U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT OF 1934
For the quarterly period ended September 30, 2001.
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OR
___TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from_______________________to________________________
Commission File Number 1-6436
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FRAWLEY CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 95-2639686
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
(I.R.S. EMP I.D. NO)
5737 Kanan Rd. PMB 188, Agoura Hills, California 91301
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(818)735-6640
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
_______________________________________________________________________________
(FORMER NAME, ADDRESS AND FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO_____
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at September 30, 2001
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Common stock, par value $1 1,222,905
Total Number of Pages 12
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FRAWLEY CORPORATION AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION PAGE NO.
Item 1: Financial Statements
Consolidated Balance Sheets -
September 30, 2001 and December 31, 2000.......................... 3
Consolidated Statements of Operations -
Three Months Ended September 30, 2001 and 2000.................... 4
Consolidated Statements of Operations -
Nine Months Ended September 30, 2001 and 2000..................... 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2001 and 2000..................... 6
Notes to Consolidated Financial Statements........................ 7
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of Operations.................. 8-9
PART II: OTHER INFORMATION
Item 1: Legal Proceedings........................................ 10
Item 5: Other Information ....................................... 10-11
Item 6: Exhibits and Reports on Form 8-K......................... 11
SIGNATURES............................................................. 12
2
ITEM I: FINANCIAL STATEMENTS
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
ASSETS 2001 2000
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(Unaudited)
CURRENT ASSETS
Cash $ 103,000 $ 54,00
Accounts receivable, net 333,000 433,000
Prepaid expenses and other deposits 90,000 93,000
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TOTAL CURRENT ASSETS 526,000 580,000
Long-term accounts receivable, net 167,000 95,000
Real estate investments, net 1,575,000 1,723,000
Property, plant and equipment, net 428,000 451,000
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TOTAL ASSETS $ 2,696,000 $ 2,849,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
Notes payable to stockholders $ 3,422,000 $ 3,277,000
Accounts payable and accrued expenses 1,498,000 1,230,000
Environmental reserve 78,000 78,000
Note Payable 70,000 70,000
Unearned revenue 26,000 30,000
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TOTAL CURRENT LIABILITIES 5,094,000 4,685,000
LONG TERM LIABILITIES
Environmental Reserve 1,424,000 1,424,000
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TOTAL LIABILITIES 6,518,000 6,109,000
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1 per share:
Authorized, 1,000,000 shares; none issued
Common stock, par value $1 per share;
Authorized, 6,000,000 shares, issued
1,414,217 shares 1,414,000 1,414,000
Capital surplus 16,986,000 16,986,000
Accumulated deficit (21,461,000) (20,899,000)
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( 3,061,000) ( 2,499,000)
Less common stock in treasury,
191,312 shares (at cost) (761,000) (761,000)
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TOTAL STOCKHOLDERS' EQUITY (3,822,000) (3,260,000)
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1TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,696,000 $ 2,849,000
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See notes to consolidated financial statements.
3
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
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2001 2000
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REVENUES:
Net revenue $ 547,000 $ 707,000
COSTS AND EXPENSES:
Cost of operations 418,000 449,000
Selling, general and administrative
expenses 294,000 356,000
Interest expense 88,000 84,000
Loss from sale of real estate 27,000 125,000
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TOTAL COSTS AND EXPENSES 827,000 1,014,000
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NET LOSS (280,000) $( 307,000)
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NET LOSS PER SHARE:
Continuing operations $ (.23) $ (.25)
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Weighted average number of
common shares outstanding 1,222,905 1,222,905
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See notes to consolidated financial statements.
4
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
September 30,
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2001 2000
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REVENUES:
Net Revenues $ 1,906,000 $ 2,122,000
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TOTAL REVENUES 1,906,000 2,122,000
COSTS AND EXPENSES:
Cost of operations 1,356,000 1,324,000
Selling, general and administrative
expenses 823,000 951,000
Interest expense 258,000 240,000
Loss from sale of real estate 31,000 125,000
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TOTAL COST AND EXPENSES 2,468,000 2,640,000
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NET LOSS $ (562,000) $ (518,000)
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NET LOSS PER SHARE:
Continuing operations $ (0.46) $ (0.42)
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Weighted average number of
common shares outstanding 1,222,905 1,222,905
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See notes to consolidated financial statements.
5
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(562,000) $(518,000)
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Adjustments to reconcile net loss to net
cash used in operating activities:
Loss on sale of real estate investment 31,000 125,000
Depreciation 23,000 23,000
Changes in operating assets and liabilities:
Short and long-term accounts
receivable, net 28,000 ( 34,000)
Prepaid expenses and deposits 3,000 6,000
Accounts payable and accrued expenses 268,000 117,000
Unearned revenue (4,000) 18,000
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TOTAL ADJUSTMENTS 349,000 255,000
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Net cash used in
operating activities (213,000) (263,000)
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CASH FLOW FROM INVESTING ACTIVITIES:
Equipment purchases - -
Environmental reserve paydown - -
Payments for real estate improvements ( 5,000) (291,000)
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Net cash used in
investing activities ( 5,000) (291,000)
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CASH FLOWS FROM FINANCING ACTIVITES:
Short-term debt borrowings 145,000 332,000
Proceeds from sale of real estate 122,000 465,000
Repayment of borrowings - (200,000)
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Net cash provided by
financing activities 267,000 597,000
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NET INCREASE IN CASH AND CASH
EQUIVALENTS 49,000 43,000
CASH, BEGINNING OF PERIOD 54,000 29,000
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CASH, END OF PERIOD $ 103,000 $ 72,000
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See notes to consolidated financial statements.
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FRAWLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present
fairly the financial position at September 30, 2001, the results of
operations and changes in cash flows for the nine months then ended.
NOTE 2: The results of operations for the nine months ended September 30, 2001
as compared to the results of 2000 are not necessarily indicative of
results to be expected for the full year.
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FRAWLEY CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Specialized Health Services
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During the quarter ended September 30, 2001, operating revenues from Specialized
Health Services decreased by $160,000 when compared to the same period in 2000.
For the three months ending September 30, 2001, the health care operation
reported a $99,000 loss compared to a $38,000 profit for the same period in
2000. For the nine months ended September 30, 2001 the Net Revenue was
$1,899,000 compared to $2,104,000 in 2000 and the loss of $117,000 compared
disfavorably to the 2000 profit of $121,000. The Company continues to face
serious difficulties in attracting patients. There is a decreasing number of
insurance carriers providing benefits for inpatient treatment and in many HMO
plans there is little coverage for chemical dependency treatment. Emphasis by
insurance carriers on less expensive outpatient treatment programs makes the
Company's inpatient treatment less accessible to many potential patients. The
Company continues to present a strong argument for the success rate of the
Schick program, compared to other programs, but a more prevalent theme in health
care today is the cost of a program not the efficacy of the treatment. The
Company will continue to explore more effective ways of attracting patients to
the inpatient program.
The Company is currently seeking an investor to fund marketing and expansion of
the health care services or a purchaser for this subsidiary. No assurances can
be made that an investor will be found.
Real Estate
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For the quarter ending September 30, 2001 Real Estate Operations loss was
$143,000 compared to a loss in 2000 of $301,000. During the nine months ended
September 30, 2001 the real estate losses were $324,000 as compared to a loss of
$489,000 for the same period in 2000. Real estate losses continue as the company
incurs carrying costs and costs of improvements required to sell the properties.
In the third quarter, the Company sold a 40 Acre parcel for $122,500 to a third
party and recorded a loss on the sale in the amount of $27,000.
The undeveloped real estate market remains uncertain due to the down turns of
the economy. The Company is actively advertising the undeveloped real estate for
sale.
The County of Los Angeles has adopted more stringent rules covering the
development of raw land. These revised regulations will make it more difficult
to develop the Company's property.
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Liquidity and Capital Resources
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The Company's recurring losses from continuing operations and difficulties in
generating cash flow sufficient to meet its obligations raise substantial doubt
about its ability to continue as a going concern.
The Health Services reported a net operating loss of $117,000 for the nine
months ended September 30, 2001 compared to a profit of $121,000 in 2000. Debt
secured by the Seattle Hospital in the amount of $1,022,000 was due December 31,
2000. The Company has been unable to make its interest payments since February
2001. The Company has informed the lender that they are actively trying to
obtain financing for the business.
The Company continues to incur legal expenses and has an obligation in 2001 to
contribute to the Chatham Brothers toxic waste cleanup lawsuit.
Servicing outstanding debt continues to be a significant burden on the Company's
operations.
The Company intends to raise capital for the Health Care business by seeking
partners in health care. The sale of real estate may require further expenditure
to prepare the land for sale. The sale of the property is unpredictable and
highly uncertain and there is no assurance that the improvements will increase
the marketability of the property.
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PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
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The Company is named as a defendant in the Chatham Brothers toxic waste
cleanup lawsuit. In February 1991, the Company was identified as one of
many "Potentially Responsible Parties" (PRPs) in the Chatham Brothers
toxic waste cleanup site case, filed by the State of California -
Environmental Protection Agency, Department of Toxic Substances Control
(DTSC) and involved the Hartley Pen Company previously owned by the
Company.
On December 31, 1991, the Company and approximately 90 other companies
were named in a formal complaint. The Company joined a group of
defendants, each of whom was so notified and which are referred to as
Potentially Responsible Parties (PRPs) for the purpose of negotiating
with the DTSC and for undertaking remediation of the site. Between 1995
and 1998, the State of California adjusted the estimated cost of
remediation on several occasions. As a result, the Company has
increased their recorded liability to reflect their share. In January
of 1998 the final remediation plan was approved by the State and in
January of 1999 the PRP'S consented to it, as well as the allocation of
costs, and the consent decree was approved by the Court. As of
September 30, 2001, the Company had paid over $570,000 into the PRP
group and had a cash call contribution payable of $131,000. In
addition, they carried accrued short-term and long-term liabilities of
$78,000 and $1,424,000 respectively.
The Company is in dispute with its 1988 licensee over the trademark
"Classics Illustrated". In 1998, the Company terminated its license
agreement for breach of contract. The licensee has objected to the
termination stating that the Company failed to notify the licensee of a
potential problem with the trademark in Greece. A Greek court has ruled
against a sublicensee in Greece. The Company believes that the license
agreement supports that it adequately notified the licensee but would
have to investigate the international trademark involving "Classics
Illustrated." Management believes that there is no probable risk of
loss related to this dispute.
ITEM 5: Other Information
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Related Party Transactions
In the third quarter 2001, Frances Swanson, Trustee of the Frawley
Family Trust, loaned the Corporation funds to meet operating expenses.
The loans were secured by the Company's real estate. The following
loans were made in the third quarter:
July 6/th/, 2001 $ 4,018.00
July 16/th/, 2001 $ 11,589.06
August 17/th/, 2001 $ 23,000.00
10
September 26/th/, 2001 $ 10,000.00
ITEM 6: Exhibits and Reports on Form 8-K
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No reports on form 8-K were filed during the quarter ended September
30, 2001
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRAWLEY CORPORATION
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(REGISTRANT)
Date: January 15, 2002 By: /S/ MICHAEL P. FRAWLEY
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Michael P. Frawley, President
Authorized Officer and Chief
financial Officer)
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