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 June 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
(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 July
15, 2000, was 10,659,553 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 3-9
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 12
PART II - Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
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
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30,2000 December 31,1999
(unaudited)
----------- ------------
<S> ............................................ <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ....................... $ 8,213,998 $13,990,475
Accounts receivable (less doubtful accounts
of $429,105 and $239,065)................... 1,860,082 6,639,687
Inventory ....................................... 6,671,019 6,170,005
Prepaid income taxes ............................ 2,500,247 2,485,247
Prepaid expenses and other current assets ....... 1,488,908 1,390,702
----------- -----------
TOTAL CURRENT ASSETS ......................... 20,734,254 30,676,116
----------- -----------
PROPERTY, PLANT AND EQUIPMENT - net................. 2,112,768 1,943,313
----------- -----------
OTHER ASSETS:
Patent rights - Less accumulated amortization.... 153,582 197,463
Other assets..................................... 632,748 454,164
----------- -----------
TOTAL OTHER ASSETS............................ 786,330 651,627
----------- -----------
TOTAL ASSETS........................................ $23,633,352 $33,271,056
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................ $ 459,569 $ 395,778
Accrued royalties and sales commissions ......... 768,170 1,722,715
Accrued advertising ............................. 1,433,547 4,523,901
Accrued freight ................................. 88,886 104,263
Other current liabilities ....................... 243,299 308,790
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TOTAL CURRENT LIABILITIES ................... 2,993,471 7,055,447
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.0005 par value;authorized 50,000,000;
Issued: 15,141,206 and 14,831,384 shares...... 7,571 7,415
Additional paid-in-capital....................... 28,806,952 28,807,108
Retained earnings................................ 16,869,942 22,445,670
Less: Treasury stock, 4,481,653 shares, at cost.. (25,044,584) (25,044,584)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY................... 20,639,881 26,215,609
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $23,633,352 $33,271,056
=========== ===========
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>
THE QUIGLEY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30,1999
------------- ------------- ------------- ------------
NET SALES $1,300,111 $2,063,319 $7,914,897 $8,200,221
---------- ----------- ------------ ----------
COST OF SALES 409,227 662,982 2,684,155 2,715,632
---------- ----------- ------------ ----------
GROSS PROFIT 890,884 1,400,337 5,230,742 5,484,589
---------- ----------- ------------ ----------
OPERATING EXPENSES:
Sales and marketing 903,276 1,973,149 7,582,932 7,984,562
Administration 1,797,727 1,433,517 3,556,526 2,904,381
---------- ----------- ------------ ----------
TOTAL OPERATING EXPENSES 2,701,003 3,406,666 11,139,458 10,888,943
---------- ----------- ------------ ----------
LOSS FROM OPERATIONS (1,810,119) (2,006,329) (5,908,716) (5,404,354)
INTEREST and OTHER INCOME 157,829 197,102 332,988 553,791
---------- ----------- ------------ ----------
LOSS BEFORE TAXES (1,652,290) (1,809,227) (5,575,728) (4,850,563)
---------- ----------- ------------ ----------
INCOME TAXES BENEFIT - ( 705,598) - (1,891,720)
---------- ----------- ------------ ----------
NET LOSS ($1,652,290) ($1,103,629) ($5,575,728) ($2,958,843)
=========== =========== ============ ==========
Loss per common share:
Basic ($0.16) ($0.10) ($0.53) ($0.25)
=========== =========== =========== ==========
Diluted ($0.16) ($0.10) ($0.53) ($0.25)
=========== =========== =========== ==========
Weighted average common shares outstanding:
Basic 10,556,279 11,453,008 10,453,005 11,866,229
============ ========== =========== ==========
Diluted 10,556,279 11,453,008 10,453,005 11,866,229
============ ========== =========== ==========
See accompanying notes to financial statements
-4-
<PAGE>
THE QUIGLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30, 2000 June 30, 1999
------------- -------------
NET CASH FLOWS USED IN OPERATING ACTIVITIES ($5,485,450) ($1,326,934)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (291,027) (75,765)
Patent rights and other assets - (106,066)
------------ ------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (291,027) (181,831)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefits from stock options,
warrants and common stock - 389,847
Proceeds from exercises of options and warrants - 427,499
Repurchase of Common Stock - (12,907,391)
------------ ------------
NET CASH FLOWS USED IN FINANCING ACTIVITIES - (12,090,045)
------------ ------------
NET DECREASE IN CASH (5,776,477) (13,598,810)
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 13,990,475 28,331,765
------------ ------------
CASH & CASH EQUIVALENTS, END OF PERIOD $8,213,998 $14,732,955
============ ============
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
technology driven direct selling organization specializing in proprietary
health and wellness products. The Company has 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 a privately held
company headquartered in Orlando, Florida.
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.
-6-
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated Balance Sheet at June 30, 2000, the consolidated Statements
of Income for the three-month and six-month periods ended June 30, 2000 and
1999, and the consolidated Statements of Cash Flows for the six-month periods
ended June 30, 2000 and 1999, have been prepared without audit. In the opinion
of management, all adjustments necessary to present fairly the consolidated
financial position, results of operations and cash flows for the periods
indicated, have been made. All adjustments made were of a normal recurring
nature.
The consolidated financial statements include the accounts of The Quigley
Corporation and Darius International Inc., a new wholly owned subsidiary,
which was formed in January 2000 to implement alternative methods of marketing
and distribution for existing and new product lines. All inter-company
transactions and balances have been eliminated.
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, requires a cash
investment that will approximate $500,000 and the provision for a $1 million
line of credit, which are secured by inventory and accounts receivable. As of
June 30, 2000, $300,000 has been advanced and is included in other assets in
the Company's consolidated Balance Sheet. The net assets of Caribbean Pacific
Natural Products, Inc. at the acquisition date principally consist of a
product license and distribution rights with no recorded value, and $300,000
of working capital previously advanced by the Company.
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.
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. The Company had international sales in 2000 to date and also in
1999, the resulting revenues relating to which are not considered material.
During the remainder of 2000, the Company expects further international
activities and other operating segments that may require additional
disclosures in compliance with the requirements of the Standard.
-7-
<PAGE>
NOTE 3 - 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 six months
of 2000.
At June 30, 2000, there were 3,792,400 unexercised and vested options and
warrants of the Company's stock available for exercise with an additional
100,000 options awarded which are subject to vesting requirements.
NOTE 4 - 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 $882,259, 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 $9.1 million for federal
purposes, which will expire in 2019 and $15.3 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 $4,648,151 equaling the valuation allowance is being provided.
The six months period ended June 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 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. Since the periods
presented 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 Six Months Ended Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000 June 30, 1999 June 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 ($1.7) 10.6 ($0.16) ($5.6) 10.5 ($0.53) ($1.1) 11.5 ($0.10) ($3.0) 11.9 ($0.25)
Dilutives:
Options/Warrants - - - - - - - -
--------- -------- ---------- -------- ------- ---------- --------- ------- ------ --------- -------- -------
Diluted EPS ($1.7) 10.6 ($0.16) ($5.6) 10.5 ($0.53) ($1.1) 11.5 ($0.10) ($3.0) 11.9 ($0.25)
========= ======== ========== ======== ======= ========== ========= ======= ====== ========= ======== =======
</TABLE>
NOTE 6 - 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 $145,000 and $152,000, respectively, for the six-month
periods ended June 30, 2000 and 1999.
-8-
<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 September 30, 2000, which is secured by his ownership of the Company's
stock. This loan has a current principal and interest balance of $154,537, and
is included in prepaid expenses and other current assets at June 30, 2000.
The Company is in the process of acquiring licenses in certain countries
through related party entities. For the six-month periods ended June 30, 2000
and 1999, fees amounting to $121,338 and $56,663, respectively, have been paid
to a related entity to obtain such licenses.
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 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 $750,000.
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.
-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
--------
Revenues for the three and six month periods ended June 30, 2000 were
$1,300,111 and $7,914,897 as compared to $2,063,319 and $8,200,221 for the
comparable 1999 periods. The first six months of 2000 appeared to support
indications that overstocking by our customers is considerably reduced.
However, revenues for the period 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.
As a result of many zinc products exiting the marketplace in the last number
of months, 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). The market place continues to alter its complexion
through mergers and consolidation as is evident in other sectors of the
economy.
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 mainly the first quarter of 2000.
The advertising cost approximated $6.6 million for the six months ended June
30, 2000 as compared with approximately $7.4 million for the comparable period
in 1999, substantially contributing to the loss of ($5,575,728) for the six
months ended June 30, 2000 as compared to a net loss of ($2,958,843) for the
six months ended June 30, 1999. The loss for the six month period ended June
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
($5,575,728) for the six month period ended June 30, 2000 and a loss, before
income tax benefit, of ($4,850,563) for the six months ended June 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.
-10-
<PAGE>
Results of Operations
---------------------
Three months ended June 30, 2000 compared to three months ended June 30, 1999
-----------------------------------------------------------------------------
For the three months ended June 30, 2000, the Company reported revenues of
$1,300,111 and a loss of ($1,652,290) as compared to revenue of $2,063,319 and
a net loss of ($1,103,629), for the comparable period ended June 30, 1999.
Revenues for the second 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.
The net loss in the second quarter, 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 ($1,652,290) for the three month period ended June 30,
2000 and a loss, before income tax benefit, of ($1,809,227) for the three
months ended June 30, 1999.
Cost of Sales as a percentage of net sales for the three months ended June 30,
2000 was 31.5% compared to 32.1% for the comparable period ended June 30,
1999. The lower cost of sales in 2000 reflect less 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.
For the three months ended June 30, 2000, total operating expenses were
$2,701,003 compared to $3,406,666 for the comparable period ended June 30,
1999. The 1999 expenses reflect the advertising expenditure associated with
the post launch promotional support of Bodymate(TM).
During the three months ended June 30, 2000, the major operating expenses of
delivery, salaries, brokerage commissions, promotion, advertising, and legal
costs accounted for $1,679,453 (62%) of total operating costs. The remaining
items for this period remained relatively fixed in that they do not follow
sales trends. These expense categories for the comparable period in 1999
accounted for $2,671,383 (78%) of total operating costs.
Six months ended June 30, 2000 compared to six months ended June 30, 1999
-------------------------------------------------------------------------
For the six months ended June 30, 2000, the Company reported revenues of
$7,914,897 and a loss of ($5,575,728), as compared to revenue of $8,200,221
and a net loss of ($2,958,843) for the comparable period ended June 30, 1999.
The first six 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.
Cost of Sales as a percentage of net sales for the six months ended June 30,
2000 was 33.9% compared to 33.1% for the comparable period ended June 30,
1999. The 2000 period increased cost of sales reflects a different product mix
than that which existed in 1999, due to the improved 2000 performance of both
the bubble gum and the sugar free versions of Cold-Eeze(R). Both of these
products carry a higher cost of sales as compared to the Cold-Eeze(R) lozenge.
Also, international sales in the first six months of 2000 have been higher
than the 1999 comparable period and the costs of sales associated with
international sales are higher than those of domestic activity.
For the six months ended June 30, 2000, total operating expenses were
$11,139,458 compared to $10,888,943 for the comparable period ended June 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.
During the six months ended June 30, 2000, the major operating expenses of
delivery, salaries, brokerage commissions, promotion, advertising, and legal
costs accounted for $8,966,327 (80%) 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 1999
accounted for $9,438,989 (87%) of total operating costs. The advertising cost
approximates $6.6 million for the six months ended June 30, 2000 as compared
with $7.4 million for the comparable period in 1999 and resulted in a loss to
the Company of ($5,575,728) for the six months ended June 30, 2000 as compared
to a net loss of ($2,958,843) for the six months ended June 30, 1999.
-11-
<PAGE>
Liquidity and Capital Resources
-------------------------------
The total assets of the Company at June 30, 2000 and December 31, 1999 were
$23,633,352 and $33,271,056, respectively. Working capital decreased to
$17,740,783 from $23,620,669 during the period. The significant movement
within total assets represents the reduction in accounts receivable of
$4,779,605, cash and cash equivalents decreasing by $5,776,477, prepaid
expenses and other current assets increasing by $98,206 and inventory
increasing by $501,014. From a working capital perspective, accounts payable
has increased by $63,791 and accrued royalties and sales commissions have
decreased over the period by $954,545 while the advertising accrual decreased
by $3,090,354. Total cash balances at June 30, 2000 were $8,213,998, 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 are manufactured for the
Company by an outside source, capital expenditures during 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
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
-12-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the Company was held on May 5, 2000 with 10,349,731
shares eligible to vote. The presence of a quorum was reached and the
following proposals were approved by the stockholders:
(i) To elect a Board of Directors to serve for the ensuing year until
the next Annual Meeting of Stockholders and until their respective
successors have been duly elected and qualified. (ii) To ratify the
appointment of PricewaterhouseCoopers LLP as independent auditors
for the year ending December 31, 2000.
For proposals (i) and (ii) above, the votes were cast as follows:
<TABLE>
<CAPTION>
Proposal Position For Against Withheld Abstentions
<S> <C> <C> <C> <C> <C> <C>
(i) By nominee
Guy J. Quigley Chairman of the Board, President, CEO 9,725,163 - 150,809 -
Charles A. Phillips Executive Vice President, COO and Director 9,725,163 - 150,809 -
George J. Longo Vice President, CFO, Director 9,725,163 - 150,809 -
Eric H. Kaytes Vice President, CIO and Director 9,725,163 - 150,809 -
Jacqueline F. Lewis Director 9,725,163 - 150,809 -
Rounsevelle W. Schaum Director 9,725,163 - 150,809 -
(ii) 9,733,135 65,774 - 18,063
</TABLE>
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
June 30, 2000.
-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: August 1, 2000
<PAGE>
