UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1999
OR
( ) THE TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ______________ to ______________
Commission File Number 01-21617
THE QUIGLEY CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 23-2577138
----------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
(MAILING ADDRESS: PO Box 1349, Doylestown, PA 18901.)
Landmark Building, 10 South Clinton Street, Doylestown, PA 18901
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 345-0919
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date. The number of shares
outstanding of each of the registrant's classes of common stock, as of April
16, 1999, was 11,375,616 all of one class of $.0005 par value common stock.
<PAGE>
TABLE OF CONTENTS
Page No.
PART I - Financial information
Item 1. Financial Statements 3-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-12
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 13
PART II - Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a
Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
EDGAR Exhibit 27 15
(2)
<PAGE>
THE QUIGLEY CORPORATION
BALANCE SHEETS
ASSETS
March 31, December 31,
1999 1998
(unaudited)
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $23,692,834 $28,331,765
Accounts receivable, net 2,589,294 7,575,366
Inventory 6,667,121 6,522,612
Prepaid income taxes 4,327,872 2,565,321
Prepaid expenses and other current assets 1,316,253 1,635,099
Deferred income taxes 408,868 397,489
------------ ------------
TOTAL CURRENT ASSETS 39,002,242 47,027,652
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
- Less accumulated depreciation 1,034,936 1,041,386
------------ ------------
OTHER ASSETS:
Patent rights - Less accumulated amortization 263,284 285,224
Other assets 289,412 256,382
------------ ------------
TOTAL OTHER ASSETS 552,696 541,606
------------ ------------
TOTAL ASSETS $40,589,874 $48,610,644
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $64,952 $758,033
Accrued royalties and sales commissions 905,390 2,085,446
Accrued advertising 1,839,169 561,266
Other current liabilities 582,913 598,422
------------ ------------
TOTAL CURRENT LIABILITIES 3,392,424 4,003,167
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
authorized 1,000,000; no shares issued - -
Common stock, $.0005 par value; authorized 50,000,000;
Issued: 14,589,058 and 14,409,058 shares 7,295 7,205
Additional paid-in capital 28,802,563 28,207,208
Retained earnings 24,794,241 26,649,455
Less: Treasury stock, 2,804,546 and
1,665,022 shares, at cost (16,406,649) (10,256,391)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 37,197,450 44,607,477
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,589,874 $48,610,644
============ ============
See accompanying notes to financial statements
(3)
<PAGE>
THE QUIGLEY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three Three
Months Ended Months Ended
March 31, March 31,
1999 1998
------------ ------------
NET SALES $6,136,902 $7,271,819
------------ ------------
COST OF SALES 2,052,650 2,211,296
------------ ------------
GROSS PROFIT 4,084,252 5,060,523
------------ ------------
OPERATING EXPENSES:
Sales and marketing 6,011,413 2,373,522
Administration 1,470,864 994,046
------------ ------------
TOTAL OPERATING EXPENSES 7,482,277 3,367,568
------------ ------------
INCOME (LOSS) FROM OPERATIONS (3,398,025) 1,692,955
INTEREST and OTHER INCOME 356,689 383,984
------------ ------------
INCOME (LOSS) BEFORE TAXES (3,041,336) 2,076,939
------------ ------------
INCOME TAX EXPENSE (BENEFIT) (1,186,122) 810,006
------------ ------------
NET INCOME (LOSS) ($1,855,214) $1,266,933
============ ============
Earnings per common share:
Basic ($0.15) $0.10
============ ============
Diluted ($0.15) $0.08
============ ============
Weighted average common shares outstanding:
Basic 12,279,450 13,325,913
============ ============
Diluted 12,279,450 15,296,819
============ ============
See accompanying notes to financial statements
(4)
<PAGE>
<PAGE>
THE QUIGLEY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31, March 31,
1999 1998
------------ ------------
NET CASH FLOWS FROM OPERATING ACTIVITIES $942,827 $6,822,839
------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (24,278) (77,718)
Patent rights and other assets (33,030) (963)
------------ ------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (57,308) (78,681)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefits from stock options,
warrants and common stock 250,808 1,268,278
Proceeds from exercises of options and warrants 375,000 299,624
Repurchase of Common stock (6,150,258) (1,466,905)
------------ ------------
NET CASH FLOWS FROM FINANCING ACTIVITIES (5,524,450) 100,997
------------ ------------
NET INCREASE (DECREASE) IN CASH (4,638,931) 6,845,155
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 28,331,765 25,498,359
------------ ------------
CASH & CASH EQUIVALENTS, END OF PERIOD $23,692,834 $32,343,514
============ ============
See accompanying notes to financial statements
(5)
<PAGE>
THE QUIGLEY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATIONAL AND GENERAL
The Quigley Corporation (the "Company"), organized under the laws of the state
of Nevada, is primarily engaged in the development, manufacturing, and
marketing of health products that include homeopathic cold remedies. The
products developed are being offered to the general public. For the fiscal
periods presented, the Company's proprietary "Cold-Eeze (R)" products
contribute the majority of revenues and profits.
In the last half of 1998, the Company launched Cold-Eeze(R) in a sugar free
version of the product to benefit diabetics and other consumers concerned with
their sugar intake. Late in the fourth quarter of 1998, the Company launched a
bubble gum version of Cold-Eeze(R) and in a different therapeutic area, an
all-natural nutrition and weight management program called Bodymate TM.
Cold-Eeze(R) products are based upon a proprietary zinc gluconate glycine
formula which, in two double blind studies have been shown to reduce the
severity and duration of common cold symptoms by nearly half. The results of
the latest randomized double-blind placebo-controlled study of the common cold
were published in 1996 in the Annals of Internal Medicine - Vol. 125 No 2.
Research is continuing on this product in order to maximize its full potential
use by the general public.
The Company has an exclusive agreement for worldwide representation,
manufacturing, marketing and distribution rights for the zinc gluconate glycine
lozenge formulation, known as "Cold-Eeze(R)", which is patented in the United
States, United Kingdom, Sweden, France, Italy, Canada, Germany, and pending in
Japan. In 1996, the Company also acquired 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 common cold
symptoms.
The business of the Company is subject to federal and state laws and
regulations adopted for the health and safety of users of the Company's
products. Cold-Eeze(R) is a homeopathic remedy that is subject to regulations
by various federal, state and local agencies, including the FDA and the
Homeopathic Pharmacopoeia of the United States.
The Company competes with suppliers varying in range and size in the cold
remedy products arena. Cold-Eeze(R) which has been clinically proven, offers a
significant advantage over other suppliers in the over-the-counter cold remedy
market. The management of the Company believes there should be no future
impediment on the ability to compete in the marketplace now, or in the
immediate future, since factors concerning the product, such as, price, product
quality, availability, reliability, credit terms, name recognition, delivery
and support are all properly positioned. The Company has several Broker,
Distributor and Representative Agreements, both nationally and internationally
and the product is distributed through numerous independent and chain drug and
discount stores throughout the United States. During 1998, the Company
commenced international sales to Canada and the Peoples' Republic of China.
The Company continues to use the resources of independent national and
international brokers to represent the Company's Cold-Eeze(R) and Bodymate TM
products, thereby saving capital and other ongoing expenditures that would
otherwise be incurred.
Different manufacturing sources are used for the production of the Cold-Eeze(R)
bubble gum and sugarfree products and the same manufacturer produces the
Cold-Eeze(R) lozenge and Bodymate TM products. In addition, the lozenge and
Bodymate TM manufacturer commenced manufacturing exclusively for the Company in
1997.
The Balance Sheet as at March 31, 1999, the Statements of Income for the three
months periods ended March 31, 1999 and 1998, and the Statements of Cash Flows
for the three months periods ended March 31, 1999 and 1998, have been prepared
without audit. In the opinion of management, all adjustments necessary to
present fairly the financial position, results of operations and cash flows,
for the periods indicated, have been made. All adjustments made were of a
normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the financial statements and
accompanying notes for the fiscal year ended December 31, 1998, in the
Company's Form 10-K.
(6)
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain prior period amounts have been reclassified to conform with 1999
presentation.
International Licenses
Included in other assets, are amounts that have been capitalized relating to
the Company's development of international licenses. Such amounts are to be
amortized using the straight-line method over the estimated benefit period.
These costs will be expensed should future benefits become impaired.
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.
The Company currently uses three separate suppliers to produce Cold-Eeze(R) in
lozenge, bubble gum, and sugar free tablet form. The Bodymate TM product and
the Cold-Eeze(R) lozenge is manufactured by a third party manufacturer that
produces exclusively for the Company. Substantially all of the Company's
revenues are currently generated from the sale of the Cold-Eeze(R) lozenge
product. 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.
Business Segments and Related Information
Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information," require public companies to
report certain information about operating segments within their financial
statements. The Company had international sales in the second and third
quarters of 1998 and the first quarter of 1999, the resulting revenues are not
considered material. During the remainder of 1999, the Company expects further
international activities that may require additional disclosures in compliance
with the requirements of the Standard.
NOTE 3 - TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY
In April 1999, the Company's Board of Directors announced an increase to the
stock buy-back program to re-acquire up to 1,000,000 additional shares of the
Company's issued and outstanding common shares. The schedule and amount of
shares re-purchased will be based upon market conditions. Since the inception
of the buy-back program in January 1998, the Board has subsequently increased
the authorization on three occasions, including this one for a total authorized
buy-back of 3,750,000 shares or 28.2% of the previous shares outstanding. Such
shares are reflected as treasury stock and will be available for general
corporate purposes.
In the period from January 1, 1999 to April 16, 1999, 1,558,420 shares have
been repurchased at a cost of $8,342,467 or an average cost of $5.35 per share.
At March 31, 1998, there were 4,170,400 unexercised options and warrants of the
Company's stock.
(7)
<PAGE>
NOTE 4 - INCOME TAXES
Income taxes include both deferred and currently payable taxes. Deferred income
taxes result from "temporary differences" which consist of a different tax base
for assets and liabilities than their reported amounts in the financial
statements. The deferred tax asset of $408,868 consists of the tax effects for
contract termination costs and miscellaneous items. Certain exercises of
options and warrants during the three months period ended March 31, 1999,
resulted in reductions to taxes currently payable and a corresponding increase
to additional paid-in-capital totaling $250,808.
For the three months ended March 31, 1999 and fiscal year ended December 31,
1998 an effective tax rate of 39% has been provided for both income tax expense
and tax benefits expected to be realized.
NOTE 5 - 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 that 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 varying 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):
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
Income Shares EPS Income Shares EPS
--------------------------- --------------------------
Basic EPS ($1.9) 12.3 ($0.15) $1.3 13.3 $0.10
Dilutives:
Options/Warrants - - - 2.0
----------------------------------------------------------
Diluted EPS ($1.9) 12.3 ($0.15) $1.3 15.3 $0.08
==========================================================
NOTE 6 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has sales brokerage
arrangements with entities whose major shareholders are also shareholders of
The Quigley Corporation, or are related to major shareholders of the Company.
Commissions expensed under such arrangements amounted to approximately $111,321
and $107,201 respectively, for the three months periods ended March 31, 1999
and 1998. Management believes these transactions were under terms no less
favorable to the Company than those arranged by other parties. Amounts payable
under such agreements at March 31, 1999 and December 31, 1998 were
approximately $61,541 and $70,634 respectively.
The Company is in the process of acquiring licenses in certain countries
through affiliated entities. For the three months periods ended March 31, 1999
and 1998, fees have been paid to a related entity to obtain such licenses
amounting to $10,000 and $0.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company maintains certain royalty and founders commission agreements with
the developers, licensors, founders, and consultants for the Cold-Eeze(R)
products. These payments are 13% of sales collected less certain deductions. Of
this percentage a three percent royalty of sales collected less certain
deductions is payable to the patent holder whose agreement expires in 2002, a
three percent royalty of sales collected less certain deductions is payable to
the developer of the product formulation together with a two percent consulting
fee based on an agreement that expires in 2007. Additionally, a founder's
commission totaling 5% of sales collected less certain deductions, which is
shared by two of the officers whose agreements expire in 2005.
The Company has remaining contractual commitments for advertising amounting to
approximately $13,900,000.
(8)
<PAGE>
In September 1998, the Company increased to $10 million its revolving line of
credit facility with Commerce Bank, N.A. for general corporate purposes. This
facility is collateralized by accounts receivable and inventory and renews in
September 1999, with interest at prime or 275 basis points above the
Euro-Dollar Rate. There were no borrowings under this line during the period
ended March 31, 1999 or 1998.
The Company is subject to legal proceedings and claims which have arisen in the
ordinary course of its business. Although there can be no assurance as to the
ultimate disposition of these matters, it is the opinion of the Company's
management based upon the information available at this time, that the expected
outcome of these matters, individually or in the aggregate, will not have a
material adverse effect on the financial position, results of operations or
cash flows of the Company.
(9)
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
In addition to historical information, this Report contains forward-looking
statements. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in these forward-looking statements. Factors that might cause such a
difference include, but are not limited to management of growth, competition,
pricing pressures on the Company's product, 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. The Company is
subject to a variety of additional risk factors more fully described in the
Company's annual report on Form 10-K filed with the Securities and Exchange
Commission.
Overview
- --------
The three months period ended March 31, 1999 resulted in a comparative slow
down in revenues over the same period in 1998. Revenues for the three months
periods ended March 31, 1999 and 1998 were $6,136,902 and $7,271,819
respectively. The winter conditions throughout the United States during 1998
continued into the first quarter of the 1999 cold season, which have been less
severe than normal, resulting in the reduced sell-through of Cold-Eeze(R) by
the retailers. Additionally, sales were lower because the Company is
experiencing a shift in wholesale buying patterns of its customers from the
first to the third and fourth quarters of the year, along with new herbal cold
treatments promulgated through national news media announcements. Shifting to
the third and fourth quarters results in having an ample supply of Cold-Eeze(R)
on hand by the retailers for the cold season, which normally peaks in mid
December to mid January, then drops off dramatically until the end of March.
In conjunction with the foregoing change of sales patterns, the low consumer
awareness of Cold-Eeze(R) (approximately 6% of US households), and to offset
the magnitude of "free press" given to Cold-Eeze(R) in its launch year of 1997,
a substantial investment in advertising, initiated in 1998, for brand awareness
and building for the future, was continued in the first quarter of 1999 that
approximates $5.6 million. This investment through extensive advertising in the
products of the Company during the period of shifting buying patterns, which
also is extensive support of the retailers selling Cold-Eeze(R) to the
consumers, resulted in a net loss to the Company of $1,855,214 for the quarter
ended March 31, 1999 as compared to a profit of $1,266,933 for the quarter
ended March 31, 1998.
In the last half of 1998, the Company launched Cold-Eeze(R) in a sugar free
version of the product to benefit diabetics and other consumers concerned with
their sugar intake. Late in the fourth quarter, the Company launched a bubble
gum version of Cold-Eeze(R) and in a different therapeutic area, an all-natural
nutrition and weight management program called Bodymate TM.
The Company continues to use the resources of a contract manufacturer and
independent national and international brokers to represent the Company's
Cold-Eeze(R) and Bodymate TM products, thereby saving capital and other ongoing
expenditures that would otherwise be incurred.
Different manufacturing sources are used for the production of the Cold-Eeze(R)
bubble gum and sugarfree products with the same manufacturer producing the
Cold-Eeze(R) lozenge and Bodymate TM products. In addition, the lozenge and
Bodymate TM manufacturer commenced manufacturing exclusively for the Company in
1997, thereby increasing their output and the availability of the product. All
three manufacturing sites have the capacity to respond quickly to market
requirements.
Manufacturing efficiencies and contract commitments introduced in the first
quarter 1997 continue to result in increased product availability, thereby
ensuring that domestic and future international product demand can be met.
Results of Operations
- ---------------------
Three months ended March 31, 1999 compared to three months ended March 31, 1998
- -------------------------------------------------------------------------------
For the three months ended March 31, 1999, the Company reported revenues of
$6,136,902 and a net loss of $1,855,214 as compared to revenue of $7,271,819
and net income of $1,266,933 for the comparable period ended March 31, 1998.
The reduction in revenue is due to the mild winter conditions throughout the
United States that commenced in 1998 and continued with the 1999 cold season
being less severe than usual. This results in the retailers carrying higher
inventory levels than normal for this time of year. Also it has become apparent
that there is a shift in the buying patterns of the retailers away from the
first quarter to the third and fourth quarters of the year, along with new
herbal cold treatments promulgated through national news media announcements,
which resulted in reduced sales during 1999, as compared to the same period in
1998.
(10)
<PAGE>
The Cost of Sales as a percentage of net sales for the three months ended March
31, 1999 was 33.4% compared to 30.4% for the comparable period ended March 31,
1998. The increased cost is largely attributable to the higher costs associated
with a one time re-packaging charge, international sales, changes in the
product configuration, and sales mix that now includes Cold-Eeze(R) in a
sugarfree, and bubble gum form and Bodymate TM, which were introduced in the
latter part of 1998.
For the three months ended March 31, 1999, total operating expenses were
$7,482,277 compared to $3,367,568 for the comparable period ended March 31,
1998. The operating expenses have remained high, primarily due to a continuing
advertising and promotion campaign to establish Cold-Eeze(R) as a recognized
brand name, since the promulgation by the national news media has shifted to
herbal treatments as another remedy in treating the common cold and to support
and expand the sales base. Additionally, during the first quarter of 1999, the
Company is continuing to build awareness for the sugarfree and bubblegum form
of Cold-Eeze(R) together with the new weight management program called Bodymate
TM which were launched in late 1998.
During the three months ended March 31, 1999, the major operating expenses of
delivery, salaries, brokerage commissions, promotion, advertising, and legal
costs accounted for $6,731,161 (90%) of total operating costs. The remaining
items for this period remained relatively fixed in that they do not follow
sales trends. These same expense categories for the comparable period in 1998
accounted for $2,925,621 (87%) of total operating costs. As a percentage of
sales, the 1999 first quarter operating expenses assume a higher percentage
compared to the same period in 1998 due to higher expenditure for advertising
in order to support the Cold-Eeze(R) lozenge product and additionally to
effectively market and support the recently launched bubblegum and sugarfree
versions of the product and also, Bodymate TM.
Liquidity and Capital Resources
- -------------------------------
The total assets of the Company at March 31, 1999 and December 31, 1998 were
$40,589,874 and $48,610,644 respectively. Working capital decreased to
$35,609,818 from $43,024,485 during the period. The significant movement within
total assets represents the reduction in accounts receivable of $4,986,072,
cash and cash equivalents decreasing by $4,638,931, prepaid income taxes
increasing by $1,762,551, prepaid expenses and other current assets decreasing
by $318,846 and inventory increasing by $144,509. From a working capital
perspective, accounts payable, accrued royalties and sales commissions were
reduced over the period by $693,081 and $1,180,056 respectively while the
advertising accrual increased by $1,277,903. Total cash balances at March 31
1999 were $23,692,834, as compared to $28,331,765 at December 31, 1998.
The management of the Company currently believes that the current liquidity and
continuing revenues, along with related profits generated, for the remainder of
1999, should provide an internal source of capital to fund the Company's
business operations. Additionally, in September 1998 the Company increased its
revolving line of credit with Commerce Bank, N.A.to $10 million to be used for
general corporate purposes. This facility is collateralized by accounts
receivable and inventory, and renews in September 1999, with interest accruing
at the Wall Street Journal prime rate, or 275 basis points above the
Euro-Dollar Rate, each to move with the respective base rate. There were no
borrowings under this line during the three-month period ended March 31, 1999.
In April 1999, the Company's Board of Directors announced an increase to the
stock buy-back program to re-acquire up to 1,000,000 additional shares of the
Company's issued and outstanding common shares. The schedule and amount of
shares re-purchased will be based upon market conditions. Since the inception
of the buy-back program in January 1998, the Board has subsequently increased
the authorization on three occasions, including this one for a total authorized
buy-back of 3,750,000 shares or 28.2% of the previous shares outstanding. Such
shares are reflected as treasury stock and will be available for general
corporate purposes.
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, (b) net sales or 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.
Capital Expenditures
- --------------------
Since the Cold-Eeze(R) and Bodymate TM products are manufactured for the
Company by an outside source, capital expenditures during 1999 are not
anticipated to be material. During the remainder of 1999, the Company expects
to incur costs approximating $800,000 in order to complete the establishment of
a Company owned corporate office building.
(11)
<PAGE>
Year 2000 Compliant
- -------------------
The Year 2000 issue relates to the way the computer systems and programs define
calendar dates; they could fail or make miscalculations due to interpreting a
date including "00" to mean 1900, not 2000. Also, many systems and equipment
that are not typically thought of as "computer-related" (referred to as
"non-IT") contain embedded hardware or software that may have a time element.
The Company began work on the Year 2000 compliance issue in the later part of
1996. The scope of the project includes: ensuring the compliance of all
applications, operating systems and hardware on the Company's computer network;
addressing issues to non-IT embedded software and equipment; and addressing the
compliance of key business partners.
The project has four phases; assessment of the systems and equipment affected
by the Year 2000 issue; definition of strategies to address affected systems
and equipment; remediation of affected systems and equipment; and certification
that each is Year 2000 compliant. To certify that all IT systems (internally
developed, purchased, or licensed) are Year 2000 compliant, each system is
tested using a standard testing methodology which includes regression testing,
millennium testing, millennium leap year testing and cross over year testing.
Certification testing is performed on each system as soon as remediation is
completed.
The most significant category of key business partners is financial
institutions. Their critical functions include safeguarding and management of
investment portfolios, processing of the Company's operating bank accounts,
sales and distribution funds transfers. Other partner categories include
suppliers of communication services, utilities, materials and supplies. Based
on the importance of each relationship, the Company is defining a strategy to
determine compliance.
The target for completion of all phases is the third quarter of 1999. The
Company has completed the assessment and strategy phases for its computer PC
applications, operating systems and hardware.
The majority of the Company's non-IT related systems and equipment are
currently Year 2000 compliant, based primarily on verbal or written
communication with vendors. Compilation of written documentation regarding
compliance is underway and is scheduled to be completed by the third quarter of
1999. With respect to key business partners, the assessment and strategy phases
are in the preliminary stages, with the Company in the process of compiling a
compliance list. The Company has and continues to conduct surveys of all its
software and hardware vendors, and testing is underway.
For business partners with whom the Company engages in electronic transfer of
information, sample testing is and will be conducted until full compliance is
achieved.
The Company has investments with financial institutions and could in the future
have loans. The Company may be exposed to credit risk to the extent that
related borrowers are materially adversely impacted by the Year 2000 issue.
The Company has not had an independent review of its Year 2000 risk or
estimates. However, experts have been engaged to assist in developing estimates
and to complete remediation work on specific portions of the project.
Since the inception of the project, the Company has not incurred any material
external cost with respect to the Year 2000 issue. Internal cost and current
estimates based on actual experience to date, project a total expense for the
project of less than $60,000. To date, costs of $40,000 have been incurred. The
remaining internal cost is not expected to exceed beyond the cost of normal
operating expenses. Current year costs are expensed as those costs are
incurred. There has not been a material adverse impact on the Company's
operations or financial condition as a result of IT projects caused by the Year
2000 project.
With respect to contingency plans for critical systems, the Company has long
recognized that there is no viable alternative if these systems are
non-compliant. Certification of these systems as compliant remains on schedule.
For non-IT systems and equipment and key business partners, the Company will
continue to reassess the need for formal contingency plans, based on progress
of the Year 2000 efforts by the Company and third parties.
Although the Company's critical systems are Year 2000 compliant, there is no
guarantee that compliance by third parties whose systems and operation impact
the Company will be completed by the end of 1999. A reasonably possible worst
case scenario might include one or more of the Company's key business partners
being non-compliant. Such an event could result in a material disruption of the
Company's operations. Specifically, the Company could experience an
interruption in its ability to collect and process receipts, broadcast
commercial advertising, safeguard and manage its invested assets and operating
cash accounts, accurately maintain customer information, accurately maintain
accounting records, and/or perform adequate customer service. Should the worst
case scenario occur, it could, depending on its duration, have a material
impact on the Company's results of operations and financial position.
(12)
<PAGE>
Item 3: Quantitative and Qualitative Disclosure about Market Risk
Not Applicable
Part II. Other Information
--------------------------
Item 1. Legal Proceedings
- -------------------------
The Company is subject to legal proceedings and claims which have arisen in the
ordinary course of its business. Although there can be no assurance as to the
ultimate disposition of these matters, it is the opinion of the Company's
management based upon the information available at this time, that the expected
outcome of these matters, individually or in the aggregate, will not have a
material adverse effect on the financial position, results of operations or
cash flows of the Company.
Item 2. Changes in Securities
- -----------------------------
None
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None
Item 5. Other Information
- -------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the quarter ended
March 31, 1999.
(13)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE QUIGLEY CORPORATION
By: /s/ George J. Longo
-------------------
George J. Longo
Vice President, Chief Financial Officer
Date: May 5, 1999
(14)
<PAGE>
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