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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal year ended December 31, 2000
Commission File No. 01-21617
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THE QUIGLEY CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 23-2577138
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
(MAILING ADDRESS: PO Box 1349, Doylestown, PA 18901)
Kells Building, 621 Shady Retreat Road, Doylestown, PA 18901
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(Address of principle executive offices) (Zip Code)
(215) 345-0919
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(Registrant'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:
COMMON STOCK ($.0005 Par Value) COMMON SHARE PURCHASE RIGHTS
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by the check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-X contained in this form, and no
disclosure will 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 amendments to this Form 10-K.
[X]
As of March 2, 2001, the aggregate market value of the voting stock (all of
one class $.0005 par value Common Stock) held by non-affiliates of the
Registrant was $11,347,688 based upon the closing price of the Common Stock on
that date as reported on the NASDAQ National Market.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Number of shares of each of the Registrant's classes of securities (all of one
class of $.0005 par value Common Stock) outstanding on March 2, 2001:
10,675,153
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 to the Registrant's Proxy Statement for the 2001 Annual Meeting
of Stockholders.
THE EXHIBIT INDEX IS LOCATED ON PAGES 19-20.
Page 1 of 23
TABLE OF CONTENTS
Part I Page
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Item 1. Description of Business 3 - 8
2. Description of Properties 8
3. Legal Proceedings 8 - 9
4. Submission of Matters to a Vote by Security Holders 9
Part II
5. Market for the Company's Common Equity and Related
Stockholder Matters 9 - 10
6. Selected Financial Data 10 - 11
7. Management's Discussion and Analysis of Results of
Operations and Financial Condition 11 - 16
8. Financial Statements 17
9. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
Part III
10. Directors and Executive Officers of the Registrant 18
11. Executive Compensation 18
12. Security Ownership of Certain Beneficial
Owners and Management 18
13. Certain Relationships and Related Transactions 18
Part IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 19 - 23
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Forward-Looking Statements
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In addition to historical information, this Annual 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, 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. Readers should carefully review the risk factors
described in other documents the Company files from time to time with the
Securities and Exchange Commission including Quarterly Reports on Form 10-Q to
be filed by the Company in fiscal year 2001.
PART 1
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ITEM 1. DESCRIPTION OF BUSINESS
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Business Development
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The Quigley Corporation (hereinafter referred to as the "Company") is a Nevada
corporation which was organized on August 24, 1989 and commenced business
operations in October 1989.
The Company's current primary business is the manufacture and distribution of
cold remedy products to the consumer through the over-the-counter market
place. Its key product Cold-Eeze(R) is a zinc gluconate glycine lozenge 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.
In January 2000 Darius International, Inc., a wholly owned subsidiary of The
Quigley Corporation, was formed as a means of introducing new products to the
marketplace. Additionally, effective July 1, 2000, the Company acquired a 60%
ownership position in Caribbean Pacific Natural Products based in Orlando,
Florida.
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 emphasis in the marketing
of the Nutri-Bars and commenced focusing its marketing and research and
development resources towards 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 Company has concentrated its business operations on the
manufacturing, marketing and development of its proprietary Cold-Eeze(R) and
Cold-Eezer Plus 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 shown 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. By the end of
1998, Bodymate(TM), a new product line, was launched to enter the nutrition
and weight management program industry.The demand for the Company's products
is seasonal, where the first and fourth quarters generally represent the
largest sales volume.
-3-
As referred to earlier, the Company formed Darius International, Inc., a
wholly owned subsidiary, in January 2000 for the purpose of introducing new
products to the marketplace through a network of independent distributors.
Darius is a direct selling organization specializing in proprietary health and
wellness products. The Company commenced shipping product to customers in the
third quarter of 2000.
Effective July 1, 2000, The Quigley Corporation acquired a 60% ownership
position of Caribbean Pacific Natural Products, Inc., a leading developer and
marketer of all-natural sun and skin products for luxury resorts, theme parks
and spas. Caribbean Pacific Natural Products, Inc., is headquartered in
Orlando, Florida.
The formation of Darius International Inc., and the majority ownership
position in Caribbean Pacific Natural Products, Inc., provide diversification
to the Company in both the method of product distribution and the broader
range of products available to the marketplace.
In January 2001, the Company formed an Ethical Pharmaceutical Division under
the direction of the Company's executive medical director and chairman of its
medical advisory committee. The launch of the Company's Ethical Pharmaceutical
Division follows the Patent Office of The United States Commerce Department
confirming the Company's filing and assignment of a Patent Application for the
"Method and Composition for the Topical Treatment of Diabetic Neuropathy".
Establishing a dedicated pharmaceutical division will enable the Company to
diversify into the prescription drug market and to ensure safe and effective
distribution of this important new product for the relief of diabetes-related
pain.
Products
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Cold Remedy Products
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Cold-Eeze(R), a zinc gluconate glycine formulation (ZIGG(TM)), is sold in
lozenge, bubble gum and sugar-free tablet forms. 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 pending in Japan. This product is
presently being marketed by the Company and also through independent brokers
and marketers in the United States under the trade names Cold-Eeze(R),
Cold-Eeze(R) Sugar Free, and Cold-Eeze(R) Bubble Gum and in Canada under the
trade name Zigg-Eeze(TM).
In 1996, the Company also acquired an exclusive license to a zinc gluconate
use patent, thereby assuring the Company exclusivity in the manufacturing and
marketing of zinc gluconate glycine lozenge formulated cold relief products.
Under a Food and Drug Administration ("FDA") approved Investigational New Drug
Application, filed by Dartmouth College, a randomized double-blind
placebo-controlled study, conducted at Dartmouth College of Health Science,
Hanover, New Hampshire, concluded that the lozenge formulation treatment,
initiated within 48 hours of symptom onset, resulted in a significant
reduction in the total duration of the common cold.
On May 22, 1992, ZINC AND THE COMMON COLD, A CONTROLLED CLINICAL STUDY, was
published in England, in the "Journal of International Medical Research",
Volume 20, Number 3, Pages 234-246. According to this publication, (a)
flavorings used in other Zinc lozenge products (citrate, tartrate, separate,
orotate, picolinate, mannitol or sorbitol) render the Zinc inactive and
unavailable to the patient's nasal passages, mouth and throat, where cold
symptoms have to be treated, (b) this patented pleasant-tasting 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. 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.
-4-
Health And Wellness Products
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At the very end of 1998, the first product of the Bodymate(TM) line was
launched in a test market to enter the nutrition and weight management
industry. The unique proprietary delivery system and naturalness of this
product, with the main ingredients of Garcinia Cambogia and chromium
polynicotinate, offers instant satisfaction and gratification to those
attempting to lose weight. It is believed that the ingredients in this product
may block an enzyme necessary for the formation of fats from carbohydrates,
and affects the appetite to bring about a feeling of fullness.
Darius International, Inc., a wholly owned subsidiary, was formed in January
2000 for the purpose of introducing new products to the marketplace through a
network of independent distributors. Darius is a direct selling organization
specializing in proprietary health and wellness products. The products
marketed and sold by Darius International are designed to improve the human
condition, be it in the area of joint health, immunity, energy, pain, weight
loss or the common cold. The products currently available from Darius are:
Bodymate(TM) Metabolizer, Bodymate(TM) Gluco-Eeze, Ultra-Eeze, Vita-Eeze,
Beta-Eeze, Cold-Eezer(R) Plus, Cold-Eezer(R) Cinnamon Gum, Dermaloe first aid
antiseptic, Pain Goes pain spray, and Ardor dietary supplement.
Sun-care and Skin-care Products
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Caribbean Pacific Natural Products, Inc., is a leading developer and marketer
of all-natural sun and skin care products for luxury resorts, theme parks and
spas.
These products are all-natural, eco-safe, and organic, meaning that the need
for petro-chemical, synthetic, and chemical additives used by most competitors
has been eliminated. All-natural ingredients such as aloe, vera, rose hip oil,
squalane, Vitamin E, tea tree oil and other natural oils and extracts are used
instead of many synthetic preservatives, fillers and softeners which may have
side-effects.
The Company currently has three distinct product lines: Virgin Sol, Coral Sol
and Sport Sol and is currently developing a spa line called Sabate and a
dry-grip golf product.
The Company markets a line of natural protectors, or "Sol Cremes" that provide
dual protection against the damaging effects of the sun. This product is
available in differing Sun Protection Factors (SPF). The Company also markets
a sunscreen product called "Karibbean Kidz" especially for children, again
containing all natural ingredients found in nature.
Additionally, the Company markets various products rich in essential nutrients
and vitamins necessary for the skin. Products available in this category are:
Black Pearl Ultra Oil, Diamond Rose Dry Tanning Oil, Emerald Rose Tanning Oil.
Caribbean Pacific has developed an effective combination of natural
ingredients for moisture that include the Aloe Rose Body Creme, a moisturizing
lotion, and the Tea Tree Burn Relief, which cools the skin to sooth the
discomfort associated with burns, insect bites and itching.
Caribbean Pacific also has the capability to make available customized
merchandise, such as beach bags, beach towels etc., which complement the range
of sun-care and skin-care products marketed and sold by Caribbean Pacific.
Patents, Trademarks, Royalty and Commission Agreements
- ------------------------------------------------------
The Company currently owns no patents. However, the Company 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)
No. 4 758 439 (July 19, 1988)
Germany: No. 3,587,766 (March 2, 1994)
France & Italy: No. EP 0 183 840 B1 (March 2, 1994)
Sweden: No. 0 183 840 (March 2, 1994)
Canada: No. 1 243 952 (November 1,1988)
Great Britain: No. 2 179 536 (December 21, 1988)
Japan: Pending
-5-
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 will expire in March 2002.
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, the Company pays a royalty fee to the patent holder of three
percent (3%) on sales collected, less certain deductions.
During 1997, the Company instituted 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.
An agreement between the Company and the founders was entered into on June 1,
1995. The founders, 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 said
agreement on May 31, 2005.
The trademarks and formulations for the natural skin care products sold by
Caribbean Pacific Natural Products, Inc. are owned by Caribbean Pacific
International, Inc., which has a 40% ownership position in Caribbean Pacific
Natural Products. The trademarks and formulations are assigned to Caribbean
Pacific Natural Products, Inc. for a twenty-five year period. Caribbean
Pacific Natural Products pays Caribbean Pacific International a royalty of
five percent (5%) on sales collected less certain deductions, for a four year
term, which terminates in May 2004.
In December 2000, the Company announced that the Patent Office of The United
States Commerce Department had confirmed the Company's filing and assignment
of a Patent Application for the "Method and Composition for the Topical
Treatment of Diabetic Neuropathy".
Product Distribution and Customers
- ----------------------------------
The Company has several Broker, Distributor and Representative Agreements,
both nationally and internationally, which are sales performance-based.
Additionally, prior to 1998, the Company issued incentive common stock
purchase options to its Brokers, Distributors and Representatives.
The Cold-Eeze(R) products are distributed through numerous independent and
chain drug and discount stores throughout the United States, including the
Walgreen Company, Bindley-Western Drug Company, Revco, Albertsons, CVS,
Rite-Aid, Eckerd Drug Company, Phar-Mor Inc., Wal-Mart, Target, The Kroger
Company, Safeway Inc., SAM'S Club, BJ's Wholesale Club, Costco Wholesale, Drug
Emporium, K-Mart Corporation, and wholesale distributors including McKesson
Drug Company, Bergen Brunswig Drug Company, US Health Distributors, and
AmeriSource.
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 represent 44%, 39%, and 38% of sales
consolidated revenue for the years ended December 31, 2000, 1999 and 1998,
respectively.
Darius International, Inc., 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 Quigley
Corporation in the promotion of the cold remedy products.
Caribbean Pacific Natural Products are sold exclusively through partnership
marketing agreements at over 100 premier
-6-
resorts, theme parks, and spas throughout the U.S., Mexico and the Caribbean.
They include Anheuser-Busch-Entertainment, Biltmore, Resort Hyatt, Loews
Portofino (Universal Studios), Marriott, Ritz Carlton, Westin and Wyndham
resorts. In Mexico, Caribbean Pacific Natural Products has exclusive marketing
rights at such Eco-archeological Parks as Xcaret and Xelha - which attract
millions of visitors each year - as well as the famed Allegro and Melia
resorts.
Research and Development
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The Company's research and development costs for the years ended December 31,
2000, 1999 and 1998, were $1,185,750, $297,650 and $256,492, 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 extensions derivatives for a family of products.
Clinical studies and testing will be done in the formulation of products for
diabetic use, including "diabetic-safe" vitamins and minerals, as well as
products that are part of the Ethical Pharmaceutical Division established in
2001. Principally, the increase in research and development in 2000 was due to
expenses incurred as part of the costs related to the application for a
pharmacy drug license in the United Kingdom.
With regard to the sun-care and skin-care products, the short-term emphasis is
on the Sport Dry Grip product to be introduced by the second quarter of 2001
to the resort golf/tennis market. A spa line is being developed for
distribution within existing resort channels.
Regulatory Matters
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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 our financial position or on our competitive
position.
Competition
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The Company competes with other suppliers of cold remedy, nutrition and weight
management 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. Bodymate(TM) at this time, has the same
competition challenges to gain acceptance by the consumer. The Company
believes that its ability to compete depends on a number of factors, including
price, product quality, availability and reliability, credit terms, name
recognition, delivery time and post-sale service and support.
The main competition in the sun-care and skin-care industry comes primarily
from names such as Australian Gold(R), California Tan(R), Panama Jack(TM),
Hawaiian Tropic(R), Banana Boat(R) and Coppertone(R). Each takes a somewhat
different position in how they promote their products. Caribbean Pacific
Natural Products' range of products are distinguishable from the competition
due to their all-natural and eco-friendly characteristic.
Employees
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At December 31, 2000 the Company employed 22 full-time persons, primarily all
of whom 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 member of a union. Additionally, the Orlando location
includes 14 persons that are engaged by the Company through an outside
employer organization.
-7-
Suppliers
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The Company currently uses three separate suppliers to produce Cold-Eeze(R) in
lozenge, bubble gum, and sugar-free tablet form. The Cold-Eeze(R) lozenge and
Bodymate(TM) products are manufactured by a third party manufacturer that
produces exclusively for the Company. Should these 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 with the exception of bubble gum, which cannot be
duplicated. 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 products are available from
numerous sources. Currently, they are 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 International's product for resale is sourced from several suppliers.
In the event that such sources were no longer in a position to supply Darius
International with product other vendors have been identified as reliable
alternatives with minimal adverse loss of business.
Currently, the principal finished products relating to Caribbean Pacific
Natural Products are being manufactured and blended by a single vendor. In the
event of there being difficulties with the current sources of raw material or
finished product, other suppliers have been identified that may result in a
temporary delay in production.
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
During November 1999 the Company moved to its new executive office building at
621 Shady Retreat Road, Doylestown, PA. This property, with an area of
approximately 13,000 square feet, was purchased in November 1998 and
refurbished during 1999. The total cost of acquisition and refurbishment to
date has been approximately $1.6 million. The Company occupies warehouse space
in Las Vegas, Nevada at a monthly cost of $2,193. This Nevada location has a
three-year lease that expires in July 2003. The Company also stores its
product in four additional warehouses in Pennsylvania with storage charges
based upon the quantities of product being stored. The Company believes that
its existing warehousing facilities are adequate.
Caribbean Pacific Natural Products is located at 5244 Carrier Drive, Suite
309, Orlando, Florida, covering a total area of approximately 5,100 square
feet. The lease on the premises is for a period of five years, commencing
January 2001, at a monthly lease cost of $6,193. Additionally, Caribbean
Pacific Natural Products is leasing office space in Hawaii and Mexico at a
monthly cost of $990 and $650 per month, respectively, both these leases are
for a one year period.
ITEM 3. LEGAL PROCEEDINGS
-----------------
TESAURO AND ELEY
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 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 Company believes that
the action lacks merit, is not suitable for class action certification and the
Company is vigorously defending this lawsuit. The Company believes that the
plaintiffs' claims are without merit but certain pre-trial motions and
discovery remains incomplete and no prediction can be made as to the outcome
of this case.
-8-
GOLDBLUM AND WAYNE
A Special Meeting of the Quigley stockholders was held on October 15, 1999, at
which a majority of the shares entitled to vote adopted a Corrective Action
Proposal (initially reported in the Company's Form 10-Q for the quarter ending
June 30, 1999) to ratify actions previously taken by the Company 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 of a declaratory judgment action in Nevada to determine the
effectiveness of the Corrective Action.
In August 2000, the District Court of Clark 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), in which the Company seeks a judicial declaration that, based on
stockholder approval of the Corrective Action Proposal, 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.
This action is in the early stages of litigation, and no prediction can be
made as to the outcome of this case.
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 each of the Company's common stock
in or about 1990 and requested damages in excess of $100,000 for breach of
contract and conversion. The Company is vigorously defending this lawsuit and
has denied any liability to the plaintiffs. The Company also believes that the
plaintiffs' claims are barred by the applicable statutes of limitations, and
that the plaintiffs are, in any event, limited to claims for approximately
36,000 shares. The Company continues to believe that the plaintiffs' claims
are without merit but certain pre-trial discovery remains incomplete and no
prediction can be made as to the outcome of this case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
PART II
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ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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Market Information
- ------------------
The Company's Common Stock, $.0005 par value, is currently traded on the
NASDAQ National Market under the trading symbol "QGLY". The price set forth in
the following table represents the high and low sale prices for the Company's
common stock.
Common Stock
------------
2000 1999
------------- -------------
Quarter Ended High Low High Low
------------- ---- --- ---- ---
March 31 $3.250 $1.500 $6.875 $4.906
June 30 $2.031 $1.125 $5.250 $4.688
September 30 $1.969 $1.156 $5.938 $2.906
December 31 $1.750 $0.656 $3.969 $1.563
Such quotations reflect inter-dealer prices, without mark-up, mark-down or
commission and may not represent actual transactions.
-9-
From July 1997 to May 1998, the Company's securities were traded on the NASDAQ
SmallCap Market. Since May 1998, the Company's securities are traded on the
NASDAQ National Market and consequently stock prices are available daily as
generated by the National Market established quotation system.
Holders
- -------
As of December 31, 2000, there were approximately 368 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 would exceed the number of record owners indicated above.
Dividends
- ---------
The Company has never declared, nor has it paid, any cash dividends on its
Common Stock. At this time the Company intends to retain its earnings to
finance future growth, and as a result does not anticipate paying any cash
dividends on its Common Stock in the immediate future.
Warrants and Options
- --------------------
In addition to the Company's aforesaid outstanding Common Stock, there are, as
of December 31, 2000, 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
----------- ------ -------------- ---------------
CLASS "E" 1,150,000 $1.7500 June 30, 2001
CLASS "F" 225,000 $2.5000 November 4, 2001
CLASS "G" 945,000 $10.0000 May 5, 2002
Warrants 409,900 $1.7500 September 30, 2001
Option Plan 521,500 $9.6800 December 1, 2007
Option Plan 386,000 $5.1250 April 6, 2009
Option Plan 100,000 $2.0625 January 13, 2010
Option Plan 380,000 $0.8125 December 20, 2010
At December 31, 2000, there were 4,042,400 unexercised and vested options and
warrants of the Company's stock available for exercise with an additional
75,000 options awarded which are subject to vesting requirements.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The Company changed its fiscal year-end from September 30 to December 31 on
January 2, 1997. The following table sets forth the selected financial data of
the Company for, and at the end of (i) the years ended September 30, 1996,
(ii) the three months ended December 31, 1996 and (iii) the years ended
December 31, 1997, 1998, 1999 and 2000.
The data presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's financial statements and notes thereto appearing elsewhere
herein.
-10-
Three Months
(Amounts in Year Ended Year Ended Year Ended Year Ended Ended Year Ended
thousands, except December 31, December 31, December 31, December 31, December 31, September 30,
per share data) 2000 1999 1998 1997 1996 1996
------------- -------------- ------------- ------------- ------------- --------------
Statement of Income
Data:
Net Sales $19,364 $24,820 $36,354 $70,173 $4,092 $1,050
Gross Profit 13,480 16,941 25,477 48,745 2,717 766
Net Income (Loss) (5,196) (4,204) 6,809 20,967 1,676 (694)
Basic earnings (loss)
per common share ($0.49) ($0.37) $0.51 $1.72 $0.15 ($0.08)
Diluted earnings (loss)
per common share ($0.49) ($0.37) $0.46 $1.43 $0.12 ($0.08)
Weighted average common
shares outstanding:
Basic 10,551 11,352 13,335 12,181 11,087 8,131
Diluted 10,551 11,352 14,944 14,634 13,611 8,131
As of As of As of As of As of As of
December 31, December 31, December 31, December 31, December 31, September 30,
2000 1999 1998 1997 1996 1996
------------- -------------- ------------- ------------- ------------- --------------
Balance Sheet Data:
Working capital $18,622 $23,621 $43,024 $41,141 $5,206 $911
Total assets 26,056 33,271 48,611 49,847 6,950 1,368
Stockholders' equity $20,971 $26,216 $44,607 $41,748 $5,544 $1,243
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Overview
- --------
The Quigley Corporation, (the Company), headquartered in Doylestown,
Pennsylvania, is a leading marketer and distributor of a diversified range of
health and homeopathic products.
The Company has developed and markets the Cold-Eeze(R) range of products in
lozenge, bubblegum and sugar-free tablet form. Cold-Eeze(R) is the only zinc
gluconate glycine product clinically proven in two double blind studies to
reduce the severity and duration of common cold symptoms. The efficacy of the
product was established following the publication of the second double blind
study in July 1996. The sugar-free product is especially beneficial to
diabetics and other consumers concerned about their sugar intake.
Cold-Eeze(R) is distributed through numerous independent, chain drug and
discount stores throughout the United States. These distribution methods have
seen considerable corporate consolidation in the recent past, which have
reduced the pipeline fill opportunities and many stores have also adopted just
in time inventory systems, thereby reducing the lead-time required in
purchasing product. Many stores have now adopted their store private label
brand of zinc as an alternative to Cold-Eeze(R). However, as these products
have no proven clinical efficacy consumers have become disenchanted with zinc
products in general and this unfortunately lessens the credibility of a proven
product such as Cold-Eeze(R).
During 2000 advertising costs were approximately $9,300,000 compared to
$16,100,000 in 1999. While these expenses contributed substantially to the net
losses in both years, 2000 is reflective of the cost savings attained during
the year. The loss for 2000 is not tax affected for the potential benefit,
which cannot be reflected until the Company returns to profitability.
Therefore, consistent comparisons for the periods reflect a loss, before
income tax benefit, of ($5,196,473) for 2000 compared to a loss, before income
tax benefit, of ($6,106,400) for 1999.
-11-
During the second half of 2000, the Company has altered its advertising focus
to concentrate its promotion of Cold-Eeze(R) at store level through shared
advertising initiatives with our customers. Prior advertising and promotion
efforts were largely through the medium of television and radio. Also the
Company has begun a program to inform and educate the medical profession of
the benefits of using all natural Cold-Eeze(R) as an effective cold remedy.
The Company continues to use the resources of independent national and
international brokers to represent the Company's Cold-Eeze(R) products, which
selling structure provides cost efficiencies that benefit the Company.
In January 2000, the Company formed Darius International, Inc., a direct
selling organization specializing in proprietary health and wellness products.
Darius International was formed to implement Company strategy as a means of
introducing new products to the marketplace through alternative distribution
channels by utilizing a network of independent distributors.
In July 2000, the Company acquired a 60% ownership position in Caribbean
Pacific Natural Products Inc., an Orlando, Florida based company. Caribbean
Pacific Natural Products is a leading developer and marketer of all-natural
sun and skin care products for luxury resorts, theme parks and spas. Caribbean
Pacific Natural Products has developed markets for its products both
domestically and abroad.
Manufacturing for all the Company's products is done by outside sources. The
manufacturer of the Cold-Eeze(R) lozenge product manufactures exclusively for
the Company, with the bubblegum and the sugar-free products being produced by
different manufacturers.
The revenue for 2000 was $19,364,186 compared to $24,819,942 and $36,354,186
for 1999 and 1998 respectively. The decline in sales is largely accounted for
by the reduced Cold-Eeze(R) sales due to industry consolidation, store private
labeling of zinc products, the reduction in the incidence of colds in the
fourth quarter of 2000. However, 2000 has seen contributions to revenue of
$850,166 from Caribbean Pacific Natural Products and Darius International,
Inc., both of which are in their developmental phase.
During 2000, the Company continued to make progress with the registration of
the Cold-Eeze(R) products in the United Kingdom and incurred approximately
$900,000 in expense.
During 2000, the Company announced the selection of The Mentholatum Company as
the exclusive Canadian distributor for the Company's Cold-Eeze(R) product
under the Zigg-Eeze(TM) brand name. The Mentholatum Company replaces the
previous distributor of the past two years. In December 1998, the Company
reached an agreement with a Hong Kong-based Chinese distribution company for
the exclusive distribution of Cold-Eeze(R) in the People's Republic of China.
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 in order to continue
to compete on a national and international level.
Effect of Recent Accounting Pronouncements
- ------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 138,
is effective for fiscal years beginning after June 15, 2000. The standard
requires that all derivative instruments be recorded on the balance sheet at
fair value. Changes in the fair value of derivatives are recorded in earnings
or other comprehensive income, based on whether the instrument is designated
as part of a hedge transaction and, if so, the type of hedge transaction. The
adoptions of this pronouncement will not have a material impact on the
Company's financial statements
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". The SAB summarizes certain of the Staff's views in applying
generally accepted accounting principles to revenue recognition in the
financial statements. As the Company's current revenue recognition policy
meets the standards set forth in SAB 101, the Company was not required to
change its revenue recognition policy based on the interpretation of SAB 101.
-12-
In May 2000, the Emerging Issues Task Force (EITF) issued EITF No. 00-14,
"Accounting for Coupons, Rebates and Discounts" that addressed accounting for
sales incentives. The Task Force concluded that in accounting for cash sales
incentives a manufacturer should recognize the incentive as a reduction of
revenue on the later date of the manufacturer's sale or the date the offer is
made to the public. The reduction of revenues should be measured based on the
estimated amount of incentives to be claimed by the ultimate customers. This
pronoumcement will be adopted in the first quarter of fiscal 2001.
In September 2000, the EITF reached a final consensus on issue EITF No. 00-10,
"Accounting for Shipping and Handling Revenues and Costs." The Task Force
concluded that amounts billed to customers related to shipping and handling
should be classified as revenue. Further, the Task Force stated that shipping
and handling cost related to this revenue should either be recorded in costs
of goods sold or the Company should disclose where these costs are recorded
and the amount of these costs. We adopted this principle during the fourth
quarter of fiscal year 2000. The adoption of this pronouncement did not have a
material impact on the Company's financial statements.
In March 2000, FASB Interpretation, or FIN, No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - An Interpretation of APB Opinion
No. 25," was issued. FIN 44 clarifies the application of APB No. 25 for
certain issues. FIN 44 clarifies the definition of employee for purposes of
applying APB No. 25, the criteria for determining whether a plan qualifies as
a non-compensatory plan, the accounting consequences of various modifications
to the terms of a previously fixed option or award, and the accounting for an
exchange of share compensation awards in a business combination, among others.
FIN 44 was effective July 1, 2000 but certain conclusions in this
interpretation cover specific events that occurred after either December 15,
1998 or January 12, 2000. FIN 44 did not have a significant effect on our
financial position or results of operations.
Results of Operations
- ---------------------
Twelve months ended December 31, 2000 compared with same period 1999
- --------------------------------------------------------------------
Revenues for the year ended December 31, 2000 were $19,364,186, which was a
decrease of 22% over 1999 revenues of $24,819,186. The net loss for 2000 was
($5,196,473) compared to a net loss in 1999 of ($4,203,785). The 1999 net loss
was reduced by a tax benefit of $1,902,615. A tax benefit is not available in
2000 because of a net operating loss carry-forward for tax purposes.
2000 revenues were adversely affected by changes in the industry. Customer
consolidations continued throughout the year which has the effect of reducing
the opportunities for pipeline fill. The industry consolidation has also meant
the adoption of just-in-time inventory systems and as a result product lead
time has been lessened and inventories have been reduced. Also the occurrence
of store private labeling of zinc products increased during 2000, which has
not only the effect of greater competition, but without proven clinical
efficacy these products impact on the credibility of a proven product such as
Cold-Eeze(R).
Independent data indicates that, overall, the 2000 cough/sore throat drops
consumption rate was decreased by 9% over 1999, due to less incidences of
colds and flues.
Revenues from Darius International Inc., and Caribbean Pacific Natural
Products contributed $850,166, both these companies are largely in their
developmental stage.
The Company's cost of goods sold decreased from 31.7% in 1999 to 30.4% in
2000. The decrease in 2000 is primarily the result of shifts in the product
mix of sales. Bubblegum sales in 2000 represented a lesser percentage of sales
compared to 1999. Additionally, the margin associated with Caribbean Pacific
Natural Products, which commenced activity in July 2000, is higher than that
of the Cold-Eeze(R) products.
Selling, general and administrative expenses for 2000 were $18,228,880
compared to $23,630,663 in 1999. The decrease in 2000 is primarily accounted
for by the reduction in television and radio advertising. This reflects a
change to focus on shared advertising initiatives with the independent and
chain drug stores and wholesalers. During 2000, the Company's major operating
expenses of delivery, salaries, brokerage commissions, promotion, advertising,
and legal
-13-
costs accounted for approximately $14,937,810 (82%) of the total of
$18,228,880 showing a decrease of 30% over the 1999 amount of $21,261,731. The
selling, general and administrative expenses related to Darius International,
Inc., and Caribbean Pacific Natural Products for 2000 were $1,495,351 with
nothing comparable in 1999.
Research and Development costs in 2000 and 1999 were $1,185,750 and $297,650,
respectively. The increase in 2000 is primarily due to the expense associated
with the Cold-Eeze(R) regulatory process being conducted in the United
Kingdom.
Total assets of the Company at December 31, 2000 and 1999 were $26,055,601 and
$33,271,056, respectively. Working capital decreased by $4,998,542 to
$18,622,127 at December 31, 2000. The main factors contributing to the
reduction was the loss incurred for the year of ($5,196,473) with the related
reduction in accounts receivable and cash.
Twelve months ended December 31, 1999 compared with same period 1998
- --------------------------------------------------------------------
For the year ended December 31, 1999, the Company had revenues of $24,819,942
and a net loss of ($4,203,785), compared to revenues of $36,354,155 and net
income of $6,809,526 for the comparable period in 1998. 1999 experienced a
slow down in sales for various reasons. During the course of the year, a large
number of zinc products left the market leading to the lowering of prices by
these competitors, resulting in these zinc products catching the attention of
the consumer. Additionally, the marketplace experienced the influx of herbal
remedies and nutritional supplements, resulting in consumer confusion. The
high inventory levels that were being held by customers from previous years,
along with the consolidation of customers, all reduced sales for the year. The
1999 results were adversely affected by the change in the effective tax rate
from 39% to 31%, due to the provision of a valuation allowance equaling the
total deferred tax asset.
Cost of Goods Sold, as a percentage of sales in 1999, was 31.7%, up 1.8% from
the 1998 level of 29.9%. The increase in 1999 is attributable to the
contribution to sales made by Bodymate(TM) and the bubble gum form of
Cold-Eeze(R), both of which carry a higher unit cost of goods percentage. The
Cold-Eeze(R) lozenge product continues to be manufactured in an efficient and
cost effective manner, with this making up the majority of the sales activity.
Total operating costs for 1999, including research and development, were
$23,928,313 compared to $15,762,598 for 1998. The main reason for the increase
was the necessity to promote the unique, proven properties of the Cold-Eeze(R)
products in light of the influx of competing new products into the
marketplace. This was addressed through increased radio and television
advertising at appropriate times during the year. During 1999, the Company's
major operating expenses of delivery, salaries, brokerage commissions,
promotion, advertising, and legal costs accounted for approximately
$21,261,731 (89%) of the total of $23,928,313.
Total assets of the Company at December 31, 1999 and 1998 were $33,271,056 and
$48,610,644, respectively. Working capital decreased by $19,403,816 to
$23,620,669 at December 31, 1999. The main factors contributing to the
reduction in these two categories were the cash expended in the repurchase of
Company stock to treasury totaling $14,788,193, during the course of the year,
as reflected in total stockholders' equity, together with losses incurred
during the year, offset by the increase in current liabilities.
Twelve months ended December 31, 1998 compared with same period 1997
- --------------------------------------------------------------------
The year ended December 31, 1998 produced revenues of $36,354,155 and net
income of $6,809,526 compared to revenues of $70,172,563 and net income of
$20,966,862 for the comparable period in 1997. The reasons for the slow down
in sales in 1998 included mild weather conditions, which are reflected in
lower incidence of consumers' colds, combined with the effect of new herbal
cold treatments promulgated through national news media announcements.
Additionally, due to greater output availability at the manufacturing site,
product lead-time was reduced from six or more weeks in 1997 to two weeks in
1998, resulting in the customer having been able to order product closer to
their needs.
Cost of Goods Sold, as a percentage of net sales, decreased by 0.6%, down to
29.9% in 1998 from 30.5% in 1997. The reduction in 1998 resulted from
efficiencies implemented by the manufacturer in 1997 that continued to be
beneficial in
-14-
1998 and combined with the effect of a change in accounting estimates. These
gains were offset by a repackaging charge of approximately 0.5% of net sales,
higher cost margins for different product configurations and international
sales.
The year 1998 operating expenses were $15,762,598 compared to $13,798,827 in
the comparable period of 1997. The increase over 1997 was primarily as a
result of advertising and marketing spending to further establish and grow the
product. During 1998, the Company's major operating expenses of delivery,
salaries, brokerage commissions, promotion, advertising, and legal costs
accounted for approximately $13,805,588 (88%) of the total of $15,762,598.
The total assets of the Company at December 31, 1998 and 1997 were $48,610,644
and $49,847,090, respectively. Working capital increased by $1,883,938 to
$43,024,485 at December 31, 1998. The significant movements in these
categories represent a slowdown in sales in 1998, the reduction in the
components of current liabilities, changes in funds, and changes in
paid-in-capital, which were the result of the sale or exercise of the
Company's Common Stock, options and warrants. Additionally, during the course
of 1998, the Company repurchased a quantity of the Company's Common Stock.
Material Commitments and Significant Agreements
- -----------------------------------------------
The Company's products are manufactured by outside sources. The Company has
agreements in place with these manufacturers, which insure a reliable source
of product for the future. The facility producing the Cold-Eeze(R) lozenge
product manufactures exclusively for the Company.
The Company has agreements in place with independent brokers whose function it
is to represent the Company, 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 and commission agreements between the Company,
patent holders and the developer of the Company's cold-relief products. The
Company has entered into royalty agreements with the patent holders that
require payments of 6% on sales collected, less certain deductions, and with
the founders who share a commission of 5% on sales collected, less certain
deductions. Additionally, the developer of the Cold-Eeze(R) product
formulation receives a consulting fee of 2% on sales collected, less certain
deductions. The agreements with the patent holders and the developer expire on
March 5, 2002 and May 4, 2007, respectively and with the founders on May 31,
2005.
The trademarks and formulations for the natural skin care products sold by
Caribbean Pacific Natural Products, Inc. are owned by Caribbean Pacific
International, Inc., which has a 40% ownership position in Caribbean Pacific
Natural Products. The trademarks and formulations rights are assigned to
Caribbean Pacific Natural Products, Inc. for a twenty-five year period.
Caribbean Pacific Natural Products pays Caribbean Pacific International a
royalty of five percent (5%) on sales collected less certain deductions, which
terminates in May 2004.
The Company has committed to advertising costs approximating $2,200,000
relating to 2001. Additional advertising cost is expected to be incurred for
the remainder of 2001.
-15-
Liquidity and Capital Resources
- -------------------------------
The Company had working capital of $18,622,127 and $23,620,669 at December 31,
2000 and 1999, respectively. The decrease in working capital is due,
primarily, to the net loss for the year and the resultant decrease in accounts
receivable and cash. Total cash balances at December 31, 2000 were $11,365,843
as compared to $13,990,475 at December 31, 1999.
Management believes that its new revised strategy to establish Cold-Eeze(R) as
a recognized brand name, its broader range of products, newly adopted
diversified distribution methods, adequate manufacturing capacity, further
growth in international sales together with its current working capital should
provide an internal source of capital to fund the Company's business
operations. In addition to anticipated funding from operations, the Company
may raise capital through the issuance of equity securities to finance
anticipated growth.
During 2000 the Company repurchased a total of 134,400 shares at a cost of
$113,444.
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.
Impact of Inflation
- -------------------
The Company is subject to normal inflationary trends and anticipates that any
increased costs should be passed on to its customers.
-16-
ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page
----
Balance Sheets as of December 31, 2000 and 1999 F-1
Statements of Operations for the years ended
December 31, 2000, 1999, and 1998 F-2
Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999, and 1998 F-3
Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998 F-4 to F-5
Notes to Financial Statements F-6 to F-18
Responsibility for Financial Statements F-19
Report of Independent Accountants F-20
-17-
THE QUIGLEY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS December 31, 2000 December 31, 1999
----------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents $11,365,843 $13,990,475
Accounts receivable (less doubtful accounts
of $536,297 and $239,065) 4,062,703 6,639,687
Inventory 6,917,889 6,170,005
Prepaid income taxes - 2,485,247
Prepaid expenses and other current assets 1,123,275 1,390,702
------------------- -----------------
TOTAL CURRENT ASSETS 23,469,710 30,676,116
------------------- -----------------
PROPERTY, PLANT AND EQUIPMENT - net 2,139,727 1,943,313
------------------- -----------------
OTHER ASSETS:
Patent rights - Less accumulated amortization 109,702 197,463
Excess cost over net assets acquired 329,166 -
Other assets 7,296 454,164
------------------- -----------------
TOTAL OTHER ASSETS 446,164 651,627
------------------- -----------------
TOTAL ASSETS $26,055,601 $33,271,056
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $763,527 $395,778
Accrued royalties and sales commissions 1,449,642 1,722,715
Accrued advertising 1,737,873 4,523,901
Other current liabilities 896,541 413,053
-------------------- -----------------
TOTAL CURRENT LIABILITIES 4,847,583 7,055,447
-------------------- -----------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN CONSOLIDATED AFFILIATES 237,326 -
-------------------- -----------------
STOCKHOLDERS' EQUITY:
Common stock, $.0005 par value;authorized 50,000,000;
Issued: 15,271,206 and 14,831,384 shares 7,636 7,415
Additional paid-in-capital 28,871,887 28,807,108
Retained earnings 17,249,197 22,445,670
Less: Treasury stock, 4,616,053 and 4,481,653 shares,
at cost (25,158,028) (25,044,584)
-------------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 20,970,692 26,215,609
-------------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,055,601 $33,271,056
==================== =================
See accompanying notes to financial statements
F-1
THE QUIGLEY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
----------------- ----------------- -----------------
NET SALES $19,364,186 $24,819,942 $36,354,155
------------------ ----------------- -----------------
COST OF SALES 5,884,592 7,879,303 10,877,594
------------------ ----------------- -----------------
GROSS PROFIT 13,479,594 16,940,639 25,476,561
------------------ ----------------- -----------------
OPERATING EXPENSES:
Sales and marketing 12,012,370 17,938,002 10,476,030
Administration 6,216,510 5,692,661 5,030,076
Research and Development 1,185,750 297,650 256,492
------------------ ----------------- -----------------
TOTAL OPERATING EXPENSES 19,414,630 23,928,313 15,762,598
------------------ ----------------- -----------------
INCOME (LOSS)FROM OPERATIONS (5,935,036) (6,987,674) 9,713,963
INTEREST INCOME 646,723 881,274 1,449,194
------------------ ----------------- -----------------
INCOME (LOSS) BEFORE TAXES (5,288,313) (6,106,400) 11,163,157
------------------ ----------------- -----------------
INCOME TAXES EXPENSE (BENEFIT) - (1,902,615) 4,353,631
MINORITY INTEREST IN LOSS OF
CONSOLIDATED AFFILIATE (91,840) - -
------------------ ----------------- -----------------
NET INCOME (LOSS) ($5,196,473) ($4,203,785) $6,809,526
================== ================= =================
Earnings (Loss) per common share:
Basic ($0.49) ($0.37) $0.51
================== ================= =================
Diluted ($0.49) ($0.37) $0.46
================== ================= =================
Weighted average common shares outstanding:
Basic 10,551,027 11,351,960 13,334,684
================== ================= =================
Diluted 10,551,027 11,351,960 14,944,172
================== ================= =================
See accompanying notes to financial statements
F-2
THE QUIGLEY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Additional
Stock Issued Paid-in- Treasury Retained
Shares Amount Capital Stock Earnings Total
---------------------------------------------------------------------------
Balance January 1, 1998 13,304,496 $6,896 $23,046,551 ($1,145,358) $19,839,929 $41,748,018
Treasury Stock (1,178,160) (9,111,033) (9,111,033)
Tax benefits from options,
warrants & common stock 3,512,205 3,512,205
Exercise of options and
warrants issued for services 981,785 981,785
Proceeds from options and
warrants exercised 617,700 309 666,667 666,976
Net income year ended
December 31, 1998 6,809,526 6,809,526
---------------------------------------------------------------------------
Balance December 31, 1998 12,744,036 7,205 28,207,208 (10,256,391) 26,649,455 44,607,477
---------------------------------------------------------------------------
Treasury stock (2,816,631) (14,788,193) (14,788,193)
Tax benefits from options,
warrants & common stock 697,208 697,208
Tax valuation allowance (697,208) (697,208)
Warrants issued for services 202,975 202,975
Proceeds from options and
warrants exercised 422,326 210 427,289 427,499
Other (30,364) (30,364)
Net loss year ended
December 31, 1999 (4,203,785) (4,203,785)
---------------------------------------------------------------------------
Balance December 31, 1999 10,349,731 7,415 28,807,108 (25,044,584) 22,445,670 26,215,609
---------------------------------------------------------------------------
Treasury stock (134,400) (113,444) (113,444)
Tax benefits from options,
warrants & common stock 230,998 230,998
Tax valuation allowance (230,998) (230,998)
Proceeds from options and
warrants exercised 439,822 221 64,779 65,000
Net loss year ended
December 31, 2000 (5,196,473) (5,196,473)
---------------------------------------------------------------------------
Balance December 31, 2000 10,655,153 $7,636 $28,871,887 ($25,158,028) $17,249,197 $20,970,692
===========================================================================
See accompanying notes to financial statements
F-3
THE QUIGLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2000 1999 1998
--------------- -------------- --------------
OPERATING ACTIVITIES:
Net income (loss) ($5,196,473) ($4,203,785) $6,809,526
--------------- -------------- --------------
Adjustment to reconcile net income (loss) to
net cash provided by operations:
Depreciation and amortization 364,924 229,812 206,640
Expenditure paid with common stock - 202,975 981,785
Minority interest share of loss in consolidated
subsidiary (91,840) - -
Deferred income taxes - 397,489 193,756
Other 446,868 - -
(Increase) decrease in assets:
Accounts receivable 2,576,984 935,679 3,276,207
Inventory (515,069) 352,607 1,204,145
Prepaid expenses and other current assets 267,427 41,422 (621,471)
Prepaid income taxes 2,485,247 80,074 982,736
Increase (decrease) in liabilities:
Accounts payable 367,749 (362,255) (357,587)
Accrued royalties and sales commissions (273,073) (362,731) (2,645,410)
Accrued advertising (2,786,028) 3,962,635 358,510
Accrued freight - 67,181 (431,495)
Other current liabilities 483,488 (79,939) (1,009,923)
--------------- -------------- --------------
Total adjustments 3,326,677 5,464,949 2,137,893
--------------- -------------- --------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,869,796) 1,261,164 8,947,419
---------------- -------------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (393,477) (1,043,978) (998,075)
Net cost of assets acquired (312,915) - -
Other assets - (197,782) (184,086)
---------------- -------------- --------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (706,392) (1,241,760) (1,182,161)
---------------- -------------- --------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Tax benefits from stock options, warrants & stock - - 3,512,205
Proceeds from exercises of options and warrants 65,000 427,499 666,976
Repurchase of common stock (113,444) (14,788,193) (9,111,033)
---------------- -------------- --------------
NET CASH FLOWS FROM FINANCING ACTIVITIES (48,444) (14,360,694) (4,931,852)
---------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH (2,624,632) (14,341,290) 2,833,406
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 13,990,475 28,331,765 25,498,359
---------------- -------------- --------------
CASH & CASH EQUIVALENTS, END OF PERIOD $11,365,843 $13,990,475 $28,331,765
================ ============== ==============
See accompanying notes to financial statements
F-4
THE QUIGLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Supplemental disclosure of cash flow information
- ------------------------------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2000 1999 1998
$ $ $
------------------------------------------------
Income taxes paid - - 283,669
- ---------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
F-5
THE QUIGLEY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Quigley Corporation (the "Company") was organized under the laws of the
State of Nevada on August 24, 1989. The Company started business October 1,
1989 and has been engaged in the business of marketing health products. The
products are fully developed and are being offered to the general public. For
the most recent fiscal periods, the Company has concentrated its efforts on
the promotion of a product known as "Cold-Eeze(R)" in the United States. This
product serves the cold remedy market. The demand for the Company's products
is seasonal, where the first and fourth quarters generally represent the
largest sales volume.
Darius International, Inc., a wholly owned subsidiary specializing in
proprietary health and wellness products was formed in 2000 to introduce new
products to the marketplace through a network of direct selling independent
distributors.
During 2000, The Company acquired a 60% ownership position in Caribbean
Pacific Natural Products Inc., which is a leading developer and marketer of
all-natural sun and skin care products for luxury resorts, theme parks and
spas.
Basis of Presentation
The consolidated financial Statements include the accounts of The Quigley
Corporation and its wholly and majority owned subsidiaries. All inter-company
transactions and balances have been eliminated.
Effective July 1, 2000, the Company acquired a 60 percent ownership position
of Caribbean Pacific Natural Products, Inc., which is accounted for by the
purchase method of accounting and accordingly, the operating results have been
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,
secured by inventory, accounts receivable and all other assets of Caribbean
Pacific Natural Products. The net assets of Caribbean Pacific Natural Products
at the acquisition date principally consisted of a product license and
distribution rights with no recorded value, inventory and fixed assets of
$312,915 and $510,000 of working capital with a contribution to minority
interest of $329,166.
The 40 percent ownership position representing the minority interest is
reflected in the consolidated Statements of Operations for their portion of
(losses), and the consolidated Balance Sheet for their ownership portion of
accumulated (losses), share of net assets and capital stock at acquisition
date.
Principles of Accounting
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
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 stated at the lower of cost or market. The Company uses the
first-in, first-out ("FIFO") method of determining cost for all inventories.
Inventories are primarily comprised of finished goods.
F-6
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. The Company uses a
combination of straight-line and accelerated methods in computing depreciation
for financial reporting purposes. The annual provision for depreciation has
been computed principally in accordance with the following ranges of estimated
asset lives: building and improvements - twenty years; machinery and equipment
- - five to seven years; computer software - three years; and furniture and
fixtures - seven years.
Patent Rights and Intangibles
Patent rights are amortized on a straight-line basis over the period of the
related licensing agreements, which approximate 67 months. Amortization costs
incurred for the years ended December 31, 2000, December 31, 1999, and
December 31, 1998, were $87,761, $87,761, and $87,762 respectively.
Accumulated amortization at December 31, 2000, December 31, 1999, and December
31, 1998, is $380,299, $292,538, and $204,777, respectively.
The excess of cost over net assets acquired is being amortized on a
straight-line basis over a period of 15 years.
Concentration of Risks
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
trade accounts receivable.
The Company maintains cash and cash equivalents with three 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 44%
for the year ended December 31, 2000, 39% for the year ended December 31,
1999, and 38% for the year ended December 31, 1998. During 2000, approximately
95% of the Company's revenues originated in the United States with the
remainder being attributable to international trade.
The Company currently uses three separate suppliers to produce Cold-Eeze(R) in
lozenge, bubble gum, and sugar-free tablet form. Substantially all of the
Company's revenues are currently generated from the sale of the Cold-Eeze(R)
product. The lozenge form is manufactured by a third party manufacturer that
produces exclusively for the Company. The other forms are manufactured by
third parties that produce a variety of other products for other customers.
Should these relationships 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 International's product for resale is sourced from several suppliers.
In the event that such sources were no longer in a position to supply Darius
International with product other vendors have been identified as reliable
alternatives with minimal adverse loss of business.
Currently, the principal finished products relating to Caribbean Pacific
Natural Products are being manufactured and blended by a single vendor. In the
event of there being difficulties with the current sources of raw material or
finished product, other suppliers have been identified that may result in a
temporary delay in production.
F-7
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 cash flows. If it is
determined that an impairment loss has occurred based on the expected cash
flows, a loss is recognized in the Statement of Operations.
Revenue Recognition
Sales are primarily recognized at the time a shipment is received by the
customer. Provisions for estimated product returns are accrued in the period
of sale recognition. In December 1999, the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements". The SAB summarizes certain of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in the financial statements. As the Company's current revenue
recognition policy meets the standards set forth in SAB 101, the Company was
not required to change its revenue recognition policy based on the
interpretation of SAB 101.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 138,
is effective for fiscal years beginning after June 15, 2000. The standard
requires that all derivative instruments be recorded on the balance sheet at
fair value. Changes in the fair value of derivatives are recorded in earnings
or other comprehensive income, based on whether the instrument is designated
as part of a hedge transaction and, if so, the type of hedge transaction. The
adoption of this pronouncement will not have a material impact on the
Company's financial statements.
Coupons, Rebates and Discounts
In May 2000, the Emerging Issues Task Force ("EITF") issued EITF No. 00-14,
"Accounting for Coupons, Rebates and Discounts" that addressed accounting for
sales incentives. The Task Force concluded that in accounting for cash sales
incentives a manufacturer should recognize the incentive as a reduction of
revenue on the later date of the manufacturer's sale or the date the offer is
made to the public. The reduction of revenues should be measured based on the
estimated amount of incentives to be claimed by the ultimate customers. This
pronouncement will be adopted in the first quarter of fiscal 2001.
Shipping and Handling
In September 2000, the Emerging Issues Task Force ("EITF") reached a final
consensus on issue EITF No. 00-10, "Accounting for Shipping and Handling
Revenues and Costs." The Task Force concluded that amounts billed to customers
related to shipping and handling should be classified as revenue. Further, the
Task Force stated that shipping and handling cost related to this revenue
should either be recorded in costs of goods sold or the Company should
disclose where these costs are recorded and the amount of these costs. We
adopted this principle during the fourth quarter of fiscal year 2000. The
adoption of this pronouncement did not have a material impact on the Company's
financial statements.
Stock Compensation
In March 2000, FASB Interpretation, or FIN, No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - An Interpretation of APB Opinion
No. 25," was issued. FIN 44 clarifies the application of APB No. 25 for
certain issues. FIN 44 clarifies the definition of employee for purposes of
applying APB No. 25, the criteria for determining whether a plan qualifies as
a non-compensatory plan, the accounting consequences of various modifications
to the terms of a previously fixed option or award, and the accounting for an
exchange of share compensation awards in a business combination, among others.
FIN 44 was effective July 1, 2000 but certain conclusions in this
interpretaion cover specific events that occured after either December 15,
1998 or January 12, 2000. FIN 44 did not have a significant effect on the
Company's financial position or results of operations.
F-8
Royalties
The Company includes royalties and founders commissions incurred as cost of
products sold based on agreement terms.
Advertising
Advertising costs are generally expensed within the period to which they
relate. Advertising costs incurred for the year ended December 31, 2000,
December 31, 1999 and December 31, 1998, were $9,296,483, $16,132,888, and
$9,221,225, respectively. Included in prepaid expenses and other current
assets were $419,000 and $448,908 at December 31, 2000 and 1999, respectively,
relating to prepaid advertising and promotion expenses.
Research and Development
Research and development costs are charged to operations in the year incurred.
Expenditures for the years ended December 31, 2000, December 31, 1999 and
December 31, 1998 were $1,185,750, $297,650, and $256,492, respectively.
Principally the increase of Research and Development in 2000 was due to
expenses incurred as part of the cost related to the application for a
pharmacy drug license in the United Kingdom.
Income Taxes
The Company utilizes an 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. See Note 6 for further discussion.
NOTE 2 - SEGMENT INFORMATION
The basis for presenting segment results generally is consistent with overall
Company reporting. The primary difference relates to presentation of
partially-owned operations, which are presented as if owned 100% in the
operating segments. The adjustment to ownership basis is included in Corporate
& Other. In the third quarter of 2000, the Company qualified for the 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.
The Company has divided its operations into three reportable segments: The
Quigley Corporation, whose main product is Cold-Eeze(R), a proprietary zinc
gluconate glycine lozenge for the common cold; Darius International, Inc.,
whose business is the sale and direct marketing of a range of health and
wellness products and Caribbean Pacific Natural Products, Inc., a leading
developer and marketer of all-natural sun and skin care products for luxury
resorts, theme parks and spas.
Financial information by business segment follows:
- -------------------------------------------------------------------------------------------
Caribbean
Pacific
As of and for the Darius Natural
three months ended The Quigley International Products, Corporate
December 31, 2000 Corporation Inc. Inc. and Other Total
- --------------------------------------------------------------------------------------------
Revenues
Customers $7,216,901 $11,811 $455,348 - $7,684,060
Inter-segment 3,486 - - ($3,486) -
Segment operating
profit (loss) 360,515 (173,335) (152,065) 648 35,763
Total Assets $27,005,069 $428,210 $769,202 ($2,146,880) $26,055,601
F-9
- --------------------------------------------------------------------------------------------
Caribbean
Pacific
As of and for the Darius Natural
twelve months ended The Quigley International Products, Corporate
December 31, 2000 Corporation Inc. Inc. and Other Total
- --------------------------------------------------------------------------------------------
Revenues
Customers $18,514,020 $51,300 $798,866 - $19,364,186
Inter-segment 320,623 - - ($320,623) -
Segment operating
profit (loss) (4,645,828) (936,534) (229,600) (123,075) (5,935,037)
Total Assets $27,005,069 $428,210 $769,202 ($2,146,880) $26,055,601
NOTE 3 - CHANGES IN ACCOUNTING ESTIMATES
During 1998, the Company made certain changes in accounting estimates totaling
$1,243,677, after tax, as a result of new information becoming available.
Included in this amount was a provision for contingencies, which was no longer
necessary, and reductions in operating expenses which did not materialize.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Consisted of the following as of: December 31, 2000 December 31, 1999
----------------- -----------------
Land $152,203 $152,203
Buildings and improvements 1,515,090 1,415,771
Machinery and equipment 669,401 528,322
Computer software 122,715 48,638
Furniture and fixtures 200,648 113,746
----------------- ------------------
2,660,057 2,258,680
Less: Accumulated depreciation 520,330 315,367
----------------- ------------------
Property, Plant and Equipment, net $2,139,727 $1,943,313
================= ==================
Depreciation expense for the years ended December 31, 2000, December 31, 1999
and December 31, 1998 was $277,163, $142,051, and $118,878, respectively.
NOTE 5 - PATENT RIGHTS AND RELATED ROYALTY COMMITMENTS
During 1996, the parent 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, has been valued at the fair value of
these shares at the date of the grant. This asset value is being amortized
over the remaining life of the patent that expires in March 2002. The Company
is required to pay a 3% royalty on sales collected, less certain deductions,
to the patent holder throughout the term of this agreement, which also expires
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 whose agreements
expire in 2005.
All of the aforementioned individuals receiving royalties and commissions are
also stockholders of the Company.
The trademarks and formulations for the natural skin care products sold by
Caribbean Pacific Natural Products, Inc. are
F-10
owned by Caribbean Pacific International, Inc., which has a 40% ownership
position in Caribbean Pacific Natural Products. The trademark and formulations
are assigned to Caribbean Pacific Natural Products, Inc. for a twenty-five
year period. Caribbean Pacific Natural Products pays Caribbean Pacific
International a royalty of five percent (5%) on sales collected less certain
deductions for a four-year term, which terminates in May 2004.
The expenses for the respective periods relating to such agreements amounted
to $1,992,497, $2,638,727, and $3,784,340, for the years ended December 31,
2000, December 31, 1999, and December 31, 1998 respectively. Amounts accrued
for these expenses at December 31, 2000 and December 31, 1999 were $1,037,610
and $1,337,193, respectively.
NOTE 6 - INCOME TAXES
The provision (benefit) for income taxes, consists of the following:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2000 1999 1998
-------------- --------------- --------------
Current:
Federal - ($1,181,327) $3,537,579
State - - 622,296
-------------- --------------- --------------
- (1,181,327) 4,159,875
-------------- --------------- --------------
Deferred:
Federal ($1,701,186) (1,285,077) 163,147
State (223,095) (605,998) 30,609
-------------- --------------- --------------
(1,924,281) (1,891,075) 193,756
-------------- --------------- --------------
Valuation allowance 1,924,281 1,169,787 -
-------------- --------------- --------------
Total - ($1,902,615) $4,353,631
============== =============== ==============
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,
2000 1999 1998
-------------- --------------- -------------
Statutory rate ($1,798,027) ($2,076,176) $3,907,105
State taxes net
of federal benefit (148,804) (403,022) 446,526
Permanent differences
and Other 22,550 (593,204) -
-------------- --------------- -------------
(1,924,281) (3,072,402) 4,353,631
-------------- --------------- -------------
Less valuation
allowance 1,924,281 1,169,787 -
-------------- --------------- -------------
Total - ($1,902,615) $4,353,631
============== =============== =============
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,
2000 1999 1998
-------------- --------------- -------------
Net operating loss
carry-forward $3,730,923 $1,751,199 -
Contract termination
costs 378,555 378,555 $378,554
Bad debt expense 196,879 54,164 -
Other 137,488 104,648 18,935
Valuation allowance (4,443,845) (2,288,566) -
--------------- --------------- -------------
Total - - $397,489
=============== =============== =============
F-11
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 totaling
zero, zero, and $3,512,205 for the years ended December 31, 2000, 1999, and
1998, respectively. The tax benefit effect of option and warrant exercises
during 2000 and 1999 were $230,998 and $697,208, respectively. However, these
benefits were deferred because of a net operating loss carry-forward for tax
purposes ("NOLs") that occurred during the fourth quarter of 1999 from a
cumulative effect of deducting a total value of $42,800,364 attributed to
these options, warrants and unrestricted stock deductions from taxable income
during the tax years 1997 and 1998. The net operating loss carry-forwards
arising from the option, warrant and stock activities approximate $8.8 million
for federal purposes, of which $3.5 million will expire in 2019, $5.3 million
in 2020 and $13.0 million for state purposes, of which $9.7 million will
expire in 2009, $3.3 million in 2010. 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.
NOTE 7 - 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 then 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, 2000 December 31, 1999 December 31, 1998
-----------------------------------------------------------------------------------
Loss Shares EPS Loss Shares EPS Income Shares EPS
-----------------------------------------------------------------------------------
Basic EPS ($5.2) 10.5 ($0.49) ($4.2) 11.4 ($0.37) $6.8 13.3 $0.51
Dilutives:
Options and
Warrants - - - - - 1.6
-----------------------------------------------------------------------------------
Diluted EPS ($5.2) 10.5 ($0.49) ($4.2) 11.4 ($0.37) $6.8 14.9 $0.46
====================================================================================
At December 31, 2000, there were 4,117,400 options and warrants outstanding.
Their impact on future diluted earnings per share is dependent on the market
price of the Company's common stock.
F-12
NOTE 8 - STOCK COMPENSATION
Stock options 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. 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 provides for the granting of up to one million five
hundred thousand 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 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 480,000, 409,000 and 550,500 options were granted under this
Plan during the years ended December 31, 2000, December 31, 1999 and December
31, 1998, 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, 2000,
December 31, 1999 and December 31, 1998, 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,
2000 1999 1998
------------- ------------- -------------
Pro forma net income
(loss) ($5,434,223) ($5,246,735) $5,339,691
Pro forma earnings
(loss) per share:
Basic ($0.52) ($0.46) $0.40
Diluted ($0.52) ($0.46) $0.36
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 92.8% and 110% for
the year ended December 31, 2000 and 59.5% and 29.0% for the years ended
December 31, 1999 and 1998, respectively; expected dividend yield of 1.5%; and
risk-free interest rate of between 4.94% and 6.59% for the year ended December
31, 2000; expected dividend yield of 1.5%; and risk-free interest rate of
5.10% for the year ended December 31, 1999; expected dividend yield of 2.5%
and risk-free interest rate of 5.71% for the year ended December 31, 1998,
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 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, with the exception of an amount totaling 100,000 options awarded which
are subject to vesting requirements, 75,000 of which remain to be vested at
December 31, 2000.
A summary of the status of the Company's stock options and warrants granted to
both employees and non-employees as of December 31, 2000, 1999, and 1998 and
changes during the years then ended is presented below:
F-13
Year Ended December 31, 2000:
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 2,799 $4.590 1,480 $5.140 4,279 $4.780
Additions/deductions:
Granted 440 1.100 40 0.812 480 1.070
Exercised 460 0.500 130 0.500 590 0.500
Cancelled 32 7.829 20 7.402 52 7.665
-----------------------------------------------------------------
Options/warrants outstanding 2,747 $4.680 1,370 $5.418 4,117 $4.926
at end of period -----------------------------------------------------------------
Options/warrants exercisable
at end of period 2,747 1,370 4,117
=================================================================
Weighted average fair value
of Grants $0.69 $0.55 $0.68
Price range of options/
warrants exercised $0.50 $0.50 $0.50
Price range of options/
warrants outstanding $0.812-$10.00 $0.812-$10.00 $0.812-$10.00
Price range of options/
warrants exercisable $0.812-$10.00 $0.812-$10.00 $0.812-$10.00
Year Ended December 31,1999:
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 2,560 $4.27 1,790 $4.55 4,350 $4.39
Additions/deductions:
Granted 389 5.13 20 5.13 409 5.13
Exercised 150 0.50 330 1.93 480 1.48
-----------------------------------------------------------------
Options/warrants outstanding 2,799 $4.59 1,480 $5.14 4,279 $4.78
at end of period -----------------------------------------------------------------
Options/warrants exercisable
at end of period 2,799 1,480 4,279
=================================================================
Weighted average fair value
of Grants $1.41 $1.41 $1.41
Price range of options/
warrants exercised $0.50 $0.75-$2.50 $0.50-$2.50
Price range of options/
warrants outstanding $0.50-$10.00 $0.50-$10.00 $0.50-$10.00
Price range of options/
warrants exercisable $0.50-$10.00 $0.50-$10.00 $0.50-$10.00
F-14
Year Ended December 31, 1998:
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 2,030 $2.86 2,388 $3.61 4,418 $3.27
Additions/deductions:
Granted 530 9.68 20 9.68 550 9.68
Exercised - - 618 1.08 618 1.08
-----------------------------------------------------------------
Options/warrants outstanding 2,560 $4.27 1,790 $4.55 4,350 $4.39
at end of period -----------------------------------------------------------------
Options/warrants exercisable
at end of period 2,560 1,790 4,350
=================================================================
Weighted average fair value
of Grants $2.67 $2.67 $2.67
Price range of options/
warrants exercised - $0.50-$1.75 $0.50-$1.75
Price range of options/
warrants outstanding $0.50-$10.00 $0.50-$10.00 $0.50-$10.00
Price range of options/
warrants exercisable $0.50-$10.00 $0.50-$10.00 $0.50-$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, 2000:
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 - $2.06 1,290,000 3.7 $1.53 749,900 1.1 $1.70
$2.50 - $5.12 601,000 5.5 $4.14 10,000 8.3 $5.12
$9.68 - $10.00 856,500 4.7 $9.81 610,000 1.4 $9.99
-------------- -----------------
2,747,500 1,369,900
============== =================
Options outstanding as of December 31, 2000, December 31, 1999, and December
31, 1998, expire from June 30, 2000, through December 20, 2010, depending upon
the date of grant.
In early 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 2000 was approximately $119,000.
NOTE 9 - 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
F-15
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, 2000, 4,129,191 shares have been repurchased at a cost of
$24,012,670 or an average cost of $5.82 per share.
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.
NOTE 10 - SERVICE CONTRACTS AND RELATED TERMINATION COSTS
In October 1996, the Company entered into a three-year agreement with Sands
Brothers & Co., Ltd. for investment banking services including private
placements. Upon commencement of the contract, Sands received 800,000 warrants
with an exercise price of $1.75 per share contingent upon services to be
provided. During the first quarter of 1997, the Company decided not to pursue
a private placement offering. In order to terminate the agreement with Sands,
the Company issued to Sands 350,000 additional warrants to purchase the
Company's stock at $10 per share. As a result, the Company recorded an expense
of approximately $700,000 in 1997 and $462,000 in 1998.
NOTE 11 - SETTLED LITIGATION
During 1992, the Company authorized litigation against Nutritional Foods
Corporation ("NFC") in which the Company sought to cancel the 729,928
restricted shares issued to NFC for international marketing services, as a
result of certain false and misleading representations made by it to the
Company including, but not limited to, NFC's failure to act as the Company's
international sales agent under an agreement between NFC and the Company.
Pursuant to a final decree issued in the Court of Common Pleas of Bucks
County, Pennsylvania dated January 23, 1997, the Company received an order to
return to treasury these outstanding shares. In November of 1997, NFC
challenged the validity of the decree. 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.
NOTE 12 - 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, 2000,
December 31, 1999, and December 31, 1998, of $148,041, $137,015, and $153,594
respectively. The future minimum lease obligations under these operating
leases are $459,230.
The Company has committed to advertising costs approximating $2,200,000
relating to 2001. Additional advertising cost is expected to be incurred for
the remainder of 2001.
F-16
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 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 Company believes that
the action lacks merit, is not suitable for class action certification and the
Company is vigorously defending this lawsuit. The Company believes that the
plaintiffs' claims are without merit but certain pre-trial motions and
discovery remains incomplete and no prediction can be made as to the outcome
of this case.
A Special Meeting of the Quigley stockholders was held on October 15, 1999, at
which a majority of the shares entitled to vote adopted a Corrective Action
Proposal (initially reported in the Company's Form 10-Q for the quarter ending
June 30, 1999) to ratify actions previously taken by the Company 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 of a declaratory judgment action in Nevada to determine the
effectiveness of the Corrective Action.
In August 2000, the District Court of Clark 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), in which the Company seeks a judicial declaration that, based on
stockholder approval of the Corrective Action Proposal, 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.
This action is in the early stages of litigation, and no prediction can be
made as to the outcome of this case.
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 each of the Company's common stock
in or about 1990 and requested damages in excess of $100,000 for breach of
contract and conversion. The Company is vigorously defending this lawsuit and
has denied any liability to the plaintiffs. The Company also believes that the
plaintiffs' claims are barred by the applicable statutes of limitations, and
that the plaintiffs are, in any event, limited to claims for approximately
36,000 shares. The Company continues to believe that the plaintiffs' claims
are without merit but certain pre-trial discovery remains incomplete and no
prediction can be made as to the outcome of this case.
NOTE 13 - SUBSEQUENT EVENTS
On January 2, 2001, the Company agreed to acquire certain assets and assume
certain liabilities of a privately held company involved in the direct
marketing and distribution of health and wellness products. This acquisition
requires cash payments that will approximate $242,000 and 50,000 shares of the
Company's stock issued to the former owners of the assets acquired. These cash
payments require an initial payment of $100,000, with the balance to be paid
as percent of sales attained until the total price of $242,000 is
accomplished. The net assets acquired at acquisition principally consisted of
intangibles with no recorded value, inventory and fixed assets of $421,000 and
liabilities assumed approximating $299,000. Also required are continuous
payments for the use of product formulations; consulting; confidentiality and
non-compete fees that total up to 12% on net sales collected until $540,000 is
paid, which such fees become 5% on net sales collected for the continuous
applications of these arrangements.
NOTE 14 - 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 major stockholders of the Company.
Commissions and other items paid or payable under such arrangements for the
years ended December 31, 2000, December 31, 1999, and December 31, 1998,
amounted to $466,033, $370,466, and $270,113 , respectively. Amounts payable
under such agreements at December 31, 2000 and 1999 were approximately
$195,075 and $89,605, respectively.
F-17
The Company is in the process of acquiring licenses in certain countries
through related party entities. During 2000, fees amounting to $251,607 have
been paid to a related entity to assist with the regulatory aspects of
obtaining such licenses.
NOTE 15 - QUARTERLY INFORMATION (UNAUDITED)
Quarter Ended
--------------- ---------- ------------- --------------
March 31, June 30, September 30, December 31,
--------------- ---------- ------------- --------------
2000
Net Sales $6,614,786 $1,300,111 $3,765,229 $7,684,060
Gross Profit 4,339,858 890,884 2,571,319 5,677,533
Net Income (loss) (3,923,438) (1,652,290) 114,401 264,854
Basic (loss) per common share ($0.38) ($0.16) $0.01 $0.03
Diluted (loss) per common share ($0.38) ($0.16) $0.01 $0.03
1999
Net Sales $6,136,902 $2,063,319 $4,103,965 $12,515,756
Gross Profit 4,084,252 1,400,337 2,743,230 8,712,820
Net Income (loss) (1,855,214) (1,103,629) 18,333 (1,263,275)
Basic earnings (loss) per common share ($0.15) ($0.10) $0.00 ($0.12)
Diluted earnings (loss) per common share ($0.15) ($0.10) $0.00 ($0.12)
F-18
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.
PricewaterhouseCoopers LLP, the Company's independent accountants, performed
an audit for the years ended December 31, 2000, 1999, and 1998, in accordance
with generally accepted auditing standards. The independent accountants
conducted a review of internal accounting controls to the extent required by
generally accepted auditing standards and performed such tests and procedures,
as they deem necessary to arrive at an opinion on the fairness of the
financial statements presented herein.
/s/ Guy J. Quigley February 19, 2001
- --------------------------------------------- -----------------
Guy J. Quigley, Chairman of the Board, Date
President, Chief Executive Officer
/s/ George J. Longo February 19, 2001
- --------------------------------------------- ------------------
George J. Longo, Vice President, Chief Financial Officer Date
(Principal Financial and Accounting Officer)
F-19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of The Quigley Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity, and cash flows
present fairly, in all material respects, the financial position of The
Quigley Corporation and its subsidiaries at December 31, 2000 and December 31,
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
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 of these statements in accordance
with auditing standards generally accepted in the United States of America,
which 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 provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 19, 2001
F-20
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
-----------------------------------------------
The information required under this item is incorporated by reference to the
Company's Proxy Statement for the 2001 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 2001 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required under this item is incorporated by reference to the
Company's Proxy Statement for the 2001 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 2001 Annual Meeting of Stockholders.
-18-
PART IV
-------
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Articles of Incorporation of the Company (as amended),
(incorporated by reference to Exhibit 3.1 of Form 10-KSB/A
dated 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 dated April 4, 1997)
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 Form
10-KSB/A dated April 4, 1997)
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 dated April 4, 1997)
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 dated April 4, 1997)
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)
10.9 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 dated April 4, 1997)
10.10 Employment Agreement dated November 5, 1996 between the Company
and George J. Longo (incorporated by reference to Exhibit 10.10
of Form 10-KSB dated March 30, 1998)
10.11 Employment Agreement dated January 1, 1997 between the Company
and Eric H. Kaytes (incorporated by reference to Exhibit 10.11
of Form 10-KSB dated March 30, 1998)
-19-
10.12 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)
23.1 Consent of PricewaterhouseCoopers LLP, Auditors, dated March
1, 2001
27.1 Financial Data Schedule
-----------------------------------------------------------------------------
(b) Reports on Form 8-K
No reports were filed on Form 8-K in the quarter ended December 31,
2000.
-20-
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company 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 5, 2001
- ----------------------------------------------- -------------
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 Company in
the capacities and on the dates indicated:
Signature Title Date
_________ _____ ____
/s/ Guy J. Quigley Chairman of the Board, President, March 5, 2001
- ------------------------- Chief Executive Officer and Director -------------
Guy J. Quigley
/s/ Charles A. Phillips Executive Vice President, Chief March 5, 2001
- ------------------------- Operating Officer and Director -------------
Charles A. Phillips
/s/ George J. Longo Vice President, Chief Financial March 5, 2001
- ------------------------- Officer and Director (Principal -------------
George J. Longo Financial and Accounting Officer)
/s/ Eric H. Kaytes Vice President, Chief Information March 5, 2001
- ------------------------- Officer, Secretary, Treasurer and -------------
Eric H. Kaytes Director
/s/Jacqueline F. Lewis Director March 5, 2001
- ------------------------- -------------
Jacqueline F. Lewis
/s/ Rounsevelle W. Schaum Director March 5, 2001
- ------------------------- -------------
Rounsevelle W. Schaum
-21-
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File Nos. 333-61313, 333-10059, 333-14687 and
333-26589) and S-3 (File No. 333-31241) of The Quigley Corporation of our
report dated February 19, 2001, relating to the financial statements, which
appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 1, 2001
-22-