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 September 30, 2000
-------------------------------------------------
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
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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 No.)
(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)
Registrant's telephone number, including area code: (215) 345-0919
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(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 October
15, 2000, was 10,789,553 all of one class of $.0005 par value Common Stock.
<PAGE>
TABLE OF CONTENTS
Page No
PART I - Financial information
Item 1. Consolidated Financial Statements 3-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-13
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 13
PART II - Other Information
Item 1. Legal Proceedings 13-14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a
Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
EDGAR Exhibit 27 16
-2-
<PAGE>
THE QUIGLEY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
2000 1999
(unaudited)
----------- ------------
<S> ............................................ <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ....................... $10,107,132 $13,990,475
Accounts receivable (less doubtful accounts
of $434,935 and $239,065)................... 3,832,374 6,639,687
Inventory ....................................... 7,025,606 6,170,005
Prepaid income taxes ............................ - 2,485,247
Prepaid expenses and other current assets ....... 1,259,834 1,390,702
----------- -----------
TOTAL CURRENT ASSETS ......................... 22,224,946 30,676,116
----------- -----------
PROPERTY, PLANT AND EQUIPMENT - net................. 2,186,939 1,943,313
----------- -----------
OTHER ASSETS:
Patent rights - Less accumulated amortization.... 131,642 197,463
Excess of cost over net assets acquired.......... 369,657 -
Other assets..................................... 334,434 454,164
----------- -----------
TOTAL OTHER ASSETS............................ 835,733 651,627
----------- -----------
TOTAL ASSETS........................................ $25,247,618 $33,271,056
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................ $490,127 $395,778
Accrued royalties and sales commissions ......... 1,164,806 1,722,715
Accrued advertising ............................. 1,519,705 4,523,901
Other current liabilities ....................... 915,054 413,053
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TOTAL CURRENT LIABILITIES ................... 4,089,692 7,055,447
----------- -----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN CONSOLIDATED AFFILIATES ....... 338,643 -
----------- -----------
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....................... 28,871,888 28,807,108
Retained earnings................................ 16,984,343 22,445,670
Less: Treasury stock, 4,481,653 shares, at cost.. (25,044,584) (25,044,584)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY................... 20,819,283 26,215,609
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $25,247,618 $33,271,056
=========== ===========
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>
<TABLE>
<CAPTION>
THE QUIGLEY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $3,765,229 $4,103,965 $11,680,125 $12,304,186
---------- ----------- ------------ -----------
COST OF SALES 1,193,910 1,360,735 3,878,065 4,076,367
---------- ----------- ------------ -----------
GROSS PROFIT 2,571,319 2,743,230 7,802,060 8,227,819
---------- ----------- ------------ -----------
OPERATING EXPENSES:
Sales and marketing 1,155,301 1,540,800 8,738,232 9,525,362
Administration 1,478,102 1,334,758 5,034,629 4,239,139
---------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,633,403 2,875,558 13,772,861 13,764,501
---------- ----------- ----------- -----------
LOSS FROM OPERATIONS (62,084) (132,328) (5,970,801) (5,536,682)
INTEREST and OTHER INCOME 145,471 162,382 478,459 716,173
---------- ----------- ----------- -----------
INCOME (LOSS) BEFORE TAXES 83,387 30,054 (5,492,342) (4,820,509)
---------- ----------- ----------- -----------
INCOME TAX EXPENSE (BENEFIT) - 11,721 - (1,879,999)
MINORITY INTEREST IN LOSS
OF CONSOLIDATED AFFILIATE 31,014 - 31,014 -
---------- ----------- ----------- -----------
NET INCOME (LOSS) $114,401 $18,333 ($5,461,328) ($2,940,510)
=========== =========== ============ ============
Earnings per common share:
Basic $0.01 $0.00 ($0.52) ($0.25)
=========== =========== ============ ============
Diluted $0.01 $0.00 ($0.52) ($0.25)
=========== =========== ============ ============
Weighted average common shares
outstanding:
Basic 10,642,946 11,325,651 10,516,319 11,686,036
============ =========== ============ ============
Diluted 10,669,738 12,331,505 10,516,319 11,686,036
============ =========== ============ ============
</TABLE>
See accompanying notes to financial statements
-4-
<PAGE>
THE QUIGLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30, September 30,
2000 1999
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NET CASH FLOWS USED IN OPERATING ACTIVITIES ($3,403,851) ($660,019)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (369,809) (460,502)
Net cost of assets acquired (174,683) -
Patent rights and other assets - (139,589)
------------ ------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (544,492) (600,091)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefits from stock options,
warrants and common stock - 697,206
Proceeds from exercises of options and warrants 65,000 427,499
Repurchase of Common Stock - (14,788,193)
------------ ------------
NET CASH FLOWS USED IN FINANCING ACTIVITIES 65,000 (13,663,488)
------------ ------------
NET DECREASE IN CASH (3,883,343) (14,923,598)
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 13,990,475 28,331,765
------------ ------------
CASH & CASH EQUIVALENTS, END OF PERIOD $10,107,132 $13,408,167
============ ============
See accompanying notes to financial statements
-5-
<PAGE>
THE QUIGLEY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
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 a dietary supplement product.
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.
Darius International Inc., a new wholly owned subsidiary of The Quigley
Corporation, has recently been launched to introduce 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 care products for luxury resorts, theme
parks and spas. Caribbean Pacific Natural Products, Inc., is headquartered in
Orlando, Florida.
-6-
<PAGE>
The formation of Darius International Inc., and the majority ownership 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated Balance Sheet at September 30, 2000, the consolidated
Statements of Income for the three-month and nine-month periods ended
September 30, 2000 and 1999, and the consolidated Statements of Cash Flows for
the nine-month periods ended September 30, 2000 and 1999, have been prepared
without audit. In the opinion of management, all adjustments necessary to
present fairly the consolidated financial position, consolidated results of
operations and consolidated cash flows, for the periods indicated, have been
made.
Darius International Inc., a new wholly owned subsidiary of The Quigley
Corporation, was formed in January 2000 to implement alternative methods of
marketing and distribution for existing and new product lines.
During July 2000, the Company acquired a 60 percent ownership position of
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. This acquisition, accounted for by the purchase method of accounting and
accordingly, the operating results have been included in the Company's
consolidated Statements of Income from the date of acquisition. This majority
ownership position required a cash investment that approximated $920,000 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, Inc., at the acquisition date
principally consisted of a product license and distribution rights with no
recorded value, inventory and fixed assets of $414,143 and $510,000 of working
capital with a contribution to minority interest of $369,657.
The 40 percent ownership position representing the minority interest of
Caribbean Pacific Natural Products, Inc., is reflected in the consolidated
Statements of Income 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.
All inter-company transactions and balances have been eliminated.
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, 1999, in the
Company's Form 10-K.
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 are 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.
-7-
<PAGE>
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," requires public companies
to report certain information about operating segments within their financial
statements. See Note 3 for disclosure related to this Standard.
NOTE 3 - 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:
<TABLE>
<CAPTION>
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Caribean
As of and for The Darius Pacific
the three months Quigley International Natural Corporate
ended September 30, 2000 Corporation Inc. Products, Inc. and Other Total
------------------------------------------------------------------------------------------------------
<S> ........................... <C> <C> <C> <C> <C>
Revenues
Customers ................... $3,382,222 $39,489 $343,518 - $3,765,229
Inter-segment ............... 269,410 - - ($269,410) -
Segment operating profit (loss) 600,347 (480,265) (77,535) (104,631) (62,084)
Total Assets .................. $25,520,798 $425,598 $1,124,782 ($1,823,560) $25,247,618
<CAPTION>
------------------------------------------------------------------------------------------------------
Caribean
As of and for The Darius Pacific
the nine months Quigley International Natural Corporate
ended September 30, 2000 Corporation Inc. Products, Inc. and Other Total
------------------------------------------------------------------------------------------------------
<S> ........................... <C> <C> <C> <C> <C>
Revenues
Customers ................... $11,297,118 $39,489 $343,518 - $11,680,125
Inter-segment ............... 317,137 - - ($317,137) -
Segment operating profit (loss) (5,006,344) (763,198) (77,535) (123,724) (5,970,801)
Total Assets .................. $25,520,798 $425,598 $1,124,782 ($1,823,560) $25,247,618
</TABLE>
-8-
<PAGE>
NOTE 4 - TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY
Since the inception of the stock buy-back program in January 1998, the Board
subsequently increased the authorization on four occasions, for a total
authorized buy-back of 4,000,000 shares or approximately 30% 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,
3,994,791 shares have been repurchased at a cost of $23,899,226 or an average
cost of $5.98 per share. There were no buy-backs during the first nine months
of 2000.
At September 30, 2000, there were 3,672,400 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.
NOTE 5 - INCOME TAXES
Certain exercises of options and warrants, and restricted stock issued for
services that became unrestricted during various periods, resulted in
reductions to taxes currently payable and a corresponding increase to
additional-paid-in-capital totaling $14,660,288 for the years ended December
31, 1999, 1998, and 1997. The tax benefit effect of option and warrant
exercises during 1999 and 2000 to date was $928,206, however, this benefit is
being 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 $9.0 million for federal
purposes, which will expire in 2019 and $15.2 million for state purposes,
which will expire in 2009. 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 deferred
tax asset of $4,717,930 equaling the valuation allowance is being provided.
The nine months period ended September 30, 2000 losses are reflected at 39%
for both the increase in Deferred taxes and the Valuation Allowance. Until
profits become available, the overall effective tax rate for 2000 will be 0%
as compared to the previous effective tax rate of 39%.
NOTE 6 - 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. For the periods presented
that reflect losses, no effect was given for options and warrants because the
result would be anti-dilutive.
A reconciliation of the applicable numerators and denominators of the income
statement periods presented is as follows (millions, except earnings per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
Income Shares EPS Income Shares EPS Income Shares EPS Income Shares EPS
--------- -------- ---------- -------- -------- --------- --------- -------- ----- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS $0.1 10.6 $0.01 $0.0 11.3 $0.00 ($5.5) 10.5 ($0.52) ($2.9) 11.7 ($0.25)
Dilutives:
Options/Warrants - 0.1 - 1.0 - - - -
--------- -------- ---------- -------- ------- ---------- --------- ------- ------ --------- -------- -------
Diluted EPS $0.1 10.7 $0.01 $0.0 12.3 $0.00 ($5.5) 10.5 ($0.52) ($2.9) 11.7 ($0.25)
========= ======== ========== ======== ======= ========== ========= ======= ====== ========= ======== =======
</TABLE>
NOTE 7 - 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 amounted
to approximately $237,000 and $191,000, respectively, for the nine-month
periods ended September 30, 2000 and 1999.
-9-
<PAGE>
In April 2000, the Company loaned Charles A. Phillips, an officer, director
and major stockholder of the Company $250,000, at 9% interest, payable on or
before December 31, 2000, which is secured by his ownership of the Company's
stock. This loan has a current principal and interest balance of $56,682, and
is included in prepaid expenses and other current assets at September 30,
2000.
The Company is in the process of acquiring licenses in certain countries
through related party entities. For the nine-month periods ended September 30,
2000 and 1999, fees amounting to $183,000 and $77,000, respectively, have been
paid to a related entity to assist with the regulatory aspects of obtaining
such licenses.
NOTE 8 - 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 on 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
founders' commission is payable 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 and other
purchases amounting to approximately $1.1 million.
The Company had a revolving line of credit with a commercial bank for $10
million that was to be used for general corporate purposes with interest
accruing at the Prime Rate, or 225 basis points above the Eurodollar Rate,
each to move with the respective base rate. This facility was collateralized
by accounts receivable and inventory, and was not renewed in May 2000, its
expiration date. There were no borrowings under this line during the entire
term of this revolving line of credit.
The Company is subject to legal proceedings and claims noted in Part II,
"Other Information", Item I, 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.
-10-
<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
--------
Revenues for the three and nine month periods ended September 30, 2000 were
$3,765,229 and $11,680,125 as compared to $4,103,965 and $12,304,186 for the
comparable 1999 periods. Indications are that previous overstocking by our
customers has been considerably reduced. The first nine months also reflect
the fact that the Company was not in a position to supply product to the
allergy market due to the FTC's contention that the results of the
Cold-Eeze(R) cold symptoms studies were inconclusive regarding allergy
symptoms. Darius International, Inc., and Caribbean Pacific Natural Products,
Inc., contributed revenues of $383,007 during the third quarter and year to
date periods ended September 30, 2000.
As a result of many zinc products exiting the marketplace during 2000,
Cold-Eeze(R) now has more visibility as the original clinically proven zinc
product on the market, effective in reducing the severity and duration of
symptoms of the common cold. Throughout 2000 to date, the Company has
attempted to counteract the efforts by the media and all other sources to
discredit Cold-Eeze(R).
In conjunction with the foregoing consumer misconception and the low consumer
use of Cold-Eeze(R), a substantial investment in advertising initiated in 1998
continued until the end of the first quarter of 2000. This investment was
necessary to establish brand awareness for Cold-Eeze(R) and also to promote
new product introductions of Cold-Eeze(R) sugar free, Cold-Eeze(R) bubble gum
and Bodymate(TM).
The advertising program also involved substantial retail support in the
product sell-through to the consumer during the first quarter of 2000. The
advertising cost approximated $6,900,000 for the nine months ended September
30, 2000 as compared with approximately $8,500,000 for the comparable period
in 1999, substantially contributing to the loss of ($5,461,328) for the nine
months ended September 30, 2000 as compared to a net loss of ($2,940,510) for
the nine months ended September 30, 1999. The loss for the nine month period
ended September 30, 2000 is not tax effected 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 ($5,461,328) for the nine month period ended September 30, 2000
and a loss, before income tax benefit, of ($4,820,509) for the nine months
ended September 30, 1999.
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 sugar free 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.
Currently, Caribbean Pacific Natural Products, Inc., utilizes one independent
contract manufacturer to produce their complete range of products, with Darius
International products being manufactured by various independent source
locations.
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<PAGE>
Results of Operations
---------------------
Three months ended September 30, 2000 compared to three months ended September
------------------------------------------------------------------------------
30, 1999
--------
For the three months ended September 30, 2000, the Company reported revenues
of $3,765,229 and a profit of $114,401 as compared to revenue of $4,103,965
and a net income of $18,333, for the comparable period ended September 30,
1999. Revenues for the third quarter were adversely affected by the fact that
the Company was not in a position to supply product to the allergy market due
to the FTC's contention that the results of the Cold-Eeze(R) cold symptoms
studies were inconclusive regarding allergy symptoms. As a result of the
acquisition of a 60% position in Caribbean Pacific Natural Products, Inc.,
effective July 1, 2000 and the commencement of product shipments from Darius
International, Inc., in July 2000, these two entities contributed $383,007 to
revenues for the third quarter ended September 30, 2000.
Cost of Sales as a percentage of net sales for the three months ended
September 30, 2000 was 31.7% compared to 33.2% for the comparable period ended
September 30, 1999. The cost of sales in 2000 reflects greater sales activity
relating to Cold-Eeze(R) bubble gum and Cold-Eeze(R) sugar free products when
compared to the comparable 1999 period. Both of these products have a higher
cost of sales than the lozenge product. However, the addition of the Caribbean
Pacific Natural Products, Inc. activity in the quarter, with its associated
lower product costs helped to reduce the overall cost of sales for the quarter
ended September 30, 2000, effectively offsetting the higher costs related to
Cold-Eeze(R) bubble gum and sugar free.
For the three months ended September 30, 2000, total operating expenses were
$2,633,003 compared to $2,875,558 for the comparable period ended September
30, 1999. The 1999 expenses reflect the advertising expenditure associated
with the post launch promotional support of Bodymate(TM). The 2000 operating
costs also reflect operating costs associated with Darius International, Inc.,
and Caribbean Pacific Natural Products, Inc., totaling $546,918.
During the three months ended September 30, 2000, the major operating expenses
of delivery, salaries, brokerage commissions, promotion, advertising, and
legal costs accounted for $1,479,890 (56%) of total operating costs. The
remaining items for this period were of a semi-fixed nature in that they do
not strictly follow sales trends. These expense categories for the comparable
period in 1999 accounted for $2,193,482 (76%) of total operating costs.
Nine months ended September 30, 2000 compared to nine months ended September
------------------------------------------------------------------------------
30,1999
-------
For the nine months ended September 30, 2000, the Company reported revenues of
$11,680,125 and a loss of ($5,461,328), as compared to revenue of $12,304,186
and a net loss of ($2,940,510) for the comparable period ended September 30,
1999. The first nine months of 2000 reflect benefits resulting from
indications that prior overstocking by our customers had been significantly
reduced. However, offsetting this was the negative affect to the Company of
not being in a position to supply product to the allergy market due to the
FTC's contention that the results of the Cold-Eeze(R) cold symptom studies
were inconclusive regarding allergy symptoms. As a result of the acquisition
of a 60% position in Caribbean Pacific Natural Products, Inc., effective July
1, 2000 and the commencement of product shipments from Darius International,
Inc., in July 2000, these two entities contributed $383,007 to revenues for
the nine months ended September 30, 2000.
Cost of Sales as a percentage of net sales for the nine months ended September
30, 2000 was 33.2% compared to 33.1% for the comparable period ended September
30, 1999. Higher cost of sales associated with sales of the bubble gum and
sugar free versions and larger international sales during 2000 as compared to
the same period of 1999, have been reduced by the presence of sales from
Caribbean Pacific Natural Products, Inc., which have a considerably lower cost
of sales.
For the nine months ended September 30, 2000, total operating expenses were
$13,772,861 compared to $13,764,501 for the comparable period ended September
30, 1999. The 2000 operating expenses have remained high, despite reduced
sales, primarily due to a continuing investment in advertising and promotion
in order to build and expand the Cold-Eeze(R) brand name long term. The
program also involved retail support in the product sell through to the
consumer during the concluding part of the 1999-2000 cold season. The 2000
operating costs also reflect operating costs associated with Darius
International, Inc., and Caribbean Pacific Natural Products, Inc., totaling
$829,547.
During the nine months ended September 30, 2000, the major operating expenses
of delivery, salaries, brokerage commissions, promotion, advertising, and
legal costs accounted for $10,541,335 (77%) of total operating costs. All
remaining costs for this period were of a semi-fixed nature in that they do
not strictly follow sales trends. These same expense categories for the
comparable period in 1999 accounted for $11,631,980 (85%) of total operating
costs. The advertising cost approximates $6,900,000 for the nine months ended
September 30, 2000 as compared with $8,500,000 for the comparable
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<PAGE>
period in 1999 and resulted in a loss to the Company of ($5,461,328) for the
nine months ended September 30, 2000 as compared to a net loss of ($2,940,510)
for the nine months ended September 30, 1999.
Liquidity and Capital Resources
-------------------------------
The total assets of the Company at September 30, 2000 and December 31, 1999
were $25,247,618 and $33,271,056, respectively. Working capital decreased to
$18,135,254 from $23,620,669 during the period. The significant movement
within total assets represents the reduction in accounts receivable of
$2,807,313, cash and cash equivalents decreasing by $3,883,343, prepaid
expenses and other current assets decreasing by $130,868, inventory increasing
by $855,601 and prepaid taxes decreased by approximately $2,500,000 as a
result of a tax refund. From a working capital perspective, accounts payable
has increased by $94,349 and accrued royalties and sales commissions have
decreased over the period by $557,909 while the advertising accrual decreased
by $3,004,196. Total cash balances at September 30, 2000 were $10,107,132, as
compared to $13,990,475 at December 31, 1999.
The Company believes that its increased marketing efforts and increased
national publicity concerning the Cold-Eeze(R) products, the Company's
increased manufacturing availability, newly available products, 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.
Notwithstanding current period negative cash flows from operations, management
believes amounts of cash on hand as well as those current assets readily
convertible to cash will provide adequate liquidity to support future
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 and those of Darius
International, Inc., and Caribbean Pacific Natural Products, Inc., are
manufactured for the Company by an outside source, capital expenditures during
the remainder of 2000 are not anticipated to be material.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Not Applicable
Part II. Other Information
--------------------------
Item 1. 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 is vigorously
defending this lawsuit; although the Company believes that the action lacks
merit and is not suitable for class action certification. 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.
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<PAGE>
GOLDBLUM AND WAYNE
------------------
As previously reported in the Form 10-Q filed for the quarter ending September
30, 1999, 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"). As further noted in the Form 10-Q filed for the period
ending June 30, 1999 and the Proxy Statement for the October 15, 1999 Special
Meeting, the Company authorized the filing of the 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.
As previously reported, an underlying claim filed by Goldblum and Wayne in the
Court of Common Pleas of Montgomery County, Pennsylvania, alleged 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' claims 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.
The Company is subject to other 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 Company's financial position,
results of operations or liquidity.
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
September 30, 2000.
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<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: November 13, 2000
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