UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended September 30, 1996 Commission File No. 01-21617 THE QUIGLEY CORPORATION (Exact name of registrant as specified in its charter) Nevada 23-2577138 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) Landmark Building, PO Box 1349, Doylestown, PA 18901 (Address of principal executive offices) Registrant's telephone number, including area code: 215-345-0919 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK ($.001 Par Value) 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. Yes X No___ As of December 31, 1996, the aggregate market value of the voting stock (all of one class $.001 par value Common Stock) held by non-affiliates of the Registrant was $74,674,850 based upon the average of the closing Bid and Asked prices of the Common Stock on that date as reported on the OTC Bulletin Board. Number of shares of each of the Registrant's classes of securities (all of one class of $.001 par value Common Stock) outstanding on December 31, 1996: 6,049,596. PART I ITEM 1. BUSINESS General Development of Business The Quigley Corporation (hereinafter referred to as "the Registrant") is a Nevada corporation which was organized on August 24, 1989 and commenced business operations in October, 1989. Pursuant to a Registration Statement filed in accordance with the Securities Act of 1933, as amended, and declared effective by the Securities and Exchange Commission on February 7, 1991, the Registrant in August of 1991 sold 2,113,433 Units of its securities to the public. The Registrant's offices are located at Landmark Building, PO Box 1349, Doylestown, PA 18901. The telephone number is (215) 345-0919. The Registrant maintains a home page on the Internet at http://www.quigleyco.com and can be reached by e-mail at quigley@quigleyco.com. Financial Information About Industry Segments See, Consolidated Financial Statements. Narrative Description of Business Operations Since its inception, the Registrant has conducted research and development into various types of health-related food supplements and homeopathic cold remedies. Prior to the current fiscal year, the Registrant has had minimal revenues from operations and as a result had suffered continuing losses due to research and development and operations expenses. However, the Registrant's product line has been developed, and during the most recent fiscal year ended September 30, 1996, the Registrant has had increasing and significant revenues from its national marketing program and increasing public awareness of its Cold-Eeze TM lozenge product. The Registrants initial business was the marketing and distribution of a line of nutritious health supplements (hereinafter "Nutri-Bars"). Beginning in 1995, the Registrant minimized its marketing of the Nutri-Bars and focused its efforts on the development and marketing of the Registrant's patented Cold-Eeze TM zinc gluconate cold relief lozenge product. Since June, 1996, the Registrant has concentrated its business operations exclusively on the manufacturing, marketing and development of its proprietary COLD-EEZE and COLD-EEZER PLUS cold-remedy lozenge products and on development of various product extensions. The Registrant' lozenge products are based upon a proprietary zinc gluconate formula which in a clinical study conducted by The Cleveland Clinic has been shown to reduce the severity and duration of the common cold. The Quigley Corporation acquired world-wide manufacturing and distribution rights to this formulation in 1992 from Dr. John Godfrey and commenced national marketing in 1996. The COLD-EEZE TM lozenge products are distributed through hundreds of independent and chain drug and discount stores throughout the United States, including Walgreen's, Revco, Osco/Sav-On, Thrift Drug, CVS, RiteAid, Eckhard, PharMor, K-Mart, and wholesale distribution including, McKesson, Bergen Brunswick, Foxmeyer, US Health Distributors. The COLD-EEZER PLUS product is marketed through an exclusive sales agreement with the QVC cable shopping network. Products The Cold-Eeze TM Cold Remedy Lozenge In May, 1992, the Registrant entered into an exclusive agreement for worldwide representation, manufacturing, marketing and distribution rights to a zinc gluconate/glycine lozenge formulation developed by Dr. John C. Godfrey, Ph.D., and patented in the United States, United Kingdom, Sweden, France, Italy, Canada, Germany, and pending in Japan. This product is presently being marketed by the Registrant under the tradename Cold-Eeze TM by the Registrant directly and also through independent brokers and marketers, and is a featured product on the QVC Cable TV shopping network. In 1996, the Registrant also acquired an exclusive license to manufacture and market a zinc-formulated lozenge which had been patented by George Eby III, thereby assuring the Registrant of exclusivity in the manufacturing and marketing of zinc-formulated cold relief products. Under an FDA approved Investigational New Drug Application, filed by Dartmouth College, a randomized double-blind placebo-controlled study (randomized study), conducted at Dartmouth College Health Science, Hanover, New Hampshire, concluded that the lozenge formulation treatment, initiated within 48 hours of symptom onset, resulted in a significant reduction in the total duration of the common cold. On May 22, 1992, ZINC AND THE COMMON COLD, A CONTROLLED CLINICAL STUDY, by Dr. Godfrey, et al., was published in England, in the "Journal of International Medical Research", Volume 20, Number 3, Pages 234-246. According to Dr. Godfrey (a) flavorings used in other Zinc lozenge products (citrate, tartrate, separate, orotate, picolinate, mannitol or sorbitol) render the Zinc inactive and unavailable to the patient's nasal passages, mouth and throat, where cold symptoms have to be treated, (b) this new, patented pleasant-tasting formulation delivers approximately 93% of the active Zinc to the mucosal surfaces and (c) the patient has the same sequence of symptoms as in the absence of treatment, but goes through the phases at an accelerated rate and with reduced symptom severity. On July 15, 1996, results of a new randomized double-blind placebo-controlled study on the common cold, which commenced at the Cleveland Clinic Foundation on October 3rd, 1994 was published. The study called "Zinc Gluconate Lozenges for Treating the Common Cold" was completed and published in the Annals of Internal Medicine - Vol. 125 No. 2. Using a 13.3mg lozenge (almost half the strength of the lozenge used in our Dartmouth Study), the results still showed a 42% reduction in the duration of the Common Cold Royalty and Employment Agreements The Cold-Eeze TM product is manufactured for the Registrant by an independent manufacturer and marketed by the Registrant in accordance with the terms of the licensing agreement (between the Registrant and Godfrey Science & Design, Inc. and John C. Godfrey, Ph.D; hereinafter "Dr. Godfrey"). The contract is assignable by the Registrant with Dr. Godfrey's consent. Throughout the duration of the agreement Dr. Godfrey is to receive a three percent (3%) royalty on all gross sales (subsequent to the Registrant receiving payment upon such gross sales). A separate consulting agreement between the parties referred to directly above was similarly entered into on May 4, 1992 whereby Dr. John C. Godfrey and Dr. Nancy J. Godfrey are to receive a consulting fee of two percent (2%) of gross sales of the lozenge by the Registrant for their consulting services to the Registrant with respect to such product. Pursuant to the License Agreement entered into between the Registrant and George Eby Research, the Registrant pays a royalty fee. Throughout the duration of the agreement George Eby of George Eby Research is to receive a three percent (3%) royalty on all gross sales (subsequent to the Registrant receiving payment upon such gross sales). An employment agreement between the Registrant and Guy J. Quigley was entered into on June 1, 1995, whereby Guy J. Quigley, along with the normal considerations of an Executive Employment Agreement, in consideration of the acquisition of the cold therapy product, is to receive a royalty of five percent (5%) of gross sales of the Lozenge by the Registrant for the termination of said agreement on May 31, 2005. An employment agreement between the Registrant and Charles A. Phillips was entered into on June 1, 1995, whereby Charles A. Phillips, along with the normal considerations of an Executive Employment Agreement, shall receive 25% (twenty five per cent) of the royalty received by Guy J. Quigley, either directly from Guy J. Quigley or, if requested, directly from the Registrant. Should Charles A. Phillips make such request upon Registrant, the said 25% (twenty five per cent) would be deducted from any royalties due to Guy J. Quigley. Broker, Distributor and Representative Agreements The Registrant has several Broker, Distributor and Representative Agreements, both Nationally and Internationally. These agreements are sales performance based and in addition the Registrant has also issued incentive common stock purchase options to its Broker, Distributor and Representatives. Patents The Registrant currently owns no patents. However, the Registrant has been granted an exclusive agreement for worldwide representation, manufacturing, marketing and distribution rights to a zinc gluconate/glycine lozenge formulation developed by Dr. John C. Godfrey, Ph.D., and patented as follows: United States: No. 4 684 528 (August 4, 1987) AND No. 4 758 439 (July 19, 1988) Germany: No. 3,587,766 (March 2, 1994) France & Italy: No. EP 0 183 840 B1 (March 2, 1994) Sweden. No. 0 183 840 (March 2, 1994) Canada: No. 1 243 952 (November 1, 1988) Great Britain: No. 2 179 536 (December 21, 1988) Japan: Pending. In 1996, the Registrant also acquired exclusive license for a United States zinc gluconate use patent number RI 33,465 from the patent holder George Eby of George Eby Research. This use patent gives The Registrant the only world-wide entity with rights to both use and formulation patents on zinc gluconate for reducing the duration and severity of the common cold. Research and Development The Registrant has completed its research and development projects with respect to the COLD-EEZE product and consequently no such expenditures were incurred in the fiscal year ending September 30, 1996. However, the Registrant will in the 1997 fiscal year incur research and development expenditures to develop extensions of the lozenge product, including potential pediatric, chewing gum and mouthwash formulations of the COLD-EEZE product. ITEM 2.Properties The Registrant currently maintains its executive offices at the Landmark Building, 10 South Clinton Street, Doylestown, PA (and its alternative mailing address is P.O. Box 1349, Doylestown, PA 18901) where it occupies approximately 2,000 square feet of office space pursuant to a written 3-year lease agreement with an unaffiliated landlord. The Registrant also occupies approximately 2,500 square feet of warehouse space under a one-year lease agreement with an unaffiliated landlord. The monthly aggregate lease payments for both premises is $2,355. ITEM 3. Legal Proceedings The Registrant is not presently a party to any material litigation nor, to the knowledge of management, is any material litigation threatened. ITEM 4. Submission of Matters to a Vote of Security Holders On August 19, 1995, the Registrant held its annual meeting of stockholders at Doylestown, PA, the number of shares necessary to constitute a quorum being present either in person or by proxy. At this meeting, the stockholders ratified all actions and appointments of the Board of Directors taken and made since the previous Annual Meeting of Stockholders in June, 1993. The stockholders also elected the slate of Directors nominated by the Registrant to hold such office until the next Annual Meeting, and ratified the appointment of Nathan Blumenfrucht, CPA, as independent auditor of the Registrant for fiscal year 1996. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters (a) Market Information The Registrant's Common Stock, $.001 par value, is traded on the over-the-counter market (Bulletin Board) under the trading symbol QUIG. The following table sets forth the average range of bid and ask quotations for the Registrant's Common Stock as reported by the NASD Bulletin Board for each full quarterly period within the two most recent fiscal years (1). Fiscal Year Ended September 30, 1995 (2) By Quarter ---------------------------------------- Common Stock Quarter Date High Low 1st December 31, 1994 $1.25 $1.00 2nd March 31, 1995 $1,25 $1.00 3rd June 30, 1995 $1.25 $1.00 4th September 30, 1995 $1.25 $1.00 Fiscal Year Ended September 30, 1996 (2) By Quarter ---------------------------------------- Common Stock Quarter Date High Low 1st December 31, 1995 $1.375 $0.875 2nd March 31, 1996 $1.375 $0.875 3rd June 30, 1996 $2.250 $0.625 4th September 30, 1996 $10.50 $1.625 (1) Trading transactions in the Registrant's securities has been limited to the over-the-counter market and, accordingly, an "established public trading market" for such securities currently exists and has existed for more than the past sixty business days. Bid and asked quotations at fixed prices have appeared regularly in the established quotation systems on at least one-half of such business days. All prices indicated herein are as reported to the Registrant by broker-dealer(s) making a market in its securities. The aforesaid securities are not traded or quoted on any automated quotation system. The over-the-counter market quotes indicated above reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. (2) Prices for Fiscal Years 1995 and 1996 have been adjusted to reflect the 10 for- One Reverse Split of Common Stock in December, 1995. (b) Holders. As of September 30, 1996 there were approximately 253 holders of record of Registrant's Common Stock, including brokerage firms, clearing houses, and/or depository firms holding the Registrant's securities for their respective clients. The exact number of beneficial owners of the Registrant's securities is not known but would necessarily exceed the number of record owners indicated above. (c) Dividends. No cash dividends were paid during the fiscal years ended September 30, 1995 and September 30, 1996. The Registrant has not paid or declared any dividends upon its Common Stock since its inception, and, by reason of its present financial status and projected financial requirements, does not anticipate paying any dividends upon its Common Stock in the foreseeable future. (d) Warrants. In addition to the Registrant's aforesaid outstanding Common Stock, there are as of December 26, 1996 issued and outstanding Common Stock Purchase Warrants which are exercisable at the price-per-share indicated and which expire on the date indicated, as follows: Warrant Number Exercise Price Expiration Date CLASS "D" 800,000 $ 1.00 December 31, 2000 CLASS "E" 1,550,000 $ 3.50 June 30, 2001 ITEM 6. Selected Financial Data For the Fiscal Years Ended 1996 1995 Statement of Operations Summary: Net Sales $1,049,561 $501,903 Net Loss ($694,269) ($152,556) Net Loss Per Share ($.15) (1) Balance Sheet Summary: Total Assets $1,456,031 $498,951 Total Liabilities $125,253 $ 93,836 Stockholder's Equity $1,330,778 $361,015 (1) Less than one cent per Share ITEM 7. Management's Discussion And Analysis of Financial Condition And Results of Operations During this fiscal year ended September 30, 1996, management of the Registrant made a strategic marketing decision to change the focus and business operations of the Registrant to the manufacture and marketing of the Registrant's patented "Cold-Eeze" cold relief lozenge product and the development and marketing of brand extension products based upon the Registrant's proprietary zinc gluconate formula. By commencing national distribution of the only cold-relief product clinically proven to reduce the severity and duration of the common cold, the Registrant believes that it is offering a significant addition to the huge over-the-counter cold remedy market. Through greatly increased sales and expansion of manufacturing capacity, and by holding down operation, marketing and distribution costs, the Registrant believes it will in Fiscal 1997 reverse the negative cash flow from operations associated with the product development The Registrant also intends to continue to utilize the financial and marketing resources of independent brokers and marketers to represent the Registrant's COLD-EEZE lozenge product and product extensions, thereby saving the Registrant from the expenses and capital outlays which the Registrant would otherwise be required to expend. The Registrant had not generated significant revenues from its business operations from its inception through the third fiscal quarter on 1996. As a result of the release of the clinical study by The Cleveland Clinic in July, 1996, and the resultant increased national publicity concerning the COLD-EEZE product, revenue from product sales greatly increased during the fourth quarter ending September 30, 1996. For the full fiscal year ending September 30, 1996, the Registrant had a net loss of ($694,269) on revenues of $1,049,561. OUTLOOK The statements contained in this Outlook are based upon management's current expectations for Fiscal Year 1997. These statements are forward-looking, and actual results may differ materially. Due to the release in July, 1996 of the results of the clinical study conducted by The Cleveland Clinic which found the Registrant's COLD-EEZE formulation to significantly decrease the duration and severity of the common cold, the Registrant in the fourth quarter of Fiscal Year 1996 experienced a dramatic increase in purchase orders for the COLD-EEZE product. As a result of national media coverage of the study's positive results of the efficacy of the Registrant's COLD-EEZE formulation, public demand for the COLD-EEZE product quickly resulted in a significant backlog in purchase orders by the close of Fiscal Year 1996. Based upon continuing strong consumer demand for the COLD-EEZE product, the Registrant in September, 1996 initiated a program designed to increase manufacturing capacity in several stages throughout Fiscal Year 1997. As a result of this program, the Registrant will have the ability to manufacture and ship in excess of $1.5 million of the COLD-EEZE product by the end of January, 1997, with additional manufacturing capacity coming on-line shortly thereafter. As of December 26, 1996, the Registrant had a purchase order backlog of approximately $7.5 million of COLD-EEZE product, and was, during the months of November, 1996 and December, 1996, manufacturing and shipping COLD-EEZE product at the rate of approximately $500,000 per week. These sales levels are significantly higher than any previous sales results of the Registrant and management expects that these sales levels will continue for the immediate future and therefore will have a materially positive effect on the Registrant's results for Fiscal Year 1997. Although the Registrant expects that sales levels will be highest during the peak cold season from September through March, near-term sales levels should continue to increase as the Registrant ships its backlog of orders and distributors and retailers order increasing quantities of the COLD-EEZE product to fill their distribution pipeline and meet increasing consumer demand for the product. In addition, the Registrant expects that it will during Fiscal Year 1997 utilize its increased manufacturing capacity to manufacture sufficient product for international distribution of COLD-EEZE. Although the Registrant has begun to establish an international network of independent distributors, the current inability to meet domestic demand for the COLD-EEZE product has delayed the introduction of the COLD-EEZE product outside the United States. The Registrant believes that it has developed an effective, proprietary cold remedy product which is beginning to meet with widespread consumer acceptance. Future results of the Registrant's operations, however, will be dependent upon a number of factors, including competitive and financial pressures associated with national distribution of an over-the-counter cold remedy. Future revenues, costs, margins and profits will continue to be influenced by the Registrant's ability to increase its manufacturing capacity and marketing and distribution capabilities in order to compete on the national and international level. Trends and Uncertainties Management is not aware of any trends, events or uncertainties that have or are reasonably likely or expected to have a material negative impact upon the Registrant's (a) short term or long term liquidity, (b) net sales or revenues or income from continuing operations and (c) the Registrant's business operations may not be considered to be cyclical and/or seasonable in nature. The Registrant believes that its increased marketing efforts and increased national publicity concerning the COLD-EEZE product, together with the Registrant's increased manufacturing capacity, will result in significantly increased revenues in Fiscal 1997 and positive trends for the Registrant's business operations. RESULTS OF OPERATIONS Fiscal 1996 Compared With Fiscal 1995 For the fiscal year ended September 30, 1996, the Registrant reported revenues of $1,049,561 and a net loss of ($694,269), as compared with revenues of $501,903 and a loss of ($152,556) for the comparable period ended September 30, 1995. This substantial increase in revenue is due primarily to the Registrant's national marketing program for its "Cold-Eeze" lozenge products which commenced in the fourth quarter, and the Registrant anticipates that this increase in revenue will continue through the 1997 fiscal year. The total assets of the Registrant at September 30, 1996 and September 30, 1995 were $1,456,031 and $498,951 respectively. This significant increase in assets was due primarily to increased cash and accounts receivable attributable to the increased sales as well as increased capital infusions from the exercise of Common Stock options and warrants. During this period, the Registrant experienced a significant increase in operating expenses which were directly related to the increased revenue and the expenses associated with the national marketing effort of the COLD-EEZE product. In particular, the major expense items of advertising and promotion expenses increased to $570,752 in Fiscal 1996 from $93,931 in Fiscal 1995, and officer salaries increased to $558,281 in Fiscal 1996 from $106,660 in Fiscal 1995. As a result of these increased expenses, the loss from operations increased to ($694,269) for Fiscal 1996 from ($152,556) for Fiscal 1995. Total general and administrative expenses for Fiscal 1996 were $1,493,794. Management anticipates that greatly increased revenues during Fiscal 1997 will result in increased expenditures for brokerage and sales commissions, advertising and promotion, and product packaging and freight, whereas other categories of general and administrative expenses should remain stable. As of September 30, 1996 and September 30, 1995, the Registrant had working capital of $998,700 and $349,156 respectively. The increase in working capital primarily attributed to the increase in total current assets attributable to increased accounts receivable and cash as a result of increased revenues from product sales, and from the exercise of Common Stock options and warrants. Fiscal 1995 Compared with Fiscal 1994 The Registrant had working capital of $349,156 for its fiscal year ended September 30, 1995, as compared to a working capital deficiency of ($59,998) for its fiscal year ended September 30, 1993. This improvement in working capital was due primarily to a significant increase in revenues from $76,907 in Fiscal 1994 to $509,903 in Fiscal 1995, combined with additional capital obtained by the Company through sale of Common Stock. Interest expense for Fiscal 1995 increased to $3,728 from $3,676 in Fiscal 1992. As of September 30, 1995, the Registrant did not have any current material commitments for capital expenditures. The Registrant intends to seek additional capital during Fiscal 1996, which, together with an anticipated increase in revenues, should be sufficient to fund anticipated expenses. Fiscal 1994 Compared with Fiscal 1993 The Registrant had a working capital deficiency of ($68,610) for its fiscal year ended September 30, 1994, as compared to a working capital deficiency of ($118,464) for its fiscal year ended September 30, 1993. This improvement in working capital was due primarily to a significant increase in revenues from $35,932 in Fiscal 1993 to $76,907 in Fiscal 1994, combined with a significant decrease in General and Administrative Expenses. Interest expense for Fiscal 1994 increased to $3,676 from $1,289 from Fiscal 1993. This increase in revenues results from increasing sales of the Registrant's products which occurred primarily due to the Registrant's marketing program. Administrative expenses, comprised primarily of office expense and supplies and employee business expenses, increased to $26,949 in Fiscal 1994 from $14,002 in Fiscal 1993, while Travel and Entertainment Expenses increased to $15,551 in Fiscal 1994 from $8,058 in Fiscal 1993. Increases in these categories of general and administrative expense during this period were directly related to increased marketing and sales of the Registrant's products. During fiscal year ended September 30, 1994, the Registrant reached an agreement with its prior attorney for a reduction in legal fees owed for the fiscal year ended September 30, 1993. As a result of this reduction of $17,500, the Statement of Operations for the fiscal year ended September 30, 1994 reflects a negative balance of ($8,081) in the category of Professional Fees. As of September 30, 1994, the Registrant did not have any current material commitments for capital expenditures. The Registrant sought additional capital during Fiscal 1995, which, together with an anticipated increase in revenues, should be sufficient to fund anticipated expenses. Material Commitments and Significant Elements of Income/Loss The Registrant does not have any material commitments for capital expenditures, although it anticipates making reasonable capital expenditures during Fiscal 1997 to increase its manufacturing capacity. There have not been any significant elements of income or loss that did not arise as a result of the Registrant's continuing operations, with accumulated losses due primarily to the Registrant's research and development costs associated with the development and marketing of the COLD-EEZE lozenge product. Impact of Inflation The Registrant is subject to normal inflationary trends and anticipates that any increased costs should be passed on to its customers. ITEM 8. Financial Statements and Supplementary Data The information required by Item 8 is included immediately following Item 14 of this Report. The Financial Statements contained herein have been prepared in accordance with the requirements of Regulation S-X and supplementary financial information, if any, has been prepared in accordance with Item 302 of Regulation S-K. ITEM 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None. PART III ITEM 10. Directors and Executive Officers of the Registrant Directors and Executive Officers Listed below are the names, ages and positions with the Registrant of all Directors and Executive Officers of the Registrant as of December 26, 1996. Each director's term is scheduled to expire at the next annual meeting of shareholders and when his successor is duly elected: Year First Name Age Position Elected Guy J. Quigley 55 President, CEO 1989 301 Dorset Court and Director Doylestown PA 19801 Eric H. Kaytes 41 Vice President of 1989 15210 Wayside Road Finance, CFO, Phila., PA 19116 Secretary-Treas. and Director Charles A. Phillips 50 Vice President, COO 1989 35 Swamp Road and Director Erwinna, PA 18920 Robert L. Pollack, Ph.D. 72 Director of Research 1993 8442 Chippewa Road and Development, and Phila., PA 19128 Director Term of Office Directors are elected to serve until the next annual meeting of shareholders and until their successors have been elected and have qualified. Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of shareholders and until their successors have been appointed. ITEM 11. Executive Compensation (a) Cash Compensation The following table sets forth information concerning all remuneration paid or accrued by the Registrant for services rendered by the following persons in all capacities during the fiscal year ended September 30, 1996: (i) Each of the Registrant's five most compensated executive officers whose cash compensation exceeded $60,000; and (ii) all executive officers of the Registrant as a group. Name Position Salary Guy J. Quigley President, CEO $125,000 301 Dorset Court and Director Doylestown PA 19801 Eric H. Kaytes Vice President of $75,000 15210 Wayside Road Finance, CFO, Phila., PA 19116 Secretary-Treas. and Director Charles A. Phillips Vice President, COO $85,000 35 Swamp Road and Director Erwinna, PA 18920 All Executive Officers $285,000 as a group (3 Persons) (b) Outstanding Options As of September 30, 1996, Officers and/or Directors of the Registrant have been issued an aggregate of 585,000 options to purchase shares of the Registrant's Common Stock at various exercise prices. The following table sets forth information as to all options to purchase the Registrant's Common Stock which were granted, and held by each of the individuals listed on the remuneration table and all directors and officers as a group: Options To Purchase #of Shares Exercise Date Name Indicated Price Granted Expires Guy J. Quigley 100,000 $1.00 12/95 12/00 150,000 3.50 7/96 6/01 Charles A. Phillips 75,000 $1.00 12/95 12/00 150,000 3.50 7/96 6/01 Eric H. Kaytes 30,000 $1.00 12/95 12/00 25,000 3.50 7/96 6/01 Robert L. Pollack 30,000 $1.00 12/95 12/00 25,000 3.50 7/96 6/01 ITEM 12. Security Ownership of Certain Beneficial Owners and Management (a) Security Ownership of Certain Beneficial Owners The following individuals or entities are known to the Registrant to be the beneficial owners of more than 5% of the 6,049,596 shares of Common Stock issued and outstanding as of December 31, 1996. Each individual or entity has beneficial ownership of the shares and has sole voting power and sole investment power with respect to the number of shares beneficially owned. Name and Address of Amount and Nature of Percent Beneficial Owner Beneficial Ownership (1) of Class NUTRITIONAL FOODS, LTD. 364,964 (2) 6.0% 539 Park Terrace Harrisburg, PA 17111 (1) All shares referred to herein are "restricted" securities as that term is defined under the Securities Act of 1933, as amended. (2) In accordance with a Resolution adopted by the Board of Directors in May, 1992, the Registrant's Transfer Agent was directed to stop transfer of the certificates representing these shares. The Registrant takes the position that Nutritional Foods Ltd. ("NFL") should not have received these shares due to certain false and misleading representations made by it to the Registrant including but not limited to NFL's failure to act as the Registrant's international sales agent. To date none of these shares has ever been presented for transfer, nor has the Registrant been able to contact NFL via Certified Mail within the past two years despite several attempts to do so. (b) Security Ownership of Management As of September 30, 1996, the total number of shares of Common Stock of the Registrant, exclusive of stock options, beneficially owned by each officer and director and all officers and directors of the Registrant as a group (4 persons) are set forth as follows. Each individual has beneficial ownership of the shares and has sole voting power and sole investment power with respect to the number of shares beneficially owned. Name and Address of Amount and Nature of Percent Beneficial Owner Beneficial Ownership (1)(3) of Class GUY J. QUIGLEY 1,153,427 (2) 19.0% 301 Dorset Court Doylestown, PA 18901 ERIC H. KAYTES 134,496 0.2% 15210 Wayside Road Philadelphia, PA 19116 CHARLES A. PHILLIPS 436,496 0.7% 35 Swamp Road Erwinna, PA 18920 ROBERT L. POLLACK, Ph.D. 81,000 0.1% 8442 Chippewa Road Phila., PA 19128 ALL DIRECTORS AND OFFICERS AS A GROUP (4 PERSONS) 1,805,419 20.0% (1) All shares referred to herein are "restricted" securities as that term is defined under the Securities Act of 1933, as amended. (2) Does not include an aggregate of 156,496 shares of Common Stock owned by members of Guy J. Quigley's family, which number of shares is inclusive of 100,000 shares owned by Wendy Quigley, his wife. Mr. Quigley disclaims any beneficial interest in or control over those shares owned by his wife other than that which may be attributed to him by operation of law. (3) Does not include an aggregate of 585,000 Common Stock Purchase Warrants issued in December, 1995 and July, 1996 to Messrs. Quigley, Kaytes, Phillips and Pollack. These Warrants entitle the holder to purchase the Registrant's shares of Common Stock at various prices ranging for $1.00 to $3.50 per share. (c) Change of Control The Registrant does not know of any arrangement or pledge of its securities by persons now considered in control of the Registrant that might result in a change of such control. ITEM 13. Certain Relationships and Related Transactions For the fiscal year ended September 30, 1996 there have not been any material transactions between the Registrant and any Director, Executive Officer, security holder or any member of the immediate family of any of the aforementioned which exceeded the sum of $60,000. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] PART IV ITEM 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K Reference is herewith made to (i) pages F-1 through F-15 inclusive of this 10-K with respect to the financial statements and notes thereto and Report of the independent Certified Public Account with respect thereto; and (ii) the cover page of this 10-K with respect to documents incorporated by reference in accordance with Rule 12b-23. SUPPLEMENTAL INFORMATION Not applicable. N. BLUMENFRUCH CERTIFIED PUBLIC ACCOUNTANT 1040 EAST 22ND STREET BROOKLYN, N.Y. 11210 ____________ (718) 692-2743 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT The Board of Directors The Quigley Corporation Doylestown, Pennsylvania I have audited the accompanying balance sheets of The Quigley Corporation as of September 30, 1996 and 1995, and the related Statements of Operations, Cash Flows and Stockholders' Equity for the periods ended September 30, 1996, 1995 and 1994. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Quigley Corporation as of September 30, 1996 and 1995 and the results of its operations and its Cash Flows and Stockholders' Equity for the periods ended September 30, 1996, 1995 and 1994, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. However, the Company suffered losses since inception, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Nathum Blumenfrucht ------------------- Nathum Blumenfrucht Certified Public Accountant Brooklyn, New York December 12, 1996 1