UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(XX) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998
-------------
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 of (IRS Employer Identification No.)
incorporation or organization)
(MAILING ADDRESS: PO Box 1349, Doylestown, PA 18901.)
Landmark Building, 10 South Clinton Street, 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. [XX] 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 24,
1998 is 13,552,196 all of one class of $.0005 par value common stock.
TABLE OF CONTENTS
Page No.
PART I - Financial information
Item 1. Financial Statements 3-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-14
PART II - Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
EDGAR Exhibit 27 15
-2-
THE QUIGLEY CORPORATION
BALANCE SHEETS
ASSETS
June 30, 1998 December 31, 1997
(unaudited)
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents $28,872,571 $25,498,359
Accounts receivable, net 355,593 10,851,573
Inventory 8,471,720 7,726,757
Prepaid income taxes 6,266,596 3,548,057
Prepaid expenses and other current assets 1,458,237 1,023,628
Deferred income taxes 402,482 591,245
---------------- ----------------
TOTAL CURRENT ASSETS 45,827,199 49,239,619
---------------- ----------------
EQUIPMENT - Less accumulated depreciation 335,211 162,189
---------------- ----------------
OTHER ASSETS:
Patent rights-Less accumulated amortization 329,104 372,986
Other assets 102,655 72,296
---------------- ----------------
TOTAL OTHER ASSETS 431,759 445,282
---------------- ----------------
TOTAL ASSETS $46,594,169 $49,847,090
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $661,845 $1,115,620
Accrued royalties and sales commissions 542,730 4,730,856
Accrued freight 240,515 468,577
Other current liabilities 440,361 1,784,019
---------------- ----------------
TOTAL CURRENT LIABILITIES 1,885,451 8,099,072
---------------- ----------------
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
authorized 1,000,000; no shares issued - -
Common stock, $.0005 par value; authorized
50,000,000; Issued: 14,314,058 and
13,791,358 shares 7,157 6,896
Additional paid-in capital 27,641,295 23,046,551
Retained earnings 21,108,097 19,839,929
Less: Treasury stock, 771,862 and
486,862 shares, at cost (4,047,831) (1,145,358)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 44,708,718 41,748,018
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $46,594,169 $49,847,090
================ ================
See accompanying notes to financial statements
-3-
THE QUIGLEY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30,1997
------------- ------------- ------------- ------------
NET SALES ................................................ $ 1,317,872 $ 4,083,736 $ 8,589,691 $26,265,742
----------- ----------- ----------- -----------
COST OF SALES ............................................ 398,342 1,225,374 2,609,637 8,114,196
----------- ----------- ----------- -----------
GROSS PROFIT ............................................. 919,530 2,858,362 5,980,054 18,151,546
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Sales and marketing ................................ 545,470 435,099 2,918,992 2,921,223
Administration ..................................... 765,047 708,206 1,759,094 2,626,752
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES ................................. 1,310,517 1,143,305 4,678,086 5,547,975
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS ................................... (390,987) 1,715,057 1,301,968 12,603,571
INTEREST INCOME .......................................... 393,012 61,777 776,996 80,749
----------- ----------- ----------- -----------
INCOME BEFORE TAXES ...................................... 2,025 1,776,834 2,078,964 12,684,320
----------- ----------- ----------- -----------
INCOME TAXES ............................................. 790 719,469 810,796 5,137,150
----------- ----------- ----------- -----------
NET INCOME ............................................... $ 1,235 $ 1,057,365 $ 1,268,168 $ 7,547,170
=========== =========== =========== ===========
Earnings per common share:
Basic .............................................. $ 0.00 $ 0.09 $ 0.09 $ 0.63
============ =========== =========== ===========
Diluted ............................................ $ 0.00 $ 0.08 $ 0.08 $ 0.53
============ =========== =========== ===========
Weighted average common shares
outstanding:
Basic ............................................... 13,516,529 11,713,768 13,421,221 11,888,799
============ =========== =========== ===========
Diluted ............................................. 15,138,823 13,848,005 15,217,821 14,298,273
============ =========== =========== ===========
See accompanying notes to financial statements
-4-
THE QUIGLEY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
----------------
June 30, 1998 June 30, 1997
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NET CASH FLOWS FROM OPERATING ACTIVITIES ............. $ 2,728,826 $ 3,748,587
------------ -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures ............................... (227,588) (78,516)
Patent rights and other assets ..................... (30,359) (15,466)
------------ -----------
NET CASH FLOWS USED IN INVESTING ACTIVITIES .......... (257,947) (93,982)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefits from stock options,
warrants and common stock ...................... 3,290,081 --
Proceeds from exercises of options and warrants .... 515,725 60,850
Proceeds from common stock issued .................. -- 76,007
Due from attorney's escrow account ................. -- 260,000
Change in stock subscription receivable ............ -- 60,608
Repurchase of Common stock ......................... (2,902,473) --
------------ -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES ............. 903,333 457,465
------------ -----------
NET INCREASE IN CASH ................................. 3,374,212 4,112,070
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD ......... 25,498,359 2,455,973
------------ -----------
CASH & CASH EQUIVALENTS, END OF PERIOD ............... $ 28,872,571 $ 6,568,043
============ ===========
Supplemental disclosure of cash flow information
Six Months Ended
----------------
June 30, 1998 June 30, 1997
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Non cash investing and financing:
Capital expenditures - ($7,905)
Patent rights - (205,000)
Common stock issued for services performed - 1,358,263
Treasury stock cost - ($1,145,358)
See accompanying notes to financial statements
-5-
THE QUIGLEY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATIONAL AND GENERAL
The Quigley Corporation (the "Company"), organized under the laws of the state
of Nevada, is primarily engaged in the development, manufacturing, and
marketing of homeopathic cold remedies. The products developed are being
offered to the general public through distributors and brokers. For the fiscal
periods presented, and for the immediate future, the Company plans to continue
concentrating its efforts in the promotion of its major proprietary
"Cold-Eeze(R)" products.
These products are based upon a proprietary zinc gluconate glycine formula
which, in a clinical study conducted by The Cleveland Clinic, has been shown to
reduce the severity and duration of the common cold symptoms by nearly half.
The results of this 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 the 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 which 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 our 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.
The Cold-Eeze(R) product is produced for the Company by a contract
manufacturer. This manufacturer produces exclusively for the Company.
The Balance Sheet as of June 30, 1998, the Statements of Income for the three
and six months periods ended June 30, 1998 and 1997, and the Statements of Cash
Flows for the six months periods ended June 30, 1998 and 1997, have been
prepared without audit. In the opinion of management, all adjustments necessary
to present fairly the financial position, results of operations and cash flows,
for the periods indicated, have been made. All adjustments made were of a
normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the financial statements and
accompanying notes for the fiscal year ended December 31, 1997, in the
Company's Form 10-KSB.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
International Licenses
Included in other assets, are amounts that have been capitalized relating to
the Company's development of international licenses. Such amounts are to be
amortized using the straight-line method over the estimated benefit period.
These costs will be expensed should future benefits become impaired.
-6-
Reclassifications
Certain prior period amounts have been reclassified to conform with the 1998
presentation.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information," requiring public companies
report certain information about operating segments within their financial
statements. Additionally, it requires that such entities report certain
information about their products and services, the geographic areas in which
they operate, and their major customers. These additional disclosure
requirements are required within financial statements for fiscal years
beginning after December 15, 1997. The Company had international sales in the
second quarter of 1998, the resulting revenues are not considered material.
During the remainder of 1998, the Company expects further international
activities that may require additional disclosures in compliance with the
requirements of the Standard.
NOTE 3 - CHANGES IN ACCOUNTING ESTIMATES
During the second quarter of 1998, the company made certain changes in
accounting estimates totaling $636,441, after tax, as a result of new
information becoming available. Of this amount, $265,563 relates to certain
contingencies, the provision for which is no longer necessary. The remaining
amount of $370,878 includes a reduction in the amounts provided for certain
sales and delivery expenses that are not expected to materialize.
NOTE 4 - TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY
On January 8, 1998, the Company's Board of Directors authorized a plan to
reacquire up to 250,000 of the Company's issued and outstanding common stock
shares during the period ended December 31, 1998. On June 24, 1998 the Board of
Directors approved an additional buy-back of up to 500,000 shares of the
Company's Common Stock. The schedule and amount of shares re-purchased will be
based upon market conditions. As of June 30, 1998, 285,000 shares have been
repurchased at an average cost per share of $10.18 giving a total cost of
$2,902,473.
During the six-month period ended June 30, 1998 a total of 522,700 shares were
issued through the exercise of stock options and warrants of the Company. The
difference between the option payment price and cash received, resulted in an
increase to the additional paid-in-capital of the Company.
At June 30, 1998, there were 4,445,400 unexercised issued options and warrants
of the Company's stock.
NOTE 5 - INCOME TAXES
Income taxes include both deferred and currently payable taxes. Deferred income
taxes result from "temporary differences" which consist of a different tax base
for assets and liabilities than their reported amounts in the financial
statements. The deferred tax asset of $402,482 consists of the tax effects for
contract termination costs and miscellaneous items. Certain exercises of
options and warrants during the six months period ended June 30, 1998, resulted
in reductions to taxes currently payable and a corresponding increase to
additional paid-in-capital totaling $3,290,081. These reductions are "permanent
differences" and do not affect the provisions for deferred or current income
tax expense.
For the six months ended June 30, 1998 and fiscal year ended December 31, 1997
an effective tax rate has been provided for at 39% and 40.5% respectively. The
reduction in the effective rate was the result of certain state tax planning
strategies employed by the Company during the first six months of 1998.
-7-
NOTE 6 EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standard No. 128, "Earnings Per Share," which simplifies earnings
per share calculations and requires presentation of both basic and diluted
earnings per share on the face of the statement of income. Per this statement,
basic earnings per share ("EPS") excludes dilution and is computed by dividing
income available to common stockholders by the weighted - average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity. Diluted EPS
also utilizes the treasury stock method that prescribes a theoretical buy-back
of shares from the theoretical proceeds of all options and warrants outstanding
during the period. Since there is a large number of options and warrants
outstanding, fluctuations in the actual market price can have a varying of
results for each period presented.
A reconciliation of the applicable numerators and denominators of the income
statement periods presented is as follows (millions, except earnings per share
amounts):
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997
Income Shares EPS Income Shares EPS Income Shares EPS Income Shares EPS
--------- -------- ------ --------- -------- ------- -------- -------- ------- --------- -------- ------
Basic EPS - 13.5 - $1.3 13.4 $0.09 $1.1 11.7 $0.09 $7.5 11.9 $0.63
Dilutives:
Options/Warrants - 1.6 - 1.8 - 2.1 - 2.4
--------- -------- ------ --------- -------- ------- -------- -------- ------- --------- -------- ------
Diluted EPS - 15.1 - $1.3 15.2 $0.08 $1.1 13.8 $0.08 $7.5 14.3 $0.53
========= ======== ====== ========= ======== ======= ======== ======== ======= ========= ======== ======
NOTE 7 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has sales brokerage
arrangements with entities whose major shareholders are also shareholders of
The Quigley Corporation, or are related to major shareholders of the Company.
Commissions expensed under such arrangements amounted to approximately $122,000
and $101,000 respectively, for the six months periods ended June 30, 1998 and
1997. Management believes these transactions were under terms no less favorable
to the Company than those arranged by other parties. Amounts payable under such
agreements at June 30, 1998 and December 31, 1997 were approximately $5,900 and
$58,000 respectively.
The company is in the process of acquiring licenses in certain countries
through affiliated entities. During 1998, fees have been paid to a related
entity to obtain such licenses amounting to $10,000.
NOTE 8 - STATUS OF NUTRITIONAL FOODS CORPORATION LITIGATION
During 1992, the Company authorized litigation against Nutritional Foods
Corporation ("NFC") in which the Company sought to cancel the 729,928
restricted shares issued to NFC for international marketing services, as a
result of certain false and misleading representations made by it to the
Company including, but not limited to, NFC's failure to act as the Company's
international sales agent under an Agreement between NFC and the Company.
Pursuant to a final decree issued in the Court of Common Pleas of Bucks County,
Pennsylvania dated January 23, 1997, the Company received an order to return to
treasury these outstanding shares. In November of 1997, NFC challenged the
validity of the decree. In March of 1998, a subsequent order of the Court of
Common Pleas of Bucks County modified the decree of January 23, 1997 to provide
for a return to treasury of 604,928 shares to the Company. As payment for legal
services, 118,066 of these shares were reissued with a market value of
approximately $1,145,358. This value, the cost of reacquiring these shares,
then became the value of the net treasury stock ($2.35 per share) represented
by 486,862 shares returned to treasury. The impact has been reflected in the
Balance Sheet as of December 31, 1997.
-8-
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company maintains certain royalty agreements with the founders and
developers, licensors, and consultants for the Cold-Eeze(R) product. The gross
royalty is 13% of sales collected before certain deductions and related tax
benefits. Of this percentage a three percent royalty is payable to the patent
holder whose agreement expires in 2002, a three percent royalty is payable to
the developer of the product formulation together with a two percent consulting
fee based on an agreement that expires in 2007. Additionally, a founder's
royalty totaling 5%, on gross receipts on sales of the product less certain
deductions, is paid to two of the officers whose agreements expire in 2005.
The Company has contractual commitments for advertising amounting to
approximately $9,700,000. Additional advertising costs are expected to be
incurred during the remainder of the year.
The Company has reached an agreement in principle to purchase a building,
including improvements, approximating 14,000 square feet that will be used as
corporate offices as well as laboratory facilities, at a cost approximating $1
million dollars.
In September 1997, the Company obtained a $5 million revolving line of credit
facility with Commerce Bank, N.A. for general corporate purposes. This facility
is collateralized by accounts receivable and inventory, renews in September
1998, with interest at prime or 275 basis points above the Euro-Dollar Rate.
There were no borrowings under this line during the period ended June 30, 1998.
The Company is subject to legal proceedings and claims which have arisen in the
ordinary course of its business. Although there can be no assurance as to the
ultimate disposition of these matters, it is the opinion of the Company's
management based upon the information available at this time, that the expected
outcome of these matters, individually or in the aggregate, will not have a
material adverse effect on the financial position, results of operations or
cash flows of the Company.
-9-
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 by Form 10-KSB filed with the Securities and Exchange
Commission.
Overview
- --------
The three and six months period ended June 1998 resulted in a comparative slow
down in revenues over the same period in 1997. Revenues for these three and six
month periods of 1998 were $1,317,872 and $8,589,691 as compared to $4,083,736
and $26,265,742 for the comparative periods in 1997. The winter conditions
throughout the United States during the 1998 cold and flu season have been less
severe than normal. Reflected in the first quarter of 1997, is the filling of
approximately $12 million in backorders at December 31, 1996. The demand for
the product is seasonal, with the fourth and first quarters representing the
largest sales volume.
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) lozenge product, thereby saving capital and other ongoing
expenditures that would otherwise be incurred.
Manufacturing efficiencies and contract commitments introduced in the first
quarter 1997 resulted in increased product availability, thereby ensuring that
domestic and future international product demand can be met.
During February 1998, an agreement was reached with Genpharm, Inc., a
wholly-owned subsidiary of the pharmaceutical company Merck KgaA, Darmstadt,
Germany, for exclusive distribution of the Company's proprietary Cold-Eeze(R)
products in the Canadian market. In March, the Company reached an agreement
with a Hong Kong based Chinese distribution company for the non-exclusive
distribution of Cold-Eeze(R) in the People's Republic of China. Both
agreements, effective immediately, will launch the international distribution
of the Cold-Eeze(R) product.
Results of Operations
- ---------------------
Three months ended June 30, 1998 compared to three months ended June 30, 1997
- -----------------------------------------------------------------------------
For the three months ended June 30, 1998, the Company reported revenues of
$1,317,872 and net income of $1,235, as compared to revenue of $4,083,736 and
net income of $1,057,365 for the comparable period ended June 30, 1997. The
reduction in revenue is due to the mild winter conditions throughout the United
States with the 1998 cold and flu season being less severe than usual.
Cost of Sales as a percentage of net sales for the three months ended June 30,
1998 was 30.2% compared to 30.0% for the comparable period ended June 30, 1997.
The efficiencies and cost saving processes employed by the manufacturer in the
first quarter of 1997 is continuing.
For the three months ended June 30, 1998, total operating expenses, which
include the mitigating effects from changes in accounting estimates, were
$1,310,517 compared to $1,143,305 for the comparable period ended June 30,
1997. The operating expenses have remained high primarily due to a continuing
advertising and promotion campaign commenced during the latter part of 1997 to
establish Cold-Eeze(R) as a recognized brand name and to support the sales base.
During the three months ended June 30, 1998, the major operating expenses of
delivery, salaries, brokerage commissions, promotion, advertising, and legal
costs accounted for $1,127,008 (86%) 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 1997
accounted for $880,723 (77%) of total operating costs. As percentage of sales,
the 1998 second quarter operating expenses assume a higher percentage compared
to the same period in 1997 due to the lower 1998 sales.
-10-
Six months ended June 30, 1998 compared to six months ended June 30, 1997
- -------------------------------------------------------------------------
For the six months ended June 30, 1998, the Company reported revenues of
$8,589,691 and net income of $1,268,168, as compared to revenue of $26,265,742
and net income of $7,547,170 for the comparable period ended June 30, 1997. The
reduction in revenue is due to the mild winter conditions throughout the United
States with the 1998 cold and flu season being less severe than usual. Also
included in the 1997 figure is approximately $12 million in revenues that
represented an order backlog existing at December 31, 1996.
Cost of Sales as a percentage of net sales for the six months ended June 30,
1998 was 30.4% compared to 30.9% for the comparable period ended June 30, 1997.
This reduction is a result of efficiencies and cost saving processes employed
by the manufacturer which were not in place during the first quarter of 1997.
For the six months ended June 30, 1998, total operating expenses, which include
the mitigating effects from changes in accounting estimates, were $4,678,086
compared to $5,547,975 for the comparable period ended June 30, 1997. The 1998
operating expenses have remained high, despite slow sales, primarily due to a
continuing advertising and promotion campaign commenced during the latter part
of 1997 to establish Cold-Eeze(R) as a recognized brand name and to support the
sales base. Offsetting these increased costs is the reduction in brokerage
commissions which are a factor of sales activity.
During the six months ended June 30, 1998, the major operating expenses of
delivery, salaries, brokerage commissions, promotion, advertising, and legal
costs accounted for $4,071,712 (87%) 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 1997
accounted for $4,395,363 (79%) of total operating costs. As percentage of
sales, the 1998 six months operating expenses assume a higher percentage
compared to the same period in 1997 due to the lower 1998 sales.
Liquidity and Capital Resources
- -------------------------------
The total assets of the company at June 30, 1998 and December 31, 1997 were
$46,594,169 and $49,847,090 respectively. Working capital increased to
$43,941,748 from $41,140,547 during the period. The significant movement within
total assets is the reduction in accounts receivable of $10,495,980, cash and
cash equivalents increasing by $3,374,212, prepaid income taxes increasing by
$2,718,539 and inventory increasing by $744,963. From a working capital
perspective accounts payable and accrued royalties and sales commissions were
reduced over the period by $453,775 and $4,188,126 respectively. Total cash
balances at June, 1998 were $28,872,571, as compared to $25,498,359 at December
31, 1997.
The management of the Company currently believes that the current liquidity and
continuing revenues, along with related profits generated, for the remainder of
1998, should provide an internal source of capital to fund the Company's
business operations. Additionally, in September 1997 the Company obtained a $5
million revolving line of credit facility with Commerce Bank, N.A. for general
corporate purposes. This facility is collateralized by accounts receivable and
inventory, and renews in September 1998, with interest accruing at the Wall
Street Journal prime rate, or 275 basis points above the Euro-Dollar Rate, each
to move with the respective base rate. There were no borrowings under this line
during the six-month period ended June 30, 1998.
On January 8, 1998, the Company's Board of Directors authorized a plan to
reacquire up to 250,000 of the Company's issued and outstanding common stock
shares during the period ended December 31, 1998. On June 24, 1998 the Board of
Directors approved an additional buy-back of up to 500,000 shares of the
Company's Common Stock. The schedule and amount of shares re-purchased will be
based upon market conditions. As of June 30, 1998, 285,000 shares have been
repurchased at an average cost per share of $10.18 giving a total cost of
$2,902,473.
Management is not aware of any trends, events or uncertainties that have or are
reasonably likely to have a material negative impact upon the Company's (a)
short term or long term liquidity, (b) net sales or revenues or income from
continuing operations. Any challenge to the Company's patent rights could have
a material adverse effect on future liquidity of the Company, however, the
Company is not aware of any condition that would make such an event probable.
-11
New Accounting Standards
- ------------------------
In June 1997, the Financial Accounting Standard Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 131, "Disclosure about Segments
of an Enterprise and Related Information," requiring public companies report
certain information about operating segments within their financial statements.
Additionally, it requires that such entities report certain information about
their products and services, the geographic areas in which they operate, and
their major customers. These additional disclosure requirements are required
within financial statements for fiscal years beginning after December 15, 1997.
The Company had international sales in the second quarter of 1998, the
resulting revenues are not considered material. During the remainder of 1998,
the Company expects further international activities that may require
additional disclosures in compliance with the requirements of the Standard.
Capital Expenditures
- --------------------
Since the Cold-Eeze(R) lozenge product is manufactured for the Company by an
outside source, capital expenditures during 1998 are not anticipated to be
material. The Company has reached an agreement in principle to purchase a
building, including improvements, approximating 14,000 square feet that will be
used as corporate offices as well as laboratory facilities, at a cost
approximating $1 million dollars.
Year 2000 Compliant
- -------------------
Management believes no material commitments or contingencies exist relating to
computer operations as the computer system utilized by the company in its
operation has been deemed "Year 2000" compliant by the system vendor.
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Part II. Other Information
--------------------------
Item 1. Legal Proceedings
- -------------------------
During 1992, the Company authorized litigation against Nutritional Foods
Corporation ("NFC") in which the Company sought to cancel the 729,928
restricted shares issued to NFC for international marketing services, as a
result of certain false and misleading representations made by it to the
Company including, but not limited to, NFC's failure to act as the Company's
international sales agent under an Agreement between NFC and the Company.
Pursuant to a final decree issued in the Court of Common Pleas of Bucks County,
Pennsylvania dated January 23, 1997, the Company received an order to return to
treasury these outstanding shares. In November of 1997, NFC challenged the
validity of the decree. In March of 1998, a subsequent order of the Court of
Common Pleas of Bucks County modified the decree of January 23, 1997 to provide
for a return to treasury of 604,928 shares to the Company. As payment for legal
services, 118,066 of these shares were reissued with a market value of
approximately $1,145,358. This value, the cost of reacquiring these shares,
then became the value of the net treasury stock ($2.35 per share) represented
by 486,862 shares returned to treasury.
The Company is subject to legal proceedings and claims which have arisen in the
ordinary course of its business. Although there can be no assurance as to the
ultimate disposition of these matters, it is the opinion of the Company's
management based upon the information available at this time, that the expected
outcome of these matters, individually or in the aggregate, will not have a
material adverse effect on the financial position, results of operations or
cash flows of the Company.
Item 2. Changes in Securities
- -----------------------------
None
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The annual meeting of the Company was held on May 8, 1998 with 13,312,996
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 and
until their respective successors have been duly elected and
qualified.
(ii) To approve the adoption of the 1997 Stock Option Plan.
(iii) To ratify the appointment of PricewaterhouseCoopers LLP as
independent auditors for the year ending December 31, 1998.
For proposals (i), (ii) and (iii) above, the votes were cast as follows:
- ---------------------------- ------------------------------------------------------ ---------- --------- ---------------
Proposal Position For Against Witheld Abstentions
- ---------------------------- ------------------------------------------ ------------ ---------- --------- --------------
(i) By nominee:
Guy J. Quigley Chairman of the Board, President, CEO 12,679,811 - 133,219 -
Charles A. Phillips Executive Vice President, COO and Director 12,689,176 - 123,854 -
George J. Longo Vice President, CFO and Director 12,689,176 - 123,854 -
Eric H. Kaytes Vice President, CIO and Director 12,689,176 - 123,854 -
Gurney P. Sloan,Esquire Director 12,689,176 - 123,854 -
Jacqueline F. Lewis Director 12,689,176 - 123,854 -
- ---------------------------- ------------------------------------------ ------------ ---------- --------- --------------
(ii) 12,191,914 489,303 - 131,813
- ---------------------------- ------------------------------------------ ------------ ---------- --------- ------------
(iii) 12,769,163 21,997 - 21,870
- ---------------------------- ------------------------------------------ ------------ ---------- --------- ------------
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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, 1998.
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 5, 1998
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