EXHIBIT 99.4
THE QUIGLEY CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The Quigley Corporation (the "Company"), through its wholly-owned subsidiary,
Quigley Manufacturing Inc. ("QMI") purchased certain assets of JoEL, Inc.
("JoEL") for approximately $5.2 million on October 1, 2004, which includes
payments of $4.2 million in cash, $3.0 million of the cash required was financed
through a term loan, and the issuance of $1.0 million of the Company's stock, or
113,097 shares.
The acquisition of these assets, includes inventory, land, buildings, machinery
and equipment of two manufacturing facilities and the assumption of accrued
vacation wages of approximately $70,000 of the former employees of JoEL that are
now employees of QMI.
JoEL is a FDA approved contract manufacturer of lozenges and other candy food
products and has been the exclusive manufacturer of the Company's Cold-Eeze(R)
lozenge since its launch in 1995. JoEL has also manufactured private label hard
candies, lozenges and throat drops for other prominent Over-the-Counter product
companies.
The Company is engaged in the development, manufacturing, and marketing of
homeopathic and health products that are being offered to the general public and
the research and development of potential prescription products. The Company is
organized into four business segments which are Cold Remedy, Contract
Manufacturing, Health and Wellness, and Ethical Pharmaceutical. For the
historical fiscal periods presented, the Company's revenues have come from the
Company's Cold Remedy business segment and the Health and Wellness business
segment.
The pro forma information set forth includes the condensed combined consolidated
balance sheet as of September 30, 2004 and the condensed combined consolidated
statements of operations for the year ended December 31, 2003 and for the
nine-months ended September 30, 2004 of the Company and JoEL, which includes the
elimination of intercompany transactions and adjustments necessary to reflect
current fair values of the assets acquired, loans and liabilities assumed with
their related effects in the incomes statements presented.
THE QUIGLEY CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004
Historical
--------------------------------- Pro Forma Pro Forma
ASSETS TQC JoEl Adjustments Combined
------------ -------------- --------------- ------------------ ---------------------
CURRENT ASSETS:
Cash and Cash equivalents $ 11,703,398 $ 44,940 ($ 44,940) a
(1,162,539) b $ 10,540,859
Investments 39,997 (39,997) a
Accounts Receivable, net 3,968,166 584,546 (584,546) a 3,968,166
Inventory 4,269,799 938,519
(1,030,960) d 4,177,358
Prepaid expenses and current assets 614,947 62,881 (62,881) a
39,868 b 654,815
------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 20,556,310 1,670,883 (2,885,995) 19,341,198
------------ ------------ ------------ ------------
PROPERTY, PLANT AND EQUIPMENT - NET 2,192,297 2,946,866 (2,946,866) a
4,360,829 b 6,553,126
------------ ------------ ------------ ------------
OTHER ASSETS:
Cash value of life insurance 1,126,916 (1,126,916) a
Goodwill 30,763 30,763
Other Assets 62,813 62,157 (62,157) a 62,813
------------ ------------ ------------ ------------
TOTAL OTHER ASSETS 93,576 1,189,073 (1,189,073) 93,576
------------ ------------ ------------ ------------
TOTAL ASSETS $ 22,842,183 $ 5,806,822 ($ 2,661,105) $ 25,987,900
============ ============ ============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ -- $ 81,080 ($ 81,080) a $ --
Line of credit -- 199,710 (199,710) a --
Cash overdraft -- 248,884 (248,884) a --
428,571 c 428,571
Notes payable, stockholders 540,410 (540,410) a
Accounts payable 425,732 401,416 (401,416) a 425,732
Accrued royalties and sales commissions 1,100,375 1,100,375
Accrued advertising 434,603 434,603
Other current liabilities 1,797,876 84,822 (14,822) a
172,708 b 2,040,584
------------ ------------ ------------ ------------
TOTAL CURRENT LIABILITIES 3,758,586 1,556,322 (885,043) 4,429,865
------------ ------------ ------------ ------------
Long term debt 424,512 (424,512) a
2,571,429 c 2,571,429
------------ ------------ ------------ ------------
Commitments and Contingencies
TOTAL LIABILITIES 3,758,586 1,980,834 1,261,874 7,001,294
------------ ------------ ------------ ------------
Minority Interest 59,676 -- -- 59,676
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY:
Common stock 8,084 10,000 (10,000) a
57 b 8,141
Additions paid-in-capital 34,295,450 8,000 (8,000) a
895,393 b 35,190,843
Retained earnings 9,908,546 3,779,542 (3,779,542) a
(992,441) d 8,916,105
Accumulated other comprehensive income 28,446 (28,446) a
Less : Treasury stock (25,188,159) (25,188,159)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 19,023,921 3,825,988 (3,922,979) 18,926,930
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,842,183 $ 5,806,822 ($ 2,661,105) $ 25,987,900
============ ============ ============ ============
THE QUIGLEY CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
Historical
--------------------------------- Pro Forma Pro Forma
TQC JoEl Adjustments Combined
------------ -------------- -------------- ------------
Net Sales $ 41,499,163 $ 6,073,821 ($ 2,585,971) e $ 44,987,013
Cost of Sales 21,487,763 4,979,212 (3,172,141) f 23,294,834
------------ ------------ ------------ ------------
Gross Profit 20,011,400 1,094,609 586,170 21,692,179
------------ ------------ ------------ ------------
Operating Expenses:
Sales and marketing 6,166,318 167,467 6,333,785
Administration 9,843,846 1,132,989 70,052 g 11,046,887
Research and development 3,365,698 3,365,698
------------ ------------ ------------ ------------
Total Operating Expenses 19,375,862 1,300,456 70,052 20,746,370
------------ ------------ ------------ ------------
Income (Loss) from Operations 635,538 (205,847) 516,118 945,809
------------ ------------ ------------ ------------
Interest, net and Other Income 93,385 (39,536) (65,206) h (11,357)
------------ ------------ ------------ ------------
Income from Continuing
Operations before taxes 728,923 (245,383) 450,912 934,452
------------ ------------ ------------ ------------
Income Taxes -- -- -- --
------------ ------------ ------------ ------------
Income from Continuing
Operations $ 728,923 ($ 245,383) $ 450,912 $ 934,452
============ ============ ============ ============
Basic earning per common share:
Income from continuing operations $0.06 $0.08
============= ============
Weighted average shares outstanding 11,467,087 11,580,184
============= ============
Diluted earning per common share:
Income from continuing operations $0.05 $0.06
============= ============
Weighted average shares outstanding 14,910,246 15,023,343
============= ============
THE QUIGLEY CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2004
Historical
-------------------------------- Pro Forma Pro Forma
TQC JoEl Adjustments Combined
-------------- -------------- -------------- -------------
Net Sales $ 26,197,657 $ 4,704,703 ($ 2,868,071) e $ 28,034,289
Cost of Sales 15,100,419 3,757,315 (2,593,038) i 16,264,696
------------ ------------ ------------- ------------
Gross Profit 11,097,238 947,388 (275,033) 11,769,593
------------ ------------ ------------- ------------
Operating Expenses:
Sales and marketing 3,373,090 99,160 3,472,250
Administration 7,118,849 943,680 58,637 j 8,121,166
Research and development 2,395,193 2,395,193
------------ ------------ ------------- -----------
Total Operating Expenses 12,887,132 1,042,840 58,637 13,988,609
------------ ------------ ------------- ------------
Loss from Operations (1,789,894) (95,452) (333,670) (2,219,016)
------------ ------------ ------------- ------------
Interest, net and Other Income 66,073 (52,172) (42,330) k (28,429)
Gain on dividend-in-kind 207,090 207,090
------------ ------------ ------------- ------------
Total Other Income (Expense) 273,163 (52,172) (42,330) 178,661
------------ ------------ ------------- ------------
Loss from Continuing
Operations before taxes (1,516,731) (147,624) (376,000) (2,040,355)
------------ ------------ ------------- ------------
Income Taxes -- -- -- --
------------ ------------ ------------- ------------
Loss from Continuing
Operations ($1,516,731) ($ 147,624) ($ 376,000) ($2,040,355)
============ ============ ============= ============
Basic earning per common share:
Income (loss) from continuing operations ($ 0.13) ($ 0.18)
============= ============
Weighted average shares outstanding 11,511,858 11,624,955
============= ============
Diluted earning per common share:
Income (loss) from continuing operations ($ 0.13) ($ 0.18)
============= ============
Weighted average shares outstanding 11,511,858 11,624,955
============= ============
THE QUIGLEY CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Condensed Combined Consolidated Financial Statements include the accounts of
the Company and its wholly owned subsidiaries.
On October 1, 2004, the Company acquired substantially all of the assets of
JoEL, Inc, including inventory, land, buildings, machinery and equipment of two
manufacturing facilities located in Lebanon and Elizabethtown, Pennsylvania for
approximately $5.2 million, which includes payments of $4.2 million in cash and
$1.0 million of the Company's common stock. The acquisition is accounted for by
the purchase method of accounting and accordingly, the operating results will be
included in the Company's consolidated financial statements from the date of
acquisition.
The Company funded the $4.2 million cash portion of the purchase price with
proceeds from a commercial loan and through its current working capital. To
satisfy the common stock component of the purchase price, the Company issued
113,097 shares of its common stock to the stockholders of JoEL. Pursuant to the
Agreement, the number of shares to be issued was determined by the average
closing price of the Company's common stock for the period September 23, 2003 to
September 23, 2004. The fair value of $8.64 per share was determined by
averaging the closing price for four business days before and after the closing
date of October 1, 2004.
The financing portion includes a loan obligation in the amount of $3.0 million
payable to PNC Bank, N.A. and is collateralized by mortgages on real property
located in each of Lebanon, Pennsylvania and Elizabethtown, Pennsylvania and was
used to finance the majority of the cash portion of the purchase price. The
Company can elect interest rate options of either the Prime Rate or LIBOR plus
200 basis points. The loan is payable in eighty-four equal monthly principal
payments of $35,714 commencing November 1, 2004, which such amounts payable are
reflected in the pro forma balance sheet as current maturities of long term debt
amounting to $428,571 and long term debt amounting to $2,571,429.
Accordingly, the pro forma information and corresponding adjustments of the
aforementioned transaction are made solely for the purpose of providing
unaudited pro forma condensed combined consolidated financial statements.
The Company utilizes an asset and liability approach for income taxes, which
requires the recognition of deferred tax assets and liabilities for the future
tax consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, the Company
generally considers all expected future events other than enactments of changes
in the tax law or rates. Until sufficient taxable income to offset the temporary
timing differences attributable to operations and the tax deductions
attributable to option, warrant and stock activities are assured, a valuation
allowance equaling the total deferred tax asset is being provided.
2. PURCHASE PRICE
The purchase price allocation for the net assets acquired was also adjusted for
the fair market value of the Company's stock issued in the transaction. The fair
market value of the stock was determined by averaging the closing price for four
business days before and after the closing date of October 1, 2004.
Additionally, the purchase price allocation for the net assets acquired was also
adjusted for $70,000 of vacation liabilities assumed, which was calculated by
multiplying unused earned hours at September 30, 2004 times the hourly rate of
each former JoEL employee, and other capitalized transaction costs.
The following is the purchase price allocation for the asset purchase:
The Company's issued 113,097 shares of its stock at $8.64 per share, net of
registration costs of $81,709 $ 895,449
Cash paid to JoEL, Inc. for net assets acquired 4,100,000
Transaction costs paid by the Company 195,380
----------
Total purchase price $5,190,829
==========
Fair value of assets acquired: Allocated Excess Unallocated Excess
Fair Value Fair Value
---------------- ------------------
Inventory $ 900,000 * $ 900,000
Land 386,588 * 528,000
Building & improvements 982,578 * 1,342,000
Machinery and equipment 2,933,089 * 4,006,000
Furniture and fixtures 58,574 * 80,000
-------------- ----------
Total fair value of assets acquired 5,260,829 6,856,000
Vacation pay liability assumed of former JoEL employees (70,000) (70,000)
Excess of net fair value over purchase price* (1,595,171)
-------------- ----------
Total net assets acquired $ 5,190,829 $ 5,190,829
============== ===========
* The sum of the assets acquired and liabilities assumed exceeded the cost of
the acquired assets (excess over cost of excess). This excess is allocated
as a pro rata reduction of the amounts that otherwise would have been
assigned to all of the long-lived acquired assets.
The Company uses a combination of straight-line and accelerated methods in
computing depreciation for financial reporting purposes. The provision for
depreciation reflected in the pro forma statements has been computed in
accordance with the following ranges of estimated asset lives: building and
improvements - twenty years; machinery and equipment - three to seven years; and
furniture and fixtures - seven years.
Depreciation expense included in the pro forma Condensed Combined Consolidated
Financial Statements for the year ended December 31, 2003 and for the nine-month
period ended September 30, 2004 were $1,032,829 and $813,753, respectively.
3. PRO FORMA ADJUSTMENTS
Adjustments are included in the column under the heading "Pro Forma
Adjustments."
a. To eliminate historical assets, liabilities and equity not included as
part of acquisition.
b. To reflect the allocated cost of the net assets acquired at their fair
market value for property, equipment and inventory, including cash
expended to JoEL and others for transaction costs or liabilities assumed
or incurred and securities issued as payment for the assets purchased. The
fair value of the long-lived assets were based upon values as determined
by accredited independent third parties, which such fair value
determinations were completed by August 2004, and were updated as of
October 1, 2004.
c. To reflect the incurrence of a loan obligation in the amount of $3.0
million payable to PNC Bank, N.A., which is collateralized by mortgages on
real property, payable in eighty-four equal monthly principal payments of
$35,714 commencing November 1, 2004 and with interest rate options of
either the Prime Rate or LIBOR plus 200 basis points. Amounts payable are
reflected in the pro forma balance sheet as current maturities of
long-term debt amounting to $428,571 and long-term debt amounting to
$2,571,429.
d. To eliminate intercompany profit in the Company's historical inventory.
e. To eliminate intercompany sales.
f. To eliminate intercompany items that are reductions for cost of products
sold of $2,585,971 and the net change in profit in inventory of $675,115;
and to reflect incremental depreciation costs that are increases of
$88,945.
g. To reflect incremental depreciation costs of $4,681 and adjust for life
insurance items not acquired as part of the acquisition of $65,371.
h. To eliminate intercompany miscellaneous income of $46,302 and to reflect
incremental interest expense costs of $18,904. Additionally, a 1/8
fluctuation in the interest rate would approximate $12,434.
i. To eliminate intercompany items that are reductions for cost of products
sold of $2,868,071 and to reflect other items that are increases for the
net change in profit in inventory of $135,245; and incremental
depreciation costs of $139,788.
j. To reflect incremental depreciation costs of $2,761 and adjust for life
insurance items of $55,876.
k. To reflect incremental interest expense costs of $42,330. Additionally, a
1/8 fluctuation in the interest rate would approximate $8,787.
EARNINGS PER SHARE
Basic earnings per share ("EPS") excludes dilution and is computed by dividing
income available to common stockholders by the weighted - average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that shared in the earnings of the entity. Diluted EPS also
utilizes the treasury stock method, which prescribes a theoretical buy back of
shares from the theoretical proceeds of all options and warrants outstanding
during the period. Since there is a large number of options and warrants
outstanding, fluctuations in the actual market price can have a variety of
results for each period presented.
A reconciliation of the applicable pro forma changes and numerators and
denominators of the income statement periods presented is as follows (millions,
except earnings per share amounts):
Year Ended Nine-Months Ended
December 31, 2003 September 30, 2004
---------------------------------------------------------
Income Shares EPS Loss Shares EPS
---------------------------------------------------------
Basic EPS (historical) $ 0.7 11.5 $ 0.06 ($ 1.5) 11.5 ($0.13)
Pro forma adjustments, JoEL historical & 113,097 shares issued .2 .1 0.02 (.5) .1 (0.04)
---------------------------------------------------------
Pro forma combined basic EPS 0.9 11.6 0.08 (2.0) 11.6 (0.17)
---------------------------------------------------------
Dilutives (historical):
Options and warrants 3.4
---------------------------------------------------------
Pro forma combined diluted EPS $ 0.9 15.0 $ 0.06 ($ 2.0) 11.6 ($0.17)
==========================================================
Options and warrants outstanding at December 31, 2003 and at September 30, 2004
were 4,601,000 and 3,827,500, respectively, but were not included in the
September 30, 2004 computation of diluted earnings per share because the effect
was anti-dilutive.
