 107,  "Share-Based
Payment" ("SAB 107").  SAB 107  summarizes the views of the SEC staff  regarding
the  interaction  between SFAS No. 123  (Revised  2004),  "Share-Based  Payment"
("SFAS 123R") and certain SEC rules and  regulations,  and is intended to assist
in the initial implementation of SFAS 123R, which for the Company is required by
the beginning of its fiscal year 2006. The Company had no unvested options as of
December 31, 2005 and  therefore  the adoption of this standard will not have an
impact  on  the  Company's   consolidated   balance  sheets  and  statements  of
operations, shareholders' equity and cash flows.

In  December  2004,  the FASB issued  Statement  153,"EXCHANGES  OF  NONMONETARY
ASSETS,  AN  AMENDMENT  OF APB  OPINION  NO.29."  The  standard  is based on the
principle that  exchanges of nonmonetary  assets should be measured based on the
fair  value of the assets  exchanged  and  eliminates  the  exception  under APB
Opinion No. 29 for an exchange of similar productive assets and replaces it with
an exception for  exchanges of  nonmonetary  assets that do not have  commercial
substance.  The standard is effective  for  nonmonetary  exchanges  occurring in
fiscal periods  beginning  after June 15, 2005. The adoption of SFAS No. 150153 did
not have ana material  impact on itsthe  Company's  financial  position or results of
operations.

CRITICAL ACCOUNTING POLICIES

As   previously   described,In May 2005, the CompanyFinancial  Accounting Standards Board ("FASB") issued Statement
154, "ACCOUNTING CHANGES AND ERROR CORRECTIONS, A REPLACEMENT OF APB OPINION NO.
20 AND FASB STATEMENT NO. 3." The standard requires retrospective application to
prior  periods'  financial  statements  of  a  voluntary  change  in  accounting
principle unless it is engageddeemed  impracticable.  The standard states that a change
in  the   development,
manufacturing,  and marketingmethod  of   health and homeopathic  products that are being
offered  to the  general  public  and is  also  involved  in  the  research  and
development of potential prescription products.  Certain key accounting policies
that may affect the results of the Company are the timing of revenue recognition
and sales incentives (including coupons,  rebates,  co-operative advertising and
discounts);  the classification of advertising  expenses;  and the fact that all
research and  development  costs are  expensed as  incurred.  Notes to Financial
Statements,  Note 1,  Organization  and Business,  describes the Company's other
significant accounting policies.

REVENUE RECOGNITION

Cold-remedy  sales  are  recognized  at the time  ownership  and risk of loss is
transferred  to the  customer,  which is  primarily  the time  the  shipment  is
received by the customer.  In the case of the health and wellness  segment sales
are recognized at the time goods are shipped to the customer.  Sales returns and
allowances  are provideddepreciation,   amortization   or  depletion  for   in the period that the related  sales are recorded.
Provisions for these reserves are based on historical experience.

ADVERTISING

Advertising  costs  are  expensed  within  the  period  to  which  they  relate.
Advertising expense is made up of media advertising,  presented as part of sales
and marketing  expense;  co-operative  advertising,  which islong-lived,
non-financial assets be accounted for as a deductionchange in accounting estimate that is
affected by a change in  accounting  principle.  The standard is  effective  for
accounting  changes and  corrections  of errors made  occurring  in fiscal years
beginning  after  December  15,  2005.  The  impact on the  Company's  financial
position or results of  operations  as a result of the  adoption of Statement of
Financial Accounting Standards ("SFAS") No. 154 cannot be determined.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of contingent  liabilities  at the dates of the financial  statements
and the reported amounts of revenues and expenses during the reporting  periods.
Actual results could differ from sales;those estimates.

The Company is organized into four different but related business segments, Cold
Remedy, Health and bonusWellness,  Contract Manufacturing and Ethical Pharmaceutical.
When providing for the appropriate sales returns, allowances, cash discounts and
cooperative  advertising  costs,  each segment  applies a uniform and consistent
method for making certain  assumptions for estimating  these provisions that are
applicable to that specific  segment.  Traditionally,  these  provisions are not
material to net income in the Health and  Wellness  and  Contract  Manufacturing
segments. The Ethical Pharmaceutical segment does not have any revenues.

The product in the Cold Remedy segment, Cold-Eeze(R), has been clinically proven
in two  double-blind  studies to reduce the severity and duration of common cold
symptoms.  Accordingly,  factors  considered in estimating the appropriate sales
returns and allowances for this product  include it being: a unique product with
limited competitors;  competitively priced;  promoted;  unaffected for remaining
shelf life as there is no expiration  date;  monitored  for inventory  levels at
major customers and third-party consumption data, such as Information Resources,
Inc. ("IRI").


                                      -24-


At  December  31,  2005 and 2004 the  Company  included  reductions  to accounts
receivable  for  sales  returns  and  allowances  of  $635,000  and  $1,109,000,
respectively,   and  cash  discounts  of  $178,000  and  $92,000,  respectively.
Additionally,  current  liabilities  at  December  31,  2005  and  2004  include
$1,067,072 and $743,000, respectively for cooperative advertising costs.

The  roll-forward of the sales returns and allowance  reserve ending at December
31 is as follows:

Account - Sales Returns & Allowances                                              2005               2004
- --------------------------------------------------------------------------------------------------------------

Beginning balance                                                              $1,109,171          $403,850
Provision  made for future  charges  relative  to sales for each period           678,127         1,414,796
presented
Current provision related to discontinuation of Cold-Eeze(R) nasal spray          183,716           625,756
Actual returns & allowances recorded in the current period presented           (1,336,434)       (1,335,231)
                                                                            --------------     -------------
     Ending balance                                                              $634,580        $1,109,171
                                                                            ==============     =============

The reduction in the 2005 provision as compared to 2004 was  principally  due to
the initiation of specific  limits on product  returns from  customers,  greater
product  acceptance  and further  enhanced  evaluation  of return  requests from
customers relative to the Cold Remedy segment.

Management  believes there are no material  charges to net income in the current
period, related to sales from a prior period.

REVENUE

Provisions to reserves to reduce  revenues for cold remedy  products that do not
have an  expiration  date,  include the use of  estimates,  which are applied or
matched to the current sales for the period presented. These estimates are based
on specific customer tracking and an overall historical  experience to obtain an
effective  applicable  rate,  which is accountedtested on an  annual  basis and  reviewed
quarterly to ascertain the most  applicable  effective rate.  Additionally,  the
monitoring of current occurrences,  developments by customer,  market conditions
and any other occurrences that could affect the expected  provisions relative to
net sales for as part of cost
of sales. The level of advertising expense


                                      -16-


to be incurred is determined eachthe period to coincide with management's sales and
marketing  strategies.  Advertising  costs incurredpresented are also performed.

A one percent deviation for these consolidated  reserve provisions for the years
ended December 31, 2005,  2004 and 2003 2002would affect net sales by  approximately
$599,000,  $481,000 and  2001  were   $5,483,465,   $4,794,955  and   $3,402,006,$455,000,  respectively.  This  expense  item  increased  in 2003 due to  active  media and
in-marketA one percent  deviation  for
cooperative  advertising  necessary to promote and support the Cold-Eeze(R) product.
Included in prepaid  expenses and other current  assets was $68,000 and $236,875
at December 31, 2003 and December  31, 2002,  respectively,  relating to prepaid
advertising expenses.

RESEARCH AND DEVELOPMENT

Research and  development  costs are charged to operations in the year incurred.
Expendituresreserve  provisions  for the years ended  December 31,
2005, 2004 and 2003 2002could affect net sales by approximately  $352,000,  $275,000
and 2001  were
$3,365,698, $2,663,291,$241,000, respectively.

The reported  results  include a remaining  returns  provision of  approximately
$184,000 and  $1,331,639, respectively.  Principally,$626,000 at December 31, 2005 and December 31, 2004,  respectively
in the event of future  product  returns  following the  discontinuation  of the
Cold-Eeze(R) Cold Remedy Nasal Spray product in September 2004.

INCOME TAXES

The Company has  recorded a valuation  allowance  against its net  deferred  tax
assets.  Management  believes  that  this  allowance  is  required  due  to  the
uncertainty  of  realizing  these tax  benefits in the future.  The  uncertainty
arises because the Company may incur substantial  research and development is part of the product  research  costs
related to Pharma and study
costs  associated  with  Cold-Eeze(R).  Expenditure for 2003 also includes study
costs  relating to  Cold-EEZE(R)  Cold Remedy Nasal  Spray.  Pharma is currently
involved in research  activity that is expected to increase  significantly  over
time as product research and testing  progresses.  The Company is at the initial
stages  of  what  may be a  lengthy  process  to  develop  potential  commercial
prescription products.its Ethical Pharmaceutical segment.

RESULTS OF OPERATIONS

TWELVE MONTHS ENDED DECEMBER 31, 20032005 COMPARED WITH SAME PERIOD 2002

The Company has restated its 2002 consolidated  financial  statements herein, in
order to properly  reflect the accounting2004

Net sales for certain  warrants  issued in 2002.
See Note 15 to the Consolidated Financial Statements.

Revenues  from  continuing  operations  for 20032005 were $41,499,163$53,658,043 compared to $29,420,646$43,947,995 for 2002,2004, reflecting
an increase of 41%22.1% in 2003.2005.  Revenues,  by segment, for 2003
comprised  $20,474,969  relating2005 were Cold Remedy,
$29,284,651;  Health and  Wellness,  $20,473,050;  and  Contract  Manufacturing,
$3,900,342,  as compared to 2004 when the cold-remedyrevenues for each  respective  segment
primarilywere $22,834,249, $20,361,391 and $752,355.

The Cold  Remedy  segment  reported a sales  increase in 2005 of  $6,450,402  or
28.2%.  During 2005 the Company  continued to strongly  support the Cold-Eeze(R)
product line through media and $21,024,194  fromin-store  advertising and the health and  wellness  segment,
compared to 2002 revenuesintroduction of $14,199,833 and $15,220,813, by respective segment.
The 2002 cold-remedy  revenues included an amount of $148,866 as a resultnew
Cold-Eeze(R)  flavors thereby increasing the profile of the settlement  of the  infringement  suit against Gel Tech,  LLC, the  developer of
Zicam(TM),product through line
extension.  Cold-Eeze(R)  product unit  consumption  increased by 27% in 2005 as
measured by Information Resources Incorporated (IRI) data.


                                      -25-


The Health and  Gum TechWellness  segment's  net sales  increased in 2005 by $111,659 or
0.5%. International Inc., its distributor. The 2003sales for this segment increased by 54.3% due to an increase
in the revenuesnumber of independent international  distributor  representatives in 2005
with  offset  due to a decline  in the  cold-remedynumber of  active  domestic  independent
distributor representatives.

The Contract  Manufacturing segment may be attributablerefers to management's
strategy in supportingthe third party sales generated by
QMI.  In addition  to the  manufacture  of the  Cold-Eeze(R)  product,  in the  marketplace by wayQMI also
manufactures  a variety of media  advertisinghard and  ongoing  co-operative  advertising  initiatives  with the
Company's  customer  base.  The segment may also have been  influenced  by media
attention to the possibility of increased cold and influenza  incidences  during
the  2003/2004   cold  season.   The  health  and  wellness   segment   reported
significantly  increased  revenues  in 2003 of  $5,803,380  over the prior year,
primarily due to the continued  recruitment by the Company of active independent
representativesorganic  candies  under its own brand names
along with other products on a contract manufacturing basis for other customers.
Sales for this  segment  in 2005  increased  by  $3,147,887  as the Company entering the international market during
the second quarter2004  period
consisted of 2003.three months activity.

Cost of sales from  continuing  operations for 20032005 as a percentage of net sales
was 51.8%48.1%, compared to 58.8%53.6% for 2002.2004. The cost of sales percentage for the cold-remedyCold
Remedy  segment  was  reduceddecreased  in 20032005 by 8.2%6.2%  primarily  due to decreased  coststhe impact of the
discontinuation  of the nasal spray  product in 2004 and the  conclusion  of the
Company's  royalty  obligations  to the  founders  in May 2005.  The 2004  nasal
product discontinuation  negatively impacted net sales by approximately $680,000
and resulted in an additional expense to cost of sales of approximately $672,000
due to obsolete product and materials. Remaining variations between the years is
largely the result of product bonus promotions and considerably  reduced royalty charges  attributable
to the nasal and throat pop products,  and also the 2002 amount included charges
for  inventory  obsolescence.mix. The cost of sales  percentage  for the healthHealth
and wellnessWellness  segment  decreasedincreased in 20032005 by 5.2%1.6% largely  attributable  to fluctuationscosts
associated  with  increased  international  sales  activity,   product  mix  and
variations in the independent  distributor  representative  commission expense payable to the independent  representatives along with
charges in 2002cost. The
2005  consolidated  cost of sales  was  favorably  impacted  as a result  of obsolete inventory on hand.the
consolidation   effects  of  the   manufacturing   facility  as  it  relates  to
Cold-Eeze(R). These gross profit gains of the Cold Remedy segment were offset by
substantially lower gross profit margins for the Contract Manufacturing segment,
which is significantly lower than the other operating segments.

Selling,  marketing  and  administrative  expenses  from continuing  operations for  20032005  were  $16,010,164$21,070,307
compared to  $14,832,935$16,960,313  in 2002.2004.  The  increase in 20032005 was  primarily  due to
increased  media  advertisingsales  brokerage  commission  costs of $845,055  necessary$816,000 due to  supportsignificantly
improved sales performance;  the Cold-Eeze(R)  product along withaddition of Quigley Manufacturing Inc., for the
whole  of 2005  resulted  in  increased  selling  and  administration  costs  associatedof
$1,276,459;  insurance costs increased by $435,920,  with the healthremaining increase
largely due to increased payroll costs.  Selling,  marketing and  wellnessadministrative
expenses, by segment, in 2005 were Cold Remedy $13,519,967,  Health and Wellness
$5,249,296,  Pharma $724,394 and Contract Manufacturing  $1,576,650, as compared
to 2004 of approximately  $2,161,000  primarily  related to the
generation of increased  revenues.  The 2002 expenses included a non-cash charge
of $2,100,000 for warrants  granted in connection with consulting  services with
no comparable charge in 2003.$11,068,726, $5,098,834, $492,562 and $300,191, respectively.

Research and development costs from continuing  operations in 2003for 2005 and 20022004 were $3,365,698$3,784,221 and $2,663,291,$3,232,569,
respectively.  Principally, the increase ofin research and development expenditure
was the result of decreased  cold-remedy  related  product testing costs in 2003  was due2005
compared  to  the  prior  year,  offset  by  increased  expenses  associated  with the
ongoing research and clinical activityPharma  study  costs  of
Pharmaapproximately $756,000 in the amount of $642,983.2005.

During 2003,2005,  the  Company's  major  operating  expenses of salaries,  brokerage
commissions, promotion, advertising, and legal costs accounted for approximately
$11,328,608 (58%$16,922,587 (68.1%) of the total operating expenses of $19,375,862,$24,854,528,  an increase
of 2%31.2% over the 20022004 amount of $11,143,588.$12,900,314 (63.9%) of total operating expenses
of $20,192,882, largely the result of increased sales brokerage commission costs
and increased  payroll costs in 2005. The selling, general and administrative
expenses  related to Darius for 2003 and 2002 were  $5,396,696  and  $3,235,793,
respectively.


                                      -17-


Revenues2005 amounts  reflect the inclusion of
CPNP  (discontinued  operations)QMI for the twelve months periods ended
December  31, 2003 and 2002 were  $59,824,  and  $2,040,312,  respectively,  net
losses for the same periods were $54,349 and $1,322,355. The results of CPNP are
represented  as  discontinued  operations2005 compared to three months in the  Statements  of Operations  and
Balance Sheets.2004.

Total assets of the Company at December 31, 20032005 and 20022004 were  $26,269,759$35,975,639  and
$24,934,956,$31,529,756,   respectively.   Working   capital   increased  by  $1,595,405$2,829,352  to
$18,257,354$20,682,262  at December 31, 2003.2005.  The primary  influences  on working  capital
during 20032005 were: the decreaseincrease in cash balances,  increased  account  receivable
balances  due to  increased  revenues,  reductions insales,  increased  inventory on hand as a result of
increased revenues and management  control;  other current  liabilities  andsales including  international  activity;  increased accrued royaltyroyalties
and sales  commissions  bothas a result of  litigation  between  the Company and the
developer of  Cold-Eeze(R)  and increased  advertising  payable  balances due to
improved  salesincreased  advertising  activity in 2003.the latter part of 2005 and related seasonal
factors.

TWELVE MONTHS ENDED DECEMBER 31, 20022004 COMPARED WITH SAME PERIOD 20012003
Revenues  from  continuing  operations  for 20022004 were  $29,420,646$43,947,995  compared  to
$22,772,214$41,499,163  for 2001,2003,  reflecting  an  increase of 29%.  20025.9% in 2004.  Revenues,  by
segment,  for  2004  were  Cold  Remedy,   $22,834,249;   Health  and  Wellness,
$20,361,391; and Contract Manufacturing,  $752,355, as compared to 2003 when the
revenues comprised
$14,199,833  relatingfor each respective segment were $20,474,969, $21,024,194 and zero. The
Contract Manufacturing segment refers to the third party sales generated by QMI.
In  addition  to  the  manufacture  of  the  Cold-Eeze(R)   product,   (cold-remedy  segment)QMI  also
manufactures  a variety of hard and  $15,220,813 from Darius (health and wellness segment), compared to 2001organic  candies  under its own brand names
along with other products on a contract manufacturing basis for other customers.
The 2004 revenues for the Cold Remedy  segment were  negatively  affected by the
discontinuation  of $16,983,635  and $5,788,579,the nasal  spray  product,  reducing  the 2004  revenues  by
respective  segment.  The 2001  Cold-Eeze(R)
revenues  included an amount of $1,546,592approximately  $680,000 as a result of actual and anticipated  product  returns.
Notwithstanding the settlementdiscontinuation of the infringement  suit against Gel Tech,  LLC,nasal spray product,  the developerCold Remedy
segment reported increased revenues which may be attributable to strategic media
advertising during the early part of Zicam(TM),the cold season,  strong trade and Gum
Tech International,  Inc., its distributor as compared to $148,866consumer
product  promotions,  and media  attention  during  the  fourth  quarter of 2004


                                      -26-


following the reported scarcity of flu vaccine products. The Health and Wellness
segment  reported reduced revenues in 2002. 2002
revenues  report2004 of $662,803 over the prior year. This
segment experienced a reduction in Cold-Eeze(R)domestic sales which were offset by increased
sales to international markets of $2,783,802  due to the
compression of the  cold-remedy  category in general despite the increase in the
incidences  of the  common  cold.  In  addition,  the weak  economic  conditions
resulted in lower  carrying  amounts of inventory by our  customers  and reduced
order size and frequency. The health and wellness segment reported significantly
increased  revenues in 2002  primarily  due to strong  marketing  and  promotion
programs effected throughout 2002.135%.

Cost of sales from  continuing  operations for 20022004 as a percentage of net sales
was 58.8%53.6%, compared to 48.2%51.8% for 2001.2003. The 2002 increase iscost of sales percentage for the Cold
Remedy  segment  increased  in 2004 by 4.7%  primarily  due to the effectsimpact of the
significantly  increased  revenues  fromdiscontinuation  of the healthnasal  spray  product.  The  discontinuation  negatively
impacted  net sales by  approximately  $680,000  and  wellness
segment  whoseresulted in an  additional
expense to cost of sales as a percentageof  approximately  $672,000 due to obsolete product and
materials.  Remaining  variations  between  the years is  largely  the result of
product mix. The cost of sales  were 71%percentage  for the Health and 67%Wellness  segment
increased  in 2004 by 1.2%  largely  attributable  to a charge of  approximately
$200,000 related to a reserve for 2002
and 2001,  respectively,  reflecting this segment's lower profit margin compared
to that of Cold-Eeze(R) cold-remedy segment.expected obsolete inventory.

Selling,  marketing and administrative  expenses from continuing  operations for
20022004 were $14,832,935$16,960,313  compared to $10,650,555$16,010,164 in 2001.2003. The increase in 20022004 was
primarily due to increased media advertising of $1,392,952  necessary$892,771, largely related to support the
commencement of Cold-Eeze(R)  productadvertising activity earlier in the 2004/2005 cold
season compared to prior year. Selling,  marketing and a non-cash  charge of  $2,100,000administrative  expenses,
by  segment,  in  20022004  were  Cold  Remedy  $11,068,726,   Health  and  Wellness
$5,098,834,  Pharma $492,562 and Contract Manufacturing $300,191, as compared to
2003  when  these  expenses  for  warrants
granted in connection with consulting services.each  respective   segment  were  $10,061,349,
$5,396,696, $552,119 and zero.

Research and development costs from continuing  operations in 20022004 and 20012003 were
$2,663,291$3,232,569 and $1,331,639,$3,365,698,  respectively.  Principally, the increase ofdecrease in research
and  development  expenditure  was the result of decreased  Cold Remedy  related
product  testing costs in 2002 was due2004 compared to expenses associated with the ongoing research
and clinical activityprior year,  which were offset by
increased Pharma study costs of Pharma in the amount of $1,096,492.approximately $261,000.

During 2002,2004,  the  Company's  major  operating  expenses of salaries,  brokerage
commissions, promotion, advertising, and legal costs accounted for approximately
$11,143,588$12,900,314 (64%) of the total operating expenses of $17,496,226,$20,192,882, an increase of
60%13.9% over the 20012003 amount of $6,983,346.  The selling, general$11,328,608, largely the result of increased media
advertising and administrative
expenses  related to Darius for 2002 and 2001 were  $3,235,793  and  $2,457,236,
respectively.payroll costs in 2004.

Revenues of Caribbean Pacific Natural Products,  Inc.CPNP  (discontinued  operations) for the twelve months periods ended
December 31, 20022004 and 20012003 were $2,040,312,zero and $2,176,470,$59,824,  respectively,  and net losses
for the same periods were $1,322,355zero and $718,156.  The loss relating to 2002 includes an amount of $633,233  relating to
the asset  impairment.$54,349. The results of Caribbean  Pacific  Natural  ProductsCPNP are representedpresented as
discontinued operations in the statementsStatements of operations  with
balance sheet items being  represented  as assets held for sale and  liabilities
associated with assets held for sale.Operations.

Total assets of the Company at December 31, 20022004 and 20012003 were  $24,934,956$31,529,756  and
$24,755,795,$26,269,759,  respectively. Working capital decreased by $1,963,872$404,444 to $16,661,949$17,852,910
at December 31, 2002.2004.  The primary  influences  on working  capital  during 20022004
were: the increase in cash balances,  which was assisted by exercises
of warrants and options during 2002;decreased account receivable  balances due
to  attentive  collections,  reductions  in  inventory  on hand;hand as a  result  of
increased  revenues;  increased  liabilities due to current portion of long term
debt of  $428,571  related  to the  acquisition  of certain  assets,  (primarily
property,  plant and  equipment),  and assumption of certain  liabilities of the
former contract  manufacturer,  JoEl, Inc., now QMI, along with the inclusion of
assets and liabilities relating to QMI at December 31, 2004, and the increase in
advertising accrualspayable balances due to increased activity;  and  increased  liabilities
resulting fromadvertising activity in the fair valuelatter
part of warrants  granted  associated  with  consulting
services.2004.

MATERIAL COMMITMENTS AND SIGNIFICANT AGREEMENTS

Effective  October 1, 2004,  the  Company  acquired  certain  assets and assumed
certain  liabilities of JoEl,  Inc., the sole  manufacturer of the  Cold-Eeze(R)
lozenge  product.  As part of the  acquisition,  the Company entered into a loan
obligation in the amount of $3.0 million  payable to PNC Bank,  N.A. The loan is
collateralized  by  mortgages  on real  property  located  in  each of  Lebanon,
Pennsylvania  and  Elizabethtown,  Pennsylvania  and  was  used to  finance  the
majority  of the cash  portion of the  purchase  price.  The  Company  can elect
interest  rate options of either the Prime Rate or LIBOR plus 200 basis  points.
The loan is payable in eighty-four equal monthly  principal  payments of $35,714
commencing  November 1, 2004,  and such  amounts  payable are  reflected  in the
consolidated  balance sheet as current  portion of long-term  debt  amounting to
$428,571  and  long  term  debt  amounting  to  $1,035,715.  The  Company  is in
compliance with all related loan covenants.

With the exception of the Company's  Cold-Eeze(R) lozenge product, the Company's
products are  manufactured  by outside  sources.  The Company has  agreements in
place with these  manufacturers,  which ensure a reliable  source of product for
the future.  A  significant  amount of the revenues  received by the
facility producing the Cold-Eeze(R) lozenge is from the Company.


                                      -18-


The Company has agreements in place with  independent  brokers whose function is
to  represent  the  Company's  Cold-Eeze(R)  products,  in a  product  sales and
promotion  capacity,  throughout  the  United  States and  internationally.  The
brokers are remunerated through a commission structure, based on a percentage of
sales collected, less certain deductions.


                                      There are significant royalty-27-


The Company has maintained a separate  representation and commission  agreements betweendistribution agreement
relating to the Company and
the developerdevelopment of the  Company's  Cold-Eeze(R) zinc gluconate  glycine lozenge
products.  Theproduct  formulation.
In return for exclusive  distribution rights, the Company has entered intomust pay the developer
a 3% royalty and a 2%  consulting  agreements  with
the  developer  that  requires  payment of 5%fee based on sales  collected,  less  certain
deductions,  throughout  the term of this  agreement,  which is due to expire in
2007.  However,  the Company and with the founders,developer are in litigation and as such, no
potential  offset  from such  litigation  for these fees have been  recorded.  A
founder's  commission totaling 5%, on sales collected,  less certain deductions,
has been paid to two of the officers of the Company,  who are officers,also directors and
stockholders  of the  Company,  who share a commission of 5% on sales  collected,  less certain
deductions.and whose  agreements  expired in May 2005.  The
expenses for the  respective  periods  relating to such  agreements  withamounted to
$1,745,748,  $2,058,965  and  $1,805,294  for the developers  expire in 2007,twelve  months  periods  ended
December  31,  2005,  2004 and with the
founders in 2005.2003,  respectively.  Amounts  accrued  for these
expenses  at  December  31,  2005  and  2004  were  $2,077,411  and  $1,129,654,
respectively.

The Company has an agreement  with the former  owners of the  Utah basedUtah-based  direct
marketing and selling company, whereby they receive payments, currently totaling
5% of net sales collected, for use  of  product  formulations,exclusivity, consulting, marketing presentations,
confidentiality and non-compete agreements.arrangements. Amounts paid or payable under such
agreement  during 2005,  2004 and 2003 were  $838,607,  $800,881  and  2002 were $880,091, and $678,454,
respectively. Amounts payable under such agreement at December 31, 20032005 and 20022004
were $68,388$58,597 and $63,866,$60,876, respectively.

In August 2003,  the Company  entered into a licensing  agreement  with a patent
holder  relating to utilizing a nasal spray product in the treatment of symptoms
of the common cold.  The Company  agreed to pay the patent  holder a two percent
royalty  on  net  sales  of  nasal  spray  products,  less  certain  deductions,
throughout  the term of this  agreement,  expiring  no later  than  April  2014.
Amounts  paid or payable  under such  agreement  during the twelve  month period
ended December 31, 2003 were $26,613,  with zero in the 2002 comparable  period.
An amount of $1,613  relating  to this  agreement  was  accrued  or  payable  at
December 31, 2003.

Certain  operating  leases for  office and  warehouse  space  maintained  by the
Company resulted in rent expense for the years ended December 31, 2005, 2004 and
2003, 2002of $227,701,  $335,226,  and 2001, of $255,078, $236,304 and $218,456,  respectively.  The future  minimum
lease obligations under these operating leases are approximately $565,000.

The  Company  has  approximate  future  obligations  relating  to  research  and
development and property leases, over the next five years, as follows:

                        Research and         Property
             Year        Development          Leases            Total
            -----------------------------------------------------------
            2004         $1,500,000          $212,000        $1,712,000
            2005                 --           198,000           198,000
            2006                 --            98,000            98,000
            2007                 --            57,000            57,000
            2008                 --                --                --
            -----------------------------------------------------------
            Total        $1,500,000          $565,000        $2,065,000
            -----------------------------------------------------------$240,000.

LIQUIDITY AND CAPITAL RESOURCES

The Company had working  capital of $18,257,354$20,682,262  and $16,661,949$17,852,910 at December 31,
20032005 and 2002,2004,  respectively.  Changes  in  working  capital  overall  have been
primarily due to the following  items:  cash balances  have  decreasedincreased by  $1,504,991,$2,518,729;
account  receivable  balances increased by $3,673,760 due to increased
revenues  in 2003,  particularly  the fourth  quarter,  inventory  decreased  by
$773,858$1,504,161 due to increased sales activity and
effective  collection  practices;  inventory  increased by $445,382 due to sales
growth and product line  extensions  along with  increased  international  sales
activity;  accrued advertising  increased by $941,403 due to variations in media
advertising scheduling between years and seasonal factors; accrued royalties and
sales commissions  increased by $1,505,517 largely due to the managementeffects of inventory levels.certain
litigation in progress.  Long-term  debts decreased by $1,428,571 as a result of
the  prepayment  of  $1,000,000  in April 2005 against  this debt and  recurring
monthly principal repayments.  This item relates to the loan liability following
the  acquisition  of JoEl,  Inc.  effective  October  1, 2004  while the  assets
acquired are presented in property, plant and equipment.  Total cash balances at
December 31, 20032005 were $11,392,089$16,885,170 compared to $12,897,080$14,366,441 at December 31, 2002.2004.

Management believes that its revised strategy to establish  Cold-Eeze(R) as a recognized
brand name, its broader range of products, its diversified  distribution methods
as  it  relates  to  the  healthHealth  and  wellnessWellness   business   segment,   adequate
manufacturing  capacity,  and growth in international  sales,  together with its
current  working  capital,  should provide an internal source of capital to fund
the  Company's  business  operations.  The cold-remedyCold  Remedy and healthHealth and  wellnessWellness
segments  contribute  current  expenditure  support in  relation  to the ethical pharmaceuticalEthical
Pharmaceutical segment. In addition to anticipated funding from operations,  the
Company  and its  subsidiaries  may in the  short and long  term  raise  capital
through the issuance of equity securities to finance anticipated growth.

Management is not aware of any trends,  events or uncertainties that have or are
reasonably  likely to have a material  negative  impact upon the  Company's  (a)
short-term or long-term  liquidity,  or (b) net sales revenues 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.

-19-
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.


                                      -28-


CONTRACTUAL OBLIGATIONS

The Company's  future  contractual  obligations  and commitments at December 31,
2005 consist of the following:

                                                               Payment Due by Period
                                                               ---------------------
                                                 Less than        1-3            4-5         More than
    Contractual Obligations         Total         1 year         years          years         5 years
- -------------------------------- ------------- -------------- ------------- --------------- ------------
Long-Term Debt Obligations (1)     $1,464,286       $428,571      $857,142        $178,573        -
Operating Lease Obligations           271,000        180,000        91,000         -              -
Purchase Obligations                   62,000         62,000        -              -              -
Research and Development            3,230,000      3,230,000        -              -              -
Advertising                         1,000,000      1,000,000        -              -              -

                                 ------------- -------------- ------------- --------------- ------------
Total Contractual Obligations      $6,027,286     $4,900,571      $948,142        $178,573       -
                                 ============= ============== ============= =============== ============

(1)  See  Note 7,  "Long-Term  Debt"  to the  Company's  consolidated  financial
     statements for additional information on long-term debt obligations.

OFF-BALANCE SHEET ARRANGEMENTS

It is not the Company's usual business  practice to enter into off-balance sheet
arrangements such as guarantees on loans and financial  commitments and retained
interests in assets  transferred to an unconsolidated  entity for securitization
purposes.  Consequently,  the Company has no off-balance sheet arrangements that
have, or are reasonably  likely to have, a material  current or future effect on
its financial condition,  changes in financial condition,  revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.

IMPACT OF INFLATION

The Company is subject to normal  inflationary  trends and anticipates  that any
increased costs shouldwould be passed on to its customers.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSUREDISCLOSURES 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 earninginterest-earning  marketable  securities.  -20-At December 31,
2005,  the Company had $1.5 million of variable  rate debt. If the interest rate
on the debt were to increase or  decrease  by 1% for the year,  annual  interest
expense would increase or decrease by approximately $15,000.




                                      -29-


ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS INDEX TO CONSOLIDATED FINANCIAL STATEMENTSAND SUPPLEMENTARY DATA


Index to Consolidated Financial Statements                                              Page
                                                                                        ----

Balance Sheets as of December 31, 20032005 and 20022004                                         F-1

Statements of Operations for the years ended December 31, 2003,
  2002,2005, 2004, and 20012003          F-2

Statements of Stockholders' Equity for the years ended December 31, 2003, 2002,2005, 2004,
     and 20012003                                                                           F-3

Statements of Cash Flows for the years ended December 31, 2003,
  2002,2005, 2004, and 20012003          F-4

Notes to Financial Statements                                                           F-5 to F-21F-26

Responsibility for Financial Statements                                                 F-22F-27

Report of Independent Auditors                                       F-23


                                      -21-Registered Public Accounting Firm
     Amper, Politziner & Mattia, P.C.                                                   F-28

Report of Independent Registered Public Accounting Firm
     PricewaterhouseCoopers LLP                                                         F-29




                                      -30-


                                                      THE QUIGLEY CORPORATION
                                                    CONSOLIDATED BALANCE SHEETS


                               ASSETS
                                                                                         December 31, 200331,2005       December 31, 2002
                                                                                                         (Restated-Note 15)
                                                                                     -----------------2004
                                                                                       -------------------      ------------------

CURRENT ASSETS:

      Cash and cash equivalents                                                               $ 11,392,089        $ 12,897,080$16,885,170             $14,366,441
      Accounts receivable (net of doubtful accounts of $808,812$354,972 and $737,782)          7,861,883           4,188,123$311,764)                   7,880,140               6,375,979
      Inventory                                                                                 3,752,903           4,526,7613,900,064               3,454,682
      Prepaid expenses and other current assets                                                 733,597             490,117
          Assets of discontinued operations                                                       --             374,007
                                                                                        ------------        ------------1,582,851                 764,359
                                                                                       -------------------      ------------------
          TOTAL CURRENT ASSETS                                                                 23,740,472          22,476,088
                                                                                        ------------        ------------30,248,225              24,961,461
                                                                                       -------------------      ------------------

PROPERTY, PLANT AND EQUIPMENT - NET                                                             2,418,159           2,336,736
                                                                                        ------------        ------------5,585,793               6,473,688
                                                                                       ==================       ==================


OTHER ASSETS:
      Goodwill                                                                                    30,763                  30,763
      Other assets                                                                                80,365               1,000
          Assets of discontinued operations                                                       --              90,369
                                                                                        ------------        ------------110,858                  63,844
                                                                                       -------------------      ------------------
           TOTAL OTHER ASSETS                                                                     111,128             122,132
                                                                                        ------------        ------------141,621                  94,607
                                                                                       -------------------      ------------------

TOTAL ASSETS                                                                                  $ 26,269,759        $ 24,934,956
                                                                                        ============        ============$35,975,639             $31,529,756
                                                                                       ===================      ==================

                                 LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
      Current portion of long-term debt                                                          $428,571                $428,571
      Accounts payable                                                                            $    524,136        $    394,675771,819                 978,401
      Accrued royalties and sales commissions                                                   1,594,457           1,146,4953,301,598               1,796,081
      Accrued advertising                                                                       1,354,536           1,559,575
          Accrued consulting                                                                      --             975,0002,860,414               1,919,011
      Other current liabilities                                                                 2,009,989           1,353,383
          Liabilities of discontinued operations                                                  --             385,011
                                                                                        ------------        ------------2,203,561               1,986,487
                                                                                      --------------------      ------------------
           TOTAL CURRENT LIABILITIES                                                            5,483,118           5,814,139
                                                                                        ------------        ------------9,565,963               7,108,551
                                                                                      --------------------      ------------------

LONG-TERM DEBT                                                                                  1,035,715               2,464,286

MINORITY INTEREST                                                                                  54,314                  54,980

COMMITMENTS AND CONTINGENCIES  (NOTE 12)9)

STOCKHOLDERS' EQUITY:

      Common stock, $.0005 par value; authorized 50,000,000;
        Issued: 16,149,07916,360,524 and 16,102,67016,285,796 shares                                                    8,074               8,0518,180                   8,143
      Additional paid-in-capital                                                               34,281,449          33,290,22235,404,803              35,203,816
      Retained earnings                                                                        11,685,277          11,010,70315,094,823              11,878,139
      Less: Treasury stock, 4,646,053 and 4,646,053 shares, at cost                           (25,188,159)            (25,188,159)
                                                                                      ------------        --------------------------------       -----------------
           TOTAL STOCKHOLDERS' EQUITY                                                          20,786,641          19,120,817
                                                                                        ------------        ------------25,319,647              21,901,939
                                                                                      --------------------       -----------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                    $ 26,269,759        $ 24,934,956
                                                                                        ============        ============$35,975,639             $31,529,756
                                                                                      ====================      ==================




           See accompanying notes to consolidated financial statements

                                       F-1


                                               THE QUIGLEY CORPORATION
                                        CONSOLIDATED STATEMENTS OF OPERATIONS

                                                             Year Ended           Year Ended          Year   Ended
                                                          December 31, 20032005    December 31, 20022004   December 31, 20012003
                                                         ------------------    -----------------   ------------------   -----------------

NET SALES                                                      $ 41,499,163        $ 29,271,780        $ 21,225,622

LICENSING FEES                                                            --             148,866           1,546,592
                                                                ------------        ------------        ------------

TOTAL REVENUE                                                     41,499,163          29,420,646          22,772,214
                                                                ------------        ------------        ------------$53,658,043          $43,947,995         $41,499,163
                                                         ------------------    -----------------    ----------------

COST OF SALES                                                   25,824,085           23,573,126          21,487,763
                                                         17,208,836          10,220,849
                                                                ------------        ------------        ------------------------------    -----------------    ----------------

GROSS PROFIT                                                    27,833,958           20,374,869          20,011,400
                                                         12,211,810          12,551,365
                                                                ------------        ------------        ------------------------------    -----------------    ----------------

OPERATING EXPENSES:
      Sales and marketing                                        8,414,065            7,140,365           6,166,318
      4,941,174           3,220,789
      Administration                                            12,656,242            9,819,948           9,843,846           9,891,761           7,429,766
      Research and development                                   3,784,221            3,232,569           3,365,698
                                                         2,663,291           1,331,639
                                                                ------------        ------------        ------------------------------    -----------------    ----------------
TOTAL OPERATING EXPENSES                                        24,854,528           20,192,882          19,375,862
                                                         17,496,226          11,982,194
                                                                ------------        ------------        ------------------------------    -----------------    ----------------

INCOME (LOSS) FROM OPERATIONS                                           2,979,430              181,987             635,538
                                                         (5,284,416)            569,171

INTEREST AND------------------    -----------------    ----------------

OTHER INCOME  (EXPENSE)
      Interest income                                              402,580              104,339              93,385
      152,313             364,949
                                                                ------------        ------------        ------------Interest expense
                                                                  (100,326)             (32,250)                -
      Gain on dividend-in-kind                                           -              198,786                 -


TOTAL OTHER INCOME, (LOSS)NET                                            302,254              270,875              93,385
                                                         ------------------    -----------------    ----------------

INCOME FROM CONTINUING OPERATIONS BEFORE TAXES                   3,281,684              452,862             728,923
                                                         (5,132,103)            934,120
                                                                ------------        ------------        ------------------------------    -----------------    ----------------

INCOME TAXES                                                        --                  --                  --
                                                                ------------        ------------        ------------65,000                    -                   -
                                                         ------------------    -----------------    ----------------


INCOME (LOSS) FROM CONTINUING OPERATIONS                                3,216,684              452,862             728,923
                                                         (5,132,103)            934,120
                                                                ------------        ------------        ------------------------------    -----------------    ----------------

DISCONTINUED OPERATIONS:
 Loss from discontinued operations                                      -                     -             (54,349)

                                                         (689,122)           (718,156)
 Loss on impairment related to investment in sun-care and
 skincare Operations                                                      --            (633,233)                 --
                                                                ------------        ------------        ------------------------------    -----------------    ----------------
NET INCOME                                                      (LOSS)                                               $    674,574        ($ 6,454,458)       $    215,964
                                                                ============        ============        ============$3,216,684             $452,862            $674,574
                                                         ==================    =================    ================

BASIC EARNINGS PER COMMON SHARE:
  Income (loss) from continuing operations                                  $       0.06        ($      0.47)       $       0.09$0.28                $0.04               $0.06
  Loss from discontinued operations
                                                                         --               (0.12)              (0.07)
                                                                ------------        ------------        -------------                    -                   -
                                                         ------------------    -----------------    ----------------
  Net Income                                                         (loss)                                             $       0.06        ($      0.59)       $       0.02
                                                                ============        ============        ============$0.28                $0.04               $0.06
                                                         ==================    =================    ================

DILUTED EARNINGS PER COMMON SHARE:
  Income (loss) from continuing operations                                  $       0.05        ($      0.47)       $       0.09$0.24                $0.03               $0.05
  Loss from discontinued operations
                                                                         --               (0.12)              (0.07)
                                                                ------------        ------------        -------------                    -                   -
                                                         ------------------    -----------------    ----------------
  Net Income                                                         (loss)                                             $       0.05        ($      0.59)       $       0.02
                                                                ============        ============        ============$0.24                $0.03               $0.05
                                                         ==================    =================    ================

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
      Basic                                                     11,660,561           11,541,012          11,467,087
                                                         10,893,944          10,675,153
                                                                ============        ============        ==============================    =================    ================

      Diluted                                                   13,299,162           14,449,334          14,910,246
                                                         10,893,944          10,750,687
                                                                ============        ============        ==============================    =================    ================




           See accompanying notes to consolidated financial statements
                                      F-2


                                                      THE QUIGLEY CORPORATION
                                          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



                                       (RESTATED-NOTE 15)

                                        Common                      Additional
                                        Stock           Issued       Paid-in-        Treasury        Retained
                                       Shares           Amount       Capital           Stock         Earnings          Total
                                     ---------------------------------------------------------------------------------------------
BALANCE JANUARY 1, 2001               10,655,153         $7,636      $28,871,887    ($25,158,028)    $17,249,197       $20,970,692
                                     ---------------------------------------------------------------------------------------------

Treasury stock                           (30,000)                                        (30,131)                          (30,131)

Shares issued for net assets
acquired                                  50,000             25           43,725                                            43,750

Net income                                                                                               215,964           215,964
                                     ---------------------------------------------------------------------------------------------

BALANCE DECEMBER 31, 2001             10,675,153          7,661       28,915,612     (25,188,159)     17,465,161        21,200,275
                                     ---------------------------------------------------------------------------------------------

Tax benefits from options,
  warrants & common stock                                            828,177                                           828,177

Tax benefit allowance                                                   (828,177)                                         (828,177)

Warrants issued for service -
  (Restated-Note 15)                                                   1,125,000                                         1,125,000

Proceeds from options and warrants
exercised                                781,464            390        3,249,610                                         3,250,000

Net loss                                                                                              (6,454,458)       (6,454,458)
                                     ---------------------------------------------------------------------------------------------

BALANCE DECEMBER 31, 2002             -
  (Restated-Note 15)                  11,456,617         8,051       33,290,222     (25,188,159)     11,010,703        19,120,817$8,051     $33,290,222    ($25,188,159)    $11,010,703      $19,120,817
                                     ---------------------------------------------------------------------------------------------

Tax benefits from options,
  warrants & common stock                                               133,014                                          133,014

Tax benefit allowance
                                                                       (133,014)                                        (133,014)
Warrants issued for service                                             975,000                                          975,000
Proceeds from options and warrants
exercised                                 46,409             23          16,227                                           16,250

Net income                                                                                              674,574          674,574
                                     ---------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2003             11,503,026          $8,074      $34,281,4498,074      34,281,449     (25,188,159)     11,685,277       20,786,641
                                     ---------------------------------------------------------------------------------------------

Tax benefits from options,
  warrants & common stock                                                                                                 67,675
                                                                         67,675
Tax benefit allowance                                                   (67,675)
                                                                                                                         (67,675)
Shares issued for net asset
  acquisition, net of registration
  fees                                   113,097             58         895,392                                          895,450

Proceeds from options exercised           23,620             11          26,975                                           26,986

Dividend-in-kind                                                                                       (260,000)        (260,000)

Net Income                                                                                              452,862          452,862
                                     ---------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2004             11,639,743          8,143      35,203,816     (25,188,159)     11,878,139       21,901,939
                                     ---------------------------------------------------------------------------------------------

Tax benefits from options,
  warrants & common stock
                                                                     249,453                                         249,453
Tax benefit allowance                                                  (249,453)                                        (249,453)


Proceeds from options exercised           74,728             37          200,987                                          201,024

Net Income                                                                                            3,216,684         3,216,684
                                     ---------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2005             11,714,471         $8,180      $35,404,803    ($25,188,159)   $11,685,277       $20,786,641
                                     =============================================================================================$15,094,823    $25,319,647
                                     ---------------------------------------------------------------------------------------------




           See accompanying notes to consolidated financial statements
                                       F-3


                                                 THE QUIGLEY CORPORATION
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                             Year Ended            Year Ended            Year Ended
                                                          December 31, 2005     December 31, 2004     December 31, 2003
                                                         2002                2001
                                                              ------------        ------------        -------------------------------   -------------------   -------------------
OPERATING ACTIVITIES:
Net income                                                       (loss)                                             $    674,574        ($ 6,454,458)       $    215,964
                                                              ------------        ------------        ------------$3,216,684              $452,862              $674,574
                                                         -------------------   -------------------   -------------------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
  PROVIDED BY (USED IN) CONTINUING OPERATIONS:
  Loss from discontinued operations                                    54,349             689,122             718,156
  Loss on impairment related to discontinued operations                 --                    633,233                  --                  54,349
  Depreciation and amortization                                   1,404,107               622,348               473,593
  409,068             458,741
  Compensation satisfied with common stock warrantsGain on dividend-in-kind                                             --                2,100,000(198,786)                 --
  Gain on the sales of fixed assets                                  (3,907)                 --                    --
  Bad debts provision                                                98,751                25,289                71,030              18,472             183,014


  (INCREASE) DECREASE IN ASSETS:
       Accounts receivable                                       (1,602,912)            1,460,615            (3,744,790)
       (31,201)           (448,426)
       Inventory                                                   (445,382)            1,198,221               773,858           1,564,459             862,832
       Prepaid expenses and other current assets                   (896,552)               47,298              (243,480)
       958,040            (328,528)Other assets                                                   3,748               (33,611)                 --

  INCREASE (DECREASE) IN LIABILITIES:
       Accounts payable                                            (206,582)              454,265               129,461            (424,130)             11,769
       Accrued royalties and sales commissions                    1,505,517               201,624               447,962             277,874            (541,126)
       Accrued advertising                                          941,403               564,475              (205,041)            890,783          (1,069,081)
       Other current liabilities                                    250,614              (134,573)              656,608
                                                         508,922            (412,175)
                                                              ------------        ------------        -------------------------------   -------------------   -------------------
                 TOTAL ADJUSTMENTS                                1,048,805             4,207,165            (1,586,450)
                                                         7,594,642            (564,824)
                                                              ------------        ------------        -------------------------------   -------------------   -------------------

NET CASH PROVIDED BY  (USED IN)
PROVIDED BY
OPERATING ACTIVITIES                                              4,265,489             4,660,027              (911,876)
                                                         1,140,184            (348,860)
                                                              ------------        ------------        -------------------------------   -------------------   -------------------

INVESTING ACTIVITIES:
  Capital expenditures                                             (531,213)             (310,139)             (555,016)           (580,861)           (343,614)
  Cost of net assets acquired, net of registration fees                    --              (4,295,380)                 --
  Proceeds from the sale of fixed assets                             12,000                  --                    --
                                                         (30,763)
                                                              ------------        ------------        -------------------------------   -------------------   -------------------

NET CASH FLOWS USED IN INVESTING
  ACTIVITIES                                                       (519,213)           (4,605,519)             (555,016)
                                                         (580,861)           (374,377)
                                                              ------------        ------------        -------------------------------   -------------------   -------------------

FINANCING ACTIVITIES:
  Proceeds from exercises oflong-term borrowings                                   --               3,000,000                  --
  Principal payments on long-term debt                           (1,428,571)             (107,142)                 --
  Stock options and warrants exercised                              201,024                26,986                16,250
                                                         3,250,000                  --
  Repurchase of common stock                                            --                  --             (30,131)
                                                              ------------        ------------        -------------------------------   -------------------   -------------------

NET CASH FLOWS (USED IN) PROVIDED BY
  (USED IN)
  FINANCING ACTIVITIES                                           (1,227,547)            2,919,844                16,250
                                                         3,250,000             (30,131)
                                                              ------------        ------------        ------------

NET-------------------   -------------------   -------------------

  CASH USED IN OPERATING ACTIVITIES OF
  DISCONTINUED OPERATIONS                                              --                    --                 (54,349)
                                                         (596,548)           (844,911)
                                                              ------------        ------------        -------------------------------   -------------------   -------------------

NET INCREASE (DECREASE) INCREASE IN CASH                                   2,518,729             2,974,352            (1,504,991)          3,212,775          (1,598,279)

CASH & CASH EQUIVALENTS, BEGINNING OF
  PERIOD                                                         14,366,441            11,392,089            12,897,080
                                                         9,684,305          11,282,584
                                                              ------------        ------------        -------------------------------   -------------------   -------------------

CASH & CASH EQUIVALENTS,
  END OF PERIOD                                                 $ 11,392,089        $ 12,897,080        $  9,684,305
                                                              ============        ============        ============$16,885,170           $14,366,441           $11,392,089
                                                         ===================   ===================   ===================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
   INFORMATION:

     CASH PAID FOR:
        Interest                                                   $100,326               $32,250                  --
        Taxes                                                        65,000                  --                    --

     NON-CASH INVESTING AND FINANCING:
        Common stock issued for net assets acquired                    --                $977,158                  --




           See accompanying notes to consolidated financial statements
                                       F-4


                            THE QUIGLEY CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND BUSINESS

The  Quigley  Corporation (the "Company"),  organized underCompany,   headquartered   in  Doylestown,   Pennsylvania,   is  a  leading
manufacturer, marketer and distributor of a diversified range of homeopathic and
health products which comprise the laws of the state
of Nevada,Cold Remedy, Health and Wellness and Contract
Manufacturing  segments.  The  Company  is engagedalso  involved  in the development, manufacturing, and marketing of health
and homeopathic  products that are being offered to the general public,  and the  research  and
development  of  potential  prescription  products.  The Company is
organized  into three  business  segments,  which are,  Cold-Remedy,  Health and
Wellness,  andproducts  that  comprise  the  Ethical
Pharmaceutical.  For the fiscal periods  presented,  the
Company's revenues have come from the Company's Cold-Remedy business segment and
the Health and Wellness businessPharmaceutical segment.

The  Company's  principal  cold-remedy  product,business  is the  manufacture  and  distribution  of cold remedy
products to the consumer through the over-the-counter  marketplace together with
the sale of proprietary  health and wellness products through its direct selling
subsidiary.  One of the  Company's  key  products in its Cold Remedy  segment is
Cold-Eeze(R),  a zinc  gluconate  glycine  formulation  (ZIGG(TM)) is an over-the-counter  consumer product used to
reduce the  duration  and  severity  of the common  cold and is sold in lozenge,
sugar-free  tablet  and nasal  spray  forms  and is  proven  in two  double-blind
clinical studies to reduce the duration and severity of the common cold symptoms
by nearly half.  Cold-Eeze(R)  is now an established  product in the health care
and cold  remedy  market.  Effective  October  1,  2004,  the  Company  acquired
substantially all of the assets of JoEl, Inc., the previous  manufacturer of the
Cold-Eeze(R)  lozenge product.  This  manufacturing  entity,  now called Quigley
Manufacturing  Inc.  ("QMI"),  a wholly owned  subsidiary  of the Company,  will
continue to produce lozenge product along with performing such operational tasks
as warehousing and shipping the Company's  Cold-Eeze(R)  products.  In addition,
QMI  produces  a  variety  of hard and  organic  candy  for sale to third  party
customers  in addition  to  performing  contract  manufacturing  activities  for
non-related entities.

Darius International Inc. ("Darius"),  the Health and Wellness segment, a wholly
owned  subsidiary  of the Company,  was formed in January 2000 to introduce  new
products  to the  marketplace  through  a  network  of  independent  distributors.distributor
representatives.  Darius  is  a  direct  selling  organization  specializing  in
proprietary health and wellness  products,  which
commenced  shipping  product to  customers  in the third  quarter  of 2000.  The
continued  success of this  segment is  dependent,  among other  things,  on the
Company's ability to recruit and maintain active independent representatives; to
continue to make available new and innovative products and services; continue to
conform with domestic and international regulatory agencies; and to maintain and
improve  adequate  system  capabilities.  The  foregoing  risks could  result in
significant  reductions in revenues and profitability of the health and wellness
segment.products.  The formation of Darius has provided
diversification  to the Company in both the method of product  distribution  and
the broader range of products available to the marketplace, serving as a balance
to the seasonal revenue cycles of the Cold-Eeze(R) branded products.

In January 2001, the Company formed an Ethical Pharmaceutical  Unit,segment,  Quigley
Pharma  a
wholly-owned subsidiary of the Company, the Ethical Pharmaceutical segment,Inc.  ("Pharma"),  that is under the  direction  of its  Executive  Vice
President and Chairman of its Medical Advisory Committee.  Pharma was formed for
the purpose of developing naturally derived prescription drugs,  cosmeceuticals,
and dietary supplements. Pharma is currently undergoing research and development
activity  in  compliance  with  regulatory  requirements.  The establishmentCompany is in the
initial  stages  of what  may be a  dedicated  pharmaceutical
subsidiary may enablelengthy  process  to  develop  these  patent
applications into commercial products.

Future revenues,  costs,  margins, and profits will continue to be influenced by
the Company's  ability to maintain its  manufacturing  availability and capacity
together with its marketing and  distribution  capabilities and the requirements
associated  with the  development of Pharma's  potential  prescription  drugs in
order to  continue  to  compete  on a  national  and  international  level.  The
continued  expansion of Darius is dependent  on the Company  retaining  existing
independent   distributor   representatives  and  recruiting  additional  active
representatives  both  internationally  and within the United States,  continued
conformity with government regulations, a reliable information technology system
capable of  supporting  continued  growth and  continued  reliable  sources  for
product and materials to diversify into the prescription drug market
and to ensure safe and effective  distribution of these important  potential new
products  currently  under  development.  At this time,  three patents have been
issued and assigned to the Company resulting from research activity of Pharma.satisfy consumer demand.

During 2000, the Company acquired a 60% ownership  position in Caribbean Pacific
Natural Products,  Inc. ("CPNP"), a leading developer and marketer of all-natural
sun-care and  skincare  products for luxury  resorts,  theme parks and spas.  In
December  2002,  the Board of Directors  of the Company  approved a plan to sell
CPNP.. On January 22, 2003, the Company completed the
sale of the Company's  60% equity  interest in CPNP to Suncoast  Naturals,  Inc.
("Suncoast").  See discussion
in Notes to Financial Statements, Note 3 - Discontinued Operations.

The business of the Company is subject to federal and state laws and regulations
adopted  for  the  health  and  safety  of  users  of  the  Company's  products.
Cold-Eeze(R)  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.

The Company competes with suppliers varying in range and size in the cold-remedy
products arena.  Because  Cold-Eeze(R) has been clinically  proven,  it offers a
significant  advantage over other suppliers in the over-the-counter  cold-remedy
market.   The  Company  has  several  Broker,   Distributor  and  Representative
Agreements,  both nationally and  internationally and the product is distributed
through numerous  independent and chain drug and discount stores  throughout the
United States.

The  Company  continues  to  use  the  resources  of  independent  national  and
international  brokers complementing its own in-house personnel to represent the
Company's  over-the-counter  cold-remedy  products,  thereby  saving capital and
other ongoing expenditures that would otherwise be incurred.

Pharma,  a wholly owned  subsidiary of the Company,  the Ethical  Pharmaceutical
segment, is currently undergoing research and development activity in compliance
with regulatory  requirements.  The Company is at the initial stages of what may
be a  lengthy  process  to  develop  these  patent  applications  into a line of
naturally-derived patented prescription drugs.


                                       F-5
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The Consolidated  Financial  Statements  include the accounts of the Company and
its wholly owned subsidiaries.  All inter-company transactions and balances have
been  eliminated.  InEffective  March 31, 2004, the opinionfinancial  statements  include
consolidated  variable  interest  entities  ("VIEs") of management,  all adjustments necessary for a
fair presentation ofwhich the consolidated  financial position,  consolidated results
of operations and consolidated cash flows, forCompany is the
periods indicated,  have been
made.  Priorprimary  beneficiary  (see  discussion in Note 4, "Variable  Interest  Entity").
Certain  prior period  amounts have been  reclassified  to conform with thisthe 2005
presentation.


                                       During 2000, the Company acquired a 60% ownership  position in Caribbean Pacific
Natural  Products,   Inc.,   ("CPNP"),  a  leading  developer  and  marketer  of
all-natural  sun-care and skincare products for luxury resorts,  theme parks and
spas. In December 2002, the Board of Directors of the Company approved a plan to
sell CPNP. On January 22, 2003, the Board of Directors of the Company  completed
the sale of the Company's 60% equity interest in CPNP to Suncoast Naturals, Inc.
("Suncoast"). In exchange for its 60% equity interest in CPNP, the Company shall
receive:  (i) 750,000  shares of  Suncoast's  common stock,  which  Suncoast has
agreed, at its cost and within 60 days from the closing,  to register for public
resale  through  an  appropriate   registration   statement  (this  registration
statement  has not  been  declared  effective  by the  Securities  and  Exchange
Commission) and (ii) 100,000 shares of Suncoast's Series A Redeemable  Preferred
Stock, which bears interest at a rate of 4.25% per annum and which is redeemable
from time to time after March 31, 2003 in such amounts as is equal to 50% of the
free cash flow  reported  by  Suncoast in the  immediately  preceding  quarterly
financial statements divided by the redemption price of $10.00 per share.

The Company owns 19.5% of Suncoast's issued and outstanding capital stock, which
investment  is  accounted  for on the cost  basis  method.  Results  of CPNP are
presented  as  discontinued   operations  in  the  Consolidated   Statements  of
Operations and the Consolidated Balance Sheets.

On January 2, 2001,  the Company  acquired  certain  assets and assumed  certain
liabilities of a privately held company, located in Utah, involved in the direct
marketing and  distribution of health and wellness  products.  This  acquisition
required  cash  payments  that  approximated  $110,000 and 50,000  shares of the
Company's stock issued to the former owners of the net assets acquired.  The net
assets  acquired  included  assets  totaling  $536,000 and  liabilities  assumed
approximating  $416,000.  Also required were payments  totaling $540,000 for the
use of  product  formulations;  consulting;  confidentiality  and a  non-compete
agreement. To maintain the continuous application of these arrangements, fees of
5% on net sales  collected  must be paid to the former owners which are expensed
as  incurred.  The  operating  results  have  been  included  in  the  Company's
Consolidated  Statements of Operations  from the date of  acquisition.  Prior to
January 1, 2002, the excess of cost over net assets acquired had been subject to
amortization on a straight-line  basis over a period of 15 years.  Subsequent to
2001, the account will only be reduced if the value becomes impaired.F-5


USE OF ESTIMATES

The preparation ofCompany's  consolidated financial statements are prepared in conformityaccordance with
generally accepted accounting  principles requires management(GAAP) in the United Sates of America.
In connection with the preparation of the consolidated financial statements,  it
is required to make  assumptions  and estimates  about future events,  and assumptionsapply
judgments  that affect the  reported  amounts of assets,  liabilities,  revenue,
expenses and liabilitiesrelated disclosures. These assumptions, estimates and disclosure  of
contingent liabilitiesjudgments are
based on historical experience, current trends and other factors that management
believes to be relevant at the dates oftime the  consolidated  financial  statements are
prepared. Management reviews the accounting policies, assumptions, estimates and
judgments on a quarterly basis to ensure the financial  statements are presented
fairly and the reported
amounts of revenuesin accordance  with GAAP.  However,  because  future events and expenses  during the reporting  periods.  Actualtheir
effects cannot be determined  with  certainty,  actual results could differ from
those estimates.these assumptions and estimates, and such differences could be material.

The Company is organized  into four  different  but related  business  segments,
Cold-Remedy,   Health  and   Wellness,   Contract   Manufacturing   and  Ethical
Pharmaceutical.  When providing for the appropriate  sales returns,  allowances,
cash discounts and cooperative advertising costs, each segment applies a uniform
and  consistent  method for making  certain  assumptions  for  estimating  these
provisions that are applicable to each specific  segment.  Traditionally,  these
provisions are not material to reported  revenues in the Health and Wellness and
Contract  Manufacturing segments and the Ethical Pharmaceutical segment does not
have any revenues.

Provisions to these reserves  within the Cold Remedy segment  include the use of
such estimates, which are applied or matched to the current sales for the period
presented.  These  estimates  are based on  specific  customer  tracking  and an
overall historical  experience to obtain an applicable effective rate. Estimates
for sales returns are tracked at the specific  customer  level and are tested on
an annual  historical  basis,  and  reviewed  quarterly,  as is the estimate for
cooperative  advertising costs. Cash discounts follow the terms of sales and are
taken by  virtually  all  customers.  Additionally,  the  monitoring  of current
occurrences,   developments  by  customer,   market  conditions  and  any  other
occurrences that could affect the expected  provisions for any future returns or
allowances,  cash discounts and  cooperative  advertising  costs relative to net
sales for the period presented are also performed.

CASH EQUIVALENTS

The Company considers all highly liquid  investments with an initial maturity of
three  months  or less at the  time of  purchase  to be cash  equivalents.  Cash
equivalents  include cash on hand and monies invested in money market funds. The
carrying  amount  approximates  the  fair  market  value  due to the  short-term
maturity of these investments.

INVENTORIES

Inventories  are statedInventory is valued at the lower of cost,  determined  on a first-in,  first-out
basis (FIFO), or market.  Inventory items are analyzed to determine cost and the
market  value  and  appropriate   valuation   reserves  are   established.   The
Company  usesconsolidated  financial  statements  include a reserve  for  excess or  obsolete
inventory  of  $369,508  and  $1,388,590  as of  December  31,  2005  and  2004,
respectively.   The  majority  of  the  first-in,  first-out  ("FIFO") method2004   provision   was  related  to  the
discontinuation  of determining  cost for all  inventories.the  Cold-Eeze(R)  Cold Remedy Nasal Spray  product in 2004.
Inventories  included raw material,  work in progress and  packaging  amounts of
approximately  $729,000$1,340,000  and  $337,000$1,087,000 at December 31, 20032005 and 2002, respectively.


                                       F-6
December 31,
2004, respectively, with the remainder comprising finished goods.

PROPERTY, PLANT  AND EQUIPMENT

Property,  plant  and  equipment  isare  recorded  at  cost.  The  Company  uses a
combination of straight-line and accelerated  methods in computing  depreciation
for financial reporting purposes. The annual provision for depreciation has been
computed in  accordance  with the  following  ranges of  estimated  asset lives:
building and improvements - twenty to thirty nine years; machinery and equipment
- - five to seven  years;  computer  software - three  years;  and  furniture  and
fixtures - seven years.

GOODWILL AND INTANGIBLE ASSETS

Patent rights have been  amortized on a  straight-line  basis over the period of
the related licensing  agreements,  which  approximated 67 months and were fully
amortized as of March 2002.  Amortization  costs  incurred for the twelve months
periods  ended  December  31,  2003,  2002 and 2001,  were zero and  $21,940 and
$87,761, respectively.

As of December  31, 2003 and December 31,  2002,  intangible  assets  consist of
goodwill of $30,763.  Goodwill is not amortized but reviewed  annually for impairment  when events and
circumstances  indicate  the  carrying  amount may not be  recoverable  or on an
annual basis.


                                      In 2002, the Company realized an impairment loss of $296,047
relating to goodwill in CPNP, which was reflected in discontinued operations.F-6


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 fourseveral major  financial
institutions.  Since the  Company  maintains  amounts  in  excess of  guarantees
provided by the Federal Depository Insurance  Corporation,  the Company performs
periodic  evaluations  of  the  relative  credit  standing  of  these  financial
institutions and limits the amount of credit exposure with any one institution.

Trade accounts receivable  potentially  subjects 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.   The  Company has historically  incurred  minimal credit losses.  The
Company's  broad  range  of  customers  includes  many  large
wholesalers,  mass merchandisers and multi-outlet pharmacy chains, five of which
account for a significant  percentage of sales volume,  representing 23% for the years ended
December  31,  2003 and 2002,  and 35%29% for the
year ended  December 31, 2001.2005,  27% for the year ended December 31, 2004 and 23%
for the year ended  December 31,  2003.  Customers  comprising  the five largest
accounts receivable  balances  represented 34%47% and 44%48% of total trade receivable
balances at December  31, 20032005 and 2002,2004,  respectively.  During  2005,  2004 and
2003,  approximately 92%, 93% and 97%,  respectively,  of the Company's revenues
originatedwere  generated  in  the  United  States  with  the  remainder  being  attributable  to
international trade.

The  Company  currently  uses  separate  suppliers  to produce  Cold-Eeze(R)  in
lozenge,  sugar-free  tablet and nasal spray form.markets.

The Company's revenues are currently  generated from the sale of the Cold-Remedy
products  which  approximated  55%, 52% and 49% of total  revenues in the twelve
month periods ended December 31, 2005, 2004 and 2003,  respectively.  The Health
and Wellness segment approximated 38%, 46% and 51%, for the twelve month periods
ended December 31, 2005, 2004 and 2003, respectively. The Contract Manufacturing
segment  approximated  7% and 2% for the twelve month periods ended December 31,
2005 and 2004, respectively.

Raw materials used in the production of the products are available from numerous
sources.  Raw  materials  for the  Cold-Eeze(R)  lozenge  product are  currently
procured  from a single  vendor in order to secure  purchasing  economies.  In a
situation where this one vendor is not able to supply QMI with the  remaining
revenue  coming  from the health  and  wellness  segment.  The  lozenge  form is
manufactured by a contract manufacturer,  a significant amount of whose revenues
are from the Company.  Theingredients,
other forms are  manufactured  by third  parties that
produce  a  variety  of  other  products  for  other  customers.sources have been  identified.  Should these relationshipsproduct sources  terminate or
discontinue  for any reason,  the Company has  formulated a contingency  plan in
order to prevent such  discontinuance  from  materially  affecting the Company's
operations.  Any such termination may,  however,  result in a temporary delay in
production  until  the  replacement  facility  is  able to  meet  the  Company's
production requirements.

Raw material used in the  production  of the product is available  from numerous
sources. Currently, it is being procured from a single vendor in order to secure
purchasing economies. In a situation where this one vendor is not able to supply
the  contract  manufacturer  with  the  ingredients,  other  sources  have  been
identified.

Darius' productproducts for resale iscan be sourced from several suppliers.  In the event
that such sources were no longer in a position to supply  Darius with  product,products,
other vendors have been identified as reliable alternatives with minimal adverse
loss of business.

LONG-LIVED ASSETS

The Company  reviews its long-lived  assets for impairment on an exception basis
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable  through future undiscounted cash flows. If it
is determined  that an impairment  loss has occurred  based on the expected cash
flows acompared to the related asset value,  an impairment  loss is recognized in
the Statement F-7
of Operations. In 2002, in addition to its goodwill impairment loss in CPNP, the
Company  realized an additional  impairment loss of $337,186 from its investment
in CPNP,  which was reflected in discontinued  operations.  The total impairment
loss of $633,233 was reflected in discontinued operations.

REVENUE RECOGNITION

Sales are recognized at the time ownership is transferred to the customer, which
for the cold-remedyCold Remedy segment is the time the shipment is received by the customer
and for both the healthHealth and  wellnessWellness  segment  and the  Contract  Manufacturing
segment,  when the  product is shipped to the  customer.  SalesRevenue is reduced for
trade promotions,  estimated sales returns,  cash discounts and other allowances are provided for
in the same  period  thatas the  related  sales  are  recorded.  ProvisionsThe  Company  makes
estimates of potential  future product returns and other  allowances  related to
current period revenue. The Company analyzes historical returns, current trends,
and changes in customer and consumer  demand when evaluating the adequacy of the
sales  returns  and other  allowances.  The  consolidated  financial  statements
include  reserves of $634,580  for these  reserves  are  based  on
historical  experience.  Total  revenuesfuture  sales  returns and $533,250 for the twelve  months  periods  endedother
allowances as of December 31, 2005 and  $1,109,171  and $404,221 at December 31,
2004,  respectively.  The 2005 and 2004  reserve  balances  include a  remaining
returns  provision at December  31, 2005 and December 31, 2004 of  approximately
$184,000 and  $626,000,  respectively,  in the event of future  product  returns
following  the  discontinuation  of the  Cold-Eeze(R)  Cold  Remedy  Nasal Spray
product  in  September  2004.  The  reserves  also  include an  estimate  of the
uncollectability  of accounts  receivable  resulting in a reserve of $354,972 at
December 31, 2005 and $311,764 at December 31, 2004.


                                       F-7


COST OF SALES

For the Cold  Remedy  Segment,  in  accordance  with  contract  terms,  payments
calculated  based upon net sales collected to the patent holder of the Cold-Eeze
formulation and payments to the corporation founders and developers of the final
saleable   Cold-Eeze(R)   product   amounting  to  $1,745,748,   $2,052,746  and
$1,805,294,  respectively,  at December 31, 2005, 2004 and 2003 2002are presented in
the financial statements as cost of sales.

In the Health and 2001  include  amountsWellness  Segment,  agreements  with  Independent  Distributor
Representatives  ("IR's")  require  payments to them to be calculated based upon
net  commissionable  sales of zero,  $148,866other  IR's in their  down-line  and $1,546,592,  respectively,not on any of
their  individual  purchases  of  products  including  not  taking  title to the
products  that are sold by other  IR's.  In  accordance  with  EITF  01-9,  such
payments to the IR's do not qualify as a resultreduction of the settlementselling price as these
payments are not offered as an  allowance  or as a  percentage  rebate of direct
purchases  made,  and the  infringement
suit,IR's  are not  offered  any  cooperative  advertising
incentives  of any type.  Such  payments,  among other  factors,  are related to
licensing  fees,  against Gel Tech,  LLC,expand the developercycle of Zicam(TM),additional IR's and Gum Tech International, Inc.,for maintaining the distribution channel
for this segment's products.

Accordingly, such distribution payments amounting to $9,207,613,  $9,053,612 and
$9,439,100,  respectively,  at December 31, 2005, 2004 and 2003 are presented in
the financial statements as cost of sales.

OPERATING EXPENSES

Agreements  relating  to the Cold Remedy  segment  with a major  national  sales
brokerage firm are for this firm to sell the manufactured  Cold-Eeze  product to
our customers.  Such related costs are presented in the financial  statements as
selling expenses.

In the Health and Wellness Segment,  the Company includes payments in accordance
with agreements with the former owner of its distributor.acquired proprietary  products,  to
be  calculated  based upon net sales  collected.  These  agreements  provide for
exclusivity,   consulting,   marketing   presentations,    confidentiality   and
non-compete  arrangements  with such payments being classified as administration
expense.

SHIPPING AND HANDLING

Product  sales  relating to Health and  Wellness  products  carry an  additional
identifiable shipping and handling charge to the purchaser,  which is classified
as revenue. For cold-remedy  products,the Cold Remedy and Contract Manufacturing  segments, such costs
are included as part of the invoiced  price.  In all cases costs related to this
revenue are recorded in cost of sales.

STOCK COMPENSATION

Stock options and warrants for purchase of the Company's  common stock have been
granted to both  employees and  non-employees  since the date of the Company's
public  inception.Company became
publicly traded. Options and warrants are exercisable during a period determined
by the Company, but in no event later than ten years from the date granted.

Expense  relating to options  granted to  non-employees  has been  appropriately
recorded in the periods  presented  based on fair  values as  determined  by the
Black-Scholes  pricing model  dependent upon the  circumstances  relating to the
specific grants.

The Company used the Black-Scholes  pricing model to determine the fair value of
stock  options  granted  during  the  periods   presented  using  the  following
assumptions: expected life of the option of 5 years and expected forfeiture rate
of 0%; expected stock price  volatility of 58.3% for the year ended December 31,
2005,  expected stock price  volatility of 49.8% for the year ended December 31,
2004,  ranging  between  67.9% and 120% for the year ended  December  31,  2003;
expected dividend yield of 0% and risk-free  interest rate of 4.46% for the year
ended December 31, 2005;  expected  dividend yield of 0% and risk-free  interest
rate of 3.3% for the year ended December 31, 2004, expected dividend yield of 0%
and  risk-free  interest  rate of  between  3.37%  and 4.5%  for the year  ended
December  31,  2003.  The  impact  of  applying  SFAS No.  123 in this pro forma
disclosure is not indicative of the impact on future years'  reported net income
as SFAS No. 123 does not apply to stock  options  granted prior to the beginning
of fiscal year 1996 and additional stock options awards may be granted in future
years. All options were immediately vested upon grant.


                                       F-8


The Company  applies  Accounting  Principles  Board Opinion No. 25 ("APB 25") in
accounting  for its grants of options to employees.  Under the  intrinsic  value
method  prescribed  by APB 25, no  compensation  expense  relating  to grants to
employees has been recorded by the Company in periods reported.  If compensation
expense for awards made during the years ended December 31, 2003,  20022005,  2004 and 20012003
had been  determined  under the fair  value  method of  Statement  of  Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based  Compensation,"
the  Company's  net income and earnings per share would have been reduced to the
pro forma amounts indicated below:




                                                             Year Ended            Year Ended         Year Ended
                                                             December 31,          December 31,       December 31,
                                                                2005                  2004               2003
                                                          2002                 2001
                                                    ------------       ------------------      -----------------------------    ----------------    --------------
  Net income
     (loss)
         As reported                                             $3,216,684              $452,862           $674,574

  ($6,454,458)          $215,964
         CompensationAdd: Stock-based compensation expense included in
  reported net income as determined under the intrinsic
  value method                                                   -                      -                   -

  Deduct: Adjustment to stock-based employee
  compensation expense as determined under the fair
  value based method                                         (3,884,400)           (2,230,000)        (2,026,720)

                                                          (2,072,220)          (244,000)--------------------------------------------------------
     Pro forma net loss                                       ($667,716)          ($1,777,138)       ($1,352,146)
                                                          ($8,526,678)          ($28,036)--------------------------------------------------------

  Basic earnings (loss) per share
     As reported                                                  $0.28                 $0.04              $0.06                ($0.59)              $0.02
     Pro forma                                                   ($0.06)               ($0.15)            ($0.12)               ($0.78)                --
  Diluted earnings (loss) per share
     As reported                                                  $0.24                 $0.03              $0.05                ($0.59)              $0.02
     Pro forma                                                   ($0.05)               ($0.15)            ($0.12)               ($0.78)                --



Expense  relating to warrants granted to  non-employees  has been  appropriately
recorded in the periods  presented  based on either fair values agreed upon with
the grantees or fair  values as  determined  by the
Black Scholes  pricing model  dependent upon the  circumstances  relating to the
specific grants.

A total of 424,000,  477,000520,000, 500,000, and 400,000424,000 stock options were granted to employees
and non-employees in 2005, 2004 and 2003, 2002 and 2001, respectively.

ROYALTIES

The Company  includes  royalties  and founders  commissions  incurred as cost of
sales based on agreement terms.


                                       F-8


ADVERTISING

Advertising  costs are  expensed  within the period in which they are  utilized.
Advertising  expense is  comprised  of media  advertising,  presented as part of
sales and marketing expense; co-operative advertising, which is accounted for as
part of net sales;  and free product,  which is accounted for as part of cost of
sales.  Advertising  costs incurred for the years ended December 31, 2005,  2004
and 2003 2002were $8,688,233, $6,584,600, and 2001 were $5,483,465, $4,794,955 and $3,402,006,  respectively. Included in
prepaid  expenses and other  current  assets was $68,000$96,050 and $236,875$41,375 at December
31, 20032005 and 20022004 relating to prepaid advertising and promotion expenses.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations in the period incurred.
Expenditures  for the  years  ended  December  31,  2005,  2004  and  2003  2002were
$3,784,221, $3,232,569 and 2001  were
$3,365,698, $2,663,291 and $1,331,639,  respectively.  Principally, the increase
in research and
development  costs in 2003 was due to expenses  incurred as part
of the product  research costsare related to PharmaPharma's study activities and study costs associated
with Cold-Eeze(R). Pharma is currently involved in research activity following patent
applications  that the Company has acquired and research and development  costs,
relating to potential products, are expected to increase significantly over time
as product research and testing continues.

INCOME TAXES

The  Company  utilizes  anthe 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 Notes to
Financial Statements, Note 813 -
Income Taxes for further discussion.


                                       NOTE 3 - DISCONTINUED OPERATIONS

Effective  July 1, 2000, the Company  acquired a 60% ownership  position of CPNPF-9


FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash  and  was accounted for by the purchase method of accounting and accordingly,  the
operating  results  were  included  in  the  Company's   consolidated  financial
Statements  from the  date of  acquisition.  This  majority  ownership  position
required a cash  investment that approximated $812,000 and the provision for a $1
million line of credit, collateralized by inventory,equivalents,  accounts  receivable  and  all
other assets of CPNP. The net assets of CPNPaccounts  payable  are
reflected  in the  consolidated  financial  statements  at the acquisition date principally
consisted of a product license and  distribution  rights with no recordedcarrying  value inventory  and fixed assets of $312,915  and $510,000 of working  capital with a
contribution to minority interest of $329,166.

In December 2002, the Board of Directorswhich
approximates fair value because of the Company  approved a planshort-term maturity of these instruments.
The fair value of long-term  debt was  approximately  equivalent to sell
CPNP. On January 22, 2003,its carrying
value due to the Board of Directors offact that the interest rates currently available to the Company
completedfor debt with similar terms are  approximately  equal to the sale of the Company's 60% equity  interest  in CPNP to Suncoast.  In exchangerates for
its 60% equity  interest in CPNP,  the Company  received:  (i) 750,000 shares of
Suncoast's  common stock,  which Suncoast has agreed,  at its cost and within 60
days from the closing,  to register  for public  resale  through an  appropriate
registration  statement  (this  registration  statement  has not  been  declared
effective by the Securities and Exchange  Commission) and (ii) 100,000 shares of
Suncoast's Series A Redeemable  Preferred Stock,  which bears interest at a rate
of 4.25% per annum and which is  redeemable  from time to time  after  March 31,
2003 in such  amounts  as is equal  to 50% of the free  cash  flow  reported  by
Suncoast in the immediately  preceding quarterly financial statements divided by
the redemption  price of $10.00 per share.  The Company owns 19.5% of Suncoast's
issued and  outstanding  capital  stock valued at $79,365,  which  investment is
accounted for on the cost basis method,  representing the Company's shareexisting debt.  Determination of the fair value of Suncoast atrelated party payables is
not practicable due to their related party nature.

RECENTLY ISSUED ACCOUNTING STANDARDS

In November 2004, the timeFASB issued SFAS NO. 151,  "INVENTORY COSTS" ("SFAS 151").
SFAS 151 amends the transaction was recorded,guidance in Chapter 4 of  Accounting  Research  Bulletin No.
43,  "Inventory  Pricing" to clarify the accounting for amounts of idle facility
expense,  freight,  handling costs and wasted  material.  SFAS 151 requires that
these types of items be recognized as current period charges as they occur.  The
provisions of SFAS 151 are effective for inventory  costs incurred during fiscal
years  beginning  after June 15,  2005.  The  adoption  of this  amountstandard is included in Other Assets innot
expected to have an impact on the  Consolidated Balance Sheets. During August 2003,
a  registration  statement  was  filed  but  an  effective  date  has  not  been
determined.Company's  consolidated  financial  position,
results of operations or cash flows.

In December  2004,  the FASB issued  Statement  123 (revised  2004),"SHARE-BASED
PAYMENT." The disposalstandard eliminates the  disclosure-only  election under the prior
SFAS 123 and requires the recognition of CPNP was completed in order to allowcompensation  expense for stock options
and  other  forms  of  equity  compensation  based  on  the  Company to
focus resources on other activities and clinical research and development.

Salesfair  value  of CPNP for all periods  commencingthe
instruments  on the date of grant.  The standard is  effective  for fiscal years
beginning  after  June 15,  2005.  In March  2005,  the  Securities  &  Exchange
Commission (the "SEC") issued Staff  Accounting  Bulletin No. 107,  "Share-Based
Payment" ("SAB 107").  SAB 107  summarizes the views of the SEC staff  regarding
the  interaction  between SFAS No. 123  (Revised  2004),  "Share-Based  Payment"
("SFAS 123R") and certain SEC rules and  regulations,  and is intended to assist
in the initial implementation of SFAS 123R, which for the Company is required by
the beginning of its fiscal year 2006. The Company has no unvested options as of
December 31, 2005 and  therefore  the adoption of this standard will not have an
impact  on  the  Company's   consolidated   balance  sheets  and  statements  of
operations, shareholders' equity and cash flows.

In  December  2004,  the FASB issued  Statement  153,"EXCHANGES  OF  NONMONETARY
ASSETS,  AN  AMENDMENT  OF APB  OPINION  NO.29."  The  standard  is based on the
principle that  exchanges of nonmonetary  assets should be measured based on the
fair  value of the assets  exchanged  and  eliminates  the  exception  under APB
Opinion No. 29 for an exchange of similar productive assets and replaces it with
an exception for  exchanges of  nonmonetary  assets that do not have  commercial
substance.  The standard is effective  for  nonmonetary  exchanges  occurring in
fiscal periods  beginning  after June 15, 2005. The adoption of SFAS No. 153 did
not have a material  impact on the  Company's  financial  position or results of
operations.

In May 2005, the Financial  Accounting Standards Board ("FASB") issued Statement
154, "ACCOUNTING CHANGES AND ERROR CORRECTIONS, A REPLACEMENT OF APB OPINION NO.
20 AND FASB STATEMENT NO. 3." The standard requires retrospective application to
prior  periods'  financial  statements  of  a  voluntary  change  in  accounting
principle unless it is deemed  impracticable.  The standard states that a change
in  method  of   depreciation,   amortization   or  depletion  for   long-lived,
non-financial assets be accounted for as a change in accounting estimate that is
affected by a change in  accounting  principle.  The standard is  effective  for
accounting  changes and  corrections  of errors made  occurring  in fiscal years
beginning  after  December  15,  2005.  The  impact on the  Company's  financial
position or results of  operations  as a result of the  adoption of Statement of
Financial Accounting Standards ("SFAS") No. 154 cannot be determined.

NOTE 3 - ACQUISITIONS

On October 1, 2004, the Company acquired certain assets of JoEL, Inc,  including
inventory,  land,  buildings,  machinery  and  equipment  of  two  manufacturing
facilities  located in Lebanon  and  Elizabethtown,  Pennsylvania,  and  assumed
certain liabilities.  The acquisition on Julycost was approximately $5.2 million, which
consisted of $1.2 million in cash, transaction costs of $113,671, a $3.0 million
term loan (see Note 7) and the issuance of 113,097  common shares of The Quigley
Corporation in the amount of $895,449, net of registration fees of $81,709.

The fair  value of these  long-lived  assets  were as of  October  1,  2000 up to2004,  as
determined by accredited independent third parties.

The fair value of the common stock issued of $8.64 per share was  determined  by
averaging  the closing price for four business days before and after the closing
date of disposal on January 22, 2003, were $5,075,472, cumulative net
losses  during  that  period  were  $2,232,620.  The loss  includes an amount of
$633,233  relatingOctober 1, 2004,  resulting in a value to the asset impairment,  reportedshares  issued of $977,158
less registration costs of $81,709.


                                      F-10


The fair value of assets  acquired  and  liabilities  assumed at October 1, 2004
follow:

                                             Allocated           Unallocated
                                            Excess Fair          Excess Fair
                                               Value                Value
                                          -----------------    ----------------

    Inventory                                     $900,000            $900,000
    Land                                           386,588             528,000
    Buildings and improvements                     982,578           1,342,000
    Machinery and equipment                      2,933,089           4,006,000
    Furniture and fittings                          58,574              80,000
                                          -----------------    ----------------
                                                 5,260,829           6,856,000

    Liabilities assumed                            (70,000)            (70,000)
                                          -----------------    ----------------

    Excess  of  net  fair   value   over
    purchase price                                  -               (1,595,171)
                                          -----------------    ----------------

                                                $5,190,829          $5,190,829
                                          =================    ================

The sum of the assets acquired and liabilities  assumed exceeded the cost of the
acquired assets (excess fair value over cost). This excess is allocated as a pro
rata reduction of the amounts that otherwise  would have been assigned to all of
the long-lived acquired assets.

The  acquisition  was  executed  in  2002.  Revenuesorder to  ensure  that  the  integrity  and
formulation  of CPNPthe  Cold-Eeze(R)  products  remained  under the  control of the
Company  and  the  assurance  of a  continued  supply  of  Cold-Eeze(R)  to  the
marketplace. This is an FDA approved facility with available capacity for future
product development and manufacture.

PRO FORMA RESULTS.  The following  unaudited pro forma information  presents the
twelve  monthsresults of operations of the Company as if the JoEl  acquisition had occurred at
the beginning of the periods endedshown. The pro forma information,  however,  is not
necessarily   indicative  of  the  results  of  operations   assuming  the  JoEl
acquisition  had occurred at the beginning of the periods  presented,  nor is it
necessarily indicative of future results.

                                                             Year Ended
                                                    -------------------------------
                                                     December 31,     2003,  2002 and 2001 were
$59,824 and $2,040,312  and  $2,176,470,  respectively,  net losses for the same
periods  $54,349,  $1,322,355  and $718,155,  respectively.  Results of CPNP are
presented  as  discontinued   operations  in  the  Consolidated   Statements  of
Operations and in the Consolidated Balance Sheets.

The major classes of balance sheet items of discontinued  operations at December 31,
                                                         2002 were inventory, accounts receivable,  property, plant and machinery and
accounts payable.


                                       F-92004              2003
                                                    -------------------------------
                                                     (Unaudited)      (Unaudited)
AS REPORTED

    Total Revenue                                    $43,947,995     $41,499,163
    Income from continuing operations                    452,862         728,923
    Income from continuing operations - basic
       earnings per common share                           $0.04           $0.06

PRO FORMA

    Total Revenue                                    $45,784,627     $44,987,013
    (Loss)/income from continuing operations             (88,368)        934,452
    (Loss)/income from continuing operations -
       basic (loss)/earnings per common share             ($0.01)          $0.08


                                      F-11


NOTE 4 -  SEGMENT INFORMATION

The basis for presenting  segment  results  generally is consistent with overall
Company reporting.  The Company reports information about its operating segments
in  accordance  withVARIABLE INTEREST ENTITY

In December 2003, the Financial Accounting StandardStandards Board Statement(FASB or the "Board")
issued FASB  Interpretation  No. 131,
"Disclosure  About  Segments46 (revised  December 2003),  CONSOLIDATION  OF
VARIABLE INTEREST ENTITIES (FIN 46R), to address certain  implementation issues.
FIN 46R varies  significantly from FASB Interpretation No. 46,  CONSOLIDATION OF
VARIABLE INTERESTENTITIES("VIE") (FIN 46), which it supersedes. FIN 46R requires
the application of an Enterprise  and Related  Information,"  which
establishes  standardseither FIN 46 or FIN 46R by "Public  Entities" to all Special
Purpose  Entities  ("SPEs") at the end of the first interim or annual  reporting
period  ending after  December 15, 2003.  FIN 46R is  applicable to all non-SPEs
created prior to February 1, 2003 by Public Entities that are not small business
issuers at the end of the first interim or annual  reporting period ending after
March 15, 2004.  Effective March 31, 2004, the Company adopted FIN 46R for reporting  information  about a company's  operating
segments. All consolidating items are included in Other.VIE's
formed prior to February 1, 2003. The Company has divided  its  operations  into three  reportable  segmentsdetermined that Scandasystems,
a related  party,  qualifies as follows:  The  Quigley  Corporation  (Cold-  Remedy),   whose  main  producta variable  interest  entity and the Company has
consolidated  Scandasystems beginning with the quarter ended March 31, 2004. Due
to the  fact  that the  Company  has no  long-term  contractual  commitments  or
guarantees,  the  maximum  exposure  to loss is  Cold-Eeze(R),insignificant.  As a proprietary zinc gluconate glycine lozenge forresult  of
consolidating  the common cold;
Darius (Health and Wellness), whose businessVIE of which the  Company  is the  saleprimary  beneficiary,  the
Company  recognized a minority interest of approximately  $54,314 and direct marketing$54,980 on
the Consolidated  Balance Sheet in 2005 and 2004 which represents the difference
between the assets and the liabilities  recorded upon the  consolidation  of the
VIE.

The liabilities recognized as a rangeresult of healthconsolidating the VIE do not represent
additional claims on the Company's general assets. Rather, they represent claims
against  the  specific  assets  of  the  consolidated  VIE.  Conversely,  assets
recognized as a result of  consolidating  this VIE do not  represent  additional
assets  that could be used to  satisfy  claims  against  the  Company's  general
assets.  Reflected on the Company's  Consolidated  Balance Sheet are $61,844 and
wellness  products$96,051 in 2005 and Pharma,  (Ethical  Pharmaceutical),
currently  involved2004 of VIE  assets,  representing  all of the assets of the
VIE.  The VIE  assists  the  Company in  acquiring  licenses  and  research  and
development activity  to develop  patent
applications for potential pharmaceutical products.

As discussedactivities in Notes to Financial Statements, Note 3 - Discontinued Operations,
the Company disposed of its Sun-care and Skincare segment.

Financial  information relating to 2003, 2002 and 2001 continuing  operations by
business segment follows:

- ----------------------------------------------------------------------------------------------------------------------
As of and for the twelve
months ended December 31,                Cold          Health and        Ethical
2003                                    Remedy          Wellness      Pharmaceutical         Other             Total
- ----------------------------------------------------------------------------------------------------------------------

Revenues
  Customers                          $20,474,969      $21,024,194               --                --       $41,499,163
  Inter-segment                               --               --               --                --                --
Segment operating profit (loss)        1,699,378        1,791,454      ($2,855,294)               --           635,538
Depreciation                             318,419          155,174               --                --           473,593
Capital expenditures                     414,129          140,887               --                --           555,016
Total assets                         $24,892,338      $ 3,881,970               --       ($2,504,549)      $26,269,759

- ----------------------------------------------------------------------------------------------------------------------
As of and for the twelve
months ended December 31,                Cold          Health and        Ethical
2002                                    Remedy          Wellness      Pharmaceutical         Other             Total
- ----------------------------------------------------------------------------------------------------------------------

Revenues
  Customers                          $14,199,833      $15,220,813               --                --       $29,420,646
  Inter-segment                               --               --               --                --                --
Segment operating profit (loss)       (4,839,359)       1,103,610      ($1,604,753)       $   56,086        (5,284,416)
Depreciation                             262,724          124,404               --                --           387,128
Capital expenditures                     290,983          289,878               --                --           580,861
Total assets                         $26,223,476        1,401,867               --       ($2,690,387)      $24,934,956

- ----------------------------------------------------------------------------------------------------------------------
As of and for the twelve
months ended December 31,                Cold          Health and        Ethical
2001                                    Remedy          Wellness      Pharmaceutical         Other             Total
- ----------------------------------------------------------------------------------------------------------------------

Revenues
  Customers                          $16,983,635      $ 5,788,579               --                --       $22,772,214
  Inter-segment                          116,385         (176,412)              --        $   60,027                --
Segment operating profit (loss)        1,638,264         (729,374)       ($467,436)          127,717           569,171
Depreciation                             269,392           74,269               --                --           343,661
Capital expenditures                     176,282          167,332               --                --           343.614
Total assets                         $26,726,729      $   826,946               --       ($2,797,880)      $24,755,795


                                      F-10
certain countries.

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

Consisted of the following as of:              December 31, 20032005       December 31, 20022004
                                               -----------------       -----------------

     Land                                               $  152,203         $  152,203$538,791                $538,791
     Buildings and improvements                        1,513,958          1,503,6412,496,536               2,496,536
     Machinery and equipment                           1,432,818          1,061,8524,935,636               4,542,645
     Computer software                                   570,001            462,032520,787                 459,557
     Furniture and fixtures                              195,000            180,287
                                               ----------         ----------
                                                3,863,980          3,360,015260,277                 253,574
                                                -----------------     -------------------
                                                       8,752,027               8,291,103
     Less: Accumulated  depreciation                   1,445,821          1,023,279
                                               ----------         ----------3,166,234               1,817,415
                                                -----------------     -------------------
     Property, Plant and Equipment, net               $2,418,159         $2,336,736
                                               ==========         ==========$5,585,793              $6,473,688
                                                =================     ===================

Depreciation  expense for the years ended  December 31, 2005,  2004 and 2003 2002was
$1,404,107, $622,348, and 2001 was
$473,593, $387,128,respectively. During the year ended December
31, 2005, the Company retired  equipment with an original cost of  approximately
$63,382 and $343,661, respectively.accumulated depreciation of approximately $55,288.

NOTE 6 - OTHER CURRENT LIABILITIES

Included in other  current  liabilities  are $458,359  and  $177,366  related to
accrued compensation at December 31, 2003 and 2002, respectively.

NOTE 7 - PATENT RIGHTS AND RELATED ROYALTY COMMITMENTS

During 1996,  the Company  entered into a licensing  agreement  resulting in the
utilization of the zinc gluconate  patent. In return for the acquisition of this
license,  the Company  issued a total of 240,000  shares of common  stock to the
patent holder and attorneys during 1996 and 1997. The related  intangible asset,
approximating $490,000, was valued at the fair value of these shares at the date
of the grant.  This asset value was  amortized  over the  remaining  life of the
patent that expired in March 2002.  The Company was required to pay a 3% royalty
on sales collected, less certain deductions, to the patent holder throughout the
term of this agreement, which also expired in 2002.

The Company also maintainshas maintained a separate  representation and distribution agreement
relating to the development of the zinc gluconate  glycine product  formulation.
In return for exclusive  distribution rights, the Company must pay the developer
a 3% royalty and a 2%  consulting  fee based on sales  collected,  less  certain
deductions,  throughout  the term of this  agreement,  expiringwhich is due to expire in
2007. Additionally,  aHowever,  the Company and the developer are in litigation (see Note 9) and
as such no  potential  offset  from such  litigation  for  these  fees have been
recorded. A founder's  commission totaling 5%, on sales collected,  less certain
deductions,  ishas been paid to two of the  officers,  who are also  directors and
stockholders  of the Company,  and whose  agreements  expireexpired in 2005.

In August 2003,  the Company  entered into a licensing  agreement  with a patent
holder  relating to utilizing a nasal spray product in the treatment of symptoms
of the common cold.  The Company  agreed to pay the patent  holder a two percent
royalty  on  net  sales  of  nasal  spray  products,  less  certain  deductions,
throughout the term of this agreement, expiring no later than April 2014.2005, (see Note
15).

The expenses for the respective periods relating to such agreements  amounted to
$1,805,294,  $1,421,475,$1,745,748,  $2,052,746 and  $1,399,847,$1,805,294,  for the years ended December 31, 2003,
2002,2005,
2004 and 2001,2003, respectively.  Amounts accrued for these expenses at December 31,
20032005 and 20022004 were $915,109$2,077,411 and $603,387,$1,129,654, respectively.

Amounts  included  in accrued  royalties  and sales  commissions  in the balance
sheets at December  31, 20032005 and 2002,2004,  apportioned  between  related  party and
other balances, are as follows:

                                                              2003          2002
                                                       ------------------------2005            2004
                                                    --------------------------------

  Related party balances $  456,748    $  301,695(see Note 15)                       -             $459,583
  Other non-related party balances                      1,137,709       844,800
                                                       ------------------------$3,301,598        1,336,498
                                                    --------------------------------
  Total accrued royalties and sales commissions         $1,594,457    $1,146,495
                                                       ------------------------


                                      F-11


NOTE 8 - INCOME TAXES

The provision (benefit) for income taxes, consists of the following:

                                          Year Ended         Year Ended         Year Ended
                                         December 31,       December 31,       December 31,
                                             2003               2002               2001
                                                        (Restated-Note 15)
                                         ------------   ------------------     ------------

Current:
     Federal                                      --                 --                 --
     State                                        --                 --                 --
                                         -----------        -----------        -----------
                                                  --                 --                 --
                                         -----------        -----------        -----------
Deferred:
     Federal                             ($  660,321)       ($  700,798)       $   340,861
     State                                   (71,457)           133,544            (24,977)
                                         -----------        -----------        -----------
                                            (731,778)        (  567,254)           315,884
                                         -----------        -----------        -----------

Valuation allowance                          731,778            567,254           (315,884)
                                         -----------        -----------        -----------

Total                                             --                 --                 --
                                         ===========        ===========        ===========

A reconciliation  of the statutory  federal income tax expense  (benefit) to the
effective tax is as follows:

                                          Year Ended         Year Ended         Year Ended
                                         December 31,       December 31,       December 31,
                                             2003               2002               2001
                                                        (Restated-Note 15)
                                         ------------   ------------------     ------------

Statutory rate                           $   247,834        ($1,744,916)       $   317,600
State taxes net of federal benefit           (47,162)            88,139            (17,134)
Permanent differences and other             (932,450)         1,089,523             15,418
                                         -----------        -----------        -----------
                                            (731,778)          (567,254)           315,884
                                         -----------        -----------        -----------

Less valuation allowance                     731,778            567,254           (315,884)
                                         -----------        -----------        -----------

          Total                                   --                 --                 --
                                         ===========        ===========        ===========

The tax effects of the primary "temporary  differences"  between values recorded
for assets and liabilities for financial  reporting purposes and values utilized
for  measurement  in  accordance  with tax  laws  giving  rise to the  Company's
deferred tax assets are as follows:

                                          Year Ended         Year Ended         Year Ended
                                         December 31,       December 31,       December 31,
                                             2003               2002               2001
                                                        (Restated-Note 15)
                                         ------------   ------------------     ------------

Net operating loss carry-forward         $ 5,313,829        $ 4,459,068        $ 3,082,051
Consulting costs                                  --            380,250            305,019
Bad debt expense                             331,849            187,992            263,654
Other                                        381,802            152,788            133,943
Valuation allowance                       (6,027,480)        (5,180,098)        (3,784,667)
                                         -----------        -----------        -----------
          Total                                   --                 --                 --
                                         ===========        ===========        ===========

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. Certain tax benefits for option and warrant exercises totaling $1,871,986
are deferred and will be credited to  additional-paid-in-capital  when  existing
net operating  losses are used.  The cumulative  tax deduction  attributable  to
options, warrants and restricted stock is $47,520,526, which resulted in the net
operating  loss  carry-forwards  that  approximate  $13.6  million  for  federal
purposes,  of which $3.5 million will expire in 2019, $4.0 million in 2020, $6.1
million in 2022 and $13.8 million for state purposes, of which $9.7 million will
expire in 2009, $3.0 million in 2010, and $1.1 million in 2012. 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.$3,301,598       $1,796,081
                                                    --------------------------------


                                      F-12


NOTE 97 - EARNINGS PER SHARE

Basic earnings per share ("EPS")  excludes  dilution and is computed by dividing
income  available to common  stockholders  by the  weighted - average  number of
common  shares  outstanding  for the period.  Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were  exercised  or  converted  into common stock or resulted in the issuance of
common  stock  that  shared in the  earnings  of the  entity.  Diluted  EPS also
utilizes the treasury  stock method which  prescribes a theoretical  buy back of
shares from the  theoretical  proceeds of all options and  warrants  outstanding
during  the  period.  Since  there is a large  number of  options  and  warrants
outstanding,  fluctuations  in the  actual  market  price can have a variety  of
results for each period presented.

A  reconciliation  of the applicable  numerators and  denominators of the income
statement periods presented is as follows  (millions,  except earnings per share
amounts):

                                    Year Ended                  Year Ended                 Year Ended
                                 December 31, 2003           December 31, 2002          December 31, 2001
                           ---------------------------------------------------------------------------------

                            Income    Shares     EPS      Loss    Shares     EPS     Income   Shares    EPS
                           ---------------------------------------------------------------------------------

      Basic EPS              $0.7      11.5     $0.06    ($5.1)    10.9    ($0.47)    $0.9     10.7    $0.09

      Dilutives:
      Options and
      Warrants                 --       3.4                 --       --                 --      0.1
                           ---------------------------------------------------------------------------------
      Diluted EPS            $0.7      14.9     $0.05    ($5.1)    10.9    ($0.47)    $0.9     10.8    $0.09
                           =================================================================================

Options and  warrants  outstanding  at  December  31,  2003,  2002 and 2001 were
4,601,000,  4,262,500 and 4,014,000,  respectively, but were not included in the
2002   computation  of  diluted  earnings  per  share  because  the  effect  was
anti-dilutive.

NOTE 10 - STOCK COMPENSATION

Stock  options for purchase ofLONG-TERM DEBT

In connection with the Company's  common stock have been granted to
both  employees  and  non-employees.  Options  are  exercisable  during a period
determined  byacquisition of certain assets of JoEl, Inc. in
October 2004,  the Company  but in no event later than ten years from the date
granted.

On December  2, 1997,  the  Company's  Board of  Directors  approved a new Stock
Option Plan ("Plan")  which was amended in 2001 and provides for the granting of
up to three million shares to employees.  Under this Plan, the Company may grant
options  to  employees,  officers  or  directors  of  the  Company  at  variable
percentages  of the  market  value of stock at the date of grant.  No  incentive
stock option shall be exercisable more than ten years after the date of grant or
five years where the individual owns more than ten percent of the total combined
voting power of all classes of stock of the Company.  Stockholders  approved the
Plan in 1998. A total of 424,000, 477,000 and 400,000 options were granted under
this Plan during the years ended December 31, 2003, 2002 and 2001, respectively.

The Company  applies  Accounting  Principles  Board Opinion No. 25 ("APB 25") in
accounting  for its grants of options to employees.  Under the  intrinsic  value
method  prescribed  by APB 25, no  compensation  expense  relating  to grants to
employees has been recorded by the Company in periods reported.  If compensation
expense for awards made during the years ended December 31, 2003,  2002 and 2001
had been  determined  under the fair  value  method of  Statement  of  Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based  Compensation,"
the  Company's  net income and earnings per share would have been reduced to the
pro forma  amounts  as  displayed  in Notes to  Financial  Statements,  Note 2 -
Summary of Significant Accounting Policies.

Expense  relating to options  granted to  non-employees  has been  appropriately
recorded in the periods  presented  based on either fair values agreed upon with
the grantees or fair values as  determined  by the  Black-Scholes  pricing model
dependent upon the circumstances relating to the specific grants.

The Company used the Black-Scholes  pricing model to determine the fair value of
stock  options  granted  during  the  periods   presented  using  the  following
assumptions: expected life of the option of 5 years and expected forfeiture rate
of 0%;  expected stock price  volatility  ranging between 67.9% and 120% for the
year ended  December 31, 2003,  ranging  between  108.0% and 119.2% for the year
ended December 31, 2002 and 58.9% for the year ended December 31, 2001; expected
dividend  yield of 0% and risk-free  interest rate of between 3.37% and 4.5% for
the year ended  December 31, 2003,  expected  dividend yield of 0% and risk-free
interest rate ranging  between  4.06% and 4.51% for the year ended  December 31,
2002,  expected dividend yield of 1.5% and risk-free  interest rate of 4.36% for
the year ended December 31, 2001, based on the expected life of the option.  The
impact of applying SFAS No. 123 in this pro forma  disclosure is not  indicative
of the  impact on future  years'  reported  net  income as SFAS No. 123 does not
apply to stock options


                                      F-13


granted prior to the beginning of fiscal year 1996 and additional  stock options
awards are anticipated in future years. All options were immediately vested upon
grant.

A summary of the status of the Company's  stock options and warrants  granted to
both  employees and  non-employees  as of December 31, 2003,  2002, and 2001 and
changes during the years then ended is presented below:

YEAR ENDED DECEMBER 31, 2003:

                                              Employees                  Non-Employees                   Total
                                      ------------------------       ---------------------        ----------------------
                                                      Weighted                    Weighted                      Weighted
                                                       Average                     Average                       Average
                                         Shares       Exercise       Shares       Exercise        Shares        Exercise
                                         (,000)         Price        (,000)         Price         (,000)         Price
                                      ----------------------------------------------------------------------------------
Options/warrants outstanding
   at beginning of period                  3,363        $4.45          900          $8.86          4,263         $5.38
Additions/deductions:
   Granted                                  394          8.11          280           9.35           674           8.63
   Exercised                                 16          0.83           35           1.00            51           0.95
   Cancelled                                255          5.35           30           3.25           285           5.13
                                      ----------------------------------------------------------------------------------
Options/warrants outstanding
   at end of period                        3,486        $4.82         1,115         $9.38          4,601         $5.92
                                      ----------------------------------------------------------------------------------
Options/warrants exercisable
   at end of period                        3,486                      1,115                        4,601
                                      ==================================================================================
Weighted average fair value of
   Grants                                  $4.78                      $1.63                        $3.47
Price range of options/warrants
   Exercised                           $0.81 - $1.26              $0.81  -  $1.26                $0.81 - $1.26
Price range of options/warrants
   outstanding                        $0.81 - $10.00             $0.81  -  $11.50               $0.81 - $11.50
Price range of options/warrants
   exercisable                        $0.81 - $10.00              $0.81 -  $11.50               $0.81 - $11.50

YEAR ENDED DECEMBER 31, 2002:

                                              Employees                  Non-Employees                   Total
                                      ------------------------       ---------------------        ----------------------
                                                      Weighted                    Weighted                      Weighted
                                                       Average                     Average                       Average
                                         Shares       Exercise       Shares       Exercise        Shares        Exercise
                                         (,000)         Price        (,000)         Price         (,000)         Price
                                      ----------------------------------------------------------------------------------
Options/warrants outstanding
   at beginning of period                  3,009        $4.32         1,005         $6.73          4,014         $4.92
Additions/deductions:
  Granted                                   432          5.26         1,045          8.12          1,477          7.28
  Exercised                                  58          1.68          800           4.72           858           4.51
  Cancelled                                  20          9.84          350          10.00           370          10.00
                                      ----------------------------------------------------------------------------------
Options/warrants outstanding
   at end of period                        3,363        $4.45          900          $8.86          4,263         $5.38
                                      ----------------------------------------------------------------------------------
Options/warrants exercisable
   at end of period                        3,363                       900                         4,263
                                      ==================================================================================
Weighted average fair value of
   grants                                  $4.34                      $0.84                        $1.87
Price range of options/warrants
   Exercised                            $0.81 - $5.13               $1.75 - $6.50                $0.81 - $6.50
Price range of options/warrants
   Outstanding                         $0.81 - $10.00              $0.81 - $11.50               $0.81 - $11.50
Price range of options/warrants
   exercisable                         $0.81 - $10.00              $0.81 - $11.50               $0.81 - $11.50


                                      F-14


YEAR ENDED DECEMBER 31, 2001:

                                              Employees                  Non-Employees                   Total
                                      ------------------------       ---------------------        ----------------------
                                                      Weighted                    Weighted                      Weighted
                                                       Average                     Average                       Average
                                         Shares       Exercise       Shares       Exercise        Shares        Exercise
                                         (,000)         Price        (,000)         Price         (,000)         Price
                                      ----------------------------------------------------------------------------------
Options/warrants outstanding
   at beginning of period                  2,747        $4.68         1,370         $5.42          4,117         $4.93
Additions/deductions:
  Granted                                   355          1.26           45           1.26           400           1.26
  Exercised                                  --           --            --             --            --            --
  Cancelled                                  93          3.35          410           1.75           503           2.05
                                      ----------------------------------------------------------------------------------
Options/warrants outstanding
   at end of period                        3,009        $4.32         1,005         $6.73          4,014         $4.92
                                      ----------------------------------------------------------------------------------
Options/warrants exercisable
   at end of period                        3,009                      1,005                        4,014
                                      ==================================================================================
Weighted average fair value of
   grants                                  $0.69                      $0.69                        $0.69
Price range of options/warrants
   Exercised                                 --                          --                          --
Price range of options/warrants
   outstanding                         $0.81 - $10.00              $0.81 - $10.00               $0.81 - $10.00
Price range of options/warrants
   exercisable                         $0.81 - $10.00              $0.81 - $10.00               $0.81 - $10.00

The following table summarizes  information about stock options  outstanding and
stock options  exercisable,  as granted to both employees and non-employees,  at
December 31, 2003:

                                        Employees                                             Non-Employees
                                        ---------                                             -------------

                                         Weighted
                                         Average                                                  Weighted
   Range of                             Remaining                                                 Average            Weighted
   Exercise               Number       Contractual    Weighted Average          Number           Remaining           Average
    Prices             Outstanding        Life         Exercise Price        Outstanding     Contractual Life     Exercise Price
- --------------------------------------------------------------------------------------------------------------------------------
$0.81 - $2.50           1,627,500          4.3              $1.62                35,000             7.4              $1.00
$5.13 - $9.68           1,523,500          7.0              $7.09               580,000             1.3              $8.70
$10.00 - $11.50           335,000          3.3             $10.00               500,000             1.8              $10.75
                      -----------                                           -----------
                        3,486,000                                             1,115,000
                      ===========                                           ===========

Options and warrants  outstanding as of December 31, 2003,  2002 and 2001 expire
from March 7, 2004 through October 29, 2013, depending upon the date of grant.

During  1999,  the  Company  implemented  a  defined  contribution  plan for its
employees.  The Company's contribution to the plan is based on the amount of the
employee plan contributions. The Company's contribution cost to the plan in 2003
and 2002 was approximately $201,000 and $179,000, respectively.

NOTE 11 - TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY

On  September 8, 1998,  the  Company's  Board of  Directors  declared a dividend
distribution of Common Stock Purchase Rights (the "Rights"),  thereby creating a
Stockholder  Rights  Plan  (the  "Plan").   The  dividend  was  payable  to  the
stockholders   of  record  on  September  25,  1998.  Each  Right  entitles  the
stockholder  of record to purchase from the Company that number of Common Shares
having a combined market value equal to two times the Rights exercise price


                                      F-15


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 to make a tender or exchange offer resulting in
the  ownership of 15% or more of the  outstanding  common  shares by a similarly
constituted  party.  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 a 50% beneficial  ownership of the Company,  a stockholder may exchange one
Right for one common share of the Company.  The Final  Expiration of the Plan is
September 25, 2008.

Since the inception of the stock buy-back program in January 1998, the Board has
subsequently  increased  the  authorization  on  five  occasions,  for  a  total
authorized  buy-back of 5,000,000  shares or  approximately  38% of the previous
shares  outstanding.  Such shares are  reflected  as treasury  stock and will be
available for general corporate purposes.  From the initiation of the plan until
December  31,  2003,  4,159,191  shares  have  been  repurchased  at a  cost  of
$24,042,801  or an average cost of $5.78 per share.  No shares were  repurchased
during either 2003 or 2002, an amount of 30,000 shares were  repurchased  during
2001 at a cost to the Company of $30,131.

As a result of the  litigation  relating to the case against  Nutritional  Foods
Corporation,  in March of 1998, a subsequent  order of the Court of Common Pleas
of Bucks County  modified the decree of January 23, 1997 to provide for a return
to treasury of 604,928  shares to the  Company.  As payment for legal  services,
118,066 of these  shares  were  reissued  with a market  value of  approximately
$1,145,358.  This value, the cost of reacquiring  these shares,  then became the
value of the net treasury stock ($2.35 per share)  represented by 486,862 shares
returned to treasury.

On April 9,  2002,  The  Quigley  Corporation  entered into an  agreement  with
Forrester  Financial  LLC,  ("Forrester")  providing  for  Forrester to act as a
financial  consultant to the Company.  The consulting  agreement commenced as of
March 7, 2002 for a term of twelve months,  but may be terminated by the Company
in its sole discretion at any time. As compensation  for services to be provided
by Forrester to the Company, the Company granted to Forrester, or its designees,
warrants to purchase up to a total of 1,000,000  shares of the Company's  common
stock.  The  Company's  financial  statements  reflect a  $1,125,000  (restated)
non-cash  charge in 2002  resulting  from the granting and  exercising  of these
warrants.  The warrants have three exercise prices, 500,000 warrants exercisable
at $6.50 per share,  which were  exercised in May 2002  resulting in cash to the
Companyloan in the amount of $3,250,000,  250,000 warrants  exercisable$3 million
payable to PNC Bank, N.A. which is  collateralized by mortgages on real property
located in each of Lebanon  and  Elizabethtown,  Pennsylvania.  The  Company can
elect  interest  rate  options  at $8.50 per
share, and 250,000  warrants  exercisable at $11.50 per share.either the Prime Rate or LIBOR plus 200 basis
points.  The warrants were
initially  exercisable  untilloan is payable in eighty-four equal monthly principal  payments of
$35,714 that commenced on November 1, 2004. In April 2005,  the earlier to occurCompany  prepaid
an amount of (i) March 6, 2003 or (ii)$1.0 million against the terminationoutstanding balance on the long-term loan.
The Company is in compliance  with all related loan  covenants.  The entire loan
balance is under a six-month LIBOR rate of the Consulting Agreement.

On December 7, 2002, Forrester commenced an action by a Writ of Summons filed in
the Court of Common Pleas of Bucks County,  PA against The Quigley  Corporation.
No Complaint  was filed  detailing  the claim of  Forrester  against The Quigley
Corporation.  This action was terminated  with prejudice by Forrester as part of
its Amended and Restated  Warrant  Agreement (the "Amended  Agreement)  with The
Quigley  Corporation  on February 2, 2003  whereby  certain  warrants  that were
scheduled to expire6.22%, this rate expires on March 7, 2003 were extended31,
2006.

The schedule of principal payments of long-term debt is as follows:

        December 31,


        2006                             $428,571
        2007                              428,571
        2008                              428,571
        2009                              178,573
                                    --------------
                                        1,464,286
        Less - current portion           (428,571)
                                    --------------
                                       $1,035,715
                                    ==============

NOTE 8 - OTHER CURRENT LIABILITIES

Included in other  current  liabilities  are $923,411  and  $717,038  related to
March 7, 2004 (warrants to
purchase 250,000 shares at $8.50; warrants to purchase 250,000 shares at $11.50)
are  no  longer  cancelable  by the  Company.  As an  additional  part  of  this
agreement, Forrester was granted warrants to purchase 250,000 shares at any time
until March 7, 2004 at the price of $9.50 a share.  As a result of this  Amended
Agreement the Company recorded a further non-cash charge of $975,000  (restated)
in the  fourth  quarter of 2002,  amounting  to a total  expense of  $2,100,000,
classified  as   administrative   expense  in  the  Consolidated   Statement  of
Operations,  relating to this warrant agreement in 2002. Additionally,  $975,000
is  reflected in the  Consolidated  Balance  Sheetaccrued compensation at December 31, 2002,  which
represented  the value of the  unexercised  warrants2005 and is included in accrued
liabilities. On March 7, 2003 this liability was converted to equity.2004, respectively.

NOTE 129 - COMMITMENTS AND CONTINGENCIES

Certain  operating  leases for  office and  warehouse  space  maintained  by the
Company resulted in rent expense for the years ended December 31, 2005, 2004 and
2003,  2002of  $227,701,  $335,226,  and  2001,  of  $255,078,  $236,304  and  $218,456,  respectively.  The  Company has
approximate future obligations over the next five years as follows:

                                    Property
                   Research and     Propertyand Other
  Year             Development        Leases     Advertising         Other        Total
  -------------------------------------------------------------
          2004            $1,500,000         $212,000        $1,712,000
          2005                    --          198,000           198,000------------------------------------------------------------------------------------------
  2006             --           98,000            98,000$3,230,000      $180,000      $1,000,000         $62,000      $4,472,000
  2007                --           57,000            57,000-              91,000          -               -               91,000
  2008                --               --                --
          --------------------------------------------------------------                 -            -               -                -
  2009                -                 -            -               -                -
  2010                -                 -            -               -                -
  ------------------------------------------------------------------------------------------
  Total            $1,500,000         $565,000        $2,065,000
          -------------------------------------------------------------


                                      F-16
$3,230,000      $271,000      $1,000,000         $62,000      $4,563,000
  ------------------------------------------------------------------------------------------

Additional  advertising  and research and  development  costs are expected to be
incurred during the remainder of 2004.

During 1996,  the Company  entered into a licensing  agreement  resulting in the
utilization of the zinc gluconate  patent. In return for the acquisition of this
license,  the Company  issued a total of 240,000  shares of common  stock to the
patent holder and attorneys during 1996 and 1997. The related  intangible asset,
approximating  $490,000 was amortized over the remaining life of the patent that
expired in March 2002.  The  Company  was  required to pay a 3% royalty on sales
collected,  less certain deductions, to the patent holder throughout the term of
this agreement, which also expired in 2002.

The Company also maintains a separate  representation and distribution agreement
relating to the development of the zinc gluconate  glycine product  formulation.
In return for exclusive  distribution rights, the Company must pay the developer
a 3% royalty and a 2%  consulting  fee based on sales  collected,  less  certain
deductions,   throughout  the  term  of  this   agreement,   expiring  in  2007.
Additionally,  a founder's  commission  totaling  5%, on sales  collected,  less
certain deductions,  is paid to two of the officers,  who are also directors and
stockholders of the Company, and whose agreements expire in 2005.

The expenses for the respective periods relating to such agreements  amounted to
$1,805,294,  $1,421,475  and  $1,399,847,  for the twelve  months  periods ended
December  31,  2003,  2002 and 2001,  respectively.  Amounts  accrued  for these
expenses at December 31, 2003 and December 31, 2002 were  $915,109 and $603,387,
respectively.2006.

The Company has an  agreement  with the former  owners of the Utah based  direct
marketing and selling company, whereby they receive payments, currently totaling
5% of net  sales  collected,  for  use  of  product  formulations,exclusivity,  consulting,  marketing
presentations,  confidentiality  and non-compete  agreements.arrangements.  Amounts paid or
payable under such agreement during the twelve months periods ended December 31,
2005, 2004 and 2003 2002were $838,607, $800,881 and 2001 were $880,091,  $678,454 and $448,647880,091,  respectively.  Amounts
payable  under such  agreement  at December  31, 20032005 and December 31, 20022004 were
$68,388$58,597 and $63,866,$60,876, respectively.

In August 2003,  the Company  entered into a licensing  agreement  with a patent
holder  relating to utilizing a nasal spray product in the treatment of symptoms
of the common cold.

The Company agreed to pay the patent  holder a two percent
royalty  on  net  sales  of  nasal  spray  products,  less  certain  deductions,
throughout  the term of this  agreement,  expiring  no later  than  April  2014.
Amounts  paid or payable  under such  agreement  during the twelve  month period
ended December 31, 2003 were $26,613,has several licensing and zero in the 2002 and 2001  comparable
periods.  An amount of $1,613  relating to this agreement was accrued or payable
at December 31, 2003.other contractual agreements, see Note 6.


                                      F-13


                  TESAURO AND ELEY VS. THE QUIGLEY CORPORATION

In September,  2000, the Company was sued by two individuals  (Jason Tesauro and
Elizabeth Eley, both residents of Georgia), on behalf of a "nationwide class" of
"similarly  situated  individuals," in the Court of Common Pleas of Philadelphia
County,  Pennsylvania.  The  Complaint  alleges  that the  Plaintiffs  purchased
certain Cold-Eeze(R)  products between August,  1996, and November,  1999, based
upon  cable  television,  radio  and  internet  advertisements  which  allegedly
misrepresented  the  qualities  and  benefits  of the  Company's  products.  The
Complaint   requests  an  unspecified   amount  of  damages  for  violations  of
Pennsylvania's   consumer   protection   law,  breach  of  warranty  and  unjust
enrichment, as well as a judicial determination that the action be maintained as
a class action.

In October,  2000,  the Company  filed  Preliminary  Objections to the Complaint
seeking dismissal of the action.  The Court sustained certain objections thereby
narrowing  Plaintiffs'  Complaint.  In May, 2001,  Plaintiffs  filed a Motion to
Certify the Alleged Class.  The Company opposed the Motion.  In November,  2001,
the Court  held a hearing on  Plaintiffs'  Motion  for Class  Certification.  In
January,  2002,  the Court  denied in part and  granted in part the  Plaintiffs'
Motion.  The  Court  denied  Plaintiffs'  Motion  to  Certify  a Class  based on
Plaintiffs' claim under the Pennsylvania  Consumer Protection Law; however,  the
Court  certified  the class based on  Plaintiffs'  breach of warranty and unjust
enrichment claims.

Discovery  has been  completed and trial that was  originally  scheduled for May
2004 has been scheduled to commence in May
2004.continued pending  determination of certain dispositive  pre-trial
motions  filed by the  Company  which have been argued and briefed and have been
pending  before the Court for  determination  since March  2005.  The Company is
vigorously defending this lawsuit and believes that the action lacks merit.

                  PAIGE D. DAVISON VS. THE QUIGLEY CORPORATION

On  February  26,  2004,  the  plaintiff  filed an action  against  The  Quigley
Corporation  (the  "Company"),  which was not served  until  April 5, 2004.  The
action  alleges that the  plaintiff  suffered  certain  losses and injuries as a
result of using the Company's nasal spray product.  Among the allegations of the
plaintiff  are that the nasal spray was defective  and  unreasonably  dangerous,
lacked proper and adequate warnings and/or instructions, and was not fit for the
purposes and uses intended.

The Company has investigated the claims and believes they are without merit. The
Company  believes  plaintiff's  claims  are  without  merit  and  is  vigorously
defending those claims. Based upon the information the Company has at this time,
it believes the action will not have a material impact to the Company.  However,
at this time no prediction as to the outcome can be made.  GOLDBLUM AND WAYNE

A Special Meeting ofDefense counsel takes
the  Quigley  stockholders  was held on October 15, 1999, at
which a majority ofposition  that the shares  entitled  to vote  adopted a  Corrective  Action
Proposal  (initially  reportedscience  proposed in the  Company's Form 10-Q forlitigation  appears to be more
advanced  than the  quarter ending
June 30, 1999) to ratify actions previously taken byscience  which  exists in peer  reviewed  medical  journals.
Whether  the Companycourt will  admit the  testimony  relating  to the  1990 1 for 2.74 reverse  split,  the 1995 1 for 10 reverse  split (the  "Reverse
Splits") and the 1997 1 for 2 forward split (the "Forward  Split").  Pursuant to
the October 15, 1999 Special  Meeting,  the Company  authorized  the filing ofscience  behind
plaintiff's claims, is not a declaratory  judgmentmatter which we can predict at this time.

                       POLSKI VS. THE QUIGLEY CORPORATION

On August 12, 2004, plaintiff filed an action against The Quigley Corporation in Nevada to determine  the  effectiveness  of the
Corrective Action.

                                      F-17


In August 2000,
the District Court of Clarkfor Hennepin  County,  Nevada,  held that it had
jurisdiction to decide the Company's declaratory judgment action filed in April,
2000,  against two putative  shareholders  (Thomas Goldblum and Alan Wayne),  inMinnesota,  which was not served until
September 2, 2004.  On September 17, 2004,  the Company  seeks a  judicial  declaration  that,  based on  stockholder
approval ofremoved the Corrective Action Proposal,case to the
Reverse Splits and Forward Split
satisfy  and/or  comply with Nevada law and that the  capitalization  of Quigley
evidenced by the issued and outstanding  shares of common stock and common stock
warrants is as reflected on Quigley's  stock  transfer  ledger on September  10,
1999, the record date of the Special Meeting. TheUnited States  District Court for the District of Clark County
heldMinnesota.  The action alleges
that plaintiff suffered certain losses and injuries as a hearing  on this  matter  on March  19,  2002 and  ruled in favor of The
Quigley Corporation. A final judgment has been entered of record by the Court on
June 21, 2002.  The period for appeal of this order to the Nevada  Supreme Court
has expired.

An underlying  claim filed by Goldblum and Wayne in the Court of Common Pleas of
Montgomery  County,  Pennsylvania on March 17, 1996 alleging that the plaintiffs
became owners of 500,000  shares eachresult of the Company's
common stock in or about
1990 and  requested  damages in excessnasal spray product. Among the allegations of $100,000  forplaintiff are negligence, products
liability,  alleged  breach of contractexpress  and conversion.implied  warranties,  and an alleged
breach of the Minnesota Consumer Fraud Statute. Discovery should be completed in
this matter within 120 days and trial is scheduled for October 2006.

The  Company  believedhas  investigated  the claims and  believes  that the plaintiffs'  claims werethey are without
merit,  barred by
the applicable  statutes of  limitations,  and that the plaintiffs  were, in any
event, limited to claims for approximately 36,000 shares.merit.  The  Company  vigorously  defended this lawsuit through trial during January 2004,
when a jury  returned a unanimous  verdict in favor of the Company.  Thereafter,
the plaintiffs  filed a motion for  post-trial  relief as a first step toward an
appeal, which the Company regards asbelieves  plaintiff's  claims  are  without  merit  and will oppose. Although the
Company  regards any effort by  plaintiffs  to pursue an appeal as lacking merit
and basedis
vigorously defending those claims. Based upon the information the Company has at
this  time,  it  believes  the  action  will not have a  material  impact to the
Company.  However,  at this time no  prediction  as to the  outcome of this appeal can be made.
Defense  counsel takes the position that the science  proposed in the litigation
appears to be more  advanced  than the  science  which  exists in peer  reviewed
medical  journals.  Whether the court will admit the  testimony  relating to the
science behind plaintiff's  claims, is not a matter which we can predict at this
time.

      ANGELFIRE, ARVIN, BELL, BROWN, EDWARDS, HOHNSTEIN, HOFFMAN, LAURENT,
                   MARTIN, RICHARDSON, RIGSBY, SEONE, SMALLEY,
              VAN BENTHEM AND WILLIAMS VS. THE QUIGLEY CORPORATION

On November 4, 2004, seven (7) plaintiffs filed an action in the Court of Common
Pleas of Bucks  County,  Pennsylvania,  against the Company.  The  complaint was
amended  on March 11,  2005 to add an  additional  eight (8)  plaintiffs  in the
action. The action alleges that plaintiffs  suffered certain losses and injuries
as a result of using the Company's nasal spray product. Among the allegations of


                                      F-14


plaintiffs  are  claims  that the  Company  is liable to them  based on  alleged
negligence,  alleged strict  products  liability  (failure to warn and defective
design), alleged breach of express warranty,  alleged breach of implied warrant,
and an alleged violation of the Pennsylvania Unfair Trade Practices and Consumer
Protection Law and other consumer protection statutes.

At the present time,  the matter is being  defended by the  Company's  insurance
carrier.  An answer  stating  affirmative  defenses  has been  filed.  Pre-trial
discovery is being scheduled.

The Company  believes  plaintiffs'  claims are without  merit and is  vigorously
defending those claims. Based upon the information the Company has at this time,
it believes the action will not have a material impact to the Company.  However,
at this time no prediction as to the outcome can be made.  Defense counsel takes
the  position  that the science  proposed in the  litigation  appears to be more
advanced  than the  science  which  exists in peer  reviewed  medical  journals.
Whether  the court will  admit the  testimony  relating  to the  science  behind
plaintiffs' claims, is not a matter which we can predict at this time.

               THE QUIGLEY CORPORATION VS. JOHN C. GODFREY, ET AL.

This action was commenced in November 2004 in the Court of Common Pleas of Bucks
County,  Pennsylvania.  In that action,  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(R)
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 has moved to dismiss  portions of defendant's  counterclaims  on the
grounds that they are meritless.

At the present time,  discovery is being  conducted by the Company on its claims
and on the counterclaims brought by John C. Godfrey, et al.

The Company believes  Defendant's claims are without merit, and it is vigorously
defending the counterclaims prosecuting its action on its complaint.  Based upon
the  information  the Company has at this time,  it believes the action will not
have a material impact to the Company. However, at this time no prediction as to
the outcome can be made.

            AXIS SPECIALTY INSURANCE CO. VS. THE QUIGLEY CORPORATION

This action, filed in January 2005, stems from a dispute between the Company and
one of its excess liability insurance carriers, who seeks a judicial declaration
of its insurance  coverage  obligations  concerning  certain  product  liability
claims  related to the  Company's  nasal spray  product.  The  carrier's  action
follows a complaint by the Company filed in December 2004 with the  Pennsylvania
Insurance  Commission,  which  ultimately  sided with the Company in determining
that the carrier failed to observe proper notification  procedures when it first
sought to limit, or alternatively  to insure at a substantially  higher premium,
its coverage obligations.

The Company  denied the material  allegations  of the carrier's  complaint,  and
asserted its own counterclaim also seeking  declaratory  relief to establish the
extent of its excess  liability  coverage.  Thereafter,  the parties  engaged in
discovery  to  establish a record  upon which the court could  decide the matter
based on summary  judgment  motions on the  carrier's  claims and the  Company's
counterclaims.  Both parties sought summary judgment in motions submitted to the
court in the fall of 2005.  On  February  16,  2006,  the court  handed down its
ruling, in which the court granted in part and denied in part both the carrier's
motion and the Company's  motion.  The effect of the court's  ruling is that the
plaintiff insurer's  responsibility for excess coverage is limited to claims for
damages for bodily injury or property  damage that occurred on or after April 6,
2004,  but leaves  uncertain  coverage  for claims  filed after April 6, 2004 by
persons  who  contacted  the  Company  before  then.  Although  the  Company  is
evaluating grounds for appeal, and cannot rule out an appeal by the carrier, the
court's  ruling  both  clarifies  the  Company's  potential  exposure as well as
establishes a basis for the Company to seek redress  against  parties liable for
any lack of adequate excess insurance coverage for this exposure.

Based upon the  information the Company has at this time relative to the defense
of claims  occurring  before April 6, 2004, the Company believes that the claims
are without merit and is fully defending those claims through insurance counsel.
However,  at this  time no  prediction  as to the  outcome  can be made of these
claims and whether insurance  coverage from the period prior to April 6, 2004 is
adequate for coverage of all claims.


                                      F-15


                CYNTHIA AARON VS. THE QUIGLEY CORPORATION, ET AL

On March 15,  2005, a complaint  was filed in the  Superior  Court for San Diego
County, California.  This complaint was served on the Company on April 21, 2005.
The plaintiff's  complaint  consists of causes of action sounding in negligence,
negligent products liability,  breach of warranty of merchantability,  breach of
express  warranty,  strict  products  liability and failure to warn.  The action
alleges that the plaintiff  suffered  certain losses and injuries as a result of
using  the  Company's  nasal  spray  product.  Discovery  in this  case  will be
completed within 120 days and trial is scheduled for September 18, 2006.

The Company  believes  plaintiff's  claims are without  merit and is  vigorously
defending those claims. Based upon the information the Company has at this time,
it believes the action will not have a material impact on the Company.  However,
at this time no  prediction  as to the  outcome can be made.  Insurance  defense
counsel  has  informed  the  Company  that  counsel  is unable to  evaluate  the
likelihood of an  unfavorable  outcome at this time.  Defense  counsel takes the
position that the science proposed in the litigation appears to be more advanced
than the science which exists in peer  reviewed  medical  journals.  Whether the
court  will admit the  testimony  relating  to the  science  behind  plaintiff's
claims, is not a matter which we can predict at this time.

                    DOLORES SMITH VS. THE QUIGLEY CORPORATION

On May 25,  2005,  a complaint  was filed in the Court of Common  Pleas of Bucks
County,  Pennsylvania.  The complaint was served on the Company on or about June
14, 2005. The  plaintiff's  complaint  consists of counts of negligence,  strict
product liability,  breach of express warranty,  breach of implied warranty, and
violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law
and other  Consumer  Protection  Statutes  relating to the use of the  Company's
COLD-EEZE Nasal Spray Product.

The Company  believes  plaintiff's  claims are without  merit and is  vigorously
defending those claims. Based upon the information the Company has at this time,
it believes the action will not have a material impact on the Company.  However,
at this time no prediction as to the outcome can be made.  Defense counsel takes
the  position  that the science  proposed in the  litigation  appears to be more
advanced  than the  science  which  exists in peer  reviewed  medical  journals.
Whether  the court will  admit the  testimony  relating  to the  science  behind
plaintiff's claims, is not a matter which we can predict at this time.

                RICHARD FLYNN VS. THE QUIGLEY CORPORATION, ET AL

On May 20, 2005, a complaint was filed in the Superior  Court of Orange  County,
California. This complaint was served on the Company on June 2, 2005. The action
alleges that the plaintiff  suffered  certain losses and injuries as a result of
using the Company's  nasal spray  product.  The complaint  consists of causes of
action sounding in negligence, products liability, and punitive damages.

The Company  believes  plaintiff's  claims are without  merit and is  vigorously
defending those claims. In particular,  much of the complaint references acts of
the Company during a period of time when it did not offer for sale the COLD-EEZE
Nasal Spray Product which is the basis of the plaintiff's  claim. Based upon the
information the Company has at this time, it believes the action will not have a
material  impact on the Company.  However,  at this time no prediction as to the
outcome  can be made.  Defense  counsel  takes  the  position  that the  science
proposed in the  litigation  appears to be more  advanced than the science which
exists in peer  reviewed  medical  journals.  Whether  the court  will admit the
testimony  relating to the science behind  plaintiff's  claims,  is not a matter
which we can predict at this time.

               KEITH J. KOCHIE VS. THE QUIGLEY CORPORATION, ET AL

On August 2, 2005, a complaint was filed in the United States District Court for
the Eastern  District of New York. The complaint was served on the Company on or
about  September  1, 2005.  The  plaintiff's  complaint  consists  of counts for
negligence,  strict product  liability,  breach of express  warranty,  breach of
implied  warranties,   fraudulent  misrepresentation,   fraudulent  concealment,
negligent  misrepresentation,  and fraud and deceit  relating  to the use of the
Company's COLD-EEZE Nasal Spray Product.

The Company  believes  plaintiff's  claims are without  merit and is  vigorously
defending  those  actions.  Based upon the  information  the Company has at this
time,  it believes  the action will not have a material  impact on the  Company.
However,  at this time no  prediction  as to the  outcome  can be made.  Defense
counsel takes the position that the science  proposed in the litigation  appears
to be more  advanced  than the science  which  exists in peer  reviewed  medical
journals.  Whether  the court will admit the  testimony  relating to the science
behind plaintiff's claims, is not a matter which we can predict at this time.


                                      F-16


            DOMINIC DOMINIJANNI, SONJA FORSBERG-WILLIAMS, VINT PAYNE,
                       MURRAY LOU ROGERS, AND RANDY STOVER
                           VS. THE QUIGLEY CORPORATION

On January 6, 2006,  five (5) plaintiffs  filed an action in the Court of Common
Pleas of Bucks County,  Pennsylvania,  against the Company.  The action  alleges
that the plaintiff suffered certain losses and injuries as a result of using the
Company's  nasal  spray  product.  The  complaint  was served on the  Company on
January 31,  2006.  Plaintiffs'  complaint  consists  of counts for  negligence,
strict  products  liability   (failure  to  warn),   strict  products  liability
(defective  design),  breach of express and implied  warranties,  and a claim of
violations under the Pennsylvania Unfair Trade Practices and Consumer Protection
Law and other consumer protection statutes.

The Company  believes  plaintiffs'  claims are without  merit and is  vigorously
defending  those  actions.  Based upon the  information  the Company has at this
time,  it believes  the action will not have a material  impact on the  Company.
However,  at this time no  prediction  as to the  outcome  can be made.  Defense
counsel takes the position that the science  proposed in the litigation  appears
to be more  advanced  than the science  which  exists in peer  reviewed  medical
journals.

Whether  the court will  admit the  testimony  relating  to the  science  behind
plaintiffs' claims, is not a matter which we can predict at this time.

                  GREG SCRAGG VS THE QUIGLEY CORPORATION, ET AL

On November 30, 2005,  an action was brought in the Colorado  District  Court in
Denver,  Colorado. The complaint was served on the Company soon thereafter.  The
action  alleges that the  plaintiff  suffered  certain  losses and injuries as a
result of using the Company's  nasal spray  product.  The complaint  consists of
counts   for   fraud   and   deceit    (fraudulent    concealment),    negligent
misrepresentation,  strict  liability  (failure  to warn),  and  strict  product
liability (design defect).  On January 13, 2006, the case was removed to Federal
District Court.

The Company  believes  plaintiff's  claims are without  merit and is  vigorously
defending those claims. Based upon the information the Company has at this time,
it believes the action will not have a material impact on the Company.  However,
at this time no prediction as to the outcome can be made.  Defense counsel takes
the  position  that the science  proposed in the  litigation  appears to be more
advanced  than the  science  which  exists in peer  reviewed  medical  journals.
Whether  the court will  admit the  testimony  relating  to the  science  behind
plaintiff's claims, is not a matter which we can predict at this time.

               GARRY KOMINAKIS VS. THE QUIGLEY CORPORATION, ET AL

On December 13, 2005,  an action was brought in the Superior  Court of the State
of  California  (Western  Division - Los Angeles).  The action  alleges that the
plaintiff  suffered  certain  losses  and  injuries  as a result  of  using  the
Company's  nasal  spray  product.  The  complaint  was served on the  Company on
December 27, 2005. The case was removed to Federal District Court on January 25,
2006.  The  complaint   consists  of  counts  for  strict  liability   (products
liability), negligence, and breach of implied and express warranties.

The Company  believes  plaintiff's  claims are without  merit and is  vigorously
defending those claims. Based upon the information the Company has at this time,
it believes the action will not have a material impact on the Company.  However,
at this time no prediction as to the outcome can be made.  Defense counsel takes
the  position  that the science  proposed in the  litigation  appears to be more
advanced  than the  science  which  exists in peer  reviewed  medical  journals.
Whether  the court will  admit the  testimony  relating  to the  science  behind
plaintiff's claims, is not a matter which we can predict at this time.

          DARIUS INTERNATIONAL INC., AND INNERLIGHT INC., F/K/A DARIUS
             MARKETING INC. VS. ROBERT O. YOUNG AND SHELLEY R. YOUNG
                 (FEDERAL DISTRICT COURT - EASTERN DISTRICT, PA)

In this action, the Company seeks injunctive relief and monetary damages against
two individuals for violation of a  non-competition  agreement  between a wholly
owned subsidiary of the Company,  Innerlight  Inc., and the defendants,  each of
whom are also under agreement to serve as consulting to the Company.

In late November,  2005, the Company  learned that the defendants had launched a
line of nutritional  supplement products that competed with Innerlight products.
Defendants promoted their line of products by a website,  among other means. The
Company moved for a temporary  restraining  order against the defendants,  which
the court denied; however, the court ordered expedited discovery and scheduled a
preliminary  injunction  hearing.  Before the hearing,  the Company  amended its
complaint to add counts  against  defendants for unfair  competition,  trademark
infringement and other causes, which the court allowed. In response,  defendants


                                      F-17


initially  moved to dismiss  the case.  While not ruling on  defendants'  motion
formally,  the court stated that it was inclined to deny the motion.  Defendants
answered the  complaint and asserted nine  counterclaims,  including:  breach of
contract;  breach of covenant of good faith and fair dealing; unjust enrichment;
conversion; common law trademark infringement; common law violation of the right
to publicity;  violation of abuse of personal identity act;  injunctive  relief;
and declaratory relief.

After the preliminary  injunction hearing,  the parties briefed the court on the
significance  of the hearing  evidence in  relation to the  parties'  respective
claims.  On February  17, 2006,  the court held oral  argument on the motion for
preliminary injunction. A ruling is expected by mid-March, 2006.

The Company believes that the defendants' counterclaims are without merit and is
vigorously  defending those  counterclaims  and is prosecuting its action on its
complaint.  Based upon the information the Company has at this time, it believes
the counterclaim actions are without merit.  However, at this time no prediction
as to the outcome can be made.

            ROBERT O. AND SHELLEY YOUNG VS. DARIUS INTERNATIONAL INC.
               AND INNERLIGHT INC., (UTAH THIRD PARTY COMPLAINTS)

On September 14, 2005, a third-party  complaint was filed by Shelley R. Young in
Fourth  District  Court in Provo,  Utah against  Innerlight  Inc. and its parent
company,  Darius.  Robert O. Young has filed a motion to  intervene to join as a
third-party  plaintiff with Shelley R. Young.  On November 3, 2005,  Shelley and
Robert Young filed a parallel suit also in Fourth District Court in Provo, Utah.
The allegations in both complaints  include,  but are not limited to, an alleged
breach of contract by  Innerlight  Inc.  for  alleged  failures to make  certain
payments  under  an  asset  purchase  agreement  entered  into  by all  parties.
Additional  allegations  stem from this  alleged  breach of  contract  including
unjust  enrichment,  trademark  infringement and alleged  violation of rights of
publicity.  The  plaintiffs  are seeking both  monetary and  injunctive  relief.
Innerlight Inc. has objected to the complaint in the third-party action based on
procedural  deficiencies  and other grounds.  In the second action the Court has
granted Innerlight Inc. and Darius permission to defer answering until the court
can  determine  whether or not Provo,  Utah,  is the proper  venue to hear these
allegations.

In connection with the Utah actions the Company has sued the Youngs in Equity in
the Court of Common  Pleas of  Philadelphia  County,  PA,  and in United  States
District Court for the Eastern District of Pennsylvania. The Company has alleged
breach of  contract,  including  but not  limited  to breach of  non-competition
provisions  in a  consulting  agreement  between  the  parties  and  is  seeking
unspecified  damages and injunctive relief. The Company believes the plaintiff's
allegations  against Innerlight Inc. and Darius in Provo, Utah are without merit
and it is vigorously defending against these claims.  Innerlight Inc. and Darius
have filed motions to stay both actions filed in Utah pending  resolution of the
litigation in PA.  Further,  the Company is actively  prosecuting  its state and
federal actions in PA. However, at this time no prediction as to the outcome can
be made.

          BRIGITTE YVON & KLAUS YVON VS. THE QUIGLEY CORPORATION, ET AL

On October 12, 2005,  the  Plaintiffs  instituted  an action  against  Caribbean
Pacific Natural  Products,  Inc. and other defendants for personal injuries as a
result of being hit by a chair on the pool deck of Waikoloa Beach Marriott Hotel
d/b/a Outrigger Enterprises,  Inc. in Honolulu, Hawaii. On December 9, 2005, the
Company was added as an additional  defendant  without  notice to this case. The
main defendant in the case is Caribbean Pacific Natural Products,  Inc. in which
the Company  formerly held stock.  On January 22, 2003,  all  Caribbean  Pacific
Natural  Products  Inc.  shares  owned  by the  Company  were  sold to  Suncoast
Naturals, Inc. in return for stock of Suncoast Naturals, Inc. At the time of the
accident,  the Company had no ownership  interest in Caribbean  Pacific  Natural
Products, Inc.

The  Company  believes  that the  plaintiffs'  claims are  without  merit and is
vigorously  defending  this  action.  At the  present  time this matter is being
defended by the Company's liability insurance carrier and a motion to dismiss is
pending before the Federal District Court in Honolulu, Hawaii.

                 NICODROPS, INC. VS. QUIGLEY MANUFACTURING INC.

On  January  30,  2006,  QMI was put on  notice  of a claim by  Nicodrops,  Inc.
Nicodrops,  Inc. has claimed that the packaging contained  incorrect  expiration
dates and caused it to lose sales through two (2)  retailers.  The total alleged
sales  of  Nicodrops  was  approximately  $250,000  and  Nicodrops  is  claiming
unspecified damages exceeding $2,000,000.

No suit has been filed.  The Company is investigating  this claim.  Based on its
investigation to date, the Company believes the claim is without merit. However,
at this time no prediction can be made as to the outcome of this case.


                                      F-18


                          TERMINATED LEGAL PROCEEDINGS

                          LITIGATION - FORMER EMPLOYEEEMPLOYEES

On April 12, 2002,  the Company  commenced a complaint in Equity in the Court of
Common  Pleas of Bucks  County,  PAPennsylvania,  against the former  President of
Darius International Inc., its wholly owned subsidiary, following termination of
such President.  The allegations in the complaint include,included, but arewere not limited
to, an alleged breach of fiduciary duty owed to the Company.  The Company is seekingsought
both  injunctive  and monetary  relief.  On or about May 1, 2002,  the defendant
filed a counterclaim  requesting  that the Court declare him the lawful owner of
55,000 stock options,  unspecified  damages  relating to an alleged breach of an
oral contract and for  commissions  allegedly  owed. In addition,  the Defendant
requestsdefendant
requested  the return of certain  intellectual  property  used to  commence  and
continue  Darius'  operations.  The  Corporation  believes  Defendant's  claims are without merit, is vigorously
defending the  counterclaimsOn April 15, 2005, a  Settlement  Agreement  and
is  prosecuting  its action on its  complaint.
Based upon the  informationMutual  Release was  executed  between the  Company,  its  subsidiaries  and the
defendants,  Ronald Howell,  Deborah Howell, Pro Pool, LLC, One Source, LLC, Pro
Marketing LLC, and Eric Kaytes. All of defendants'  counterclaims were withdrawn
and dismissed with prejudice. In addition to the monetary consideration,  Howell
surrendered  to the  Company for  cancellation  40,993  shares of the  Company's
common stock and agreed to forego any claim for any additional stock,  warrants,
stock options or other securities of or interest in the Company,  Darius, Darius
Marketing  Inc.,  and  Innerlight  Inc. that were or could have been made in the
lawsuits. Defendant Kaytes surrendered options/warrants in the Company.

NOTE 10 - TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY

On  September 8, 1998,  the  Company's  Board of  Directors  declared a dividend
distribution of Common Stock Purchase Rights (the "Rights"),  thereby creating a
Stockholder  Rights  Plan  (the  "Plan").   The  dividend  was  payable  to  the
stockholders   of  record  on  September  25,  1998.  Each  Right  entitles  the
stockholder  of record to purchase from the Company that number of Common Shares
having a combined  market value equal to two times the Rights  exercise price of
$45. The Rights are not exercisable  until the distribution  date, which will be
the earlier of a public  announcement  that a person or group of  affiliated  or
associated persons has acquired 15% or more of the outstanding common shares, or
the announcement of an intention to make a tender or exchange offer resulting in
the  ownership of 15% or more of the  outstanding  common  shares by a similarly
constituted  party.  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 a 50% beneficial  ownership of the Company,  a stockholder may exchange one
Right for one common share of the Company.  The Final  Expiration of the Plan is
September 25, 2008.

Since the inception of the stock buy-back program in January 1998, the Board has
subsequently  increased  the  authorization  on  five  occasions,  for  a  total
authorized  buy-back of 5,000,000  shares or  approximately  38% of the previous
shares  outstanding.  Such shares are  reflected  as treasury  stock and will be
available for general corporate purposes.  From the initiation of the plan until
December  31,  2005,  4,159,191  shares  have  been  repurchased  at this time, it believesa  cost  of
$24,042,801  or an average cost of $5.78 per share.  No shares were  repurchased
during 2005, 2004 or 2003.

As a result of the  action
will not  havelitigation  relating to the case against  Nutritional  Foods
Corporation,  in March of 1998, a material  impactsubsequent  order of the Court of Common Pleas
of Bucks County  modified the decree of January 23, 1997 to provide for a return
to treasury of 604,928  shares to the  Company.  However,  at this  time no
predictionAs payment for legal  services,
118,066 of these  shares  were  reissued  with a market  value of  approximately
$1,145,358.  This value, the cost of reacquiring  these shares,  then became the
value of the net treasury stock ($2.35 per share)  represented by 486,862 shares
returned to treasury.

On April 9,  2002,  The  Quigley  Corporation  entered  into an  agreement  with
Forrester  Financial  LLC,  ("Forrester")  providing  for  Forrester to act as a
financial  consultant to the outcome canCompany.  The consulting  agreement commenced as of
March 7, 2002 for a term of twelve months,  but may be made.terminated by the Company
in its sole discretion at any time. As compensation  for services to be provided
by Forrester to the Company, the Company granted to Forrester, or its designees,
warrants to purchase up to a total of 1,000,000  shares of the Company's  common
stock. The Company's financial statements reflected a $1,125,000 non-cash charge
in 2002  resulting  from the  granting and  exercising  of these  warrants.  The
warrants have three exercise prices,  500,000 warrants  exercisable at $6.50 per
share,  which were exercised in May 2002 resulting in cash to the Company in the
amount of  $3,250,000,  250,000  warrants  exercisable  at $8.50 per share,  and
250,000  warrants  exercisable at $11.50 per share.  The warrants were initially
exercisable  until  the  earlier  to  occur  of (i)  March  6,  2003 or (ii) the
termination of the Consulting Agreement.

On December 7, 2002, Forrester commenced an action by a Writ of Summons filed in
the Court of Common Pleas of Bucks County,  PA against The Quigley  Corporation.
No Complaint  was filed  detailing  the claim of  Forrester  against The Quigley
Corporation.  This action was terminated  with prejudice by Forrester as part of
its Amended and Restated  Warrant  Agreement (the "Amended  Agreement") with The
Quigley  Corporation  on February 2, 2003  whereby  certain  warrants  that were
scheduled to expire on March 7, 2003 were extended to March 7, 2004 (warrants to
purchase 250,000 shares at $8.50; warrants to purchase 250,000 shares at $11.50)


                                      F-19


are  no  longer  cancelable  by the  Company.  As an  additional  part  of  this
agreement, Forrester was granted warrants to purchase 250,000 shares at any time
until March 7, 2004 at the price of $9.50 a share.  As a result of this  Amended
Agreement  the  Company  recorded a further  non-cash  charge of $975,000 in the
fourth quarter of 2002,  amounting to a total expense of $2,100,000,  classified
as administrative expense in the Consolidated Statement of Operations,  relating
to this warrant agreement in 2002.

In July 2004,  the Company  announced that its Board of Directors had approved a
distribution-in-kind  to its  stockholders  of  approximately  500,000 shares of
common stock of Suncoast Naturals, Inc. (OTCBB: SNTL), which it acquired through
a sale of the  Company's  60%  equity  interest  in  Caribbean  Pacific  Natural
Products, Inc. These shares were distributed on the basis of approximately .0434
shares of Suncoast  common  stock for each share of the  Company's  common stock
owned of record on September 1, 2004, with fractional  shares paid in cash. As a
result of the Company's  dividend-in-kind  to  stockholders  and the issuance of
499,282  shares of common  stock of Suncoast  in  September  2004,  representing
approximately  two-thirds of its common stock ownership,  the remaining  250,718
shares,  owned by the  Company are valued at $26,455 and such amount is included
in Other Assets in the  Consolidated  Balance  Sheet at December 31, 2004.  This
transaction  was  completed in September  2004  resulting in a  dividend-in-kind
distribution  of  $260,000  which   represents  the  fair  value  of  the  asset
transferred  and is reflected as a reduction of retained  earnings and a related
gain on the dividend of stock of $198,786 which is reflected on the Statement of
Operations.  On October 1, 2004, the Company issued 113,097 shares of its common
stock to the  stockholders  of JoEL,  Inc., in order to satisfy the common stock
component of acquiring certain assets and assuming certain  liabilities of JoEl,
Inc. (see Note 3)

NOTE 11 - STOCK COMPENSATION

Stock  options for purchase of the  Company's  common stock have been granted to
both  employees  and  non-employees.  Options  are  exercisable  during a period
determined  by the  Company,  but in no event later than ten years from the date
granted.

On December  2, 1997,  the  Company's  Board of  Directors  approved a new Stock
Option Plan ("Plan")  which was amended in 2005 and provides for the granting of
up to four  million  five  hundred  thousand  shares of which  1,184,000  remain
available for grant at December 31, 2005. Under this Plan, the Company may grant
options  to  employees,  officers  or  directors  of  the  Company  at  variable
percentages  of the  market  value of stock at the date of grant.  No  incentive
stock option shall be exercisable more than ten years after the date of grant or
five years where the individual owns more than ten percent of the total combined
voting power of all classes of stock of the Company.  Stockholders  approved the
Plan in 1998. A total of 520,000, 500,000 and 424,000 options were granted under
this Plan during the years ended December 31, 2005, 2004 and 2003, respectively.

A summary of the status of the Company's  stock options and warrants  granted to
both  employees  and  non-employees  as of December 31, 2005,  2004 and 2003 and
changes during the years then ended is presented below:

YEAR ENDED DECEMBER 31, 2005:
                                                        EMPLOYEES                 NON-EMPLOYEES                 TOTAL
                                              --------------------------   ------------------------    --------------------------
                                                              Weighted                  Weighted                       Weighted
                                                               Average                   Average                       Average
                                                  Shares      Exercise       Shares     Exercise         Shares        Exercise
                                                  (,000)        Price        (,000)      Price           (,000)         Price
                                              -----------------------------------------------------------------------------------
        Options/warrants outstanding
           at  beginning of period                3,880         $5.35          445         $8.64          4,325         $5.68
        Additions/deductions:
           Granted                                  440         13.80           80         13.80            520         13.80
           Exercised                                112          4.87            -           -              112          4.87
           Cancelled                                109          4.80            -           -              109          4.80
                                              -----------------------------------------------------------------------------------
        Options/warrants outstanding
           at end of period                       4,099         $6.28          525         $9.42          4,624         $6.64
                                              -----------------------------------------------------------------------------------
        Options/warrants exercisable
           at end of period                       4,099                        525                        4,624
                                              ===================================================================================

        Weighted average fair value of
           Grants                                               $7.47                      $7.47                        $7.47

        Price range of  options/warrants:
           Exercised                           $0.81 - $9.50                     -                      $0.81 - $ 9.50
           Outstanding                         $0.81 - $13.80             $0.81  -  $13.80              $0.81 - $13.80
           Exercisable                         $0.81 - $13.80             $0.81  -  $13.80              $0.81 - $13.80


                                      F-20


YEAR ENDED DECEMBER 31, 2004:
                                                        EMPLOYEES                 NON-EMPLOYEES                 TOTAL
                                              --------------------------   ------------------------    --------------------------
                                                              Weighted                  Weighted                       Weighted
                                                               Average                   Average                       Average
                                                  Shares      Exercise       Shares     Exercise         Shares        Exercise
                                                  (,000)        Price        (,000)      Price           (,000)         Price
                                              -----------------------------------------------------------------------------------
        Options/warrants outstanding
           at  beginning of period                3,486         $4.82        1,115         $9.38          4,601         $5.92
        Additions/deductions:
           Granted                                  420          9.50           80          9.50            500          9.50
           Exercised                                 26          1.98            -             -             26          1.98
           Cancelled                                  -             -          750          9.83            750          9.83
                                              -----------------------------------------------------------------------------------
        Options/warrants outstanding
           at end of period                       3,880         $5.35          445         $8.64          4,325         $5.68
                                              -----------------------------------------------------------------------------------
        Options/warrants exercisable
           at end of period                       3,880                        445                        4,325
                                              ===================================================================================
        Weighted average fair value of
           Grants                                               $4.46                      $4.46                        $4.46

        Price range of  options/warrants:
           Exercised                           $0.81 - $5.19                     -                      $0.81 - $5.19
           Outstanding                         $0.81 - $10.00              $0.81 - $10.00               $0.81 - $10.00
           Exercisable                         $0.81 - $10.00              $0.81 - $10.00               $0.81 - $10.00


YEAR ENDED DECEMBER 31, 2003:
                                                        EMPLOYEES                 NON-EMPLOYEES                 TOTAL
                                              --------------------------   ------------------------    --------------------------
                                                              Weighted                  Weighted                       Weighted
                                                               Average                   Average                       Average
                                                  Shares      Exercise       Shares     Exercise         Shares        Exercise
                                                  (,000)        Price        (,000)      Price           (,000)         Price
                                              -----------------------------------------------------------------------------------
        Options/warrants outstanding
           at  beginning of period                3,363         $4.45          900         $8.86          4,263         $5.38
        Additions/deductions:
          Granted                                   394          8.11          280          9.35            674          8.63
          Exercised                                  16          0.83           35          1.00             51          0.95
          Cancelled                                 255          5.35           30          3.25            285          5.13
                                              -----------------------------------------------------------------------------------
        Options/warrants outstanding
           at end of period                       3,486         $4.82        1,115         $9.38          4,601         $5.92
                                              -----------------------------------------------------------------------------------
        Options/warrants exercisable
           at end of period                       3,486                      1,115                        4,601
                                              ===================================================================================

        Weighted average fair value of
           grants                                               $4.78                      $1.63                        $3.47

        Price range of options/warrants:
           Exercised                           $0.81 - $1.26               $0.81 - $1.26                 $0.81 - $1.26
           Outstanding                         $0.81 - $10.00              $0.81 - $11.50                $0.81 - $11.50
           Exercisable                         $0.81 - $10.00              $0.81 - $11.50                $0.81 - $11.50


                                      F-21


The following table summarizes  information about stock options  outstanding and
stock options  exercisable,  as granted to both employees and non-employees,  at
December 31, 2005:

                                                        EMPLOYEES                                           NON-EMPLOYEES

                                      Weighted                                                      Weighted
                                       Average                                                       Average
   Range of                           Remaining            Weighted                                 Remaining            Weighted
   Exercise          Number          Contractual           Average               Number            Contractual           Average
    Prices         Outstanding          Life            Exercise Price         Outstanding            Life            Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
$0.81 - $2.50       1,509,250           2.2                 $1.61                 35,000               5.4                 $1.00
$5.13 - $13.80      2,589,500           6.0                 $8.99                490,000               4.8                $10.02

                --------------                                         -----------------
                    4,098,750                                                    525,000
                ==============                                         =================

Options and warrants  outstanding as of December 31, 2005,  2004 and 2003 expire
from June 30, 2006 through December 11, 2015, depending upon the date of grant.

NOTE 12 - DEFINED CONTRIBUTION PLANS

During 1999, the Company implemented a 401(k) defined  contribution plan for its
employees.  The Company's contribution to the plan is based on the amount of the
employee plan contributions and compensation.  The Company's contribution to the
plan in 2005, 2004 and 2003 was approximately $414,000,  $283,000, and $201,000,
respectively.   The  plan  was  amended  in  October  2004  to  accommodate  the
participation of employees of Quigley Manufacturing Inc.

NOTE 13 - TERMINATED LEGAL PROCEEDINGS

                        MIKE FORAN VS. INNERLIGHT, INC.,
                         DARIUS INTERNATIONAL, INC., AND
                             THE QUIGLEY CORPORATION

On August 1,INCOME TAXES

The provision (benefit) for income taxes, consists of the following:

                                        Year Ended           Year Ended          Year Ended
                                       December 31,         December 31,        December 31,
                                           2005                 2004                2003
                                      an action was filed---------------     -----------------    ---------------

Current:
  Federal                                 $65,000                   -                     -
  State                                       -                     -                     -
                                      -----------           -----------           -----------
                                           65,000                   -                     -
                                      -----------           -----------           -----------
Deferred:
  Federal                                $815,738              $436,353             ($660,321)
  State                                   192,107               129,453               (71,457)
                                      -----------           -----------           -----------
                                        1,007,845               565,806              (731,778)
                                      -----------           -----------           -----------

Valuation allowance
                                       (1,007,845)             (565,806)              731,778
                                      -----------           -----------           -----------

Total                                     $65,000                   -                     -
                                      ===========           ===========           ===========

A reconciliation  of the statutory  federal income tax expense  (benefit) to the
effective tax is as follows:

                                        Year Ended           Year Ended          Year Ended
                                       December 31,         December 31,        December 31,
                                           2005                 2004                2003
                                      ---------------     -----------------    ---------------

Statutory rate - Federal               $1,115,773              $153,973              $247,834
State taxes net of federal benefit        126,791                85,439               (47,162)
Permanent differences and other          (169,719)              326,394              (932,450)
                                      -----------           -----------           -----------
                                        1,072,845               565,806              (731,778)
                                      -----------           -----------           -----------

Less valuation allowance               (1,007,845)             (565,806)              731,778
                                      -----------           -----------           -----------

    Total                                 $65,000                   -                     -
                                      ===========           ===========           ===========


                                      F-22


The tax effects of the primary "temporary  differences"  between values recorded
for assets and liabilities for financial  reporting purposes and values utilized
for  measurement  in  accordance  with tax  laws  giving  rise to the  American Arbitration AssociationCompany's
deferred tax assets are as follows:

                                        Year Ended           Year Ended          Year Ended
                                       December 31,         December 31,        December 31,
                                           2005                 2004                2003
                                      ---------------     -----------------    ---------------

Net operating loss carry-forward       $4,034,746            $4,758,315          $5,313,829
Consulting-royalty costs                  317,850                   -                   -
Bad debt expense                          138,439               121,588             331,849
Other                                     297,331               666,857             381,802
Valuation allowance                    (4,788,366)           (5,546,760)         (6,027,480)
                                      -----------           -----------           -----------
    Total                                     -                     -                   -
                                      ===========           ===========           ===========

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    $4,097,128    are    deferred    and    will    be    credited    to
additional-paid-in-capital  when the NOL's  attributable  to these exercises are
utilized.  As a result,  these NOL's will not be available to offset  income tax
expense.  The net operating loss carry-forwards that currently  approximate $9.9
million for federal  purposes,  of which $3.5 million will expire in 2019,  $4.0
million in 2020 and $2.4 million in 2022. Additionally,  there are net operating
loss  carry-forwards of $14.9 million for state purposes,  of which $9.7 million
will expire in 2009, $2.1 million in 2010, $2.8 million in 2012 and $0.3 million
in 2013.  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
$65,000 are assured, a valuation allowance equaling the total deferred tax asset
is being provided.

NOTE 14 - EARNINGS PER SHARE

Basic earnings per share ("EPS")  excludes  dilution and is computed by Mike Foran  against  Innerlight  Inc.,dividing
income  available to common  stockholders  by the  weighted - average  number of
common  shares  outstanding  for the period.  Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were  exercised  or  converted  into common stock or resulted in the issuance of
common  stock  that  shared in the  earnings  of the  entity.  Diluted  EPS also
utilizes the treasury  stock method which  prescribes a wholly owned  subsidiarytheoretical  buy back of
Darius
International  Inc., whichshares from the  theoretical  proceeds of all options and  warrants  outstanding
during  the  period.  Since  there is a wholly owned subsidiarylarge  number of  options  and  warrants
outstanding,  fluctuations  in the  actual  market  price can have a variety  of
results for each period presented.

A  reconciliation  of the Company.  After a
hearing  beforeapplicable  numerators and  denominators of the United  States  District  Court for the  District  of Utah,
Central Division,  Foran withdrew his complaint against The Quigley  Corporation
and the matter was remanded to arbitration.  Discovery began onincome
statement periods presented is as follows  (millions,  except earnings per share
amounts):

                                                 Year Ended                 Year Ended                      Year Ended
                                            December 1, 2003
and was  completed  on31, 2005          December 22,  2003.  Based on the  discovery  of all of
defendants'  documents  and  defendants'   depositions  and  after  interviewing
Innerlight  Inc.'s  witnesses,  the Company  upon advice of counsel  settled the
action for $290,000 and reinstated Foran as an independent representative.

Negotiations  leading to  settlement  were  completed by31, 2004            December 31, 2003
                                   ------------------------------ ------------------------ -----------------------------

                                    Income    Shares      EPS     Income   Shares    EPS     Income   Shares     EPS
                                   ---------- -------- ---------- -------- ------- -------- --------- -------- ---------

         Basic EPS                   $3.2      11.7     $0.28     $0.5     11.5     $0.04     $0.7     11.5    $0.06

         Dilutives:
         Options and
         a
Settlement  Agreement  was entered  effective  January 18, 2004.  As part of the
Settlement  Agreement,  Mr. Foran completely released  Innerlight,  Inc.Warrants                      -        1.6                 -       2.9                 -       3.4
                                   ---------- -------- --------- -------- -------- -------- --------- ------- ---------
         Diluted EPS                 $3.2      13.3     $0.24     $0.5     14.4     $0.03     $0.7     14.9    $0.05
                                   ========== ======== ========= ======== ======== ======== ========= ======= =========

Options and  The
Quigley  Corporation from any claim arising out of the action  instituted by him
on August 1,warrants  outstanding  at  December  31,  2005,  2004 and 2003 were
4,623,750,  4,324,500 and  also any  claim he may have  asserted  against  Innerlight
Inc. or The Quigley Corporation.


                                      F-18


                               INTERVENTION, INC.

An action was filed by Intervention, Inc. on July 2, 2002 in Contra Costa County
Superior  Court  under the  California  Unfair  Competition  Law,  Business4,601,000,  respectively.  Stock options and Professions Code, Section 17200. The Complaint claims that COLD-EEZE(R) does not
contain  ionic zinc and therefore  does not have the unique  quality the Company
asserts for it. The  Complaint  purports to attack The  Cleveland  Clinic  Study
titled Zinc  Gluconate  Lozenges for Treating the Common Cold and the  Dartmouth
Study,  Zinc  Gluconate and The Common Cold, A Controlled  Clinical  Study.  The
plaintiff  claims  that  the  Dartmouth  Study  is not  double-blind  and is not
randomized.  The plaintiff also claims that The Cleveland Clinic Study is untrue
and deceptive  because it did not conclude that patients  "starting  treatments"warrants
with  zinc had a 42% reduction in duration of the common cold and, also,  because
the 42%  reduction in common cold duration is not a reference toexercise  prices  above  average  of cold
duration but rather is a reference to the reduction in median duration. There is
also a claim by the plaintiff that there is an implied claim that the resultsmarket  price in the studies have been confirmed by repetition which plaintiff contests.

Onamount of  520,000,
1,481,500 and 2,155,500  shares for the 3rd dayyears ended December 31, 2005,  2004 and
2003, respectively, were not included in the computation of July, 2003, the Contra Costa County Superior Court upon Motion
of The  Quigley  Corporation  issued a Summary  Judgment in favor of The Quigley
Corporation.  On October  24,  2003,  Intervention  Inc.  filed an appeal to the
California  Court of Appeals  from the Summary  Judgment  issued in favor of The
Quigley Corporation. In March 2004, the appeal was withdrawn, with prejudice.diluted earnings per
share as they are anti-dilutive.

NOTE 1415 - RELATED PARTY TRANSACTIONS

In the ordinary  course of business,  the Company has sales  brokerage and other
arrangements with entities whose major stockholders are also stockholders of The
Quigley Corporation, or are related to a major stockholder, officer and director
of the Company. Commissions and other items expensed under such arrangements for
the twelve months periods ended  December 31, 2003,  2002 and 2001 were zero and
$36,979  and   $160,034,   and  are  included  in  sales  and   marketing,   and
administration  expense   classifications  in  the  Consolidated  Statements  of
Operations.  Amounts  payable  under such  agreements  at December  31, 2003 and
December 31, 2002 were zero.

An  agreement  between the Company and the  founders  Mr. Guy J. Quigley and Mr.
Charles A. Phillips,  both officers and stockholders of the Company, was entered
into on June 1, 1995. The founders,  in  consideration of the acquisition of the
Cold-Eeze(R)  cold therapy  product,  are to shareshared a total  commission of five percent
(5%), on sales collected,  less certain  deductions until the termination
of this agreement expired


                                      F-23


on May 31, 2005. For the years ended December 31, 2003,  20022005,  2004 and 2001,2003,  amounts
of $889,340, $692,766$366,788, $1,043,346 and $651,614,$889,340,  respectively,  were paid or payable under
such founder's commission  agreements.  Amounts payable under such agreements at
December 31, 20032005 and 20022004 were $456,748zero and $301,695,$459,583, respectively.

The Company is in the process of acquiring licenses in certain countries through
related party entities whose  stockholders  include Mr. Gary Quigley, a relative
of the Company's Chief Executive Officer.  Fees amounting to $266,882,  $369,000
$309,493
and $281,250$369,000  have been paid to a related  entity  during  2003,  20022005,  2004 and 2001,2003,
respectively to assist with the regulatory aspects of obtaining such licenses.

F-19
NOTE 1516 - RESTATEMENT

DuringSEGMENT INFORMATION

The basis for presenting  segment  results  generally is consistent with overall
Company reporting.  The Company reports information about its operating segments
in  accordance  with  Financial  Accounting  Standard  Board  Statement No. 131,
"Disclosure  About  Segments of an Enterprise  and Related  Information,"  which
establishes  standards for  reporting  information  about a company's  operating
segments. All consolidating items are included in Corporate & Other.

The Company had divided its operations into four reportable segments as follows:
The Quigley  Corporation (Cold- Remedy),  whose main product is Cold-Eeze(R),  a
proprietary zinc gluconate  glycine lozenge for the common cold;  Darius (Health
and  Wellness),  whose  business is the sale and direct  marketing of a range of
health and wellness products;  Quigley Manufacturing  (Contract  Manufacturing),
which is the production  facility for the Cold-Eeze(R)  lozenge product and also
performs contract manufacturing services for third party customers,  and Pharma,
(Ethical  Pharmaceutical),   currently  involved  in  research  and  development
activity to develop patent applications for potential pharmaceutical products.

Financial  information relating to 2005, 2004 and 2003 continuing  operations by
business segment follows:


- -------------------------------------------------------------------------------------------------------------------------
AS OF AND FOR THE TWELVE
MONTHS ENDED                     Cold        Health and      Contract        Ethical       Corporate &
DECEMBER 31, 2005               Remedy        Wellness     Manufacturing  Pharmaceutical      Other           Total
- -------------------------------------------------------------------------------------------------------------------------
Revenues
  Customers-domestic         $29,284,651    $16,034,960     $3,900,342             -               -       $49,219,953
  Customers-international            -        4,438,090            -               -               -         4,438,090
  Inter-segment                      -              -        7,090,523             -       ($7,090,523)            -
Segment operating profit
  (loss)                       6,693,192        859,956        (80,419)    ($4,044,162)       (449,137)      2,979,430
Depreciation                     387,840        143,726        872,541             -               -         1,404,107
Capital expenditures             228,688         35,523        267,002             -               -           531,213
Total assets                 $38,171,897     $4,918,271     $7,042,169             -      ($14,156,698)    $35,975,639


- -------------------------------------------------------------------------------------------------------------------------
AS OF AND FOR THE TWELVE
MONTHS ENDED                     Cold        Health and      Contract        Ethical       Corporate &
DECEMBER 31, 2004               Remedy        Wellness     Manufacturing  Pharmaceutical      Other           Total
- -------------------------------------------------------------------------------------------------------------------------
Revenues
  Customers-domestic         $22,834,249    $17,484,246       $752,355             -               -       $41,070,850
  Customers-international            -        2,877,145            -               -               -         2,877,145
  Inter-segment                      -              -        1,975,779             -       ($1,975,779)            -
Segment operating profit
  (loss)                       1,618,534      1,509,001        406,811     ($3,056,757)       (295,602)        181,987
Depreciation                     340,828        168,696        112,824             -               -           622,348
Capital expenditures             250,246         32,569      4,388,153             -               -         4,670,968
Total assets                 $31,236,129     $6,143,769     $6,806,026             -      ($12,656,168)    $31,529,756

NOTE:  The stated  capital  expenditure  of  $4,388,153  related to the Company  changed its accounting for certain  warrants issued in
2002 in  exchange  for  services.  Due to a  cancellation  clause in the warrant
agreement,  the warrants should have been treated as  contingently  issuable and
subject to  variable  accounting,  rather  than the fixed  accounting  initially
applied.  The 2002  consolidated  financial  statements  have been  restated  to
reflect the accounting for these warrants.  The restatement had no effect on the
net lossContract
Manufacturing  segment  for  the  year  ended Decemberof 2004 is  inclusive  of an  amount  of
$4,360,829  following the  acquisition by the Company of certain assets of JoEl,
Inc., on October 1, 2004.


                                      F-24


- -------------------------------------------------------------------------------------------------------------------------
AS OF AND FOR THE TWELVE
MONTHS ENDED                     Cold        Health and      Contract        Ethical       Corporate &
DECEMBER 31, 2002.  The effects of this  restatement
are summarized below.

                                                              As Previously
                                                                 Reported          As Restated
                                                              ---------------------------------
      BALANCE SHEET
         Accrued consulting                                     $ 1,673,000        $   975,0002003               Remedy        Wellness     Manufacturing  Pharmaceutical      Other           Total
current liabilities                                6,512,139          5,814,139
         Additional paid-in-capital                              32,592,222         33,290,222- -------------------------------------------------------------------------------------------------------------------------
Revenues
  Customers-domestic         $20,474,969    $19,801,759            -               -               -       $40,276,728
  Customers-international            -        1,222,435            -               -               -         1,222,435
Segment operating profit
  (loss)                       1,699,378      1,791,454            -       ($2,855,294)            -           635,538
Depreciation                     318,419        155,174            -               -               -           473,593
Capital expenditures             414,129        140,887            -               -               -           555,016
Total stockholders' equity                              18,422,817         19,120,817assets                 $24,892,338     $3,881,970            -               -       ($2,504,549)    $26,269,759

NOTE 1617 - QUARTERLY INFORMATION (UNAUDITED)

                                                                        The Company has restated its 2002 consolidated  financial statements in order to
properly reflect the accounting for certain warrants issued in 2002.

                                                                                Quarter Ended
                                                        ----------------------------------------------------------------
                                                         MarchQUARTER ENDED
                                              -----------------------------------------------------------------
                                                    MARCH 31,       JuneJUNE 30,      SeptemberSEPTEMBER 30,   DecemberDECEMBER 31,
                                              ----------------------------------------------------------------
      2003-----------------------------------------------------------------
   2005
   Net Sales                                      $8,191,092        $7,004,580        $9,912,227      $16,391,264$11,753,270      $8,844,173     $15,319,980    $17,740,620
   Gross Profit                                     3,694,110         2,765,589         4,487,847        9,063,8545,702,972       3,033,521       8,294,204     10,803,261
   Administration                                   2,441,720         2,311,887         2,046,915        3,043,3242,994,769       2,986,507       2,897,941      3,777,025
   Operating expenses                               4,616,219         3,849,747         4,372,646        6,537,2505,897,903       4,893,925       5,380,400      8,682,300
   Income (loss) from operations                   (922,109)       (1,084,158)          115,201        2,526,604(1,860,404)      2,913,804       2,120,961
                                                                                                    (194,931)
   Income (loss) from continuing operations        (892,212)       (1,055,141)          134,129        2,542,147(1,790,410)      2,998,503       2,163,086
                                                                                                    (154,495)
   Net Income (loss)                                ($946,561)154,495)    ($1,055,141)         $134,129       $2,542,1471,790,410)     $2,998,503     $2,163,086

   Basic EPS
      Income (loss) from continuing operations         ($0.08)0.01)         ($0.09)            $0.01            $0.220.15)          $0.26          $0.19
      Net Income (loss)                                ($0.08)0.01)         ($0.09)            $0.01            $0.220.15)          $0.26          $0.19
   Diluted EPS
      Income (loss) from continuing operations         ($0.08)0.01)         ($0.09)            $0.01            $0.170.15)          $0.23          $0.16
      Net Income (loss)                                ($0.08)0.01)         ($0.09)            $0.01            $0.17

                                                                 Quarter Ended                      Quarter Ended
                                                                   March0.15)          $0.23          $0.16

                                                                        QUARTER ENDED
                                              -----------------------------------------------------------------
                                                    MARCH 31,       JuneJUNE 30,      ------------------------------      -----------------------------
                                                       As Previously                       As Previously
      2002                                                Reported        As Restated        Reported        As RestatedSEPTEMBER 30,   DECEMBER 31,
                                              -----------------------------------------------------------------
   2004
   Net Sales                                       $4,984,532        $4,984,532        $5,053,622       $5,053,622$9,605,617      $6,901,182      $9,690,858       $17,750,338
   Gross Profit                                     2,438,036         2,438,036         1,627,890        1,627,8904,520,243       2,776,882       3,800,112         9,277,632
   Administration                                   2,514,847         3,969,847         1,735,878        1,390,8782,750,499       2,054,741       2,313,609         2,701,099
   Operating expenses                               4,212,159         5,667,159         2,999,511        2,654,5115,320,567       3,710,062       3,856,503         7,305,750
   Income (loss) from operations                                     (1,774,123)       (3,229,123)       (1,371,622)      (1,026,622)(933,180)        (56,391)        1,971,882
                                                     (800,324)
   Income (loss) from continuing operations                          (1,735,759)       (3,190,759)       (1,333,979)        (988,979)(912,477)        177,376
                                                     (781,631)                                        1,969,594
   Net Income (loss)                                ($1,700,768)781,631)      ($3,155,768)      ($1,450,220)      (1,105,220)912,477)       $177,376        $1,969,594

   Basic EPS
      Income (loss) from continuing operations         ($0.16)0.07)         ($0.30)           ($0.12)          ($0.10)0.08)          $0.02             $0.17
      Net Income (loss)                                ($0.16)0.07)         ($0.30)           ($0.13)          ($0.10)0.08)          $0.02             $0.17
   Diluted EPS
      Income (loss) from continuing operations         ($0.16)0.07)         ($0.30)           ($0.12)          ($0.10)0.08)          $0.01             $0.13
      Net Income (loss)                                ($0.16)0.07)         ($0.30)           ($0.13)          ($0.10)


                                      F-200.08)          $0.01             $0.13


                                      F-25


                                                               Quarter Ended                       Quarter Ended
                                                               September 30                         December 31
                                                       ------------------------------     ------------------------------
                                                       As Previously                      As Previously
      2002                                               Reported         As Restated        Reported       As Restated
                                                       -----------------------------------------------------------------

      Net Sales                                         $7,834,325        $7,834,325       $11,399,301      $11,399,301
      Gross Profit                                       3,111,062         3,111,062         5,034,822        5,034,822
      Administration                                     1,987,058         1,367,058         3,653,978        3,163,978
      Operating expenses                                 3,441,779         2,821,779         6,842,777        6,352,777
      Income (loss) from operations                       (330,717)          289,283        (1,807,954)      (1,317,954)
      Income (loss) from continuing operations            (288,853)          331,147        (1,773,512)      (1,283,512)
      Net Income (loss)                                  ($500,395)         $119,605       ($2,803,075)     ($2,313,075)

      Basic EPS
         Income (loss) from continuing operations           ($0.03)            $0.03            ($0.16)          ($0.12)
         Net Income (loss)                                  ($0.05)            $0.01            ($0.26)          ($0.21)
      Diluted EPS
         Income (loss) from continuing operations           ($0.03)             0.02            ($0.16)          ($0.12)
           Net Income (loss)                                ($0.05)             0.01            ($0.26)          ($0.21)

In December 2002, the Board of Directors of the Company  approved a plan to sell
Caribbean  Pacific  Natural  Products,  Inc.  On January 22,  2003,  the Company
completed  the sale of its 60% equity  interest  in  Caribbean  Pacific  Natural
Products,  Inc. to Suncoast  Naturals,  Inc. by exchanging  its 60%  controlling
interest in Caribbean  Pacific  Natural  Products,  Inc.  for 750,000  Shares of
Common  Stock and  100,000  Shares of  Redeemable  Preferred  Stock of  Suncoast
Naturals,  Inc. This transaction  reflects the operation  results and impairment
losses of Caribbean Pacific Natural Products, Inc. as discontinued operations of
the Company for all periods presented.

                                                   FOURTH QUARTER SEGMENT DATA (UNAUDITED)

- --------------------------------------------------------------------------------------------------------------------------
As of and for the three months-------------------------------------------------------------------------------------------------------------------------
AS OF AND FOR THE TWELVE
MONTHS ENDED                     Cold        Health and      Contract        Ethical       ended DecemberCorporate &
DECEMBER 31, 2003             Cold2005               Remedy        Wellness     Manufacturing  Pharmaceutical      Other           Total
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Revenues
  Customers                          $11,040,653        $5,350,611               --                  --        $16,391,264Customers-domestic         $12,144,783     $3,752,464       $694,137             -               -       $16,591,384
  Customers-international            -        1,149,236            -               -               -         1,149,236
  Inter-segment                      --                --               --                  --                 ---              -        2,623,396             -       ($2,623,396)            -
Segment operating profit
  (loss)                       3,239,962            54,3252,480,622          8,074        264,947       ($767,681)                 --          2,526,606956,382)        323,700       2,120,961
Depreciation                      83,349            41,504               --                  --            124,85399,142         35,848        225,355             -               -           360,345
Capital expenditures            98,476            46,432               --                  --            144,908
Total assets                         $24,892,338        $3,881,970               --         ($2,504,549)       $26,269,759$139,756         $1,094       $212,525             -               --------------------------------------------------------------------------------------------------------------------------
As of and for the three months
ended December 31, 2002-          $353,375


- -------------------------------------------------------------------------------------------------------------------------
AS OF AND FOR THE TWELVE
MONTHS ENDED                     Cold        Health and      Contract        Ethical       (Restated Note-15)                   ColdCorporate &
DECEMBER 31, 2004               Remedy        Wellness     Manufacturing  Pharmaceutical      Other           Total
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Revenues
  Customers                           $6,782,664        $4,616,637                 --                --        $11,399,301Customers-domestic         $12,151,638     $4,247,088       $752,355             -               -       $17,151,081
  Customers-international         -             599,257       -                    -               -           599,257
  Inter-segment                   --                --                 --                --                 ---             -            1,975,779             -       ($1,975,779)            -
Segment operating profit
  (loss)                       (1,020,196)          172,3622,491,935        187,979        406,811       ($485,590)          $15,470         (1,317,954)819,241)       (295,602)      1,971,882
Depreciation                      72,091            40,811                 --                --            112,90290,102         41,157        112,824             -               -           244,083
Capital expenditures            119,432            28,921                 --                --            148,353
Total assets                         $26,223,476        $1,401,867                 --       ($2,690,387)       $24,934,956$130,716         $6,403     $4,388,153             -              --------------------------------------------------------------------------------------------------------------------------
As$202      $4,525,474


NOTE:  The stated  capital  expenditure  of  and$4,388,153  related to the Contract
Manufacturing  segment  for  the  three monthsyear  of 2004 is  inclusive  of an  amount  of
$4,360,829  following the  acquisition by the Company of certain assets of JoEl,
Inc., on October 1, 2004.


- -------------------------------------------------------------------------------------------------------------------------
AS OF AND FOR THE TWELVE
MONTHS ENDED                     Cold        Health and      Contract        Ethical       ended DecemberCorporate &
DECEMBER 31, 2001              Cold2003               Remedy        Wellness     Manufacturing  Pharmaceutical      Other           Total
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Revenues
  Customers                            $6,536,445       $1,763,209               --                  --         $8,299,654
  Inter-segment                                --               --               --                  --                 --Customers-domestic         $11,040,653      4,825,566            -               -               -       $15,866,219
  Customers-international            -          525,045            -               -               -           525,045
Segment operating profit
  (loss)                       1,893,169         (354,104)3,239,960         54,325            -         ($161,182)                 --          1,377,883767,681)            -         2,526,604
Depreciation                      67,485           20,477               --                  --             87,96283,349         41,504            -               -               -           124,853
Capital expenditures             21,512           34,432               --                  --             55,944
Total assets                          $26,726,729         $826,946               --         ($2,797,880)       $24,755,795


                                      F-21$98,476        $46,432            -               -               -          $144,908




                                      F-26


                     RESPONSIBILITY FOR FINANCIAL STATEMENTS
                     ---------------------------------------


The management of The Quigley Corporation is responsible for the information and
representations contained in this report. Management believes that the financial
statements have been prepared in conformity with generally  accepted  accounting
principles  and that the other  information  in this annual report is consistent
with those  statements.  In preparing  the financial  statements,  management is
required to include amounts based on estimates and judgments,  which it believes
are reasonable under the circumstances.

In fulfilling its  responsibilities  for the integrity of the data presented and
to  safeguard  the  Company's  assets,  management  employs a system of internal
accounting  controls designed to provide  reasonable  assurance,  at appropriate
cost,  that  the  Company's  assets  are  protected  and that  transactions  are
appropriately  authorized,  recorded, and summarized.  This system of control is
supported by the selection of qualified personnel, by organizational assignments
that   provide   appropriate   delegation   of   authority   and   division   of
responsibilities, and by the dissemination of policies and procedures.



/s/  Guy J. Quigley                                            March 26, 2004February 24, 2006
- --------------------------------------------------------       -------------------------------
Guy J. Quigley, Chairman of the Board,                                Date
   (President, Chief Executive Officer)


/s/ George J. Longo                                            March 26, 2004February 24, 2006
- --------------------------------------------------------       -------------------------------
George J. Longo, Vice President, Chief Financial Officer              Date
   (Principal Financial and Accounting Officer)




                                      F-22F-27


             REPORT OF INDEPENDENT AUDITORSReport of Independent Registered Public Accounting Firm


To the Board of Directors and
Stockholders of The Quigley Corporation

We have  audited the  accompanying  consolidated  balance  sheets of The Quigley
Corporation  and  subsidiaries  as of December 31, 2005 and 2004 and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the years ended December 31, 2005 and 2004.  These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of the Company as of December 31,
2005 and 2004,  and the results of its  operations  and its cash flows for years
ended  December 31, 2005 and 2004, in conformity  with U.S.  generally  accepted
accounting principles.



/s/ Amper Politziner & Mattia P.C.
- ----------------------------------



Edison, New Jersey
February 24, 2006




                                      F-28


             Report of Independent Registered Public Accounting Firm

To the Board of Directors and
Stockholders of The Quigley Corporation

In  our  opinion,  the  accompanying   consolidated   balance sheets and the related
consolidated  statementsstatement  of  operations,
stockholders'  equity,  and cash flows present fairly, in all material respects,
and the financial positionresults of operations and cash flows of The Quigley  Corporation and its
subsidiaries  at December 31, 2003 and 2002, andfor the results
of their  operations  and their  cash  flows for each of the three  years in the
periodyear ended December 31, 2003 in conformity with accounting
principles  generally accepted in the United States of America.  These financial
statements   are  the   responsibility   of  the   Company's   management;  ourmanagement.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.audit.  We conducted our auditsaudit of these  statements  in accordance  with auditingthe
standards generally  accepted inof the United States of America,  whichPublic  Company  Accounting  Oversight  Board (United  States).
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provideaudit provides a reasonable basis for our opinion.



As further  discussed  in Note 15, the  Company's  2002  consolidated  financial
statements have been restated to revise the accounting for certain warrants.


/s/ PricewaterhouseCoopers LLP
- ------------------------------



PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
March 26, 2004




                                      F-23F-29


ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

NoneThe Company  filed a Form 8-K on July 8, 2004,  announcing  that the Company had
dismissed  PricewaterhouseCoopers  LLP  ("PwC")  as its  independent  registered
public accounting firm. On the same date, the Company engaged Amper,  Politziner
& Mattia, P.C. as independent  accountants.  The dismissal of PwC and engagement
of Amper,  Politziner & Mattia, P.C. were approved by the Audit Committee of the
Company.

The reports of PwC on the  Company's  financial  statements  for the fiscal year
ended  December 31, 2003 did not contain an adverse  opinion or a disclaimer  of
opinion and were not  qualified  or modified as to  uncertainty,  audit scope or
accounting principle, except for the 2003 fiscal year opinion, which contained a
reference for a restatement  of the 2002  consolidated  financial  statements to
revise the  accounting  for  certain  warrants.  During  the  fiscal  year ended
December 31, 2003 and through July 8, 2004, there were no disagreements with PwC
on any  matter  of  accounting  principles  or  practices,  financial  statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the  satisfaction  of PwC,  would have caused them to make  reference  to the
subject matter of any such  disagreement  in connection  with its reports on the
financial  statements for such years.  During the fiscal year ended December 31,
2003 and through July 8, 2004,  there were no  reportable  events (as defined in
Item  304(a)(1)(v) of Regulation S-K). The Company has not consulted with Amper,
Politziner & Mattia, P.C. during the last fiscal year ended December 31, 2003 or
during the subsequent interim periods from January 1, 2004 through and including
July 8, 2004 on either the  application of accounting  principles to a specified
transaction,  either  completed or proposed,  or the type of audit  opinion that
might be rendered on The Company's consolidated financial statements.

ITEM 9A. CONTROLS AND PROCEDURES

Based on their  evaluation,  as of the end of the period covered by this report,
the Company's Chief Executive Officer and Chief Financial Officer have concluded
the Company's disclosure controls and procedures (as defined in Rules 13a-14 and
15d-14 under the Securities Exchange Act of 1934) are effective. There have been
no  significantmaterial  changes  in  internal  controls  or in other  factors  that  could
significantlymaterially  affect these  controls  subsequent to the date of their  evaluation,
including any  corrective  actions with regard to significant  deficiencies  and
material weaknesses.

Pursuant to Section 404 of the Sarbanes-Oxley  Act of 2002 (the Act),  beginning
with our Annual Report on Form 10-K for the fiscal year ended December 31, 2006,
we may be required to furnish a report by our management on our internal control
over financial  reporting.  This report will contain,  among other  matters,  an
assessment of the effectiveness of our internal control over financial reporting
as of the end of our fiscal year, including a statement as to whether or not our
internal  control over financial  reporting is effective.  This  assessment must
include  disclosure  of any  material  weakness  in our  internal  control  over
financial  reporting  identified  by  management.  If we  identify  one or  more
material weaknesses in our internal control over financial reporting, we will be
unable to assert our internal  control over  financial  reporting is  effective.
This report will also contain a statement that our independent registered public
accountants have issued an attestation report on management's assessment of such
internal  controls  and a conclusion  on the  operating  effectiveness  of those
controls.

Management  acknowledges its responsibility for internal controls over financial
reporting and seeks to continually  improve those controls.  In order to achieve
compliance  with  Section 404 of the Act within the  prescribed  period,  we are
currently performing the system and process  documentation and evaluation needed
to comply with Section 404, which is both costly and challenging. We believe our
process,  which  began in  fiscal  2003 and is  continuing  in  fiscal  2006 for
documenting,  evaluating  and  monitoring  our internal  control over  financial
reporting is consistent with the objectives of Section 404 of the Act.


                                      -31-


ITEM 9B. OTHER INFORMATION

None
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANYREGISTRANT

The  information  required under this item is  incorporated  by reference to the
Company's Proxy Statement for the 20042006 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

The  information  required under this item is  incorporated  by reference to the
Company's Proxy Statement for the 20042006 Annual Meeting of Stockholders.

ITEM 12. SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT  AND
         RELATED STOCKHOLDER MATTERS

The  information  required under this item is  incorporated  by reference to the
Company's Proxy Statement for the 20042006 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required under this item is  incorporated  by reference to the
Company's Proxy Statement for the 20042006 Annual Meeting of Stockholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The  information  required under this item is  incorporated  by reference to the
Company's Proxy Statement for the 20042006 Annual Meeting of Stockholders.


                                      -22-


                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

   (a) Exhibits:

         3.1        Articles  of  Incorporation  of  the  Company,  (as  amended),as  amended,
                    (incorporated  by reference to Exhibit 3.1 of Form  10-KSB/A
                    datedfiled on April 4, 1997).

         3.2        By-laws of the Company as currently in effect  (incorporated
                    by reference to Exhibit 3.2 of the  Company's  Registration
                    Statement  on Form 10-KSB/A  filed with the  Commission on April
                    4, 1997 and Exhibit 99.3 of the Company's  Current Report on
                    Form 8-K filed with the  Commission  on September 21, 1998).

         4.1        Specimen Common Stock Certificate (incorporated by reference
                    to Exhibit 4.1 of Form 10-KSB/A datedfiled on April 4, 1997)

            10.1.

         10.1*      1997 Stock Option Plan (incorporated by reference to Exhibit
                    10.1 of the  Company's  Registration  Statement  on Form S-8
                    (File No. 333-61313) filed with the Commission on August 13, 1998).

         10.2       Exclusive  Representation  and Distribution  Agreement dated
                    May 4, 1992  between the  Company  and  Godfrey  Science and
                    Design,  Inc. et al  (incorporated  by  reference to Exhibit
                    10.2 of Form 10-KSB/A datedfiled on April 4, 1997)

            10.3.

         10.3*      Employment  Agreement dated June 1, 1995 between the Company
                    and Guy J.  Quigley  (incorporated  by  reference to Exhibit
                    10.3 of Form 10-KSB/A datedfiled on April 4, 1997)

            10.4.

         10.4*      Employment  Agreement dated June 1, 1995 between the Company
                    and  Charles  A.  Phillips  (incorporated  by  reference  to
                    Exhibit 10.4 of Form 10-KSB/A datedfiled on April 4, 1997).


                                      -32-


         10.5    Exclusive   Master   Broker   Wholesale    Distributor   and
                    Non-Exclusive National Chain Broker Agreement dated July 22,
                    1994 between the Company and Russell Mitchell  (incorporated
                    by reference to Exhibit 10.7 of Form 10-KSB/A dated April 4,
                    1997)

            10.6    Licensing  Agreement  dated  August  24,  1996  between  the
                    Company,   George  A.  Eby  III  and  George  Eby   Research
                    (incorporated  by reference to Exhibit 10.6 of Form 10-KSB/A
                    dated April 4, 1997)

            10.8       United States  Exclusive  Supply  Agreement  dated March 17,
                    1997  (Portions  of this  exhibit are omitted and were filed
                    separately with the Securities  Exchange Commission pursuant
                    to  the  Company's   application   requesting   confidential
                    treatment  in  accordance  with Rule 406 of  Regulation C as
                    promulgated  under the Securities Act of 1933,  incorporated
                    by reference  to Exhibit  10.5 of Form SB-2 dated  September
                    29, 1997). See exhibit 10.18.

            10.910.14.

         10.6       Consulting  Agreement  dated May 4, 1992 between the Company
                    and Godfrey Science and Design, Inc. et al. (incorporated by
                    reference to Exhibit 10.5 of Form 10-KSB/A datedfiled on April 4,
                    1997)

            10.10.

         10.7*      Employment  Agreement  dated  November 5, 1996,  as amended,
                    between  the Company  and George J. Longo  (the  Employment
                    Agreement is  incorporated(incorporated  by
                    reference to Exhibit 10.10 of Form 10-KSB datedfiled on March 30,
                    1998 and the  amendments  are
                    attached hereto)

            10.11   Employment  Agreement  dated  January 1, 1997,  as  amended,
                    between  the  Company  and Eric H.  Kaytes  (the  Employment
                    Agreement is  incorporated  by reference to Exhibit 10.11 of
                    Form 10-KSB dated March 30, 1998 and amendments are attached
                    hereto)

            10.121998.

         10.8       Rights  Agreement  dated  September  15,  1998  between  the
                    Company  and  American  Stock  Transfer  and  Trust  Company
                    (incorporated  by  reference  to Exhibit 1 to the  Company's
                    Registration  Statement on Form 8-A filed with the Commission
                    on  September  18,
                    1998)


                                      -23-


            10.13.

         10.9       Consulting agreement dated March 7, 2002 between the Company
                    and Forrester  Financial LLC  (incorporated  by reference fromto
                    Exhibit 99.1 toof Form 8-K filed on April 11, 2002.)

            10.142002).


         10.10      Warrant  agreement  dated March 7, 2002  between the Company
                    and Forrester  Financial LLC  (incorporated  by reference fromto
                    Exhibit 99.2 toof Form 8-K filed on April 11, 2002.)

            10.152002).

         10.11      Agreement  dated  February  2, 2003  between the Company and
                    Forrester   Financial  LLC  (incorporated  by  reference  fromto
                    Exhibit 99.3 toof Form 8-K filed on February 18, 2003.)

            10.162003).

         10.12      Amended and Restated  Warrant  Agreement  dated  February 2,
                    2003  between  the  Company  and  Forrester   Financial  LLC
                    (incorporated by reference fromto Exhibit 99.4 toof Form 8-K filed
                    on February 18, 2003.)

            10.172003).

         10.13      Share  agreement  effective  as of December 31, 2002 between
                    the Company and Suncoast  Naturals,  Inc.  is incorporated(incorporated  by
                    reference  to Exhibit  2.1 of Form 8-K filed on  February 6,
                    2003.

            10.18*2003).

         10.14      Third Amendment to UntiedUnited States  Exclusive Supply Agreement.Agreement
                    (incorporated  by  reference  to Exhibit  10.18 of Form 10-K
                    filed on April 1, 2004).

         10.15      Asset Purchase and Sale  Agreement  dated August 18, 2004 by
                    and between  JoEl,  Inc.  and the Company  (incorporated  by
                    reference  to  Exhibit  10.1 of Form 8-K filed on August 20,
                    2004).

         10.16      Addendum  dated  October 1, 2004 by and  between the Company
                    and JoEl,  Inc.  to the asset  purchase  and sale  agreement
                    dated August 18, 2004  (incorporated by reference to Exhibit
                    10.1 of Form 8-K filed on October 7, 2004).

         10.17      Term  Note  dated  October  1,  2004 in the  amount  of $3.0
                    million  executed  by the  Company  in  favor  of PNC  Bank,
                    National  Association  (incorporated by reference to Exhibit
                    10.2 of Form 8-K filed on October 7, 2004).

         10.18      Open-End  Mortgage and Security  Agreement  dated October 1,
                    2004 on  real  property  located  in  Lebanon,  Pennsylvania
                    executed by Quigley Manufacturing Inc. in favor of PNC Bank,
                    National  Association  (incorporated by reference to Exhibit
                    10.3 of Form 8-K filed on October 7, 2004).

         10.19      Open-End  Mortgage and Security  Agreement  dated October 1,
                    2004 on real property located in Elizabethtown, Pennsylvania
                    executed by Quigley Manufacturing Inc. in favor of PNC Bank,
                    National  Association  (incorporated by reference to Exhibit
                    10.4 of Form 8-K filed on October 7, 2004).


                                      -33-


         10.20      Registration  Rights  Agreement dated October 1, 2004 by and
                    among the Company  and the  shareholders  signatory  thereto
                    (incorporated by reference to Exhibit 10.5 of Form 8-K filed
                    on October 7, 2004).

         10.21*     Employment  Agreement  dated October 1, 2004 between Quigley
                    Manufacturing  Inc.  and  David  B.  Deck  (incorporated  by
                    reference  to  Exhibit  10.6 of Form 8-K filed on October 7,
                    2004).

         10.22*     Employment  Agreement  dated October 1, 2004 between Quigley
                    Manufacturing Inc. and David Hess (incorporated by reference
                    to Exhibit 10.7 of Form 8-K filed on October 7, 2004).

         14.1       Code of Ethics  (incorporated  by reference to Exhibit II of
                    the  Proxy  Statement  on  Schedule  14A  filed on March 31,
                    2003).

         16.1       PricewaterhouseCoopers  LLP  letter  dated  March  30,  2006
                    (incorporated  by  reference  to  Exhibit  16.1 of Form 10-K
                    filed on March 31, 2005).

         21.1**     Subsidiaries of The Quigley Corporation.

         23.1**     Consent   of    PricewaterhouseCoopers    LLP,   Independent
                    Accountants,Registered Public Accounting Firm, dated March 26, 2004.13, 2006.

         23.2**     Consent   of  Amper,   Politziner   &  Mattia,   Independent
                    Registered Public Accounting Firm, dated March 13, 2006.

         31.1**     Certification of Chief Executive Officer pursuant to Section
                    302 of the Sarbanes-Oxley Act of 2002.

         31.2**     Certification of Chief Financial Officer pursuant to Section
                    302 of the Sarbanes-Oxley Act of 2002.

         32.1**     Certification of the President and Chief Executive  Officer pursuant to 18
                    U.S.C.  1350,  as adopted  pursuant  to  Section  906 of the
                    Sarbanes-Oxley Act of 2002.

         32.2**     Certification of the Chief Financial  Officer pursuant to 18
                    U.S.C.  1350,  as adopted  pursuant  to  Section  906 of the
                    Sarbanes-Oxley Act of 2002.

                    * Indicates a management contract or compensatory plan or arrangement
                    ** Filed herewith




                                      (b)   Reports on Form 8-K

            The Company filed a report on 8-K, Item 5. On January 22, 2003,  the
            Board appointed Stephen W. Wouch to fill a vacancy on the Board. Mr.
            Wouch is a  certified  public  accountant  with 19  years of  public
            accounting  experience  as a partner and is the Managing  Partner of
            Wouch, Maloney & Co., LLP, Certified Public Accountants.


                                      -24--34-


SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Companyregistrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                                         THE QUIGLEY CORPORATION


/s/ Guy J. Quigley                                                March 30, 200423, 2006
- -------------------------------------------------                 --------------
Guy J. Quigley, Chairman of the Board, President,                        Date
Chief Executive Officer and Director


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following  persons on behalf of the Companyregistrant and in the
capacities and on the dates indicated:


         Signature                                Title                                 Date
         - ---------                                -----                                 ---------


/s/ Guy J. Quigley                 Chairman of the Board, President,                March 30, 200423, 2006
- ---------------------------                                                         --------------
Guy J. Quigley                     Chief Executive Officer and Director



/s/ Charles A. Phillips            Executive Vice President, Chief Operating        March 30, 200423, 2006
- ---------------------------                                                         --------------
Charles A. Phillips                Officer and Director



/s/ George J. Longo                Vice President, Chief Financial                  March 30, 200423, 2006
- ---------------------------                                                         --------------
George J. Longo                    Officer and Director (Principal
                                   Financial and Accounting Officer)


/s/ Jacqueline F. Lewis            Director                                         March 30, 200423, 2006
- ---------------------------                                                         --------------
Jacqueline F. Lewis



/s/ Rounsevelle W. Schaum          Director                                         March 30, 200423, 2006
- ---------------------------                                                         --------------
Rounsevelle W. Schaum



/s/ Stephen W. Wouch,              Director                                         March 30, 200423, 2006
- ---------------------------                                                         --------------
Stephen W. Wouch,


-25-/s/ Terrence O. Tormey,            Director                                         March 23, 2006
- ---------------------------                                                         --------------
Terrence O. Tormey,


                                      -35-