-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QFlPIwtllTIZup3Q9XCrMmTCorBSJ0DMp8thIxQ6PM6syqyYUModbB6y0GCnHNFW C90lwzTaNI4r0vULZkWdNw== 0000921895-97-000487.txt : 19970715 0000921895-97-000487.hdr.sgml : 19970715 ACCESSION NUMBER: 0000921895-97-000487 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19970714 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUIGLEY CORP CENTRAL INDEX KEY: 0000868278 STANDARD INDUSTRIAL CLASSIFICATION: SUGAR & CONFECTIONERY PRODUCTS [2060] IRS NUMBER: 232577138 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-31241 FILM NUMBER: 97640202 BUSINESS ADDRESS: STREET 1: PO BOX 1349 STREET 2: 10 SOUTH CLINTON STREET CITY: DOYLESTOWN STATE: PA ZIP: 18901 BUSINESS PHONE: 2153450919 MAIL ADDRESS: STREET 1: PO BOX 1349 STREET 2: LANDMARK BLDG, 10 S CLINTON ST CITY: DOYLESTOWN STATE: PA ZIP: 18901 SB-2 1 FORM SB-2 As filed with the Securities and Exchange Commission on July 14, 1997 Registration No. 333- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------------ THE QUIGLEY CORPORATION (Exact name of Registrant as specified in its charter) Nevada (State or other jurisdiction of Incorporation or organization) 5149 (Primary Standard Industrial Code Number) 23-2577138 (I.R.S. Employer Identification Number) The Landmark Building 10 South Clinton Street Doylestown, PA 18901 (215) 345-0919 ------------------------------------ (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Guy Quigley President and Chief Executive Officer The Quigley Corporation 10 South Clinton Street P.O. Box 1349 Doylestown, PA 18901 (215) 345-0919 (Name, address and telephone number of agent for service of process) ------------------------------------ Copies to: Robert H. Friedman, Esq. Olshan Grundman Frome & Rosenzweig LLP 505 Park Avenue New York, New York 10022 (212) 753-7200 ------------------------------------ Approximate date of commencement of proposed sale to the public: From time to time after this Registration Statement becomes effective. ------------------------------------ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE =================================================================================================================================== Proposed Maximum Proposed Amount to Offering Maximum Title of Each Class of be Price Aggregate Amount of Registration Securities to be Registered Registered Per Share Offering Price Fee - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock, $.0005 par value, issuable 5,480,000(1)(2) $3.01(1) $16,494,800(1) $4,998.42 upon exercise of warrants) - ----------------------------------------------------------------------------------------------------------------------------------- Total............................................................................................. $4,998.42 ===================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 under the Securities Act of 1933, as amended (the "Securities Act"), based upon $3.01, the average exercise price of outstanding warrants to purchase 5,480,000 shares of Common Stock. (2) Pursuant to Rule 416 under the Securities Act, this Registration Statement also relates to an indeterminate number of additional shares that may be issued as result of anti-dilution provisions of the Warrants. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. PROSPECTUS THE QUIGLEY CORPORATION 5,480,000 SHARES OF COMMON STOCK This Prospectus relates to the reoffer and resale by certain selling shareholders (the "Selling Shareholders") of shares (the "Shares") of the Common Stock, $.0005 par value (the "Common Stock"), of The Quigley Corporation, a Nevada corporation (the "Company") which are issuable by the Company to the Selling Shareholders upon the exercise of certain warrants to purchase Common Stock. The Company will not receive any proceeds from the sale of the Shares by the Selling Shareholders, but will receive amounts upon the exercise of warrants which amounts will be used for working capital and other corporate purposes. The Company has agreed to bear certain expenses (other than selling commissions and fees and expenses of counsel and other advisors to the Selling Shareholders) in connection with the registration and sale of the Shares being offered by the Selling Shareholders. See "Use of Proceeds." The Selling Shareholders have advised the Company that the resale of their Shares may be effected from time to time in one or more transactions in the over-the-counter market, in negotiated transactions or otherwise at market prices prevailing at the time of the sale or at prices otherwise negotiated. The Selling Shareholders may effect such transactions by selling the Shares to or through broker-dealers who may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders and/or the purchasers of the Shares for whom such broker-dealers may act as agent or to whom they sell as principal, or both (which compensation as to a particular broker-dealer may be in excess of customary commissions). Any broker-dealer acquiring the Shares from the Selling Shareholders may sell such securities in its normal market making activities, through other brokers on a principal or agency basis, in negotiated transactions, to its customers or through a combination of such methods. See "Plan of Distribution." The Company's Common Stock is traded on the Nasdaq Small-Cap Market ("Nasdaq") under the symbol ("QGLY"). On July 11, 1997, the closing bid price of the Common Stock on Nasdaq was $13-5/8 per share. Prior to July 7, 1997, the Company's Common Stock was traded on the National Association of Securities Dealers, Inc.'s OTC Electronic Bulletin Board under the symbol ("QGLY"). - -------------------------------------------------------------------------------- AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND SHOULD ONLY BE MADE BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" AT PAGE 6 HEREOF. - -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. CERTAIN MATTERS DISCUSSED IN THIS REGISTRATION STATEMENT ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. THE DATE OF THIS PROSPECTUS IS [ ], 1997 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the following regional offices: 7 World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60606-2511 upon payment of the fees prescribed by the Commission. Such material may also be accessed electronically by means of the Commission's home page on the internet at http//www.sec.gov. The Company has also filed with the Commission a Form SB-2 Registration Statement (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act with respect to the Shares offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is made to the Registration Statement. -2- PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO REFLECT A TWO-FOR-ONE STOCK SPLIT OF THE COMMON STOCK EFFECTED ON JANUARY 15, 1997. CERTAIN OF THE INFORMATION CONTAINED IN THIS SUMMARY AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING INFORMATION UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND RELATED STRATEGY AND FINANCING, ARE FORWARD-LOOKING STATEMENTS. FOR A DISCUSSION OF IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS, SEE "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." THE COMPANY The Quigley Corporation (hereinafter referred to as "the Company") is a Nevada corporation which was organized on August 24, 1989 and commenced business operations in October 1989. The Company's initial business was the marketing and distribution of a line of nutritious health supplements called Nutri-Bars. Since June 1996, the Company has concentrated its business operations exclusively on the manufacturing, marketing and development of its proprietary Cold-Eeze(R) and Cold-Eezer Plus cold- remedy lozenge products and on development of various product extensions. The Company's 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 symptoms. 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 Company markets its Cold-Eeze(R) products through manufacturer's representatives, networK marketing, commercial dealerships and other sources of marketing and promotion including television direct marketing. The Company's principal office is located at the Landmark Building, 10 South Clinton Street, Doylestown, PA (and its alternative mailing address is P.O. Box 1349, Doylestown, PA 18901). The telephone number is (215) 345-0919. -3- THE OFFERING Securities Offered......................... Up to 5,480,000 shares of Common Stock issuable upon the exercise of warrants to be sold by the Selling Shareholders. See "Description of Securities." Common Stock Outstanding Prior to the Offering............................ 11,736,268 shares Common Stock to be Outstanding After the Offering............................ 17,216,268 shares Use of Proceeds............................ None of the proceeds from the sale of the Common Stock registered hereunder will accrue to the Company. See "Use of Proceeds." Risk Factors............................... The Securities offered hereby involve a high degree of risk including without limitation: history of losses; going concern report, government regulation; competition; dependence on sales of principal product; dependence on third-party manufacturing and suppliers; seasonality of business and quarterly fluctuations. See "Risk Factors." Nasdaq Symbol- Common Stock................ QGLY -4- SUMMARY FINANCIAL INFORMATION The summary financial information set forth below is derived from the financial statements of the Company appearing elsewhere in this Prospectus. This information should be read in conjunction with such financial statements, including the notes thereto.
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31 ----------------------------- ----------------------------- ----------------------------- 1995 1996 1995 1996 1996 1997 ---- ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS DATA: Net sales........... $501,903 $1,049,561 $ 147,718 $4,091,653 $105,432 $22,182,007 Gross Profit........ 390,069 765,594 129,743 2,717,326 72,533 15,293,184 Net Income (Loss)... (152,556) (694,269) (4,347) 1,951,489 (77,290) 6,489,815 Net Income (Loss) per share ......... $(.05) $(.17) __ $.14 $(.01) $.40 Weighted average shares outstanding. 6,722,828 9,539,528 10,562,828 13,881,028 8,416,568 16,368,844
AS OF MARCH 31, 1997 ---------------------- BALANCE SHEET DATA: Total assets......................................... 24,239,768 Working capital...................................... 10,564,466 Total liabilities.................................... 12,648,491 Shareholders' equity................................. 11,591,277 (1) On January 2, 1997, the Company changed its fiscal year end from September 30 to December 31. Accordingly, the Summary Financial Information includes results of operations for the three month period ended December 31, 1995 and 1996. -5- RISK FACTORS THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS INHERENT IN, AND AFFECTING THE BUSINESS OF, THE COMPANY BEFORE MAKING AN INVESTMENT DECISION. LIMITED OPERATING HISTORY; WORKING CAPITAL DEFICIENCIES; HISTORY OF LOSSES. The Company was organized in August of 1989 and has generated limited revenues from the sale of its cold-remedy products through the end of the fiscal year ended September 30, 1996. As of March 31, 1997, the Company had working capital of approximately $10.6 million, however, the Company has a history of limited working capital and for the fiscal years ended September 30, 1995 and 1996, the Company had working capital of approximately $270,000 and $911,000, respectively. In addition, although the Company had net income of approximately $1,951,000 and $6,490,000 for the three months ended December 31, 1996 and March 31, 1997, respectively, it incurred net losses of $153,000 and $694,000 for the fiscal years ended September 30, 1995 and 1996. There can be no assurance that the Company will generate sufficient revenues to meet expenses or to operate profitably in the future. If the Company is unable to generate sufficient cash flow from its operations it would have to seek additional borrowings, effect debt or equity offerings or otherwise raise capital. There can be no assurance that any such financing will be available to the Company, or if available, that the terms will be acceptable to the Company. GOING CONCERN REPORT. The Company's independent certified public accountant has included an explanatory paragraph in his report on the Company's financial statements for the fiscal years ended September 30, 1995 and 1996 included herein which states that such financial statements have been prepared based on the assumption that the Company will continue as a going concern and that the Company's losses from operations since inception raise substantial doubt about the ability of the Company to continue as a going concern. See Financial Statements. GOVERNMENT REGULATION. The manufacturing, processing, formulation, packaging, labeling and advertising of the Company's cold-relief products are subject to regulation by one or more federal agencies, including the United States Food and Drug Administration ("FDA"), the Federal Trade Commission ("FTC"), the Consumer Product Safety Commission, the United States Department of Agriculture, the United States Postal Service, the United States Environmental Protection Agency and the Occupational Safety and Health Administration. In particular, the FDA regulates the safety, labeling and distribution of dietary supplements, including vitamins, minerals and herbs, food additives, food supplements, over-the-counter and prescription drugs and cosmetics. In addition, the FTC has overlapping jurisdiction with the FDA to regulate the promotion and advertising of vitamins, over-the-counter drugs, cosmetics and foods. -6- Since the Company does not engage in the manufacturing process of its cold-relief products, it is not subject to many of these regulations. In addition, the Company's cold-relief product is a homeopathic remedy which is regulated by the Homeopathic Pharmacopoeia of the United States ("HPUS"). HPUS sets the standards for source, composition and preparation of homeopathic remedies which are officially recognized in the Federal Food, Drug and Cosmetics Act of 1938. The Company's business is also regulated by various agencies of the states and localities in which the Company's products are sold and governmental regulations in foreign countries where the Company plans to commence or expand sales may prevent or delay entry into a market or prevent or delay the introduction, or require the reformulation, of certain of the Company's products. In addition, the Company cannot predict whether new domestic or foreign legislation regulating its activities will be enacted. Such new legislation could have a material adverse effect on the Company. Failure to comply with any applicable requirements can result in sanctions being imposed on the Company or the manufacturers of its products, including warning letters, fines, product recalls and seizures. COMPETITION. Management of the Company believes that the Company's cold-relief product, which has been clinically proven to reduce the severity and duration of the common cold symptoms, offers a significant advantage over other suppliers in the over-the-counter cold remedy market. Competition consists of numerous suppliers of cold remedy products. This market is highly competitive, and some companies with which the Company competes are substantially larger and have significantly greater resources than the Company. The Company believes that its ability to compete depends on a number of factors, including price, product quality, availability and reliability and name recognition. There can be no assurance that the Company will be able to compete successfully in the future. MANAGING GROWTH. The Company is currently experiencing a period of rapid growth and expansion which has placed, and could continue to place, a significant strain on the Company's management, customer service and support operations, sales and administrative personnel and other resources. The Company's ability to manage its planned growth requires the Company to continue to expand its operating, management, information and financial systems, all of which may increase its operating expenses. If the Company fails to achieve its growth as planned or is unsuccessful in managing its anticipated growth, there could be a material adverse effect on the Company. In addition, the loss of a significant customer or a number of customers, or a significant reduction in purchase volume by or financial difficulty of such customers, for any reason, could have a material adverse effect on the Company. See "Business -- Outlook." -7- DEPENDENCE ON KEY PERSONNEL. The Company's future success depends in large part on the continued service of its key personnel. In particular, the loss of the services of Guy Quigley, its Chairman of the Board, President and Chief Executive Officer could have a material adverse effect on the operations of the Company. The Company has an employment agreement with Mr. Quigley which expires on May 31, 2005. The Company's future success and growth also depends on its ability to continue to attract, motivate and retain highly qualified employees. There can be no assurance that the Company will be able to attract, motivate and retain such persons. DEPENDENCE UPON SALES OF PRINCIPAL PRODUCT. The Company's future performance will depend, almost entirely, on the continued customer acceptance of the Company's principal product, Cold-Eeze(R). For the three months ended December 31, 1996 and March 31, 1997, substantially all of the Company's revenues have been generated by sales of Cold-Eeze(R) or product extensions of Cold-Eeze(R). The Company anticipates that substantially all of its revenues for the foreseeable future will be generated by sales of Cold-Eeze(R), both overseas and in the U.S. There can be no assurance that the Company's Cold-Eeze(R) products will continue to receive market acceptance. The inability to successfully commercialize Cold- Eeze(R), for any reason, would have a material adverse effect on the Company's financial condition, prospects, and ability to continue operations. See "Business." DEPENDENCE ON THIRD-PARTY MANUFACTURING AND SUPPLIER. The Company does not own or lease any manufacturing facilities, does not manufacture the Cold-Eeze(R) product or any of its ingredients, and purchases all ingredients from a single unaffiliated supplier. The Company has entered into a contract with a single manufacturer to supply its zinc gluconate products. Should this relationship terminate, the Company believes that the contingency plans which it has formulated would prevent such termination from materially affecting the Company's operations. Any such termination may, however, result in a temporary delay in production until a replacement facility with available production time is located. In addition, the terms on which suppliers and manufacturers will be available could have a material effect on the success of the Company. See "Business - Customers and Suppliers." UNCERTAINTY OF PATENT PROTECTION; UNCERTAINTY OF PROTECTION OF PROPRIETARY TECHNOLOGY. The strength of the Company's patent position may play an important role in its long-term success. The Company currently owns no patents. However, the Company 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. The zinc/gluconate/glycine lozenge formulation developed by Dr. John C. Godfrey, Ph.D has been patented in the United States, Germany, France, Italy, Sweden, Canada and Great Britain and a patent is pending in Japan. The Company also has an exclusive license from George Eby Research for a United States use patent for zinc gluconate. There can be no assurance that these -8- patents will be effective to protect the Company's product from duplication by others. In addition, there can be no assurance that the Company or the patent holder will be able to afford the expense of any litigation which may be necessary to enforce its rights under any patent. Moreover, although the Company believes that its product does not and will not infringe upon the patents or violate the proprietary rights of others, it is possible that such infringement or violation has or may occur. In the event that the Company's product is determined to infringe upon the patents or proprietary rights of others, the Company could be required to modify its product or obtain an additional license for the manufacture and/or sale of the product, or could be prohibited from selling the product. There can be no assurance that, in such an event, the Company would be able to do so in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do any of the foregoing could have a material adverse effect upon the Company. Furthermore, there can be no assurance that the Company or the patent holders will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. In addition, if the Company's product is deemed to infringe upon the patents or proprietary rights of others, the Company could, under certain circumstances, become liable for damages, which could also have a material adverse effect on the Company. See "Business - Patents." The Company also relies substantially upon its proprietary technologies, utilizing non-disclosure agreements with its employees, suppliers, consultants and customers to establish and protect the ideas, concepts and documentation of its proprietary technology and know-how. Such methods, however, may not afford complete protection, and there can be no assurance that third parties will not independently develop such know-how or obtain access to the Company's know-how, ideas, concepts and documentation, which could have a material adverse effect on the Company. SEASONALITY OF BUSINESS; QUARTERLY FLUCTUATIONS. A substantial portion of the Company's business is highly seasonal, causing significant variations in operating results from quarter to quarter. The consumer market for the Company's cold-relief products tends to be highly seasonal. It is anticipated that a major portion of the Company's will come in the first and fourth quarters since the primary cold season is from September to March. There can be no assurance that the Company can maintain sufficient flexibility with respect to its working capital needs and its ability to manufacture products to be able to minimize the adverse effects of an unanticipated shortfall in or greater than expected demand for its products. Failure to predict accurately and respond to consumer demand may cause the Company to produce excess inventory. Conversely, if the product achieves greater success than anticipated for any given quarter, the Company may not have sufficient inventory to meet customer demand. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." -9- POTENTIAL PRODUCT LIABILITY EXPOSURE. The Company's business exposes it to an inherent risk of potential product liability claims, including claims for serious bodily injury or death, which could lead to substantial damage awards. The Company currently maintains product liability insurance in the amount of and with a maximum payout of $10 million. A successful claim brought against the Company in excess of, or outside of, its insurance coverage could have a material adverse effect on the Company's results of operations and financial condition. Claims against the Company, regardless of their merit or eventual outcome, may also have a material adverse effect on the consumer demand for the Company's products. CONTROL BY PRINCIPAL SHAREHOLDER. Guy Quigley, the Chairman of the Board and President of the Company, through his beneficial ownership has the power to vote approximately 30.9% of the Common Stock. Mr. Quigley and the other executive officers and directors of the Company collectively beneficially own approximately 42.5% of the Company's Stock. These individuals have significant influence over the outcome of all matters submitted to shareholders for approval, including election of directors of the Company, thereby enabling them to control all major decisions of the Company. In addition, such concentration of ownership may have the effect of preventing a change of control of the Company. See "Security Ownership of Certain Beneficial Owners and Management". VOLATILITY OF THE COMPANY'S COMMON STOCK PRICES. The market price of the Company's Common Stock has experienced significant volatility, with per share bids ranging from a low of approximately $2.09 to a high of approximately $15.50 (after giving effect to a 2 for 1 stock split) over the six month period from October 1, 1996 to March 31, 1997. Announcements of technological innovations for new commercial products of the Company or its competitors, developments concerning propriety rights or governmental regulation or general conditions in the market for the Company's cold-relief products may have a significant effect on the Company's business and on the market price of the Company's securities. Sales of a substantial number of shares by existing security holders could also have an adverse effect on the market price of the Company's securities. SHARES ELIGIBLE FOR FUTURE SALE. The sale, or availability for sale, of substantial amounts of Common Stock in the public market pursuant to Rule 144 or otherwise could adversely affect the market price of the Common Stock and could impair the Company's ability to raise additional capital through the sale of its equity securities. NO CASH DIVIDENDS. The Company has not paid cash dividends on its Common Stock since its inception. The Company currently intends to retain earnings, if any, for use in the business and does not anticipate paying any dividends to its shareholders in the foreseeable future. -10- RIGHTS OF COMMON STOCK SUBORDINATE TO PREFERRED STOCK. The Articles of Incorporation of the Company authorizes the issuance of a maximum of 1,000,000 shares of preferred stock, par value $.001 per share. No shares of preferred stock are currently outstanding. If shares of preferred stock are issued in the future, the terms of a series of preferred stock may be set by the Company's Board of Directors without approval by the holders of the Common Stock of the Company. Such terms could include, among others, preferences as to dividends and distributions on liquidation as well as separate class voting rights. The rights of the holders of the Company's Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. BARRIERS TO TAKEOVER. The Company's Articles of Incorporation and By-Laws contain certain provisions which may deter, discourage, or make more difficult the assumption of control of the Company by another corporation or person through a tender offer, merger, proxy contest or similar transaction or series of transactions. These provisions include an unusually large number of authorized shares (150,000,000) and the prohibition of cumulative voting. In addition, the future issuance of preferred stock by the Company could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of the outstanding voting stock of the Company. The overall effect of these provisions may be to deter a future tender offer or other takeover attempt that some shareholders might view to be in their best interest as the offer might include a premium over the market price of the Company's capital stock at the time. In addition, these provisions may have the effect of assisting the Company's current management in retaining its position and place it in a better position to resist changes which some shareholders may want it to make if dissatisfied with the conduct of the Company's business. See "Description of Securities -- Nevada Law and Corporate Provisions Affecting Shareholders." LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS. Section 78.751 of the Nevada General Corporation Law ("NGCL") allows the Company to indemnify any person who is or was made a party to, or is or was threatened to be made a party to, any pending, completed, or threatened action, suit or proceeding by reason of the fact that he or she is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of any corporation, partnership, joint venture, trust or other enterprise. The NGCL permits the Company to advance expenses to an indemnified party in connection with defending any such proceeding, upon receipt of an undertaking by the indemnified party to repay those amounts if it is later determined that the party is not entitled to indemnification. The foregoing provisions may reduce the likelihood of derivative litigation against directors and officers and discourage or deter shareholders from suing directors or officers for breaches of their duties to the Company, even though such an action, if -11- successful, might otherwise benefit the Company and its shareholders. In addition, to the extent that the Company expends funds to indemnify directors and officers, funds will be unavailable for operational purposes. See "Description of Securities -- Nevada Law and Corporate Provisions Affecting Shareholders." USE OF PROCEEDS No net proceeds will be realized by the Company from the sale of the Shares offered hereby by the Selling Shareholders. The Company will, however, receive the exercise price of the warrants held by the Selling Shareholders, if and when exercised. Such proceeds will be used by the Company for working capital and other corporate purposes. -12- PRICE RANGE OF COMMON STOCK Prior to July 7, 1997, the Company's Common Stock, $.0005 par value, traded on the National Association of Security Dealers, Inc.'s OTC Electronic Bulletin Board under the trading symbol QGLY. The following table sets forth the average range of bid and ask quotations for the Company's Common Stock as reported by the NASD Bulletin Board for each full quarterly period within the two most recent fiscal years (1). Since July 7, 1997, the Company's Common Stock has been quoted on the Nasdaq Small-Cap Market under the trading symbol QGLY. FISCAL YEAR ENDED SEPTEMBER 30, 1995 (2) (3) 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) (3) BY QUARTER COMMON STOCK - ---------- ------------ QUARTER DATE HIGH LOW ------- ---- ---- --- 1st December 31, 1995 $1.38 $0.88 2nd March 31, 1996 $1.38 $0.88 3rd June 30, 1996 $2.25 $0.63 4th September 30, 1996 $6.63 $1.75 INTERIM PERIOD ENDED DECEMBER 31, 1996 (3) DATE HIGH LOW ---- ---- --- December 31, 1996 $ 10.44 $ 2.09 -13- FISCAL YEAR ENDING DECEMBER 31, 1997 (3) BY QUARTER COMMON STOCK QUARTER DATE HIGH LOW 1st March 31, 1997 $ 15.50 $ 9.03 (1) Prior to July 7, 1997, trading transactions in the Company's securities occurred in 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 Company 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 have been adjusted to reflect the ten-for-one reverse split of Common Stock in December 1995. (3) Prices have been adjusted to reflect the two-for-one split of Common Stock in January 1997. As of June 30, 1997 there were approximately 373 holders of record of Company's Common Stock, including brokerage firms, clearing houses, and/or depository firms holding the Company's securities for their respective clients. The exact number of beneficial owners of the Company's securities is not known. -14- DIVIDEND POLICY The Company has never paid any cash dividends on the Common Stock and it is currently the intention of the Company not to pay cash dividends on its Common Stock in the foreseeable future. Management intends to reinvest earnings, if any, in the development and expansion of the Company's business. Any future declaration of cash dividends will be at the discretion of the Board of Directors and will depend upon the earnings, capital requirements and financial position of the Company, general economic conditions and other pertinent factors. SELECTED FINANCIAL DATA
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31 ---------------------------- ----------------------------- ------------------------------ 1995 1996 1995 1996 1996 1997 ---- ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS DATA: Net sales............. $501,903 $1,049,561 147,718 $4,091,653 $105,432 $22,182,007 Gross Profit.......... 390,069 765,594 129,743 2,717,326 72,533 15,293,184 Net Income (Loss)..... (152,556) (694,269) (4,347) 1,951,489 (77,290) 6,489,815 Net Income (Loss) per share ........... $(.05) $(.17) -- $.14 $(.01) $.40 Weighted average shares outstanding... 6,722,828 9,539,528 10,562,828 13,881,028 8,416,568 16,368,844
BALANCE SHEET DATA: AS OF MARCH 31, 1997 -------------------------- Total assets.............................. 24,239,768 Working capital........................... 10,564,466 Total liabilities......................... 12,648,491 Shareholders' equity...................... 11,591,277 (1) On January 2, 1997, the Company changed its fiscal year end from September 30 to December 31. Accordingly, the Summary Financial Information includes results of operations for the three month period ended December 31, 1995 and 1996. -15- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD- LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE COMPANY'S EXPANSION INTO NEW MARKETS, COMPETITION, TECHNOLOGICAL ADVANCES AND AVAILABILITY OF MANAGERIAL PERSONNEL. OVERVIEW During the fiscal year ended September 30, 1996, management of the Company made a strategic marketing decision to change the focus and business operations of the Company to the manufacture and marketing of the Company's patented Cold-Eeze(R) cold relief lozenge product and the development and marketing of brand extension products based upon the Company's proprietary zinc gluconate glycine formula. By commencing national distribution of a cold-relief product clinically proven to reduce the severity and duration of the common cold symptoms, the Company 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 availability and by holding down operation, marketing and distribution costs, the Company believes it will in the fiscal year ending December 31, 1997 maintain a positive cash flow from operations. The Company also intends to continue to utilize the financial and marketing resources of independent national and international brokers and marketers to represent the Company's Cold-Eeze(R) lozenge product and product extensions, thereby saving the Company from the expenses and capital outlays which the Company would otherwise be required to expend. The Company had not generated significant revenues from its business operations from its inception through the third quarter of the fiscal year ended September 30, 1996. As a result of the release of the clinical study by The Cleveland Clinic in July, 1996 citing positive results of the efficacy of the Company's Cold-Eeze(R) formulation, and the resultant increased national publicity concerning the Cold-Eeze(R) product, revenue from product sales greatly increased during the fourth quarter ending September 30, 1996. For the fiscal year ended September 30, 1996, the Company had a net loss of ($694,269) on revenues of $1,049,561. The dramatic increase in purchase orders for the Cold-Eeze(R) product resulted in a significant backlog in purchase orders by the close of the fiscal year ended September 30, 1996. Based upon continuing strong consumer demand for the Cold- Eeze(R) product, the Company in September, 1996 initiated a program designed to increase manufacturing availability in several stages. -16- As a result of this program, the Company will have the ability to manufacture and ship in excess of $1.5 million of the Cold-Eeze(R) product by the end of January, 1997, with additional manufacturing availability coming on-line shortly thereafter. As of December 26, 1996, the Company had a purchase order backlog of approximately $7.5 million of Cold-Eeze(R) product, and was, during the months of November, 1996 and December, 1996, manufacturing and shipping Cold-Eeze(R) product at the rate of approximately $500,000 per week. These sales levels are significantly higher than any previous sales results of the Company and management expects that these sales levels will continue for the immediate future and therefore will have a materially positive effect on the Company's results for the fiscal year ending December 31, 1997. Although the Company 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 Company ships its backlog of orders and distributors and retailers order increasing quantities of the Cold-Eeze(R) product to fill their distribution pipeline and meet increasing consumer demand for the product. In addition, new marketing plans are under way as well as negotiating sales distribution agreements for the Southern Hemisphere, which has a cold season that is opposite of North America to help counteract the current seasonality for the product. The Company expects that it will during the fiscal year ending December 31, 1997 utilize its increased manufacturing availability to manufacture sufficient product for international distribution of Cold-Eeze(R). Although the Company has begun to establish an international network of independent distributors, the current inability to meet domestic demand for the Cold-Eeze(R) product and the time needed for international product registration has delayed the introduction of the Cold-Eeze(R) product outside the United States. The management of the Company currently believes that the expected significant increases in revenues, and related profits generated, for the remainder of 1997, should provide an internal source of capital to fund the Company's business operations, and as needed, short term funding with commercial banks. Management is not aware of any trend, events or uncertainties that have, or are reasonably likely, or expected to have, a material negative impact upon the Company's short term or long term liquidity. The Company believes that it has developed an effective, proprietary cold remedy product which is beginning to meet with widespread consumer acceptance. Future results of the Company'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 Company's ability to increase its manufacturing, marketing -17- and distribution capabilities in order to compete on the national and international level. On January 2, 1997, the Company changed its fiscal year end from September 30 to December 31. Accordingly, the comparison of results of operations includes a discussion of the three month period ended December 31, 1996 and 1995. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 AND 1997 For the three months ended March 31, 1997, the Company reported revenues of $22,182,007 and a net income of $6,489,815, as compared with revenues of $105,432 and a net loss of ($77,290) for the comparable period ended March 31, 1996. This substantial increase in revenue and profits is primarily a result of the publication of the clinical trial study in a medical journal, proving the effectiveness of Cold-Eeze(R) as a remedy for the common cold symptoms. Also, contributing to this substantial increase was the Company's national marketing program, national exposure in the media, such as the ABC network news program, "20/20", in January 1997, and the substantial increase in the manufacturing availability for the product during this period. The current gross profit rate of 68.9% for the period ended March 31, 1997, should remain as a relative constant going forward, especially for the immediate future. This is comparable to the 68.8% gross profit rate for the period ended March 31, 1996. Operating expenses, such as delivery, brokerage commissions, promotion, and advertising costs, increased significantly over the prior comparable period due to the national marketing efforts and the relationship of revenue dollar volume increases of the Cold- Eeze(R) product. These expenses accounted for approximately $3,262,695 of the total operating costs of $4,385,688 for the three months ended March 31, 1997 as compared to total operating costs of $150,501 for the prior comparable period. Accordingly, until other income tax strategies currently being reviewed are implemented in the future, the effective tax rate for the Company should approximate 40.5%. Total assets of $24,239,768, working capital of $10,564,466 and shareholder's equity of $11,591,277 for the period ended March 31, 1997, increased dramatically from the prior comparable period. This occurred primarily from significant sales and net income volume increases which thereby increased accounts receivable by $10,133,629 and inventories by $543,695. The occurrence of common stock related transactions, as compared to the comparable reporting period, totaling $584,390 also contributed to the balance sheet increases. -18- BY REASON OF THE COMPANY'S CHANGE OF FISCAL YEAR END FROM SEPTEMBER 30 TO DECEMBER 31, THE FOLLOWING COMPARISON IS PROVIDED: THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1995. For the three months ended December 31, 1996, the Company reported revenues of $4,091,653 and a net income of $1,951,489, as compared with revenues of $147,718 and a net loss of ($4,347) for the comparable period ended December 31, 1995. This substantial increase in revenue and profits is primarily due to the Company's national marketing program coupled with the publication of a recent clinical trial study in a medical journal, proving the effectiveness of Cold-Eeze(R) as a remedy for the common cold symptoms. Prior to the release of this study, financial information reported does not really compare to the financial relationships that are present in the three-months period ended December 31, 1996. Operating expenses, such as delivery, brokerage commissions, promotion, and advertising costs, increased significantly over the prior comparable period due to the national marketing efforts of the Cold-Eeze(R) product. These expenses accounted for approximately $585,202 of the total operating costs of $802,823 for the three months ended December 31, 1996 as compared to total operating costs of $134,090 for the prior comparable period. Total assets of $6,335,373, working capital of $3,777,464 and shareholders' equity of $4,831,262 for the period ended December 31, 1996, increased dramatically from the prior comparable period. This occurred primarily from significant sales increases which thereby increased accounts receivable by $1,593,746 and inventories by $242,393. Also, issuance of common stock related transactions totaling $1,815,795 contributed to the balance sheet increases. YEAR ENDED SEPTEMBER 30, 1996 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1995 For the year ended September 30, 1996, the Company reported revenues of $1,049,561 and a net loss of ($694,269), as compared with revenues of $501,903 and a net loss of ($152,556) for the comparable period ended September 30, 1995. This substantial increase in revenue is primarily attributable to gradual market acceptance of the Cold-Eeze(R) lozenge products. The gradual market acceptance of the Cold-Eeze(R) product resulted from a national marketing program commenced in the fourth quarter for the year ended September 30, 1996 and the release of the results of The Cleveland Clinic Study in July, 1996. Sales in 1995 were $501,903, most of which resulted following the Company's marketing shift from health food bars to cold-relief products. Cost of Goods sold, as a percentage of net sales, increased to 27.1% for the year ended September 30, 1996 from 22.3% for the year -19- ended September 30, 1995. The slight increase was similarly caused by the Company's change in its product mix toward developing and marketing the Cold-Eeze(R) products instead of health food bars. During the year ended September 30, 1996, operating expenses similarly increased to $1,493,794 from $552,696 in the year ended September 30, 1995. This was primarily a result of increased costs associated with a national marketing program and the increased sales volume from the Cold-Eeze(R) product during the year ended September 30, 1996. During the year ended September 30, 1996, the Company's major operating expenses included $558,281 for salaries and $570,752 for advertising which collectively accounted for $1,129,033 or approximately 75.6% of the Company's operating expenses. Other operating costs for this period maintained their fixed attributes, in that they did not follow sales volume but maintained a relative constant dollar value for the year ended September 30, 1995. During the year ended September 30, 1995, these expenses included $106,660 for salaries and $93,931 for advertising. If these two categories of expenses maintained the same relationship to net sales from the year ended September 30, 1995, then the net loss for the year ended September 30, 1996 would have changed to basically a break even. For future periods, a normal profitable relationship should develop for all costs and operating expenses as they relate to sales. However, this will not occur until certain break even sales volume levels are achieved to absorb certain fixed costs of the Company. The pricing structure of the Company's product is designed to render the Company profitable after base line sales volume levels are attained. The total assets of the Company at September 30, 1996 and September 30, 1995 were $1,368,301 and $437,076 respectively. Working capital increased to $910,970 from $287,281 for the respective periods. These significant increases are due primarily to increased sales volume, the acquisition of the use patent, and funds or paid in capital generated from the sale, exercise or exchange for services of the Company's Common Stock, options, and warrants. At September 30, 1996, the Company's backlog was approximately $2 million as compared to no backlog at September 30, 1995. The backlog increase was attributable to a growth in sales of the Company's Cold-Eeze(R) lozenge products. YEAR ENDED SEPTEMBER 30, 1995 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1994 For the year ended September 30, 1995, the Company reported revenues of $501,903 and a net loss of ($152,556), as compared with revenues of $76,907 and a loss of ($73,784) for the comparable period ended September 30, 1994. This dramatic change in revenue is primarily attributable to the Company's initial marketing efforts of its cold-relief products, through the "QVC" television -20- shopping network, which represents approximately $261,000 or 52% of the total revenues for the year ended September 30, 1995, and growing interest of the product by consumers in the marketplace. Cost of goods sold, as a percentage of net sales, decreased to 22.3% for the year ended September 30, 1995 from 34.8% for the year ended September 30, 1994. The occurred because the Company's change in its product mix toward developing and marketing the Cold- Eeze(R) products primarily through QVC, which carried a lower cost of sales than health food and other cold-relief products. During the fiscal year ended September 30, 1995, the health food bars accounted for approximately 1% of total net sales as opposed to approximately 27% in the fiscal year ended September 30, 1994. During the fiscal year ended September 30, 1995, operating expenses increased to $552,696 from $180,015 in the year ended September 30, 1994. However, as a percentage of net sales, operating costs decreased to 110.1% in the year ended September 30, 1995 from 234.1% in the fiscal year ended September 30, 1994. Even though total operating costs were lower as a percentage of net sales, certain expenses increased in the fiscal year ended September 30, 1995 causing a greater loss from operations to be reported. During the fiscal year ended September 30, 1995, advertising and professional expenses increased to $93,931 and $69,325, respectively, compared to $3,056 and ($8,081), respectively for the year ended September 30, 1994. The Company had working capital of $287,281 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, 1994. This improvement in working capital was due primarily to a significant increase in revenues to $501,903 in the year ended September 30, 1995 from $76,907 in the year ended September 30, 1994, combined with additional capital obtained by the Company through sale of Common Stock. As of September 30, 1995, the Company did not have any current material commitments for capital expenditures. LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of $910,970 and $287,281 at September 30, 1996 and 1995, respectively. The increase in working capital is due to the proceeds received by the Company from the sale or exchange of common stock for cash or services and increased sales of $547,658. Total cash balances at September 30, 1996 were $370,147, as compared to $132,739 at September 30, 1995. The Company believes that its increased marketing efforts and increased national publicity concerning the Cold-Eeze(R) product, together with the Company's increased manufacturing availability, will result in significantly increased revenues in the year ending December 31, 1997. These revenues will provide an internal source of capital to fund the Company's business operations. In addition to anticipated earnings from operations, the Company may continue -21- to raise capital through the issuance of equity securities or short term borrowing with commercial banks to finance anticipated growth. 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 Company's (a) short term or long term liquidity, (b) net sales or revenues or income from continuing operations and (c) the Company's business operations may not be considered to be cyclical and/or seasonable in nature. Any challenge to the Company's rights under certain patents could have a material adverse effect on future liquidity of the Company, however, the Company is not aware of any condition which would make such an event probable. Management believes that its present cash balances and future cash provided by operating activities will be sufficient to support current working capital requirements and planned expansion through the year ending December 31, 1997. However, should the Company's business expand significantly, additional external sources of financing would be required. While the Company believes that such financing would be available to it, there can be no assurance in this regard. PLAN OF OPERATIONS AND CAPITAL REQUIREMENTS Since the Cold-Eeze(R) lozenge product is manufactured for the Company by outside sources, capital expenditures for the year ending December 31, 1997 are not anticipated to be material. There are significant royalty agreements between the Company and the patent holders of the Company's cold-relief product. The Company has entered into royalty agreements with Godfrey Science & Design, Inc. and George Eby Research that require payments of 3% of gross sales and with Guy J. Quigley and Charles A. Phillips who share a royalty of 5% of gross sales (in a ratio of 3.75% and 1.25%, respectively). Additionally, Dr. John C. Godfrey and Dr. Nancy J. Godfrey receive a consulting fee of 2% of gross sales. All such royalty and consulting arrangements are subject to certain adjustments, and payments are required by the Company only after funds are remitted from such sales. See, Description of Business- Royalty and Employment Agreements. The agreements expire as follows: the agreement with George Eby Research expires on March 5, 2002; the agreements with each of Godfrey Science & Design, Dr. John C. Godfrey, and Dr. Nancy J. Godfrey expire on May 4, 2007; and the agreements with Guy J. Quigley and Charles A. Phillips expire on May 31, 2005. All costs associated with the cold-relief product, including the royalty and consulting agreements, have been built into the wholesale selling price of the product, in order to render the operations profitable after a certain base sales volume has been achieved. -22- FORWARD LOOKING STATEMENTS This Prospectus contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which are intended to be covered by the safe harbors created thereby. Although the Company believes that the assumptions underlying the forward looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Prospectus will prove to be accurate. Factors that could cause actual results to differ from the results specifically discussed in the forward-looking statements include, but are not limited to, those discussed in "Risk Factors." In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. -23- BUSINESS OVERVIEW The Quigley Corporation (the "Company") is a Nevada corporation which was organized on August 24, 1989 and commenced business operations in October, 1989. Since its inception, the Company has conducted research and development into various types of health-related food supplements and homeopathic cold remedies. The Company's initial business was the marketing and distribution of a line of nutritious health supplements (hereinafter "Nutri-Bars"). Beginning in 1995, the Company minimized its marketing of the Nutri-Bars and focused its efforts on the development and marketing of the Company's patented Cold- Eeze(R) zinc gluconate cold relief lozenge product. Since June, 1996, the Company has concentrated its business operations exclusively on the manufacturing, marketing and development of its proprietary Cold-Eeze(R) and Cold-Eezer Plus cold- remedy lozenge products and on development of various product extensions. The Company's 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 symptoms. 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(R) COLD REMEDY LOZENGE In May, 1992, the Company 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 Company under the tradename Cold-Eeze(R) by the Company directly and also through independent brokers and marketers, and is a featured product on the QVC Cable TV shopping network. In 1996, the Company also acquired an exclusive license to a zinc gluconate use patent which had been patented by George Eby III, thereby assuring the Company of exclusivity in the manufacturing and marketing of zinc gluconate 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 -24- formulation treatment, initiated within 48 hours of symptom onset, resulted in a significant reduction in the total duration of the common cold symptoms. 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 symptoms. The Company's executive offices are located at Landmark Building, PO Box 1349, Doylestown, PA 18901. The telephone number of the Company is (215) 345-0919. The Company maintains a home page on the Internet at http://www.quigleyco.com and can be reached by e-mail at quigley@quigleyco.com. CUSTOMERS AND SUPPLIERS The Cold-Eeze(R) lozenge products are distributed through numerous independent and chain drug and discount stores throughout the United States, including Walgreen's, Revco, Osco/Sav-On, Thrift Drug, CVS, RiteAid, Eckerd, 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. The Company is not dependent on any single customer. -25- The Company currently uses a single supplier to provide its zinc gluconate products. The Company entered into an exclusive supply agreement effective as of March 17, 1997, pursuant to which such supplier will exclusively manufacture and package the Company's zinc gluconate lozenges for an initial period expiring on March 16, 2000. The contract provides for a yearly renewal, unless terminated by either party upon two (2) years written notice. Should this relationship terminate, the Company believes that the contingency plans which it has formulated would prevent such termination from materially affecting the Company's operations. Any such termination may, however, result in a temporary delay in production until a replacement facility with available production time is located. RESEARCH AND DEVELOPMENT The Company's research and development costs for the year ended September 31, 1996 and the year ended September 30, 1995 was $41,856 and $70,711, respectively. The decrease in research and development costs is attributable to the Company's completion of its research and development projects with respect to the Cold- Eeze(R) product. The clinical study conducted by The Cleveland Clinic was done at no cost to the Company. The Company will in the fiscal year ending December 31, 1997 incur research and development expenditures to develop extensions of the lozenge product, including potential pediatric Cold-Eeze(R), along with chewing gum and mouthwash formulations of the Cold-Eeze(R) product. PATENTS The Company currently owns no patents. However, the Company 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 Company 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 Company 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 symptoms. -26- COMPETITION The Company competes with other suppliers of cold remedy products. These suppliers range widely in size. Some of the Company's competitors have significantly greater financial, technical or marketing resources than the Company. Many of the products offered by the Company's competitors only relieve the symptoms of the common cold and management believes that its product, which has been clinically proven to reduce the severity and duration of the common cold symptoms, offers a significant advantage over many of its competitors in the over-the-counter cold remedy market. The Company believes that its ability to compete depends on a number of factors, including price, product quality, availability and reliability, credit terms, name recognition, delivery time and post-sale service and support. REGULATORY MATTERS The manufacturing, processing, formulation, packaging, labeling and advertising of the Company's cold-relief products are subject to regulation by one or more federal agencies, including the United States Food and Drug Administration ("FDA"), the Federal Trade Commission ("FTC"), the Consumer Product Safety Commission, the United States Department of Agriculture, the United States Postal Service, the United States Environmental Protection Agency and the Occupational Safety and Health Administration. In particular, the FDA regulates the safety, labeling and distribution of dietary supplements, including vitamins, minerals and herbs, food additives, food supplements, over-the-counter and prescription drugs and cosmetics. In addition, the FTC has overlapping jurisdiction with the FDA to regulate the promotion and advertising of vitamins, over-the-counter drugs, cosmetics and foods. Since the Company does not engage in the manufacturing process of its cold-relief products, it is not subject to many of these regulations. In addition, the Company's cold-relief product is a homeopathic remedy which is regulated by the Homeopathic Pharmacopoeia of the United States ("HPUS"). HPUS sets the standards for source, composition and preparation of homeopathic remedies which are officially recognized in the Federal Food, Drug and Cosmetics Act of 1938. The Company's business is also regulated by various agencies of the states and localities in which the Company's products are sold and governmental regulations in foreign countries where the Company plans to commence or expand sales may prevent or delay entry into a market or prevent or delay the introduction, or require the reformulation, of certain of the Company's products. The Company cannot predict whether new domestic or foreign legislation regulating its activities will be enacted. Regulatory and legislative changes can affect the economics of the industry by -27- requiring changes in operating practices or by influencing the demand for, and the costs of providing the Company's products. Such new legislation could have a material adverse effect on the Company. Failure to comply with any applicable requirements can result in sanctions being imposed on the Company or the manufacturers of its products, including warning letters, fines, product recalls and seizures. Management believes that the Company is in compliance with all such laws, regulations and standards currently in effect including the Food, Drug and Cosmetic Act of 1938 and HPUS. Management further believes that the cost of compliance with such laws, regulations and standards has not and will not have a material adverse effect on the Company. -28- EMPLOYEES The Company currently has nine (9) full-time employees, of whom all were involved in an executive, marketing or administrative capacity. None of the Company's employees is covered by a collective bargaining agreement or is a member of a union. The Company considers its relationship with its employees to be good. PROPERTIES The Company 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 Company 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 $ 2,470. The Company believes that its existing facilities are adequate for its current needs and that additional facilities in its service area are available to meet future needs. LEGAL PROCEEDINGS The Company is not presently a party to any material litigation nor, to the knowledge of management, is any material litigation threatened. MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Listed below are the names, ages and positions with the Company of all Directors and Executive Officers of the Company as of June 30, 1997. 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, Chief 1989 Landmark Building Executive Officer 10 South Clinton Street and Director Doylestown, PA 18901 Eric H. Kaytes 41 Vice President, 1989 Landmark Building Secretary, 10 South Clinton Street Treasurer and Doylestown, PA 18901 Director -29- Year First NAME AGE POSITION ELECTED ---- --- -------- ------- Charles A. Phillips 49 Vice President, 1989 Landmark Building Chief Operating 10 South Clinton Street Officer and Doylestown, PA 18901 Director George J. Longo, 51 Vice President, 1997 Landmark Building Chief Financial 10 South Clinton Street Officer and Doylestown, PA 18901 Director A. Jerene Robbins, M.D. 78 Director 1997 Landmark Building 10 South Clinton Street Doylestown, PA 18901 Robert L. Pollack, 72 Chairman Medical 1993 Ph.D. Advisory Board, Landmark Building Director of 10 South Clinton Street Research and Doylestown, PA 18901 Development and Director GUY J. QUIGLEY is the Founder of the Company and has served as its Chairman of the Board, President, and Chief Executive Officer since September 1989. Prior to this date, Mr. Quigley, an accomplished author, established and operated various manufacturing, sales, marketing and real estate companies located in the United States, Europe and the African Continent. CHARLES A. PHILLIPS has been Vice President, Chief Operations Officer and a Director of the Company since September 1989. He is currently responsible for overseeing the Company's relationships with its manufacturing partners. Before his employment with the Company, Mr. Phillips founded and operated KEB Enterprises, a gold and diamond mining operation that was based in Sierra Leone, West Africa. In addition, Mr. Phillips, also served as a technical consultant for Re-Tech, Inc., Horsham, Pennsylvania, where he was responsible for full marketing and production of a prototype electrical device. ERIC H. KAYTES currently serves as Vice President of Management Information Systems, Secretary, Treasurer and is a Director of the Company. From 1989 until January 1997, Mr. Kaytes also served as the Chief Financial Officer of the Company. Prior to 1989 and concurrent with his responsibilities for the Company, Mr. Kaytes has been an independent programmer and designer of computer software. -30- GEORGE J. LONGO, assumed his duties as Vice President and Chief Financial Officer for the Company in January 1997. Mr. Longo was also appointed as a Director of the Company in March 1997. Before joining the Company, Mr. Longo served as Chief Financial Officer of two privately held international manufacturing firms and Manager of Corporate Accounting at RHONE-PAULENC RORER, INC., being responsible for SEC and IRS Compliance, and was involved in acquisition and general accounting issues. Prior to that, Mr. Longo was with KPMG Peat Marwick. A. JERENE ROBBINS, M.D., F.A.C.S., has served as a director of the Company since June 1997. Dr. Robbins is currently the Director of Health Services of St. Peters College, and a Member Emeritus of the Surgical Staff at Christ Hospital in New Jersey. In addition to her private practice as a thoracic surgeon, Dr. Robbins has served as attending surgeon at Flower & Fifth Avenue Hospital and Metropolitan Hospital in New York and Christ Hospital and Jersey City Medical Center in New Jersey. Dr. Robbins was appointed as Attending Thoracic Surgeon and Consultant Geriatric Surgeon for B.S. Pollak Hospital, as well as to the position of Superintendent. ROBERT L. POLLACK, B.S., M.S., Ph.D. currently serves as the Chairman of the Company's Medical Advisory Board, Director of Research and Development and a Director. Dr. Pollack is a Professor Emeritus at Temple University School of Medicine's Department of Biochemistry. Dr. Pollack is a biochemist, researcher, nutritionist, microbiologist, editor and educator having lectured (both nationally and internationally) on nutritional matters to the general public and scientific audiences. In addition to publishing several papers in scientific journals, Dr. Pollack has authored three books on the subject of nutrition and is currently responsible for overseeing the Company's product development and product quality efforts. EXECUTIVE COMPENSATION (a) CASH COMPENSATION The following table sets forth information concerning all remuneration paid or accrued by the Company for services rendered during the year ended September 30, 1994, the year ended September 30, 1995 and the year ended September 30, 1996 to the Company's chief executive officer and three most compensated executive officers whose cash compensation exceeded $100,000. -31-
Additional Name and Principal Salary Compensation Position Year ($)(1) ($)(2) - ---------------------------------- ----------------------- ----------------------- ----------------------- Guy J. Quigley 1996 125,000 235,956 Chairman of the 1995 62,400 Board, President, 1994 25,000 Chief Executive Officer Charles A. Phillips 1996 85,000 81,547 Vice President and 1995 38,050 Chief Operating Officer 1994 25,000 All Executive 1996 221,300 329,343 Officers as a group 1995 103,850 (3 Persons) 1994 50,000
- ----------------------- (1) Compensation paid pursuant to employee agreements. (2) Additional payments, including stock awards in lieu of cash, for past and current services. (b) OUTSTANDING OPTIONS As of September 30, 1996, Officers and/or Directors of the Company have been issued an aggregate of 585,000 options to purchase shares of the Company's Common Stock at various exercise prices. The following table sets forth information as to all options to purchase the Company'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 Percent of Shares Exercise Date Total Name Indicated Price Granted Expires Options - ---- --------- ----- ------- ------- ------- Guy J. Quigley 200,000 $ .50 12/95 12/00 3.4 300,000 1.75 7/96 6/01 5.1 Charles A. Phillips 150,000 $ .50 12/95 12/00 2.6 300,000 1.75 7/96 6/01 5.1 Eric H. Kaytes 60,000 $ .50 12/95 12/00 2.6 50,000 1.75 7/96 6/01 5.2 Robert L. Pollack 60,000 $ .50 12/95 12/00 1.0 50,000 1.75 7/96 6/01 .8
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK] -32- ROYALTY AND EMPLOYMENT AGREEMENTS The Cold-Eeze(R) product is manufactured for the Company by an independent manufacturer and marketed by the Company in accordance with the terms of the licensing agreement (between the Company and Godfrey Science & Design, Inc. and John C. Godfrey, Ph.D; hereinafter "Dr. Godfrey"). The contract is assignable by the Company 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 Company 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 Company for his consulting services to the Company with respect to such product. Pursuant to the License Agreement entered into between the Company and George Eby Research, the Company 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 Company receiving payment upon such gross sales). An employment agreement between the Company 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 Company for the termination of said agreement on May 31, 2005. An employment agreement between the Company 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 Company. Should Charles A. Phillips make such request upon Company, the said 25% (twenty five per cent) would be deducted from any royalties due to Guy J. Quigley. DIRECTOR'S COMPENSATION The Company's directors are not compensated for attendance at meetings. The Company currently does not plan to compensate its outside directors for services rendered in their capacity as directors. -33- CERTAIN TRANSACTIONS For the year ended September 30, 1996, there have not been any material transactions between the Company 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. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information concerning ownership of the Company's Common Stock, as of June 30, 1997, by (i) each person who is known by the Company to be the beneficial owner of more than five percent of the Common Stock outstanding on such date, (ii) each of the Company's directors, (iii) each of the executive officers named in the summary compensation table, and (iv) all current directors and executive officers of the Company as a group. Name and Address of Amount of Shares Percentage Beneficial Owner(1) Beneficially Owned(2)(3) of Class - ------------------------------- ----------------------------- ------------ GUY J. QUIGLEY 3,841,854(4) 30.9 CHARLES A. PHILLIPS 1,482,992(5) 12.0 ERIC H. KAYTES 402,992(6) 3.4 GEORGE J. LONGO 125,000(7) 1.0 A. JERENE ROBBINS, M.D. 5,000(8) * ROBERT L. POLLACK, Ph.D. 180,000(9) 1.5 ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (Six Persons)(9) 6,037,838(10) 44.7 - ----------------- * Less than one percent (1) Unless otherwise indicated, all addresses are c/o Quigley Corporation, Landmark Building, 10 South Clinton Street, Doylestown, PA 18901. (2) Includes shares issued pursuant to a two-for-one stock split on January 15, 1997. -34- (3) Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act ("Rule 13d-3") and unless otherwise indicated, represents shares for which the beneficial owner has sole voting and investment power. The percentage of class is calculated in accordance with Rule 13d- 3 and includes options or other rights to subscribe which are exercisable within sixty (60) days of June 30, 1997. (4) Mr. Quigley's beneficial ownership includes (i) an aggregate of 820,000 shares beneficially owned by certain members of Mr. Quigley's immediate family; (ii) warrants exercisable within sixty (60) days to purchase 200,000 shares of Common Stock at an exercise price of $.50 per share; (iii) warrants exercisable within sixty (60) days to purchase 300,000 shares of Common Stock at an exercise price of $1.75 per share; (iv) warrants exercisable within sixty (60) days to purchase 75,000 shares of Common Stock at an exercise price of $2.50 per share; and (v) warrants exercisable within sixty (60) days to purchase 140,000 shares of Common Stock at an exercise price of $10.00 per share. (5) Mr. Phillips's beneficial ownership includes (i) warrants exercisable within sixty (60) days to purchase 150,000 shares of Common Stock at an exercise price of $.50 per share; (ii) warrants exercisable within sixty (60) days to purchase 300,000 shares of Common Stock at an exercise price of $1.75 per share; (iii) warrants exercisable within sixty (60) days to purchase 75,000 shares of Common Stock at an exercise price of $2.50 per share; and (iv) warrants exercisable within sixty (60) days to purchase 85,000 shares of Common Stock at an exercise price of $10.00 per share. (6) Mr. Kaytes's beneficial ownership includes (i) warrants exercisable within sixty (60) days to purchase 60,000 shares of Common Stock at an exercise price of $.50 per share; (ii) warrants exercisable within sixty (60) days to purchase 50,000 shares of Common Stock at an exercise price of $1.75 per share; (iii) warrants exercisable within sixty (60) days to purchase 25,000 shares of Common Stock at an exercise price of $2.50 per share; and (iv) warrants exercisable within sixty (60) days to purchase 35,000 shares of Common Stock at an exercise price of $10.00 per share. (7) Mr. Longo's beneficial ownership includes (i) warrants exercisable within sixty (60) days to purchase 50,000 shares of Common Stock at an exercise price of $2.50 per share; and (ii) warrants exercisable within sixty (60) days to purchase 75,000 shares of Common Stock at an exercise price of $10.00 per share. -35- (8) Dr. Robbins' beneficial ownership includes warrants exercisable within 60 days to purchase 5,000 shares of Common Stock at an exercise price of $10.00 per share. (9) Dr. Pollack's beneficial ownership includes (i) warrants exercisable within sixty (60) days to purchase 60,000 shares of Common Stock at an exercise price of $.50 per share; (ii) warrants exercisable within sixty (60) days to purchase 50,000 shares of Common Stock at an exercise price of $1.75 per share; and (iii) warrants exercisable within sixty (60) days to purchase 25,000 shares of Common Stock at an exercise price of $2.50 per share. (10) Includes an aggregate of 1,760,000 shares of Common Stock issuable to officers and directors of the Company upon exercise of warrants exercisable within sixty (60) days to purchase an aggregate of 1,760,000 shares of Common Stock. DESCRIPTION OF SECURITIES The authorized capital stock of the Company is 51,000,000 shares, consisting of 50,000,000 shares of Common Stock, $.0005 par value per share and 1,000,000 shares of preferred stock, $.001 par value per share ("Preferred Stock"). As of June 30, 1997, there were 11,736,268 shares of Common Stock outstanding. After the completion of this Offering and after giving effect to the exercise of warrants into 5,480,000 shares, there will be 17,216,268 shares of Common Stock outstanding. No shares of Preferred Stock are currently outstanding. COMMON STOCK All outstanding shares of Common Stock are, and the shares offered hereby will be, validly issued, fully paid and non-assessable. Subject to preferences that may be applicable to any Preferred Stock outstanding at the time, shareholders of Common Stock are entitled to share ratably in such dividends and distributions as may from time to time be declared by the Board of Directors of the Company from funds legally available therefor and upon liquidation will be entitled to share ratably in any assets of the Company legally available for distribution to holders of the Common Stock. The Company's Articles of Incorporation, as amended, and By-Laws do not confer any preemptive, subscription, redemption or conversion rights on the holders of Common Stock. Holders of Common Stock are entitled to cast one vote for each share held of record on each matter submitted to a vote of shareholders. There is no cumulative voting, which means that holders of a majority of the voting power may elect all of the directors. -36- PREFERRED STOCK The Company's authorized shares of Preferred Stock may be issued in one or more series, and the Board of Directors is authorized, without further action by the shareholders, to designate the rights, preferences, limitations and restrictions of and upon shares of each series, including dividend, voting, redemption and conversion rights. The Board of Directors also may designate par value, preferences in liquidation and the number of shares constituting any series. The Company believes that the availability of Preferred Stock issuable in series will provide increased flexibility for structuring possible future financings and acquisitions, if any, and in meeting other corporate needs. It is not possible to state the actual effect of the authorization and issuance of any series of Preferred Stock upon the rights of holders of Common Stock until the Board of Directors determines the specific terms, rights and preferences of a series of Preferred Stock. However, such effects might include, among other things, restricting dividends on the Common Stock, diluting the voting power of the Common Stock, or impairing liquidation rights of such shares without further action by holders of the Common Stock. In addition, under various circumstances, the issuance of Preferred Stock may have the effect of facilitating, as well as impeding or discouraging, a merger, tender offer, proxy contest, the assumption of control by a holder of a large block of the Company's securities or the removal of incumbent management. Issuance of Preferred Stock could also adversely effect the market price of the Common Stock. The Company has no present plan to issue any shares of Preferred Stock. REGISTRATION RIGHTS Following this offering, no shareholders of the Company's Common Stock will have rights to register those shares for sale to the public under the Securities Act of 1933, as amended (the "Securities Act"). NEVADA LAW AND CORPORATE PROVISIONS AFFECTING SHAREHOLDERS The Company's Certificate of Incorporation and By-laws contain certain provisions which may deter, discourage, or make more difficult the assumption of control of the Company by another corporation or person through a tender offer, merger, proxy contest or similar transaction or series of transactions. These provisions include an unusually large number of authorized shares of Common Stock (50,000,000) the authorization of the Board of Directors to issue Preferred Stock as described above and the prohibition of cumulative voting. The overall effect of these provisions may be to deter a future tender offer or other takeover attempt that some shareholders might view to be in their best interest as the offer might include a premium over the market price of the Company's -37- capital stock at the time. In addition, these provisions may have the effect of assisting the Company's current management in retaining its position and place it in a better position to resist changes which some shareholders may want it to make if dissatisfied with the conduct of the Company's business. See "Risk Factors - Anti-Takeover Provisions." Furthermore, Section 78.751 of the Nevada General Corporation Law ("NGCL") allows the Company to indemnify any person who is or was made a party to, or is or was threatened to be made a party to, any pending, completed, or threatened action, suit or proceeding by reason of the fact that he or she is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of any corporation, partnership, joint venture, trust or other enterprise. The NGCL permits the Company to advance expenses to an indemnified party in connection with defending any such proceeding, upon receipt of an undertaking by the indemnified party to repay those amounts if it is later determined that the party is not entitled to indemnification. The foregoing provisions may reduce the likelihood of derivative litigation against directors and officers and discourage or deter shareholders from suing directors or officers for breaches of their duties to the Company, even though such an action, if successful, might otherwise benefit the Company and its shareholders. In addition, to the extent that the Company expends funds to indemnify directors and officers, funds will be unavailable for operational purposes. See "Risk Factors Indemnification of Officers and Directors." TRANSFER AGENT The transfer agent and registrar for the Common Stock is American Stock Transfer and Trust Company, New York, New York. SELLING SHAREHOLDERS The following table sets forth (i) the number of shares of Common Stock beneficially owned by each Selling Shareholder as of June 30, 1997, (ii) the number of Shares of Common Stock to be offered for resale by each Selling Shareholder and (iii) the number and percentage of shares of Common Stock to be beneficially owned by each Selling Shareholder after completion of the offering. Except as set forth below, none of the Selling Shareholders has had a material relationship with the Company during the past three years. -38-
No. of Shares of Common Stock No. of Beneficially Owned Shares Shares Beneficially Owned Name at June 30, 1997 Offered After Offering (1) - ------------------ ---------------------- ------- ---------------------------------- Guy J. Quigley (2).................... 3,841,854 715,000(3) 3,126,854 18.2% Wendy Quigley......................... 700,000 400,000(4) 300,000 1.7% Kariba Holdings, Ltd.................. 665,000 430,000(5) 235,000 1.4% Charles Phillips (6).................. 1,482,992 610,000(7) 872,992 5.1% Robert Pollack (8).................... 180,000 135,000(9) 45,000 * Eric Kaytes (10)...................... 402,992 170,000(11) 0 * William J. Reilly..................... 811,533 340,000(12) 471,533 2.7% Marielle T. Reilly.................... 125,000 100,000(13) 25,000 * Marielle T. Reilly, Trustee........... 125,000 100,000(14) 25,000 * Ted Karkus............................ 50,000 50,000(15) 0 * George J. Longo (16) ................. 125,000 125,000(17) 0 * Prophase Management, Inc.............. 250,000 250,000(18) 0 * Thomas MacAniff....................... 607,183 260,000(19) 347,183 2.0% Sands Brothers & Co., Ltd............. 175,000 175,000(20) 0 * SBS Retained Annuity Trust............ 180,000 180,000(21) 0 * MSS Retained Annuity Trust............ 180,000 180,000(21) 0 * Mark G. Hollo......................... 337,500 337,500(22) 0 * Scott Franklin........................ 4,600 4,600(21) 0 * Bob Spiegel........................... 4,600 4,600(21) 0 * Richard Sands......................... 4,600 4,600(21) 0 * Rob Bonaventura....................... 4,600 4,600(21) 0 * Sabin Danziger........................ 1,900 1,900(21) 0 * Community Funds, Inc.................. 2,000 2,000(21) 0 * Charles Robinson...................... 3,200 3,200(21) 0 * Gordon Fallone........................ 3,300 3,300(21) 0 * Hugh Marasa........................... 3,300 3,300(21) 0 * James Brodie.......................... 2,900 2,900(21) 0 * Seth Potter........................... 11,000 11,000(23) 0 * Alan Bluestine........................ 2,500 2,500(21) 0 * BR/RA Trust........................... 175,000 175,000(21) 0 * Aaron Scott........................... 44,500 44,500(24) 0 * Matthew Russo......................... 8,500 8,500(25) 0 * Brad Cohen............................ 1,000 1,000(26) 0 * Diversified Corporate 350,000 350,000(27) 0 * Consulting Group, LLC................. Pacific Rim Pharmaceuticals........... 565,000 280,000(28) 285,000 1.7% Frank M. Merlino...................... 10,000 10,000(29) 0 * A. Jerene Robbins(30)................. 5,000 5,000(31) 0 *
-39- * Less than 1%. (1) Assumes that all Common Stock offered by the Selling Shareholders is sold. (2) Mr. Quigley is the Chairman of the Board, President and Chief Executive Officer of the Company. (3) Consists solely of Common Stock issuable to Mr. Quigley upon the exercise of currently exercisable warrants to purchase (i) 200,000 shares of Common Stock at an exercise price of $.50 per share; (ii) 300,000 shares of Common Stock at an exercise price of $1.75 per share; (iii) 75,000 shares of Common Stock at an exercise price of $2.50 per share; and (iv) 140,000 shares of Common Stock at an exercise price of $10.00 per share. (4) Consists solely of Common Stock issuable to Ms. Quigley upon the exercise of currently exercisable warrants to purchase (i) 200,000 shares of Common Stock at an exercise price of $.50 per share; and (ii) 200,000 shares of Common Stock at an exercise price of $1.75 per share. (5) Consists solely of Common Stock issuable to Kariba Holdings upon the exercise of currently exercisable warrants to purchase (i) 130,000 shares of Common Stock at an exercise price of $.50 per share; (ii) 300,000 shares of Common Stock at an exercise price of $1.75 per share. (6) Mr. Phillips is the Vice President, Chief Operating Officer and a Director of the Company. (7) Consists solely of Common Stock issuable to Mr. Phillips upon the exercise of currently exercisable warrants to purchase (i) 150,000 shares of Common Stock at an exercise price of $.50 per share; (ii) 300,000 shares of Common Stock at an exercise price of $1.75 per share; (iii) 75,000 shares of Common Stock at an exercise price of $2.50 per share; and (iv) 85,000 shares of Common Stock at an exercise price of $10.00 per share. (8) Mr. Pollack is the Director of Research and Development, the Chairman of the Medical Advisory Board and a Director of the Company. (9) Consists solely of Common Stock issuable to Mr. Pollack upon the exercise of currently exercisable warrants to purchase (i) 60,000 shares of Common Stock at an exercise price of $.50 per share; (ii) 50,000 shares of Common Stock at an exercise price of $1.75 per share; and (iii) 25,000 shares of Common Stock at an exercise price of $2.50 per share. (10) Mr. Kaytes is the Vice President, Secretary, Treasurer and a Director of the Company. (11) Consists solely of Common Stock issuable to Mr. Kaytes upon the exercise of currently exercisable warrants to purchase (i) 60,000 shares of Common Stock at an exercise price of $.50 per share; (ii) 50,000 shares of Common Stock at an exercise price of $1.75 per share; (iii) 25,000 shares of Common Stock at an exercise price of $2.50 per share; and (iv) 35,000 shares of Common Stock at an exercise price of $10.00 per share. (12) Consists solely of Common Stock issuable to Mr. Reilly upon the exercise of currently exercisable warrants to purchase (i) 100,000 shares of Common Stock at an exercise price of $.50 per share; (ii) 140,000 shares of Common Stock at an exercise price of $1.75 per share; (iii) 50,000 shares of Common Stock at an exercise price of $2.50 per share; (iv) 50,000 shares of Common Stock at an exercise price of $10.00 per share. -40- (13) Consists solely of Common Stock issuable to Ms. Reilly upon the exercise of currently exercisable warrants to purchase 100,000 shares of Common Stock at an exercise price of $.50 per share. (14) Consists solely of Common Stock issuable to Ms. Reilly, Trustee upon the exercise of currently exercisable warrants to purchase 100,000 shares of Common Stock at an exercise price of $1.75 per share. (15) Consists solely of Common Stock issuable to Mr. Karkus upon the exercise of currently exercisable warrants to purchase 50,000 shares of Common Stock at an exercise price of $2.50 per share. (16) Mr. Longo is the Chief Financial Officer and a Director of the Company. (17) Consists solely of Common Stock issuable to Mr. Longo upon the exercise of currently exercisable warrants to purchase (i) 50,000 shares of Common Stock at an exercise price of $2.50 per share; and (ii) 75,000 shares of Common Stock at an exercise price of $10.00 per share. (18) Consists solely of Common Stock issuable to Prophase Management upon the exercise of currently exercisable warrants to purchase 200,000 shares of Common Stock at an exercise price of $1.75 per share; and (ii) 50,000 shares of Common Stock at an exercise price of $10.00 per share. (19) Consists solely of Common Stock issuable to Mr. MacAniff upon the exercise of currently exercisable warrants to purchase (i) 60,000 shares of Common Stock at an exercise price of $1.75 per share; and (ii) 200,000 shares of Common Stock at an exercise price of $10.00 per share. (20) Consists solely of Common Stock issuable to Sands Brothers upon the exercise of currently exercisable warrants to purchase 175,000 shares of Common Stock at an exercise price of $10.00 per share. (21) Consists solely of Common Stock issuable to the Selling Shareholder upon the exercise of currently exercisable warrants to purchase shares of Common Stock at an exercise price of $1.75 per share. (22) Consists solely of Common Stock issuable to Mr. Hollo upon the exercise of currently exercisable warrants to purchase (i) 175,000 shares of Common Stock at an exercise price of $1.75 per share and (ii) 162,500 shares of Common Stock at an exercise price of $10.00 per share. (23) Consists solely of Common Stock issuable to Mr. Potter upon the exercise of currently exercisable warrants to purchase (i) 9,500 shares of Common Stock at an exercise price of $1.75 per share and (ii) 1,500 shares of Common Stock at an exercise price of $10.00 per share. (24) Consists solely of Common Stock issuable to Mr. Scott upon the exercise of currently exercisable warrants to purchase (i) 35,500 shares of Common Stock at an exercise price of $1.75 per share and (ii) 9,000 shares of Common Stock at an exercise price of $10.00 per share. (25) Consists solely of Common Stock issuable to Mr. Russo upon the exercise of currently exercisable warrants to purchase (i) 7,000 shares of Common Stock at an exercise price of $1.75 per share and (ii) 1,500 shares of Common Stock at an exercise price of $10.00 per share. (26) Consists solely of Common Stock issuable to Mr. Cohen upon the exercise of currently exercisable warrants to purchase (i) 500 shares of Common Stock at an exercise price of $1.75 per share and (ii) 500 shares of Common Stock at an exercise price of $10.00 per share. -41- (27) Consists solely of Common Stock issuable to Diversified Corporate Consulting Group, LLC upon the exercise of currently exercisable warrants to purchase 350,000 shares of Common Stock at an exercise price of $1.75 per share. (28) Consists solely of Common Stock issuable to Pacific Rim Pharmaceuticals upon the exercise of currently exercisable options to purchase 280,000 shares of Common Stock at an exercise price of $.50 per share. (29) Consists solely of Common Stock issuable to F. M. Merino upon the exercise of currently exercisable warrants to purchase 10,000 shares of Common Stock at an exercise price of $10.00 per share. (30) Dr. Robbins is a Director of the Company. (31) Consists solely of Common Stock issuable to Dr. Robbins upon the exercise of currently exercisable warrants to purchase 5,000 shares of Common Stock at an exercise price of $10.00 per share. There is no assurance that the Selling Shareholders which hold warrants to purchase Common Stock from the Company will exercise such warrants or that such Selling Shareholder or any other Selling Shareholder will otherwise opt to sell any of the Shares offered hereby. To the extent required, the specific Shares to be sold, the names of the Selling Shareholders, other additional shares of Common Stock beneficially owned by such Selling Shareholders, the public offering price of the Shares to be sold, the names of any agent, dealer or underwriter employed by such Selling Shareholders in connection with such sale, and any applicable commission or discount with respect to a particular offer will be set forth in an accompanying Prospectus Supplement. The Shares covered by this Prospectus may be sold from time to time so long as this Prospectus remains in effect; provided, however, that the Selling Shareholders are first required to contact the Company's Corporate Secretary to confirm that this Prospectus is in effect. The Company intends to distribute to each Selling Shareholder a letter setting forth the procedures whereby such Selling Shareholder may use the Prospectus to sell the shares and under what conditions the Prospectus may not be used. The Selling Shareholders expect to sell the Shares at prices then attainable, less ordinary brokers' commissions and dealers' discounts as applicable. The Selling Shareholders and any broker or dealer to or through whom any of the Shares are sold may be deemed to be underwriters within the meaning of the Securities Act with respect to the Common Stock offered hereby, and any profits realized by the Selling Shareholders or such brokers or dealers may be deemed to be underwriting commissions. Brokers' commissions and dealers' discounts, taxes and other selling expenses to be borne by the Selling Shareholders are not expected to exceed normal selling expenses for sales over-the-counter or otherwise, as the case may be. The registration of the Shares under the Securities Act shall -42- not be deemed an admission by the Selling Shareholders or the Company that the Selling Shareholders are underwriters for purposes of the Securities Act of any Shares offered under this Prospectus. PLAN OF DISTRIBUTION This Prospectus covers 5,480,000 shares of the Company's Common Stock. All of the Shares offered hereby are being sold by the Selling Shareholders. The securities covered by this Prospectus may be sold under Rule 144 instead of under this Prospectus. The Company will realize no proceeds from the sale of the Shares by the Selling Shareholders, but will receive amounts upon exercise of the Warrants, which amounts will be used for working capital and general corporate purposes. The distribution of the Shares by the Selling Shareholders is not subject to any underwriting agreement. The Selling Shareholders may sell the Shares offered hereby from time to time in transactions on one or more exchanges, in the over-the-counter market, in negotiated transactions, or a combination of such methods of sale, at fixed prices which may be changed, at market prices prevailing at the time of sale, at prices relating to prevailing market prices or at negotiated prices. In addition, from time to time the Selling Shareholders may engage in short sales, short sales against the box, puts and calls and other transactions in securities of the Company or derivatives thereof, and may sell and deliver the shares in connection therewith. From time to time the Selling Shareholders may pledge their Shares pursuant to the margin provisions of its customer agreements with its brokers. Upon a default by the Selling Shareholders, the broker may offer and sell the pledged Shares. Such transactions may be effected by selling the Shares to or through broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders and/or the purchasers of the Shares for whom such broker-dealers may act as agents or to whom they sell as principals, or both (which compensation as to a particular broker-dealer might be in excess of the customary commissions). The Selling Shareholders and any broker-dealers that participate with the Selling Shareholders in the distribution of the Shares may be deemed to be underwriters within the meaning of Section 2(11) of the Securities Act and any commissions received by them and any profit on the resale of the Shares may be deemed to be underwriting commissions or discounts under the Securities Act. The Selling Shareholders will pay any transaction costs associated with effecting any sales that occur. In order to comply with the securities laws of certain states, if applicable, the Shares will be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in -43- certain states the Shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with by the Company and the Selling Shareholders. Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the Shares may not simultaneously engage in market-making activities with respect to the Company's Common Stock for a period of two business days prior to the commencement of such distribution. In addition and without limiting the foregoing, the Selling Shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including without limitation, Rules 10b-6, 10b-6A and 10b-7, which provisions may limit the timing of the purchases and sales of shares of Common Stock by the Selling Shareholders. The Selling Shareholders are not restricted as to the price or prices at which it may sell their Shares. Sales of such Shares may have an adverse effect on the market price of the Common Stock. Moreover, the Selling Shareholders are not restricted as to the number of Shares that may be sold at any time, and it is possible that a significant number of Shares could be sold at the same time which may also have an adverse effect on the market price of the Company's Common Stock. The Company has agreed to pay all fees and expenses incident to the registration of the Shares, except selling commissions and fees and expenses of counsel or any other professionals or other advisors, if any, to the Selling Shareholders. This Prospectus also may be used, with the Company's consent, by donees or other transferees of the Selling Shareholders, or by other persons acquiring the Common Stock under circumstances requiring or making desirable the use of this Prospectus for the offer and sale of such shares. LEGAL MATTERS The legality of the Shares offered hereby will be passed upon for the Company by Olshan Grundman Frome & Rosenzweig LLP, New York, New York. EXPERTS The consolidated financial statements and schedules of the Company incorporated by reference in this prospectus and elsewhere in this Registration Statement as of September 30, 1995, and 1996 included in the Company's Form 10-KSB for the fiscal year ended September 30, 1996 have been audited by Nachum Blumenfruct CPA, independent public accountant, as indicated in his report with -44- respect thereto, and are included herein in reliance upon the authority of Mr. Blumenfruct as experts in giving said reports. CHANGE OF ACCOUNTANTS On January 29, 1997, the Company determined to change accountants to Coopers & Lybrand LLP. The Company's prior auditor, Nachum Blumenfruct, CPA resigned and on the same date, the Company engaged Coopers & Lybrand, LLP, to audit its financial statements. The decision to change accountants was made with the approval of the Company's Board of Directors and was a result of the dramatic expansion of business operations since the close of the fiscal year ended September 30, 1996. The Company believes, and has been advised by Nachum Blumenfruct that it concurs in such belief, that, the Company and Mr. Blumenfruct did not have any disagreement on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Mr. Blumenfruct, would have caused him to make reference in connection with his report on the Company's financial statements to the subject matter of the disagreement. No report of Mr. Blumenfruct on the Company's financial statements for either of the past two fiscal years contained an adverse opinion, a disclaimer or opinion or a qualification (other than a going concern qualification) or was modified as to uncertainty, audit scope or accounting principles. During such fiscal periods, there were no "reportable events" within the meaning of Item 304(a)(1) of Regulation S-K promulgated under the Securities Act. -45- INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report...........................................F-2 Balance Sheets at September 30, 1996 and 1995..........................F-3 Statements of Operations for the years ended September 30, 1994, 1995 and 1996....................................F-4 Statements of Cash Flows for the years ended September 30, 1994, 1995 and 1996....................................F-5 Statement of Stockholders' Equity (Deficit) for the years ended September 30, 1994, 1995 and 1996................F-7 Notes to Audited Financial Statements..................................F-9 Unaudited Balance Sheets at December 31, 1996 and September 31, 1996..............................................F-17 Unaudited Statement of Operations for the three months ended December 31, 1995 and 1996...................F-18 Unaudited Statements of Cash Flows for the three months ended December 31, 1995 and 1996...................F-19 Notes to Unaudited Financial Statements...............................F-20 Unaudited Balance Sheets at March 31, 1997............................F-22 Unaudited Statement of Operations for the three months ended March 31, 1996 and 1997.....................F-23 Unaudited Statements of Cash Flows for the three months ended March 31, 1996 and 1997.....................F-24 Notes to Unaudited Financial Statements...............................F-26 F-1 N. BLUMENFRUCHT 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. As discussed in Note 1, effective October 1, 1993, the Company has changed its method of accounting for income taxes in accordance with SFAS No. 109. /s/ NACHUM BLUMENFRUCHT ------------------- Nachum Blumenfrucht Certified Public Accountant Brooklyn, New York December 12, 1996 F-2 THE QUIGLEY CORPORATION Balance Sheet As of September 30, ASSETS ------
1996 1995 ---- ---- CURRENT ASSETS Cash $ 370,147 $132,739 Accounts receivable-Note 1 607,078 135,983 Interest receivable-Stockholders-Note 6 659 2,784 Inventory-Note 1 58,339 82,437 Due from attorney's escrow 0 9,000 Prepaid expenses-Note 5 0 4,468 ------------ -------- TOTAL CURRENT ASSETS 1,036,223 367,411 ------------ -------- FIXED AND OTHER ASSETS Fixed Assets (net of acc. depreciation of $28,337 and $14,010) - Note 1 65,314 36,884 Intangible Asset - Patent (net of acc. amortization of $3,134 in 1996)- Note 1 206,866 0 Deposits- Note 1 3,377 3,310 Deferred taxes- Note 1 56,521 29,471 ----------- -------- TOTAL FIXED AND OTHER ASSETS 332,078 69,665 ----------- -------- TOTAL ASSETS $1,368,301 $437,076 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Accounts payable & accrued expenses-Note 7 $ 84,253 $ 75,677 Prepaid stock subscription-Note 8 41,000 0 Loans and note payable-Note 9 0 4,453 --------- -------- TOTAL CURRENT LIABILITIES 125,253 80,130 --------- --------- NON CURRENT LIABILITIES Auto loan payable-non current portion 0 13,706 Restricted stock sold under put option 420,000 common 0 44,100 shares-Note 10 --------- --------- TOTAL LIABILITIES 125,253 137,936 --------- --------- STOCKHOLDERS' EQUITY - Note 10 Common Stock, $.001 par value; authorized 25,000,000 4,769 3,361 shares, issued and outstanding, 4,769,764 shares in 1996 and 3,361,414 shares in 1995 Additional paid-in capital 4,129,256 2,466,632 Deficit (2,803,247) (2,108,978) Less: Notes receivable stockholders - Note 6 (87,730) (61,875) ---------- ----------- TOTAL STOCKHOLDERS' EQUITY 1,243,048 299,140 ---------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,368,301 $437,076 ========== ============
The accompanying notes are an integral part of these financial statements. F-3 THE QUIGLEY CORPORATION Statement of Operations
YEARS ENDED SEPTEMBER 30, ------------------------- 1996 1995 1994 ---- ---- ---- REVENUE Sales $1,049,561 $ 501,903 $ 76,907 Cost of Goods Sold 283,967 111,834 26,751 ---------- --------- -------- Gross Profit 765,594 390,069 50,156 GENERAL AND ADMINISTRATIVE EXPENSES Officer salaries & payroll taxes 558,281 106,660 50,000 Services rendered & R&D-Note 10 71,256 80,411 8,750 Administrative expenses-Note 12 42,906 39,305 26,949 Commissions, consulting & royalties 77,030 58,711 6,100 Travel, entertainment and shows 6,009 13,758 15,551 Depreciation and amortization 17,461 4,728 2,773 Utilities 11,013 9,498 9,722 Advertising and promotion 570,752 93,931 3,056 Professional 65,268 69,325 (8,081) Rent 28,265 20,029 32,893 Interest 4,523 3,728 3,676 Insurance 19,878 25,697 5,390 Office and equipment rental 1,522 1,290 13,446 Wages and outside labor 10,901 18,156 0 Dues and subscriptions 1,777 1,420 0 Stock transfer and maintenance fees 4,462 3,600 5,700 Miscellaneous 2,490 2,449 4,090 ----------- --------- --------- Total General and administrative expenses 1,493,794 552,696 180,015 ----------- --------- --------- Loss before other income provision for income tax and cumulative effective adjustment (728,200) (162,627) (129,859) Interest Income 6,881 4,126 49 Sale of distribution rights-Note 11 0 0 32,500 ------------- --------- --------- Subtotal (721,319) (158,501) (97,310) Less: Provision for Corporate Income Tax -(Credit)- Note I (27,050) (5,945) 1,962 ------------- ---------- --------- Loss before cumulative adjustment (694,269) (152,556) (95,348) Less: Cumulative Effect Adjustment - (Credit)- Note 1 -- -- 21,564 ------------ --------- --------- Net Loss $ (694,269) $(152,556) $ (73,784) ============= ========== ========= Loss per share: Prior to cumulative effect adjust. (.17) (.05) (.04) Cumulative effect adjustment -- -- .01 ------------ --------- --------- NET LOSS PER SHARE $ (.17) $ (.05) $(.03) ============= ========== ==========
The accompanying notes are an integral part of these financial statements. F-4 THE QUIGLEY CORPORATION Statement of Cash Flows
Year Ended SEPTEMBER 30, ------------- 1996 1995 1994 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (694,269) $ (152,556) $(73,784) Adjustments to reconcile net loss to net cash used by operating activities Non-cash items included in loss: Amortization and depreciation 17,461 4,728 2,773 Expenses incurred without cost credited to additional paid in capital 0 0 40,000 Paid through the issuance of common stock 1,104,586 110,214 63,250 Allowance for deferred income taxes (27,050) (5,945) (23,526) Change in assets and liabilities: Accounts receivable (471,095) (135,983) 0 Inventory 24,098 (64,912) (8,318) Due from attorney's escrow account 9,000 (9,000) 0 Prepaid expenses 4,468 (4,468) 8,474 Interest on notes receivable 2,125 (2,784) 0 Deposits (67) 2,765 (3,235) Prepaid stock subscription 41,000 0 0 Accounts payable and accrued expenses 8,576 4,772 (24,242) ---------- ----------- -------- Cash provided by (used in) operations 18,833 (253,169) (18,608) ---------- ------------ -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed and other assets (42,757) (35,725) (1,000) Acquisition of patent rights (210,000) 0 0 ----------- ------- ------ Total cash provided by (used in) investing activities (252,757) (35,725) (1,000) ----------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Sale of restricted common stock 515,346 433,925 20,388 Less: shares issued for notes (25,855) (61,875) 0 Exercise and issuance of various options 0 38,042 0 Loan payable by shareholder 0 0 (4,800) Officers loan payable (440) (10,800) 8,240 Automobile loan payable 17,719 17,719 0 --------- ------- ------ Total cash provided by (used in) financing activities 471,332 417,011 23,828 --------- ------- ------ NET INCREASE (DECREASE) IN CASH 237,408 128,117 4,220 CASH AT BEGINNING OF PERIOD 132,739 4,622 402 --------- ------- ------- CASH AT END OF PERIOD $370,147 $132,739 $ 4,622 ========= ======== ========
The accompanying notes are an integral part of these financial statements. F-5 THE QUIGLEY CORPORATION Statement of Cash Flows (continued)
Year Ended SEPTEMBER 30, ------------- 1996 1995 1994 ---- ---- ---- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Expenses paid by issuance of common stock and options $1,104,586 $110,214 $63,250 Non cash investing & financing: Conversion of put option into equity 44,100 Acquisition of patent rights 210,000
The accompanying notes are an integral part of these financial statements. F-6 THE QUIGLEY CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) NOTE 10
Retained Common Stock Issued Additional Earnings Shares Amount Paid-In Capital (Deficit) Total ------ ------ --------------- --------- ----- Balance at Sept. 30, 1993 2,445,525 $2,445 $1,761,729 $(1,882,638) $(118,464) Sales of S registration shares, net of commission 28,550 29 16,359 16,388 Exercise of options by officers August 1994 300,000 300 20,700 21,000 Exercise of options- August 1994 50,000 50 (50) 0 Issuance of stock in settlement of accounts payable balance- August 1994 25,667 26 3,474 3,500 Issuance of stock in exchange of loan and notes payable- August and September 1994 60,000 60 29,940 30,000 Sale of shares- Sept. 1994 5,334 5 3,995 4,000 Issuance of stock for services rendered - September 1994 10,000 10 8,740 8,750 Services contributed by officers credited to paid in capital-Note 12 40,000 40,000 Net Loss for Period Ended September 30, 1994 (73,784) (73,784) --------------------------------------------------------------------------------------------------------- Balance at Sept. 30, 1994 2,925,076 2,925 1,884,887 (1,956,422) (68,610) Issuance of stock for services rendered Oct. 1, 1994-Sept. 30, 1995 88,171 88 110,126 110,214 Exercise of warrants Jan. 1995 21,134 21 38,021 38,042 --------------------------------------------------------------------------------------------------------- SUBTOTAL 3,034,381 $3,034 $2,033,034 $(1,956,422) $79,646
The accompanying notes are an integral part of these financial statements. F-7 THE QUIGLEY CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) - NOTE 10 (Continued)
Additional Retained Notes Common Issued Paid-In Earnings Receivable- Stock Shares Amount Capital (Deficit) Stockholders Total ------------ ------ ------- --------- ------------ ----- Balance 3,034,381 $3,034 $2,033,034 $(1,956,422) $ 79,646 Sale of 504 Stock- December 1994 for cash & notes-Net of expenses 159,700 160 185,715 185,875 Less: Shares issued for notes (61,875) (61,875) Sale of Stock Oct. 1, 1994-Sept. 30, 1995 for cash 167,333 167 247,883 248,050 Net Loss for period ended September 30, 1995 (152,556) (152,556) ------------------------------------------------------------------------------------------------ Balance at Sept. 30, 1995 3,361,414 3,361 2,466,632 (2,108,978) (61,875) 299,140 Conversion of put option to equity January 1996 42,000 42 44,058 44,100 Shares issued to officers net of prior compensation recognized 530,000 530 313,220 313,750 Issuance of stock for services rendered Oct. 1, 1995 -Sept. 30, 1996 269,320 269 580,567 580,836 Issuance of stock for Patent rights- Note 1 60,000 60 209,940 210,000 Stock issued to underwriter-June 1996 7,873 8 (8) 0 Exercise of warrants- Jan. 1996 2,070 2 2,068 2,070 Add: partial receipt of notes receivable on shares sold in prior period 9,145 9,145 Sale of Stock, options & exercise of options- Oct. 1, 1995- Sept. 30, 1996 for cash & notes 497,087 497 512,779 513,276 Less: Shares issued for notes (35,000) (35,000) Net Loss for period ended September 30, 1996 (694,269) (694,269) ------------------------------------------------------------------------------------------------ BALANCE AT SEPT 30, 1996 4,769,764 $4,769 $4,129,256 $(2,803,247) (87,730) $1,243,048 ========= ====== ========== ============ ======== ==========
The accompanying notes are an integral part of these financial statements F-8 THE QUIGLEY CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (a) ORGANIZATION AND OPERATIONS The Quigley Corporation (the "Company") was organized under the laws of the State of Nevada on August 24, 1989. The Company started business October 1, 1989 and has been engaged in the business of marketing health products . The products are fully developed and are being offered to the general public. For the fiscal year ended September 30, 1996 the Company had revenues of approximately $1,049,000 from the sale of these products. For the most recent fiscal periods the Company has concentrated its efforts in the promotion of a product known as "Cold-Eeze(TM)". Management believes that it can generate enough revenue in the next twelve months to sustain -the Company. Management is also pursuing additional capital through various methods. (b) REVENUE Revenue is recognized from product sales when the product is shipped using the accrual basis of accounting. (c) ACCOUNTS RECEIVABLE The direct write off method of accounting for bad debts is utilized and there is no allowance for doubtful accounts. For the current period approximately $764 of bad debts was written off. (d) INVENTORY Inventory is stated at the lower of cost or market. Cost is determined by the first in, first out method. (e) FIXED ASSETS Fixed assets are reflected on the accompanying statements at cost less accumulated depreciation. A combination of the straight line and accelerated methods of depreciation is used utilizing a life of five years for machinery and equipment and a life of seven years for furniture and fixtures. (f) PATENT During the current fiscal period the Company reached an agreement with an individual who had patent rights on the use of zinc gluconate which is used in the formulation of the Company's products. The Company issued 60,000 of its common shares in return for the exclusive and sole right to this license / patent. The stock issued had a fair value of $210,000 and is being amortized over the remaining patent life which expires in March 2002. In addition to the payment of stock , the Company has agreed to pay royalties to the previous patentholder for the remaining term of the patent. The Company is obligated under a licensing agreement to pay Drs. John and Nancy Godfrey a total of 5% of all sales of the Cold-Eeze product. This is comprised of a royalty fee of 3% and a consulting fee of 2%. The Company is also obligated under a separate licensing agreement with George Eby to pay him a 3% royalty fee of all sales collected for the remaining term of the patent. The patent expires in March 2002. The Company is obligated under an employment contract to its two principal officers, Guy J. Quigley and Charles A. Phillips, whereby the above-mentioned officers are to receive a combined royalty of 5% of gross sales from the Cold-Eeze product. Amounts paid to the officers under the aforementioned contract were included in officers compensation on the Statement of Operations. F-9 THE QUIGLEY CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) DEPOSITS Deposits are comprised of rent security and the related accrued interest. (h) INCOME TAXES Effective October 1, 1993 the Company changed its method of accounting for income taxes to comply with SFAS No. 109, "Accounting for Income Taxes." The Company has suffered net losses since inception and has a NOL carry forward of approximately $1,500,000. Using an 15% income tax rate results in a deferred tax asset of approximately $225,000. A valuation allowance of $168,479 was established to reduced deferred tax assets to amounts expected to be realized. This resulted in a net deferred tax asset of $56,521. Of this $27,050 was derived from the current year's NOL (after provision for the valuation allowance). This amount was credited to provision for Corporate Income Tax. Of the total tax asset- $21,564 represented prior years tax benefits, before the adoption by the Company of SFAS No.109. This credit was reported as a Cumulative Effect Adjustment on the Statement of Operations for the period ended September 30, 1994. (i) FISCAL YEAR The Company's fiscal year ends September 30th. (j) SERVICES CONTRIBUTED BY OFFICERS Prior to October 1, 1994, the officers received no significant remuneration. The Statement of Operations was charged an amount needed in order to obtain an annual officers compensation expense of $50,000. For the fiscal year ended Sept. 30, 1994 these charges totaled $40,000 and additional paid-in capital was credited for such amounts. For the fiscal years ended September 30, 1996 and 1995 the officers received remuneration of approximately $555,000 and $106,000 respectively. This includes common stock issued to the officers which was shown at fair value at the time of issuance. NOTE 2- MANAGEMENTS PLANS It is managements contention that they will be able to generate sufficient cash from sales to support its operations for the following twelve month period. In addition the Company is contemplating various equity offerings in the next fiscal year. F-10 THE QUIGLEY CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 3- LEASE COMMITMENTS Operating Leases- The Company has a lease agreement on its office space which expires in December 1998. There is no lease agreement on its warehouse space and the Company occupies the premises on a month to month basis. The following table represents the future minimum rent payments required on the operating lease with terms in excess of one year as of September 30, 1996. Fiscal Year Ended September 30, 1997 16,440 1998 18,213 1999 4,701 -------- $39,354 Capital Leases- in the most recent fiscal year the Company was not obligated under any capital lease. NOTE 4 - RELATED PARTY TRANSACTIONS The Company had various transactions with the Ruyala Corporation since inception. Ruyala is owned in its entirety by Wendy Quigley (the wife of the Company's President, Guy Quigley). For part of the current fiscal year officer compensation owing to Guy and Wendy Quigley was paid to the Ruyala corporation and was charged to officers compensation on the Statement of Operations. NOTE 5- PREPAID EXPENSES & BANK LOAN PAYABLE Prepaid expenses represents prepaid interest on an automobile loan. The automobile loan was satisfied in its entirety in the current fiscal period. NOTE 6- NOTES RECEIVABLE-SHAREHOLDERS Notes receivable include principal and interest due from shareholders. The Company sold shares under a Section 504 registration and received a note in the amount of $61,875 in 1995. The note was originally due June 1, 1996 and bore interest at a rate of 6% per annum. The Board of Directors authorized an extension on the due date of the note until July 1, 1997. The balance as of September 30, 1996 was $53,389. Additionally, certain option and warrant holders exercised their options in September 1996. The full proceeds of the exercise were not received in the current period. As of September 30, 1996 the balance owing to the Company was $35,000. The principal amount of the notes has been shown as a reduction in shareholders equity pending the collection of such notes. The interest receivable has been carried as a current asset on the balance sheet. NOTE 7- ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses represent various short term operating expenses of the Company including the purchase of merchandise. F-11 THE QUIGLEY CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 8- PREPAID STOCK SUBSCRIPTION As of September 30, 1996 an investor deposited $41,000 for the purchase of common shares which were issued in October 1996. NOTE 9- LOANS AND NOTES PAYABLE (a) As of September 30, 1995 loans payable represented an amount due to officers of $440. The loan was satisfied in full during the current fiscal period. (b) The Company purchased an automobile and financed part of the purchase through a bank loan. The total amount financed was $15,324 at an approximate rate of 11% for a period of 60 months. As of September 30, 1995 approximately $17,700 was owed. The loan was satisfied in full in the current period. NOTE 10-CAPITALIZATION In December 1995, the Company initiated a 1 for 10 reverse stock split and changed the par value of its stock to $.001 per common share. All shares referred to in the financial statements and notes to the financial statements (unless specifically stated otherwise) refer to post split amounts. (a) In August of 1994 an option holder exercised 250,000 options in lieu of the $2,500 owed to him by the Company for advertising services rendered. The Statement of Operations reflects a charge to advertising in the period where incurred. (b) In November 1992 , January and February 1993 the Company received a total of $35,000 from an investor. The agreement provided that the investor was to receive 12,000 (pre-split) restricted shares of the Company for each $1,000 invested up to an initial maximum of 1,800,000 (pre-split) restricted common shares for a maximum, investment of $150,000. The Company had granted the investor certain resale rights where the investor could require the Company to repurchase the shares at increasing prices ranging from $.0972 to $.105 per share. This option commenced 24 months from January 1993 and expired 36 months from such date. As of September 30, 1995 the Company had issued 42,000 shares of stock to the investor. Due to the potential exercise of the put option, the above mentioned shares had been segregated from the stockholders' permanent equity and had been included in the mezzanine section of the balance sheet in the amount of $44,100 (the maximum repurchase price). In the current- fiscal period the put option expired and the shares were moved to the permanent equity section. (c) In June of 1994 the Company sold 28,550 shares in a Regulation "S" sale of common shares of the Company. The shares were offered exclusively to non-US persons. The shares were sold at $.07 a share for total gross proceeds of $19,985. Commissions totaling $3,597 were deducted from these proceeds resulting in a net amount of $16,388 being forwarded to the Company. (d) In August 1994 various officers and / or their spouses exercised options which were issued in 1992. A total of 300,000 shares were issued upon the exercise of these options. The options exercised ranged in price from $.001 through $.10 per share. Total consideration was to have been $21,000. In lieu of payment, the officers applied monies owed to them by the Company. (e) In August 1994 Gary Quigley (a relative of the Company's President) exercised 500,000 options out of the 1,000,000 granted to him in 1992. in lieu of paying the exercise price Gary Quigley relinquished the remaining 500,000 options issued to him. The options were then cancelled by the Company. F-12 THE QUIGLEY CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 10- CAPITALIZATION (CONTINUED) (f) In August 1994 the Company issued 36,000 restricted shares to Dr. Robert Pollack in total repayment of a debt of $18,000 ($.50 per share). The debt was incurred over a period of fifteen months and included $820 worth of interest. (g) In September 1994 the Company issued 24,000 restricted shares to Dr. and Mrs. John Godfrey in full repayment of a loan owing to them in the amount of $12,000 ($. 50 per share) . (h) In August 1994, 667 restricted shares were issued to Robert Moore in payment of a debt owed to him of $1,000 ($1.50 per share) for the installation of some fixed assets The balance sheet account- fixed assets was charged for this item in a prior period in the amount of $1,000. (i) In September 1994 Mrs. Robert Pollack purchased 5,334 restricted shares of the Company at $.75 for a total cash consideration of $4,000. (j) In August 1994 the Company issued 10,000 restricted shares of common stock to Dr. John Godfrey for services rendered. A charge in the amount of $8,750 was made to services rendered on the Statement of Operations for the fair value of the stock. (k) During the period October 1, 1994 through September 30, 1995 various individuals purchased restricted stock from the Company. 167,333 shares were sold for which the Company received consideration of $243,050 or an average price of approximately $1.48 per share. (l) In January 1995 warrants which were originally issued to the underwriter were exercised by a third party who had the warrants transferred to him. Total shares issued were 21,134 in consideration of an $38,042 exercise price or a per share price of $1.80. (m) In December 1994 and January 1995 the Company sold 159,700 shares of stock under a Registration D private placement offering for total consideration of $199,625. The Company paid commissions on the sale in the amount of $13,750 which was charged against paid in capital. The Company received an interest bearing note receivable in the amount of $61,875 from some investors. This note is due June 1, 1997. (n) During the period October 1, 1994 through September 30, 1995 various individuals were issued restricted shares in return for goods and services rendered. The total number of shares issued was 88,171. The statement of operations was charged a total of $110,214 or $1.25 per share for these issuance. The various expenses categories charged were: Services rendered\ R&D $ 70,711 Advertising & Promotion 19,813 Legal 7,500 Commissions 6,875 Purchases of goods 2,815 Office expense 2,500 -------- Total $110,214 ======== The valuation was based on the fair value of the stock which approximated the value of goods and services rendered. (o) In December 1995 the Company initiated a 1 for 10 reverse stock split and changed the par value of the stock to $.001 per common share. In January 1996 all a, b, and c warrants exercising prices were reduced from $.25, $.50 and $.75 to $.10, $.15 and $.20 respectively. All warrants of these classes expired as of January 31, 1996. F-13 THE QUIGLEY CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 10- CAPITALIZATION (CONTINUED) (p) During the period October 1, 1995 through September 30, 1996 various individuals were issued shares in return for goods and services rendered. The total number of shares issued was 269,320. The statement of operations was charged a total of $580,836 or an average of $2.16 per share for these issuance. The various expenses categories charged were: Services rendered\ R&D $ 41,836 Advertising & Promotion 434,000 Legal 105,000 -------- Total $580,836 ======== (q) In addition, an underwriter was issued 7,873 shares for services rendered. Additional paid in capital was charged for this transaction. The valuation was based on the fair value of the stock at the time of issuance. (r) For periods prior to October 1, 1994 officers compensation actually received by officers was minimal. For those periods the Statement of Operations was charged an amount needed in order to obtain an annual officers compensation expense of $50,000. Additional paid in capital was credited for such amounts. During the period October 1, 1995 through September 30, 1996, 530,000 shares were issued to various officers for past service rendered. The fair value of these shares was $463,750. This amount was reduced by $150,000 which represents amounts charged in prior periods for compensation which was never actually paid to the officers. (s) In January and February 1996 20,700 of A warrants were exercised by various individuals who received 2,070 shares for a total consideration of $2,070. (t) During the period October 1, 1995 through September 30, 1996 various individuals purchased shares, options and or exercised options in the Company. The total shares issued was 497,087 and total consideration received was $515,346. By agreement with the optionholders, 1,250,000 shares of common stock underlying the purchase options were registered pursuant to Form S-8 in August and October 1996. (u) During the current period the Company entered into a marketing agreement with Pacific Rim Pharmaceuticals for developing the Company's product in the Far East. Pacific Rim Pharmaceutical was issued 300,000 common stock Class D warrants exercisable at $1 and expiring in December 2000. NOTE 11- INCOME On June 21, 1993, the Company received a non refundable deposit in the amount of $20,000 from a Canadian corporation (Cold-Eeze Canada Inc.) These monies were a deposit toward a total of $250,000 for an option to acquire the distribution rights for one of the Company's product. In November 1993 Cold-Eeze Canada Inc. transferred their distribution rights to Sunburst Resources. The Company and Sunburst had renegotiated the original agreement to allow for distribution in the United States on a non exclusive agreement. Sunburst agreed to pay $75,000 to the Company prior to March 15, 1994. On January 15, 1994 the Company received the first installment of $12,500. In January 1994 the Company terminated its agreement with Sunburst as they had reneged on any further payments. The receipt of these monies was shown as income from the sale of distribution rights on the Statement of Operations in the period that negotiations ceased. F-14 THE QUIGLEY CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 12- EXPENSES (a) Services contributed by officers was charged to officer's compensation even though no monies were paid to those officers. Management's estimate of the value of these costs are: For year ended September 30, 1995 and 1996 ---------------------------- 1994 ---- Officer's Salary $0 $40,000 The corresponding expense was charged on the statement of operations and additional paid-in capital was credited for such amounts. (b) Administrative expenses are comprised mainly of office expense, supplies and employee business expenses. NOTE 13- COMMITMENTS AND CONTINGENCIES The Company is obligated on a lease on its office which expires December 1998. The current monthly rent is $1,370. The Company is obligated under a licensing agreement to pay Drs. John and Nancy Godfrey a total of 5% of all sales of the Cold-Eeze product. This is comprised of a royalty fee of 3% and a consulting fee of 2%. These fees amounted to $19,999 and $0 for Fiscal 1996 and Fiscal 1995. The Company is also obligated under a separate licensing agreement with George Eby to pay him a 3% royalty fee of all sales collected for the remaining term of the patent. The patent expires in March 2002. No royalties were paid under this agreement in Fiscal 1996 and Fiscal 1995. The Company is obligated under an employment contract to its two principal officers, Guy J. Quigley and Charles A. Phillips, whereby the above-mentioned officers are to receive a combined royalty of 5% of gross sales from the Cold-Eeze product. No royalties were paid under this agreement in Fiscal 1996 and Fiscal 1995. F-15 THE QUIGLEY CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 14- STOCK OPTIONS AND WARRANTS The following is a summary of stock warrants and options outstanding for the dates listed: THE QUIGLEY CORPORATION SCHEDULE OF OUTSTANDING WARRANTS AND OPTIONS
Sale Warrants Warrants Warrants Incentive Security $1.00 $3.50 $.10,.15,.20 Options Options Options Warrants Exercise Price Class D Class E Class A,B,C Various $1.00 $1.25-$1.50 Underwriters - ----------------- ----------- ---------- ------------ ------------ ------------ ------------ ------------- Balance Oct. 1, 1994 0 0 634,030 1,710,000 0 0 84,536 Exercised Oct. 1, 1994 - Sept. 30, 1995 0 0 0 0 0 0 21,134 --------- --------- --------- ----------- ----------- --------- ------ Subtotal 0 0 634,030 1,710,000 0 0 63,402 Add: New items issued 0 0 0 0 1,500,000 140,000 63,402 --------- --------- -------- ----------- --------- ------- ------ Balance Sept. 30, 1995 0 0 634,030 1,710,000 1,500,000 140,000 63,402 Exercised Oct. 1, 95 - Sept. 30, '96 0 0 20,700 0 385,000 0 20,000 Expired Oct. 1, 95 - Sept. 30, '96 0 0 613,330 1,710,000 0 0 0 --------- --------- ------- --------- ----------- --------- -------- Subtotal 0 0 0 0 1,115,000 140,000 43,402 Add: New items issued 800,000 850,000 0 0 0 0 0 ------- ------- --------- ----------- ---------- -------- -------- Balance Sept. 30, 1996 800,000 850,000 0 0 1,115,000 140,000 43,402 ======= ======= ========= =========== ========= ======= ======
During the current period the Company sold incentive stock options to various salesman. The Company received a total of $960 from the sale of these options. 140,000 options were issued in total and the exercise price ranges from $1.25 to $1.50. The options expire in 1998 and are exercisable upon reaching certain sales goals. NOTE 15- SUBSEQUENT EVENTS On October 1, 1996 the Company hired the investment banking firm, Sands Brothers & Co. to assist in raising additional capital needed for expansion purposes. The company is considering a private placement of common stock pursuant to Regulation D. It is estimated that total funds raised will be in range of $6,000,000 - $8,000,000. F-16 THE QUIGLEY CORPORATION BALANCE SHEETS (Unaudited) December 31, September 30, 1996 1996 ASSETS Current Assets: Cash ........................................ $2,455,973 $ 370,147 Notes receivable ............................ 54,189 88,389 Accounts receivable, net .................... 2,200,824 607,078 Due from attorneys' escrow account .......... 260,000 -- Inventory ................................... 300,732 58,339 Other current assets ........................ 9,857 -- ---------- ---------- TOTAL CURRENT ASSETS .................... 5,281,575 1,123,953 ---------- ---------- EQUIPMENT - Less accumulated depreciation ......... 66,599 65,314 ---------- ---------- OTHER ASSETS: Patent rights - Less accumulated amortization 267,985 206,866 Deferred income taxes ....................... 715,825 56,521 Other assets ................................ 3,389 3,377 ---------- ---------- TOTAL OTHER ASSETS ..................... 987,199 266,764 ---------- ---------- TOTAL ASSETS ...................................... $6,335,373 $1,456,031 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Accounts payable ..................... $ 131,797 $ 63,139 Accrued expenses ..................... 749,996 21,114 Accrued income taxes ................. 622,318 -- Stock subscription payable ........... -- 41,000 ----------- ----------- TOTAL CURRENT LIABILITIES............. 1,504,111 125,253 STOCKHOLDER'S EQUITY: Common Stock, $.0005 par value; authorized 25,000,000; issued and outstanding 12,099,192 and 9,539,528 shares (Note 2) ...................... 6,049 4,769 Additional paid-in capital ........... 5,978,390 4,129,256 Deficit .............................. (851,758) (2,803,247) Stock subscription receivable ........ (301,419) -- ----------- ----------- TOTAL STOCKHOLDER'S EQUITY ..... 4,831,262 1,330,778 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.. $ 6,335,373 $ 1,456,031 =========== =========== See accompanying notes to financial statements F-17 THE QUIGLEY CORPORATION STATEMENTS OF OPERATIONS (Unuadited) Three months ended December 31, December 31, 1996 1995 ----------- ----------- NET SALES ................................... $4,091,653 $ 147,718 ----------- ----------- COST OF SALES ............................... 1,374,327 17,975 ----------- ----------- GROSS PROFIT ................................ 2,717,326 129,743 ----------- ----------- OPERATING EXPENSES: Sales and marketing ...................... 585,202 37,510 Administration ........................... 217,621 96,580 ----------- ----------- TOTAL OPERATING EXPENSES..................... 802,823 134,090 ----------- ----------- INCOME BEFORE TAXES ......................... 1,914,503 (4,347) ----------- ----------- INCOME TAXES (Note 4)........................ (36,986) -- ----------- ----------- NET INCOME .................................. $1,951,489 ($ 4,347) =========== =========== Earnings per common share: Primary (Notes 2 and 3)................... $ .14 -- ========== Fully diluted (Notes 2 and 3)............. $ .14 -- ========== Weighted average common shares outstanding: Primary (Notes 2 and 3)................... 13,881,028 10,562,828 Fully diluted (Notes 2 and 3)............. 13,881,028 10,562,828 See accompanying notes to financial statements F-18 THE QUIGLEY CORPORATION STATEMENTS OF CASH FLOWS (Unaudited) Three months ended December 31, December 31, 1996 1995 OPERATING ACTIVITIES: Net income (loss) ................................ $1,951,489 $ (4,347) ---------- -------- Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation and amortization .............. 18,807 -- Deferred income taxes ...................... (659,304) -- (Increase) decrease in assets: Notes receivable ...................... 34,200 (1,080) Accounts receivable ................... (1,593,746) (76,317) Inventory ............................. (242,393) 8,333 Other current assets .................. (9,857) 253 Increase (decrease) in liabilities: Accounts payable ...................... 68,658 23,793 Accrued expenses ...................... 728,882 (1,002) Accrued income taxes .................. 622,318 -- Stock subscription payable ............ (41,000) -- ---------- -------- Total adjustments ................ (1,073,435) (46,020) ---------- -------- NET CASH PROVIDED BY OPERATING ACTIVITES ... 878,054 (50,367) ---------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ............................. (6,212) (2,760) Patent rights and other assets ................... (75,011) -- ---------- -------- NET CASH FLOWS FROM INVESTING ACTIVITIES ... (81,223) (2,760) ---------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Common stock issued for services performed ....... 217,814 -- Common stock issued from exercise of options and warrants ..................................... 1,590,000 -- Common stock issued from sale of stock and options 42,600 -- Due from attorneys' escrow account ............... (260,000) Stock subscription receivable .................... (301,419) ---------- -------- NET CASH FLOWS FROM FINANCING ACTIVITIES ... 1,288,995 -- ---------- -------- NET INCREASE (DECREASE) IN CASH ............ 2,085,826 (53,127) CASH AT BEGINNING OF PERIOD ......................... 370,147 132,739 ---------- -------- CASH AT END OF PERIOD ............................... $2,455,973 $ 79,612 ========== ======== See accompanying notes to financial statements F-19 THE QUIGLEY CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND GENERAL The Quigley Corporation (the "Company"), organized under the laws of the state of Nevada, is primarily engaged in the development and marketing of homeopathic cold remedies. The products developed are being offered to the general public through distributors, brokers, mail order, and are currently being featured on the QVC Cable TV shopping network. For the fiscal periods presented, and for the immediate future, the Company plans to continue concentrating its efforts in the promotion of its major product "Cold-Eeze". This product is covered by patents registered in the United States, United Kingdom, Sweden, France, Italy, Canada, Germany and pending in Japan. Research is continuing on this product in order to maximize its full potential use for the general public. On July 15, 1996, results were published in the Annals of Internal Medicine - Vol. 125 No 2, of a new randomized double-blind placebo-controlled study of the common cold, which had commenced at the Cleveland Clinic Foundation, on October 3, 1994. This study had results that showed a 42% reduction in the duration of the common cold. The Company has exclusive worldwide use, manufacturing, marketing and distribution rights for the zinc gluconate/glycine lozenge formulation, known as "Cold-Eeze". The goal of the Company is to have consumers worldwide make "Cold-Eeze" their preferred choice for relief from the common cold. The Balance Sheet as of December 31, 1996, the Statements of Operations, and the Statements of Cash Flows for the three month periods ended December 31, 1996 and 1995, 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 September 30, 1996 in the Companys' Form 10-KSB. NOTE 2 - TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY On January 15, 1997, the Company split its common stock on a two-for-one basis. Therefore, all share data such as, par value, earnings per share, options exercised, warrants granted, cash received or to be received for outstanding options and warrants are all on a post-split basis. During the three month period ended December 31, 1995, there were no transactions affecting stockholders equity. From October 1, 1996 to December 31, 1996, there were 2,365,000 shares issued through the exercise of stock options and warrants of the Company, shares numbering 54,664 were issued for cash payment, and 140,000 were issued for services rendered to the Company. The difference between the option payment price, cash received, or fair market value for services rendered, resulted in an increase to the additional paid-in-capital of the Company. As of October 1, 1996, there were 5,810,000 unexercised options and warrants. During the period ended December 31, 1996, 2,265,000 options and warrants were exercised at various prices. In November of 1996, the Company issued 350,000 warrants to purchase the Companys' stock at $2.50 per share. At December 31, 1996, there were a total of 3,895,000 (of which 3,595,000 are currently exercisable) of unexercised issued options and warrants of the Companys' stock. F-20 NOTE 2 - TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY (continued) Of the shares issued through the exercise of stock options and warrants, monies in the amount of $301,419, still owing to the Company, are classified as a contra account in stockholders' equity. In addition, the contract, as modified in November 1996, with Sands Brothers & Co., Ltd., the Companys' investment banker, for the purpose of raising additional capital needed for expansion, stipulates that "Sands" has the conditional right to purchase, at $10 per share, 200,000 shares of the Companys' stock, for every million dollars they identify for the Company in a private placement of the Companys' stock pursuant to Regulation D. Current plans of the Company is that the private placement is not to exceed $10 million. NOTE 3 - EARNINGS PER SHARE Earnings and net loss per share is based on the weighted average number of common shares outstanding during the three months ended December 31, 1996 and 1995. During the period ended December 31, 1995, no effect has been given to unexercised stock options or warrants because the effect would be antidilutive. NOTE 4 - INCOME TAXES Income taxes resulted in a credit for the period ended December 31, 1996 because of an excess valuation account at September 30, 1996 that provided for deferred taxes at a rate of 15% instead of the 40.5% used at December 31, 1996. Based upon the expectations for the Company at September 30, 1996, a "qualification for a going concern" was made in the audit report of the Company. Thereby indicating the valuation account and rates used were determined to be adequate at that time. NOTE 5 - COMMITMENTS AND CONTINGENCIES In November 1996, the Company and George J. Longo entered into an employment agreement for a period of five years. This agreement provides for, among other things, that Mr. Longo, commencing in January 1997, is to serve as the Chief Financial Officer for the Company, a starting base salary of $80,000 per annum, and the granting of 50,000 warrants to purchase the Companys' stock at $2.50 per share. NOTE 6 - OTHER MATTERS On January 2, 1997, the Board of Directors approved the change of the Comapnys' fiscal year from September 30 to December 31 to reflect the fiscal year which has been generally adopted by the pharmaceutical industry. The audited statements for the transition period October 1, 1996 to December 31, 1996 will be filed by the Company of Form 10-KSB for the calendar year ended December 31, 1997, and will be audited by Nachum Blumenfrucht, CPA. On January 29, 1997, the Company engaged the independent accounting firm of Coopers & Lybrand L.L.P. to audit the Companys' financial statements for the calendar year 1997. The replacement of the previous certifying accountant, Nachum Blumenfrucht, CPA, was made by approval of the Board of Directors of the Company and with agreement of Mr. Blumenfrucht. This change was due to the dramatic expansion of business operations undertaken by the Company since the close of the prior fiscal year. There have been no disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure, nor any reportable event required to be disclosed. F-21 THE QUIGLEY CORPORATION BALANCE SHEET (Unaudited) March 31, 1997 ASSETS Current Assets: Cash .................................................. $ 9,042,356 Accounts receivable, net .............................. 12,334,453 Inventory ............................................. 844,427 Other current assets ............................... 107,721 ----------- TOTAL CURRENT ASSETS ........................... 22,328,957 ----------- EQUIPMENT - Less accumulated depreciation ................ 118,485 ----------- OTHER ASSETS: Patent rights - Less accumulated amortization....... 445,510 Deferred income taxes (Note 4)...................... 967,975 Other assets ....................................... 378,841 ----------- TOTAL OTHER ASSETS ............................ 1,792,326 ----------- TOTAL ASSETS ............................................. $24,239,768 =========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Accounts payable .................................... $ 903,396 Accrued payroll and payroll taxes ................... 663,429 Accrued royalties and sales commissions.............. 3,581,070 Accrued expenses .................................... 1,324,447 Accrued income taxes ................................ 5,292,149 ---------- TOTAL CURRENT LIABILITIES ...................... 11,764,491 ---------- OTHER NON-CURRENT LIABILITIES ............................. 884,000 ---------- STOCKHOLDERS' EQUITY: Common Stock, $.0005 par value; authorized 50,000,000; issued 12,178,130; outstanding 11,691,268 shares (Note 2)............. 6,089 Additional paid-in capital .......................... 7,440,119 Retained earnings ................................... 5,638,057 Less: Treasury stock, 486,862 shares at cost (Notes 2 & 3).............................. (1,145,358) Stock subscription receivable (Note 2)............. (347,630) ---------- TOTAL STOCKHOLDERS' EQUITY ..................... 11,591,277 ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $ 24,239,768 ========== See accompanying notes to financial statements F-22 THE QUIGLEY CORPORATION STATEMENTS OF OPERATIONS (Unaudited) Three months ended March 31, 1997 March 31, 1996 NET SALES ...................................... $ 22,182,007 $ 105,432 ------------ ----------- COST OF SALES .................................. 6,888,823 32,899 ------------ ----------- GROSS PROFIT ................................... 15,293,184 72,533 ------------ ----------- OPERATING EXPENSES: Sales and marketing ...................... 2,486,124 42,137 Administration ........................... 1,899,564 108,314 ------------ ----------- TOTAL OPERATING EXPENSES ............ 4,385,688 150,451 ------------ ----------- INCOME BEFORE TAXES ............................ 10,907,496 (77,918) ------------ ----------- INCOME TAXES (Note 4)........................... 4,417,681 (628) ------------ ----------- NET INCOME ..................................... $ 6,489,815 ($ 77,290) ============ =========== Earnings per common share: Primary (Notes 2 and 3)................... $ .40 ($ .01) ============ =========== Fully diluted (Notes 2 and 3)............. $ .40 ($ .01) ============ =========== Weighted average common shares outstanding: Primary (Notes 2 and 3)................... 16,368,844 8,416,568 Fully diluted (Notes 2 and 3)............. 16,368,844 8,416,568 See accompanying notes to financial statements F-23 THE QUIGLEY CORPORATION STATEMENTS OF CASH FLOWS (Unaudited) Three months ended March 31,1997 March 31,1996 OPERATING ACTIVITIES: Net income (loss) .............................. $ 6,489,815 ($77,290) ------------ -------- Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation and amortization .............. 48,991 -- Deferred income taxes ...................... (252,150) -- (Increase) decrease in assets: Accounts receivable .................... (10,133,629) 61,065 Inventory .............................. (543,695) 7,419 Other current assets ................... (97,864) 253 Increase (decrease) in liabilities: Accounts payable ....................... 771,599 (7,757) Accrued payroll and payroll taxes ...... 663,429 -- Accrued royalties and sales commissions. 2,950,425 -- Accrued expenses ....................... 1,205,096 (1,442) Accrued income taxes ................... 4,669,831 -- Other non-current liabilities .......... 884,000 -- ------------ -------- Total adjustments .................. 166,033 59,538 ------------ -------- NET CASH PROVIDED BY OPERATING ACTIVITIES .......... 6,655,848 (17,752) ------------ -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ............................ (50,435) (697) Patent rights and other assets .................. (390,515) (11) ------------ -------- NET CASH FLOWS FROM INVESTING ACTIVITIES .......... (440,950) (708) ------------ -------- CASH FLOWS FROM FINANCING ACTIVITIES: Common stock issued from exercise of options and warrants .................................... 27,500 -- Common stock issued from sale of stock .......... 76,007 28,575 Due from attorney's escrow account .............. 260,000 -- Stock subscription receivable ................... 7,978 (1,098) ------------ -------- NET CASH FLOWS FROM FINANCING ACTIVITIES .......... 371,485 27,477 ------------ -------- NET INCREASE (DECREASE) IN CASH ................... 6,586,383 9,017 CASH AT BEGINNING OF PERIOD ....................... 2,455,973 79,612 ------------ -------- CASH AT END OF PERIOD ............................. $ 9,042,356 $ 88,629 ============ ======== See accompanying notes to financial statements F-24 THE QUIGLEY CORPORATION STATEMENTS OF CASH FLOWS (continued) (Unaudited) Three months ended March 31,1997 March 31,1996 Supplemental disclosure of cash flow information Non cash investing and financing activities: 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 F-25 THE QUIGLEY CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION 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, brokers, mail order, and is regularly featured on the QVC Cable TV shopping network. 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(TM)" and Cold-Eezer Plus 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. This product is covered by patents registered in the United States, United Kingdom, Sweden, France, Italy, Canada, Germany and pending in Japan. Research is continuing on this product in order to maximize its full potential use for the general public. On July 15, 1996, results of this study were published in the Annals of Internal Medicine - Vol. 125 No 2, of a new randomized double-blind placebo-controlled study of the common cold, which had commenced at the Cleveland Clinic Foundation, on October 3, 1994. This study had results that indicated a 42% reduction in the duration and severity of the common cold. The Company has exclusive worldwide use, manufacturing, marketing and distribution rights for the zinc gluconate glycine lozenge formulation, known as "Cold-Eeze(TM)". The goal of the Company is to have consumers worldwide make "Cold-Eeze(TM)" their preferred choice for relief from the common cold. 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(TM) 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 a various range and size of suppliers in the cold remedy products arena. Cold-Eeze(TM) has been clinically proven to reduce the duration and severity of the common cold, whereas the competition's products only relieve the symptoms of the cold. 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 Balance Sheet as of March 31, 1997, the Statements of Operations, and the Statements of Cash Flows for the three month periods ended March 31, 1997 and 1996, 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 September 30, 1996, in the Company's Form 10-KSB/A, and the transition quarter ended December 31, 1996, in the Company's Form 10-QSB. The transition quarter reflects the Company's change from a fiscal year end of September 30, to a calendar year end, and is reflective of the first quarter results since the release of The Cleveland Clinic Study in July 1996. F-26 NOTE 2 - TRANSACTIONS AFFECTING STOCKHOLDER'S EQUITY On January 15, 1997, the Company split its common stock on a two-for-one basis. Therefore, all share data such as, par value, earnings per share, options and warrants exercised, cash received or to be received for outstanding options and warrants are all on a post-split basis. From January 1, 1997 to March 31, 1997, there were 40,000 shares issued through the exercise of stock options and warrants of the Company, shares numbering 17,884 were issued for cash payment, 264,120 were issued for services rendered to the Company, and 729,928 shares were returned to the Company to be placed in treasury. The difference between the option payment price, cash received, or fair market value for services rendered, resulted in an increase to the additional paid-in-capital of the Company. At March 31, 1997, there were a total of 4,940,000 (of which 4,640,000 are currently exerciseable) of unexercised issued options and warrants of the Company's stock. Of the shares issued through the exercise of stock options and warrants, monies in the amount of $347,630 still owing to the Company, are classified as a contra account in stockholder's equity. In addition, the contract, as modified in November 1996, with Sands Brothers & Co., Ltd., the Company's investment banker, for the purpose of raising additional capital needed for expansion, stipulates that "Sands" has the conditional right to purchase, at $10 per share, 200,000 shares of the Company's stock, for every million dollars they identify for the Company in a private placement of the Company's stock pursuant to Regulation D. The Company desired that the private placement was not to exceed $10 million. During the period ended March 31, 1997, the Company decided not to pursue a private placement offering. Therefore, the aforementioned possible additional warrants for "Sands" will not materialize. However, in order to cancel this arrangement with "Sands", which was subsequent to March 31, 1997, the Company issued to "Sands" 350,000 additional warrants to purchase the Company's stock at $10 per share. Accordingly, a provision for loss of $700,000 ($417,000 net of taxes) for a total of 1,150,000 warrants issued to "Sands", and other expenses expected to be incurred, was charged against earnings for the period ended March 31, 1997. Also, the Company canceled a contract with a consulting firm that was previously issued 350,000 options to purchase the Company's stock. A provision of $91,000 ($54,000 net of taxes), was charged against earnings during this period ended March 31, 1997. The provision for loss for these canceled agreements, which is based upon the current information available, may be adjusted, as a further valuation is made for these warrants. On March 27, 1997, the Company received a net return to treasury 486,862 shares of its stock because of a favorable ruling from litigation commenced against Nutritional Foods, Ltd. ("NFL"). The total shares recovered was 729,928. As payment for legal services, 243,066 restricted shares were issued on March 27, 1997 with a discounted market value for these shares of $1,145,358. This discounted value then became the cost of the net treasury stock ($2.35 per share) returned to the Company. NOTE 3 - EARNINGS PER SHARE Earnings and net loss per share is based on the weighted average number of common shares outstanding during the three months ended March 31, 1997 and 1996. Using the modified treasury stock method, increased the weighted average number of common shares outstanding for the period ended March 31, 1997 by 4,305,014 shares, or a total number of weighted shares outstanding of 16,368,844. During the period ended March 31, 1996, no effect has been given to unexercised stock options or warrants because the effect would be antidilutive. F-27 NOTE 3 - EARNINGS PER SHARE (continued) In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share", which simplifies the calculation of basic EPS and diluted EPS. The effective date is for accounting periods ending after December 15, 1997, with restatement for prior periods presented after December 15, 1997. NOTE 4 - INCOME TAXES Income taxes includes 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 $967,975 consists principally of future tax deductions from the issuance of options, warrants and restricted stock. For the period ended March 31, 1997 an effective tax rate is provided for deferred and currently payable taxes at 40.5%. Since the Company was in a Net Operating Loss position at March 31, 1996, only $628 was provided as the amount that was expected to be realized. NOTE 5 - COMMITMENTS AND CONTINGENCIES The Company maintains certain royalty agreements with the founders and developers, licensors, and consultants for the Cold-Eeze(TM) product. The gross royalty is 13% of sales collected before certain deductions. Representative Agreements are in place for several Brokers and Distributors, both Nationally and Internationally. These agreements are sales performance based. In addition the Company has also issued incentive common stock purchase options to its Brokers, Distributors and Representatives. Additionally, there are employment agreements in place with certain officers of the Company that expire in 2005 or earlier, and provide for among other things, a minimum annual base compensation. During the period ended March 31, 1997, an agreement with the manufacturer of the Cold-Eeze(TM) product for the Company was entered for a period of three years. Also, the Company has contractual commitments for advertising amounting to approximately $2,700,000. Included in the results of operations for the period ended March 31, 1997, are provisions for estimated costs to litigate the settlement of certain agreements and infringements of the Company's proprietary Cold-Eeze(TM) product by certain competitors. NOTE 6 - OTHER MATTERS On January 2, 1997, the Board of Directors approved the change of the Company's fiscal year from September 30 to December 31 to reflect the fiscal year which has been generally adopted by the pharmaceutical industry. The audited statements for the transition period October 1, 1996 to December 31, 1996, will be audited by Nachum Blumenfrucht, CPA, and filed by the Company within Form 10-KSB for the calendar year ended December 31, 1997. On January 29, 1997, the Company engaged the independent accounting firm of Coopers & Lybrand L.L.P. to audit the Company's financial statements for the calendar year 1997. The replacement of the previous certifying accountant, Nachum Blumenfrucht, CPA, was made by approval of the Board of Directors of the Company and with agreement of Mr. Blumenfrucht. This change was due to the dramatic expansion of business operations undertaken by the Company since the close of the prior fiscal year. There have been no disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure, nor any reportable event required to be disclosed. F-28 No dealer, salesman or any other person is authorized to give any information or to make any representations in connection with this offering not contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any other person. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the Securities offered by this Prospectus or an offer by any person in any jurisdiction where such an offer or solicitation is not authorized or is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that information herein is correct as of any time subsequent to its date. TABLE OF CONTENTS PAGE Available Information...................................................2 Prospectus Summary......................................................3 The Company.............................................................3 Risk Factors............................................................6 Use of Proceeds........................................................12 Price Range of Common Stock ...........................................13 Dividend Policy........................................................15 Selected Financial Data................................................15 Management's Discussion and Analysis of Financial Condition and Results of Operations...........................................................16 Business...............................................................24 Management.............................................................29 Certain Transactions...................................................34 Security Ownership of Certain Beneficial Owners and Management................................................34 Description of Securities..............................................36 Selling Shareholders...................................................38 Plan of Distribution...................................................43 Legal Matters..........................................................44 Experts................................................................44 Change of Accountants ..............................................45 Index to Financial Statements.........................................F-1 THE QUIGLEY CORPORATION 5,480,000 SHARES OF COMMON STOCK PROSPECTUS [ ], 1997 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company's By-laws authorize indemnification of directors and officers as follows: ARTICLE V - INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS Section 1. The corporation shall indemnify any person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. No officer, director or shareholder may become surety on behalf of the corporation for any of its obligations under any circumstances whatsoever. See Item 9(e) below for information regarding the position of the Commission with respect to the effect of any indemnification for liabilities arising under the Securities Act of 1933, as amended. Section 78.751 of the Nevada General Corporation Law provides as follows: "1. A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent II-1 of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. 2. A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. 3. To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections 1 and 2, or in defense of any claim, issue or matter therein, he must be indemnified by the corporation against expenses, including attorneys' fees actually and reasonably incurred by him in connection with the defense. II-2 4. Any indemnification under subsections 1 and 2, unless ordered by a court or advanced pursuant to subsection 5, must be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: (a) By the shareholders; (b) By the board of directors by majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding; (c) If a majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding so orders, by independent legal counsel in a written opinion; or (d) If a quorum consisting of directors who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. 5. The articles of incorporation, the bylaws or an agreement made by the corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions of this subsection do not affect any rights to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law. 6. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this section: (a) Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, for either an action in his official capacity or an action in other capacity while holding his office, except that indemnification, unless ordered by a court pursuant to subsection 2 or for the advancement of expenses made pursuant to subsection 5, may not be made to or on behalf of any director or officer if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. II-3 (b) Continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the various expenses which will be paid by the Company in connection with the securities being registered. With the exception of the SEC registration fee, all amounts shown are estimates. SEC registration fee........................................ $4,998.42 Legal fees and expenses (including Blue Sky)........................................................ 25,000.00 Accounting Fees and Expenses................................ 5,000.00 Miscellaneous............................................... 501.58 ------------ Total.............................................. $ 35,500.00 =========== ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits: EXHIBIT NO. ***3.1 Articles of Incorporation of the Company (as amended). *3.2 Certificate to Increase the Number of Authorized Shares of the Company. ***3.3 Bylaws of the Company as currently in effect. *5 Opinion of Olshan Grundman Frome & Rosenzweig LLP with respect to legality of the Common Stock. ***10.1 Stock Option Plan for Consultants, Advisors and Non- Employee Directors. **10.2 Exclusive Representation and Distribution Agreement dated May 4, 1992 between the Company and Godfrey Science & Design, Inc. et al. ***10.3 Employment Agreement dated June 1, 1995 between the Company and Guy J. Quigley. ***10.4 Exclusive Master Broker Wholesale Distributor and Non-Exclusive National Chain Broker Agreement dated July 22, 1994 between the Company and Russell Mitchell. *10.5 United States Exclusive Supply Agreement dated March 17, 1997 (portions of this exhibit are omitted and were filed separately with the Securities Exchange Commission pursuant to the Company's application requesting confidential treatment in accordance with Rule 406 of Regulation C as promulgated under the Securities Act of 1933). *23.1 Consent of Olshan Grundman Frome & Rosenzweig LLP, included in Exhibit No. 5. II-4 *23.2 Consent of Nachum Blumenfruct, CPA. *25.0 Power of Attorney, included on the signature page to this Registration Statement. - --------------------------- * Filed herewith. ** Incorporated by reference to the Company's Registration Statement on Form S-18, filed with the Commission on September 21, 1990 (Commission File No. 33-36934), as amended. *** Incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1996 (File No.- 1-21617). ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes: (1) File, during any period in which it offers or sales securities, a post-effective amendment to this registration statement to; (i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act of 1933, treat each post-effective amendment as a new registration statement of the securities offered, and in the offering of such securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. II-5 In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Doylestown, State of Pennsylvania, on this 14th day of July, 1997. THE QUIGLEY CORPORATION /S/ GUY J. QUIGLEY ------------------------------------------- Guy J. Quigley, Chief Executive Officer and President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints GUY QUIGLEY and CHARLES A. PHILLIPS, his true and lawful attorney-in-fact, each acting alone, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this registration statement, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or their substitutes, each acting along, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE /S/ GUY J. QUIGLEY Chairman of the July 14, 1997 - ------------------------------- Board, President, Guy J. Quigley Chief Executive Officer and Director /S/ GEORGE J. LONGO Vice President, July 14, 1997 - ------------------------------- Chief Financial George J. Longo Officer and Director (Principal Financial and Accounting Officer) /S/ ERIC H. KAYTES Vice President, July 14, 1997 - ------------------------------- Secretary, Eric H. Kaytes Treasurer, and Director /S/ CHARLES A. PHILLIPS Vice President, July 14, 1997 - ------------------------------- Chief Operating Charles A. Phillips Officer and Director - ------------------------------- Director July 14, 1997 Dr. Robert L. Pollack /S/ A. JERENE ROBBINS, M.D. Director July 14, 1997 - ------------------------------- A. Jerene Robbins, M.D. II-7 EX-3.2 2 CERTIFICATE TO INCREASE File No. 7442-1989 CERTIFICATE TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF THE QUIGLEY CORPORATION To: The Secretary of State State of Nevada Pursuant to the provisions of Section 78.207 of the Nevada Revised Statutes, the undersigned corporation does hereby certify: 1. That prior to the filing of this Certificate, there are 25,000,000 shares of Common Stock, $.001 par value per share and 1,000,000 shares of Preferred Stock (unclassified), $.01 par value per share authorized. 2. That upon the filing of this Certificate, there will be 50,000,000 shares of Common Stock, $.0005 par value per share and 1,000,000 shares of Preferred Stock (unclassified), $.01 par value per share authorized. 3. That upon the filing of this Certificate, each of the shares of Common Stock, $.001 par value per share which are issued and outstanding on the date of such filing shall immediately be split into two shares of Common Stock having a par value of $.0005 per share. 4. That the percentage of outstanding shares of Common Stock to authorized shares of Common Stock shall be unaffected by such split. 5. That the changes set forth in this Certificate shall become effective upon the filing of this Certificate. Dated this 22nd day of April, 1997. THE QUIGLEY CORPORATION By: /S/ GUY QUIGLEY ------------------------------- GUY QUIGLEY, PRESIDENT By: /S/ ERIC KAYTES ------------------------------- ERIC KAYTES, SECRETARY STATE OF PENSYLVANIA ) SS.: COUNTY OF BUCKS ) On April 22, 1997 personally appeared before me, a Notary Public in and for the State and County aforesaid, Guy Quigley, and Eric Kaytes, President and Secretary of The Quigley Corporation, personally known to me to be the persons whose names are subscribed to the above instrument in the said capacities, who acknowledged that they executed the said instrument. /S/ JOAN M. CONDUIT -------------------------------------- Notary Public (Notary Stamp or Seal) -2- EX-5 3 OPINION OF OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP 505 PARK AVENUE NEW YORK, NEW YORK 10022 (212) 753 7200 July 14, 1997 Securities and Exchange Commission 450 Fifth Street, N.W. Judiciary Plaza Washington, D.C. 20549 Re: Quigley Corporation- REGISTRATION STATEMENT ON FORM SB-2 Ladies and Gentlemen: Reference is made to the Registration Statement on Form SB-2 dated the date hereof (the "Registration Statement"), filed with the Securities and Exchange Commission by Quigley Corporation, a Nevada corporation (the "Company"). The Registration Statement relates to an aggregate of 5,480,000 shares (the "Shares") of common stock, par value $.001 per share (the "Common Stock"). The Shares will be issued by the Company to the Selling Shareholders named in the Registration Statement upon the exercise of outstanding warrants. We advise you that we have examined, among other things, originals or copies certified or otherwise identified to our satisfaction of the Certificate of Incorporation and By-laws of the Company, minutes of meetings of the Board of Directors and stockholders of the Company and such other documents, instruments and certificates of officers and representatives of the Company and public officials, and we have made such examination of the law, as we have deemed appropriate as the basis for the opinion hereinafter expressed. In making such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to original documents of documents submitted to us as certified or photostatic copies. Securities and Exchange Commission July 14, 1997 Page -2- Based upon the foregoing, we are of the opinion that the Shares have been duly authorized and will be validly issued, fully paid and non-assessable upon the exercise of the warrants, subject, however, to receipt by the Company of the exercise price for the warrants in accordance with their respective terms. We hereby consent to use of this opinion in the Registration Statement and Prospectus, and to the use of our name in the Prospectus under the caption "Legal Matters". Very truly yours, /S/ OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP ------------------------------------------ OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP EX-10.5 4 EXCLUSIVE SUPPLY AGREEMENT Confidential portions of this document have been omitted and filed separately with the Securities and Exchange Commission UNITED STATES EXCLUSIVE SUPPLY AGREEMENT This Agreement dated March 17, 1997, is made by and between The Quigley Corporation, a Nevada corporation with offices at 10 South Clinton Street, Doylestown, PA. 18901 (hereafter referred to as "Quigley"), and ________________. George Eby, III ("Eby") is the owner of a certain use patent for the use of zinc gluconate to reduce the duration of the common cold (Patent RE 33,465). John Godfrey ("Godfrey") is the owner of certain patents for flavoring for zinc supplements for oral use (Patent 4,684,528 and 4,758,439). Eby and Godfrey granted to Quigley the exclusive worldwide right to manufacture, distribute and sell zinc gluconate lozenges pursuant to certain license agreements with Eby dated August 24, 1996 and a certain Exclusive Representation and Distribution Agreement with Godfrey dated May 4, 1992. ________ has demonstrated that it is capable of producing the Product, as defined herein, utilizing the product formulation. including the Patents, all as more particularly set forth in Exhibit A hereto (collectively, the "Formula") . (Lozenges produced pursuant to the Formula and any revision thereto, are referred to herein individually as the "Lozenge" and collectively as the "Product" or "Lozenges".) The Product is currently marketed and sold by Quigley under the trademark COLD-EEZE (the "Trademark") . The Trademark is owned by Quigley. Quigley also plans to market and sell the Lozenges in bulk, or in packaging which may not use the Trademark. Quigley desires __________ to produce its total United States requirements for the Product and ________ desires to undertake this requirement of this Agreement in accordance with the terms and conditions set forth herein. NOW, THEREFORE, Quigley and __________, in consideration of the mutual covenants and conditions hereinafter set forth, and intending to be legally bound, hereby agree as follows: 1. INCORPORATION OF RECITALS AND EXHIBITS. The above recitals and each Exhibit identified in this Agreement are made a part of this Agreement by such reference. 2. SERVICES AND SPECIFICATIONS. __________ shall manufacture the Product in accordance with the Formula and in accordance with applicable laws, rules and regulations, Good Manufacturing Practices are promulgated by the U.S. Food and Drug Administration ("FDA") from time to time prevailing in the industry (collectively, the "Specifications"). 3. EXCLUSIVE UNITED STATES SUPPLY. To enable ________ to manufacture the Products pursuant to the terms and conditions of this Agreement, Quigley grants to _______ a United States exclusivity to manufacture the Product using the Formula, which includes the Patents, as defined in the following sentence. The Patents shall include the patents listed in Exhibit A, including without limitation all reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, and any other pending and future patents necessary or useful to manufacture the Product (collectively called the "Patents"). In the event that ________ is unable to meet the manufacturing demands of Quigley and with the written permission of Quigley, __________ shall have the right to appoint approved third parties to manufacture the Product in accordance with the Formula; provided said approved third party executes a confidentiality agreement as set forth in paragraph 10, _________ shall have the responsibility of such approved parties, as if ________ was the manufacturer of the Product. 4. PRODUCTION. Because the Product is a new product, Quigley has not yet accurately forecast the number of Lozenges that it will require for the calendar year 1997. In addition, during calendar 1997, _________ will be in the process of transitioning other business and expanding its production capabilities to exclusively produce the Product. For these reasons, _______ cannot guarantee that it will be able to supply all of Quigley's total requirements in 1997. Therefore, for the calendar year 1997, ______ shall have met its obligations under this Agreement if _________ uses its best efforts to supply all of Quigley's requirements. Beginning in January of 1998, ________ agrees to supply all of Quigley's requirements for Product provided that throughout the term of this Agreement, Quigley shall provide ________ with estimated annual forecasts and quarterly rolling forecasts which will allow ________ to plan for Quigley's production and inventory requirements. Quigley's forecasts shall be based on a good faith analysis of the market for the Product as is ascertained from prior years sales. Quigley agrees that ________ shall have met its obligations under this Agreement if ___________ meets Quigley's quarterly forecasts. Quigley shall provide its forecast for 1998 to _________ on or before December 1, 1997. Pursuant to paragraph 3 of this Agreement, in order to meet Quigley's requirements __________ may contract with approved third parties to manufacture the Product. Within the United States marketplace, Quigley shall not produce itself, or acquire from an -2- approved third party, any Product during the term of this Agreement. 5. ORDERS FOR PRODUCT: INVENTORY. Product shall be held in inventory in ________'s warehouse located at __________________, pending receipt of orders and shipping instructions from Quigley. Upon receipt of orders from Quigley, ____________ shall pack and ship Product in accordance with such order and shipping instructions. All shipping costs shall be borne by Quigley. ____________ shall provide Quigley with such shipping records attached to a copy of the packing list/invoice identifying the customer, P/O number, carrier and destination, along with any other relevant information and/or documentation as Quigley shall reasonably request to determine compliance with shipping instructions. Within sixty (60) days of execution of this Agreement, __________ shall notify Quigley of the maximum number of units of Packaged Product, as defined in paragraph 15 which it can store in inventory at its current warehouse. In no event may Quigley require ______________ to maintain inventory in excess of such number. Should it become necessary or desirable to maintain inventory levels in excess of such number, __________ shall, within such time period as is reasonable under the circumstances, make arrangements for additional warehouse space, the costs of which shall be borne by Quigley. 6. QUIGLEY'S RESPONSIBILITIES. Quigley shall be responsible for all advertising, marketing, sales and delivery of the Product. Throughout the term of this Agreement Quigley, at its sole cost and expense, shall use its best efforts to diligently and continuously promote, develop and maintain a substantial, permanent and expanding business for the Product. 7. PAYMENT. Quigley shall pay __________ according to the payment schedule set forth on Exhibit B. The parties acknowledge that the number of Lozenges per package and the type of packaging required by Quigley may vary, as more fully set forth in Exhibit B. The term "Unit" as used herein shall mean any one of the Product items listed on Exhibit B. ______________ shall submit daily invoices to Quigley identifying the number of Units of each Product items produced. In the event _____________ contracts with approved third parties to produce the Product, ______________ shall include on the daily invoices all Product items produced and shipped by such parties during the preceding week. Payment for Product produced by approved third parties shall be made by Quigley to __________ in accordance with the payment schedule set forth on Exhibit B. ___________ shall be responsible for paying such approved third parties out of payments from Quigley. All invoices from ___________ shall be due and payable by Quigley in full within thirty (30) business days from the date of each invoice, subject to a two percent reduction for payments made within ten (10) days. -3- 8. PRICE ADJUSTMENT . Within 60 days of execution of this Agreement, __________ shall provide Quigley with a detailed list of __________'s current cost for ingredients and other supplies, (the "Original Procurement Cost"). In the event _________'s actual costs increase with reference to the Original Procurement Cost, then ________ shall provide Quigley detailed data concerning its actual costs of procuring the ingredients and other supplies. The per Unit price payable to ___________ shall be increased by the total per Unit cost increase of all ingredients and other supplies. Such price adjustment shall be effective with respect to all invoices issued to Quigley thirty (30) days after notice of the procurement cost change is received by Quigley. In addition, in the event _______________'s total production costs increase by more than ten percent (10%) over ____________'s total production costs as of the date of this Agreement, the parties shall negotiate, in good faith, and mutually agree upon an increase in the price of the Product. In the event that the parties cannot agree to such an increase, ___________ shall have the right to seek arbitration and both parties will be subject to its findings. In the event of a market driven decrease in Quigley's wholesale prices, Quigley shall have the right to negotiate a reduced manufacturing cost from ___________. In the event that the parties cannot agree to such a decrease, Quigley shall have the right to seek arbitration and both parties will be subject to its findings. 9. RISK OF LOSS; INSURANCE. Risk of loss to Product passes to Quigley when the manufacturing process is completed. Quigley shall be responsible for insuring all Product in the care, custody or control of ________ and any other suppliers of Product, against loss or damage from perils covered by an "all risk" property insurance policy in the amount of the market value of such Product. Additionally, Quigley shall carry and maintain, at all times and at Quigley's sole cost and expense, (a) Commercial General Liability coverage, including Product/Completed Operations, in the amounts of at least One Million Dollars ($1,000,000.00) any one occurrence and Two Million Dollars ($2,000,000.00) Products/Completed Operation Aggregate. Two Million Dollars ($2,000,000.00) policy General Aggregate; (b) property coverage for comprehensive perils to protect the interests of Quigley and _________ as respects property of Quigley in the care, custody and control of __________ to a limit of at least Ten Million Dollars ($10,000,000.00). __________ and any other suppliers of Product shall be named as an additional named insured in the policies described in (a) and (b) above. Such policies shall be carried with insurance companies acceptable to ________ and each shall provide that its terms and conditions shall not be altered, cancelled or changed until ten (10) days after termination or cancellation of this Agreement. A certificate of such insurance coverage shall be furnished to ____________. __________ shall, at all times and at _________'s sole cost and expense, carry and maintain (a) Commercial General Liability coverage, including Product/Completed Operations, in the amounts of -4- at least One Million Dollars ($1,000,000.00) any one occurrence and Two Million Dollars ($2,000,000.00) Products/Completed Operation Aggregate. Two Million Dollars ($2,000,000.00) policy General Aggregate; (b) property coverage for comprehensive perils to protect the interests of Quigley and ___________ as respects property of Quigley in the care, custody and control of _________ to a limit of at least Ten Million Dollars ($10,000,000.00) and (c) such statutory worker's compensation insurance as is required by local law for __________'s employees engaged in providing services hereunder. Quigley shall be named as an "additional insured" upon ____________'s Commercial General Liability policy described in (a) above and as "loss Payee" under the __________ Property policy described in (b) above. Such policies shall be carried with insurance companies acceptable to Quigley and each shall provide that its terms and conditions shall not be altered, cancelled or changed until ten (10) days after termination or cancellation of this Agreement. A certificate of such insurance coverage shall be furnished to Quigley. 10. CONFIDENTIALITY. All business and technical information, whether in written or oral form and including, but not limited to the Formula, which Quigley may disclose to ________, or to any employee, agent or representative of __________, shall be received and retained by ___________ and its employees, agents and representatives as strictly confidential and, except as provided for herein, may not be disclosed to any third party. __________ shall only use such information in connection with the production and packaging of Product, and shall not disclose the same to any person not having a need to know. _________ shall inform each of its officers, employees or agents working with or otherwise having access to such information of his or her obligation to maintain the confidentiality of Quigley's confidential and proprietary information. Nothing in this paragraph shall prohibit ________ from disclosing such information to any approved third party who is manufacturing the Product for _______, provided the approved third party has entered into a written confidentiality agreement with Quigley. All business and technical information, whether in written or oral form and including, but not limited to, packaging, manufacturing processes, quality control standards, coding systems and all business information such as supplier lists, costs and the like, which __________ may disclose to Quigley, or to any employee, agent or representative of Quigley, shall be received and retained by Quigley and its employees, agents and representatives as strictly confidential and, except as provided for herein, may not be disclosed to any third party. Quigley shall not disclose the same to any person not having a need to know. Quigley shall inform each of its officers, employees or agents working with or otherwise having access to such information of his or her obligation to maintain the confidentiality of __________ is confidential and proprietary information. -5- Neither party shall have an obligation of confidentiality with respect to information which: (a) was publicly available at the time of receipt from the disclosing party or subsequently becomes publicly available without breach of an obligation assumed or duty owed by the nondisclosing party; or (b) was known and can be shown to have been known by the nondisclosing party at the time of receipt from the disclosing party and was not acquired on a confidential basis; or (c) becomes known to the nondisclosing party on a non- confidential basis through a third party whose own acquisition and disclosure were independent of the nondisclosing party, not in breach of any obligation hereunder and not on a confidential basis; or (d) is required by law, after prior notice is given to the disclosing party; or (e) is approved for disclosure by the disclosing party in writing. 11. RETURN OF DOCUMENTS, ETC. All originals and copies (in whatever format) of written business and technical information and extracts thereof identified or reasonably identifiable as confidential or proprietary to Quigley or __________ shall be and remain the exclusive property of the disclosing party at all times, and shall be returned to the disclosing party upon the termination of this Agreement or upon the disclosing party's request. 12. __________'S REPRESENTATIONS. ___________ represents and warrants that as of the date the Product is produced and packed by __________, such Product will meet the Specifications. 13. FORMULA OWNERSHIP. Quigley represents and warrants that it is the owner of the worldwide manufacturing, distribution and marketing rights to the Formula and has the authority to grant to __________ the right to use the same in the manufacture of the Product for Quigley. Quigley has taken, or shall take such actions as are necessary to secure and protect the right to sell the Product in the United States. 14. APPROVED THIRD PARTY MANUFACTURING. In accordance with paragraph 3 of this Agreement, ____________ shall have the right to contract with approved third parties to manufacture the Product for Quigley, contingent upon approved third parties fulfilling paragraph 10 of this Agreement. 15. PACKAGING. __________ shall be responsible for packaging the Product, and Quigley agrees that ____________ may contract with -6- approved third party suppliers for such packaging. The packaging material used with the Product, as well as every use of any Quigley trademarks, shall be subject to the prior written approval of Quigley. Quigley hereby approves the packaging, including the use of the Trademarks on such packaging, currently in use (the "Packaged Product"). ____________ shall not adhere any label or other printed material on Product which has not received prior written approval by Quigley. ___________ agrees that it shall include such trademark and copyright notices on the Product packaging as Quigley may designate. 16. INDEMNITY BY QUIGLEY. In the event of (i) consumer, customer, governmental agency or other third party complaints, demands, claims or legal actions alleging illness, injury, death or damage as a result of the consumption or use of any Product except for any claim arising from ____________'s failure to manufacture the Product according to the Specifications, (ii) claims or legal action alleging patent or copyright infringement, violations of any patent rights or copyrights or unfair competition or trade secrets or trademarks or other rights of any approved third party which arise out of or relate to the Product, Formula or packaging; or (iii) any other claim arising out of or related to _________'s production, storage or use of the Product or Formula, except to the extent attributable to ___________, Quigley shall indemnify, defend and hold __________ harmless from and against any and all liability, loss or damage (including lost profits), cost or expense (including court costs and reasonable attorney's fees), arising out of, resulting from or in any way connected with such complaint, demand, claim, or legal action. Quigley shall assume full responsibility for, and pay the expense of, the investigation, defense, legal fees, settlement costs and payment of all such complaints, demands, claims and legal actions, provided that ________ may, at its expense, participate in any legal action through counsel of its own choice. ___________ shall promptly notify Quigley of any such complaint, demand, claim or legal action and cooperate in the defense thereof. 17. INDEMNITY BY __________. In the event of consumer, customer, governmental agency, or third party complaints, demands, claims or legal actions alleging illness, injury, death or damage as a result of the consumption or use of any Product arising from ________'s failure to manufacture Product according to Specifications, ____________ shall indemnify, defend and hold Quigley harmless from and against any and all liability, loss or damage (including lost profits), cost or expense (including court costs and reasonable attorney's fees), arising out of, resulting from or in any way connected with such complaint, demand, or claim. ____________ shall assume full responsibility for, and pay the expense of, the investigation, defense, legal fees, settlement costs and payment of all such complaints, demands, claims and legal actions, provided that Quigley may, at its expense, participate in any legal action through counsel of its own choice. Quigley shall -7- promptly notify _____________ of any such complaint, demand, claim or legal action and cooperate fully in the defense thereof. 18. BOOKS AND RECORDS. During the term of this Agreement, each party shall prepare, maintain and retain complete and accurate books and records relating to the respective party's obligation under this Agreement, including the production, storage, packaging, marketing, sale, purchase and distribution of the Product. All such books and records prepared, maintained or retained pursuant to this Agreement shall be made available to the other party for inspection upon reasonable notice and during regular business hours. 19. INSPECTION BY QUIGLEY . At any time while this Agreement remains in effect, Quigley shall have the right to send one or more of its authorized employees or representatives to observe and inspect, upon reasonable notice and during scheduled business and manufacturing hours, the Product manufacturing and packaging process, __________'s plant and any other facilities utilized in providing the services, including the inventory and storage of Product. 20. TERM. This Agreement shall be effective as of the date set forth in the first paragraph of this Agreement and shall continue in effect for a period of three years, with yearly renewal thereafter, unless terminated by either party upon two (2) years written notice. 21. TERMINATION RIGHT. Either party may also terminate this Agreement in the following circumstances: (a) Where the other party has failed to perform or meet any material term or condition hereof and has failed to correct the same within thirty (30) days after written notice of such failure by the non-breaching party, or if the breach is incapable of cure within thirty (30) days after notice, if the breaching party has not commenced efforts to correct the same within the thirty (30) day period; or (b) If the other party files a petition in bankruptcy or is adjudicated a bankrupt, or if a petition in bankruptcy is filed against it which is not dismissed within thirty (30) days, or if such party becomes insolvent, or makes an assignment for the benefit of creditors, or an arrangement pursuant to any bankruptcy law, or discontinues its business or if a receiver is appointed who is not discharged within thirty (30) days. 22. EFFECT OF TERMINATION. Upon termination of this Agreement, the rights granted hereunder shall terminate and _______ shall discontinue all use of the Formula. Also, upon termination, __________ shall either: 1) deliver all completed Product to a -8- location designated by Quigley at Quigley's expense, or 2) make the Product available for pick-up by Quigley. In either case, Quigley shall pay ___________ for such completed Product. 23. FORCE MAJEURE. Either party shall be excused from performance and liability under this Agreement to the extent that such performance is prevented by an Act of God, strike or other labor dispute, war condition, civil disorder, embargo, fire, flood, accident or any other casualty beyond the reasonable control of such party. 24. NONCOMPETITION. __________ agrees that, while this Agreement remains in effect and until termination of the Patents, it will not manufacture, process, or package any zinc-based lozenges, provided Quigley purchases all of its United States requirements from ___________ or approved third parties. Beginning on or before January 1, 1998, while this Agreement remains in effect _____________ shall not produce any other zinc lozenges for any third party, provided Quigley purchases all of its United States requirements from _____________ or approved third parties. 25. RIGHT OF FIRST OFFER. Quigley shall have a right of first offer to purchase ____________'s business as set forth herein. ____________ shall give Quigley written notice of ________'s election to offer its entire business for sale to third parties. Quigley shall have thirty (30) business days after the receipt of said notice (the "Offer Period") to make a written offer (the "Offer") to ____________ which shall set forth the basic terms and conditions upon which Quigley would be willing to enter into a binding agreement for the purchase of ___________'s business. Upon ___________'s acceptance of the Offer, the parties shall negotiate in good faith for a period of not more than sixty (60) business days after such acceptance (the "Negotiation Period") in order to enter into a binding agreement for the sale of the business to Quigley in accordance with the terms and conditions of the accepted Offer. The right of first offer shall automatically expire and terminate upon the earlier of: (i) Quigley's failure to make an Offer within the Offer Period; (ii) ____________'s good faith rejection of the offer within the Offer period; or (iii) the failure or inability of Quigley and __________ in good faith to enter into a binding purchase agreement within the Negotiation Period. Upon the expiration of the Right of First Offer, ________ shall be permitted to offer the business for sale to any third party and neither Quigley nor ___________ shall have any further rights or obligations under the terms of this paragraph, provided that the manufacture of the Products by a purchasing party shall require Quigley's permission and approval for such manufacture and such permission and approval shall not unreasonably be withheld. 26. RELATIONSHIP. The relationship between Quigley and ________ is that of independent contractor. This Agreement shall not be construed as creating between Quigley and __________ the -9- relationship of principal and agent, joint venturers, co-partners or any other similar relationship, nor shall _________ be considered in any sense an affiliate or subsidiary of Quigley. Neither party shall have any authority to create or assume, in the other's name, any obligation, express or implied, or to act or purport to act as the other's agent or legally empowered representative for any purpose whatsoever. Neither party shall be liable to any third party in any way for any engagement, obligation, commitment, contract, representation, transaction, act or omission of the other except as expressly provided herein. 27. SEVERABILITY. In the event that any provision of this Agreement is declared invalid or contrary to any law, rule, regulation or public policy of the United States or any state, all of the remaining provisions hereof shall continue in full force and effect. 28. SURVIVAL OF REPRESENTATIONS. The provisions set forth in paragraphs 7, 10, 11, 16, 17, 24, and 19 of this Agreement, as well as all of the representations, warranties, indemnities and guarantees of ______________ and Quigley contained in this Agreement, shall survive the termination or cancellation of this Agreement. 29. GOVERNING LAW. This Agreement shall in all respects be governed by the laws of the Commonwealth of Pennsylvania. The parties further specifically agree that any action or proceeding arising out of or in connection with this Agreement shall be venued in the Federal District Court for the Middle District of Pennsylvania sitting in Harrisburg, or, if appropriate, the Court of Common Pleas for Dauphin County, Pennsylvania, and hereby consent to the jurisdiction of each of said courts or if appropriate, the Court of Common Pleas for Bucks County, Pennsylvania and hereby consent to the jurisdiction of each of said courts. 30. NOTICES. Any notice or other communication required or permitted to be given pursuant to this Agreement shall be deemed to have been sufficiently given if in writing and delivered by hand or by telefax transmission (with a mandatory written confirmation, via a recognized overnight courier, as provided below) or sent by registered or certified mail (postage prepaid) or by express courier or express mail, fees prepaid, addressed as indicated below: (a) If to Quigley: The Quigley Corporation 10 South Clinton Street Doylestown, PA. 18901 ATTN: Charles A. Phillips Telephone No.: (215)345-0919 Fax No. (215)345-5920 -10- With a copy to: Thomas F. J. MacAniff, Esquire Eastburn and Gray, P.C. 60 East Court Street Post Office Box 1389 Doylestown, PA. 18901-4350 Telephone No.: (215)345-7000 Fax No. (215) 345-9142 (b) If to _______: ---------------------- ---------------------- ATTN: ________________ Telephone No.: ____________ Fax No. ____________ With a copy to: ------------------------ ------------------------ ------------------------ Telephone No.: ____________ Fax No. : ____________ Either party may, by notice as aforesaid, designate a different address for notices or other communications intended for it. Any notice which is delivered in the manner provided herein (provided mandatory confirmation copies are sent) shall be deemed to have been duly given to the party to whom it is directed upon actual receipt by such party. 31. ASSIGNMENT. Neither party shall assign or transfer this Agreement or their rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld. 32. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding between the parties relating to the subject matter of this Agreement and supersedes and cancels any and all previous contracts, irrevocable corporate purchase orders, agreements or understandings between the parties with respect thereto. This Agreement may not be altered or amended except by a written instrument executed by duly authorized representatives of Quigley and ___________. Unless expressly agreed by both parties, this -11- Agreement shall not be altered or amended by any purchase order issued by Quigley. No waiver hereunder shall be asserted or effective except upon a written instrument executed by the party against whom the waiver is asserted. 33. HEADINGS. The headings contained herein are inserted for convenience only and shall not be deemed to have any substantive meaning. 34. NO WAIVER. Any failure to either party to notify the other of a violation, default or breach of this Agreement or to terminate this Agreement on account thereof shall not constitute a waiver of such violation, default or breach, or a consent, acquiescence or waiver of any later violation, default or breach, whether of the same or a different character. 35. AUTHORIZATION: ACCEPTANCE. Each party hereto warrants and represents to the other that all necessary corporate actions and approvals have been taken and given, and that upon execution by its duly authorized representative, this Agreement shall be a binding obligation of such party. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives on the day and year first above written. The Quigley Corporation By: /s/ GUY J. QUIGLEY ------------------------ Name: Guy J. Quigley Title: President _____________, Inc. By: /S/_____________ Name: ________________ Title: _______________ -12- EXHIBIT A-- Specification Sheet OMITTED -13- EXHIBIT B-- Price Schedule OMITTED -14- EX-23.2 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT EXHIBIT 23.2 N. BLUMENFRUCT Certified Public Accountant 1040 East 22nd Street Brooklyn, N.Y. 11210 (718) 692-2743 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT The Board of Directors The Quigley Corporation As independent public accountant, I hereby consent to the incorporation in this Registration Statement on Form SB-2 of my report dated December 12, 1996 relating to the financial statements of the Quigley Corporation. I also consent to the reference of me under the caption "Experts." /S/ NACHUM BLUMENFRUCT ---------------------- Nachum Blumenfruct Certified Public Accountant Brooklyn, New York July 11, 1997 -----END PRIVACY-ENHANCED MESSAGE-----