Business Development

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 current business is the manufacture and distribution of the Cold-Eeze(R) product. Cold-Eeze(R) is zinc gluconate glycine lozenge proven in a study conducted by the Cleveland Clinic Foundation to reduce the duration and severity of the common cold symptoms by nearly half. Cold-Eeze(C) is now an established product in the health care and cold remedy market.

Description of Business Operations

Since its inception, the Company has conducted research and development into various types of health-related food supplements and homeopathic cold remedies. Prior to the current year, the Company has had minimal revenues from operations and as a result had suffered continuing losses due to research and development and operations expenses. However, the Company's product line has been developed, and during the most recent year ended December 31, 1997, the Company has had increasing and significant revenues from its national marketing program and increased public awareness of its Cold-Eeze(R) lozenge product.

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 glycine formula which in a clinical study conducted by The Cleveland Clinic has been shown to reduce the severity and duration of the common cold symptoms. The Quigley Corporation acquired world-wide manufacturing and distribution rights to this formulation in 1992 and commenced national marketing in 1996.

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Product

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 which was 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 and also through independent brokers and marketers under the trade-name Cold-Eeze(R).

In 1996, the Company also acquired an exclusive license to a zinc gluconate use patent, thereby assuring the Company of exclusivity in the manufacturing and marketing of zinc gluconate glycine lozenge formulated cold relief products.

Under a Food and Drug Administration ("FDA") approved Investigational New Drug Application, filed by Dartmouth College, a randomized double-blind placebo-controlled study (randomized study), conducted at Dartmouth College Health Science, Hanover, New Hampshire, concluded that the lozenge formulation treatment, initiated within 48 hours of symptom onset, resulted in a significant reduction in the total duration of the common cold.

On May 22, 1992, ZINC AND THE COMMON COLD, A CONTROLLED CLININAL STUDY, was published in England, in the "Journal of International Medical Research", Volume 20, Number 3, Pages 234-246. According to this publication, (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 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 were published, which commenced at the Cleveland Clinic Foundation on October 3rd, 1994. 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 result still showed a 42% reduction in the duration of the common cold symptoms.

Patents and Trademarks, Royalty and Employment Agreements

The Company currently owns no patents. However, the Company has been granted an exclusive agreement for world-wide representation, manufacturing, marketing and distribution rights to a zinc/gluconate/glycine lozenge formulation, which are 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. This use patent gives the Company exclusive rights to both the use and formulation patents on zinc gluconate for reducing the duration and severity of the common cold symptoms.

The Cold-Eeze(R) product is manufactured for the Company by a contract manufacturer and marketed by the Company in accordance with the terms of a licensing agreement (between the Company and the developer). The contract is assignable by the Company with the developer's consent. Throughout the duration of the agreement the developer is to receive a three percent (3%) royalty on all gross sales (subsequent to the Company receiving payment upon such gross sales, less certain deductions). A separate consulting agreement between the parties referred to directly above was

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similarly entered into on May 4, 1992, whereby the developer is to receive a consulting fee of two percent (2%) of gross sales of the lozenge by the Company for consulting services to the Company with respect to such product.

Pursuant to the License Agreement entered into between the Company and the patent holder, the Company pays a royalty fee to the patent holder of three percent (3%) on all gross sales (subsequent to the Company receiving payment upon such gross sales, less certain deductions).

During 1997, the Company instituted a trademark for the major components of its lozenge, ZIGG(TM) (denoting zinc gluconate glycine), to set Cold-Eeze(R) apart from the imitations proliferating the marketplace.

An employment agreement between the Company and the founders was entered into on June 1, 1995. The founders, in consideration of the acquisition of the cold therapy product, are to receive a total royalty of five percent (5%) of gross sales of the lozenge, less certain deductions, by the Company until the termination of said agreement on May 31, 2005. These royalty amounts are in addition to the normal considerations of an Executive Employment Agreement.

Product Distribution and Customers

The Company has several Broker, Distributor and Representative Agreements, both Nationally and Internationally which are sales performance based. Additionally, the Company has issued incentive common stock purchase options to its Brokers, Distributors and Representatives.

The Cold-Eeze(R) lozenge products are distributed through numerous independent and chain drug and discount stores throughout the United States, including the Walgreen Company, BindleyWestern Drug Company, Revco, American Drug Stores, CVS, RiteAid, Eckerd Drug Company, Phar-Mor Inc., Drug Emporium, K-Mart Corporation, and wholesale distributors including McKesson Drug Company, Bergen Brunswig Drug Company, US Health Distributors, AmeriSource.

The Company is not dependent on any single customer as the broad range of customers includes many large wholesalers, mass merchandisers, and multi-outlet pharmacy chains, five of which account for a significant percentage of sales volume. These five represent 68% of sales revenue for the year ended December 31, 1997, 76% for the three months ended December 31, 1996, and 62% for the year ended September 30, 1996. As the customer base broadens still further, it is expected that this percentage will begin to reduce.

Research and Development The Company's research and development costs for the year ended December 31, 1997, three months ended December 31, 1996, and year ended September 30, 1996 were $79,784, $20,777 and $41,856, respectively. The increase in research and development costs is attributable to the Company's completion of its current research and development projects with respect to the Cold-Eeze(R) product. Future 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 will be evaluated on an ongoing basis.

Regulatory Matters

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. The Company's Cold-Eeze(R) product is a homeopathic remedy which is subject to regulation by various federal, state and local agencies, including the FDA and the Homeopathic Pharmacopoeia of the United States. These regulatory authorities have broad powers, and the Company is subject to regulatory and legislative changes that can affect the economics of the industry by requiring changes in operating practices or by influencing the demand for, and the costs of providing its products. Management believes that the Company is in compliance with all such laws, regulations and standards currently in effect including the Food, Drug and Cosmetics Act of 1938 and the Homeopathic Pharmacopoeia Regulatory Service. Management further believes that the cost of compliance with such laws, regulations and standards have not and will not have a material adverse effect on the Company's financial position, operations or cash flows in future years.

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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 may only temporarily relieve the symptoms of the common cold symptoms. 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 term, name recognition, delivery time and post-sale service and support.

Employees

At December 31, 1997 the Company had 10 full-time employees, of whom all were involved in an executive, marketing or administrative capacity. None of the Company's employees are covered by a collective bargaining agreement or is a member of a union.

Suppliers

The Company currently uses a single supplier to provide its zinc gluconate glycine finished product. The product is manufactured by a third party manufacturer, that produces exclusively for the Company. Should this relationship terminate or discontinue for any reason, the Company has formulated a contingency plan necessary in order to prevent such discontinuance from materially affecting the Company's operations. Any such termination may, however, result in a temporary delay in production until the replacement facility is able to meet the Company's production requirements.

Raw material used in the production of the product is available from numerous sources. Currently, it is being procured from a single vendor in order to secure purchasing economies. In a situation where this one vendor is not able to supply the contract manufacturer with the ingredients, other sources have been identified.