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 March 31, 2001
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OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXHCANGE
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 March 31, 2001
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Common stock, par value $1 1,222,905
Total Number of Pages 11
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FRAWLEY CORPORATION AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION PAGE NO.
Item 1: Financial Statements
Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 ............................ 3
Consolidated Statements of Operations -
Three Months Ended March 31, 2001 and 2000 ...................... 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000 ...................... 5
Notes to Consolidated Financial Statements ...................... 6
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of Operations ................ 7-8
PART II: OTHER INFORMATION
Item 1: Legal Proceedings ...................................... 9
Item 5: Other Information ...................................... 9
Item 6: Exhibits and Reports on Form 8-K ....................... 10
SIGNATURES ........................................................... 11
2
ITEM I: FINANCIAL STATEMENTS
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
ASSETS 2001 2000
------ ------------ ------------
(Unaudited)
CURRENT ASSETS
Cash $ 54,000 $ 54,000
Accounts receivable, net 537,000 433,000
Prepaid expenses and other deposits 90,000 93,000
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TOTAL CURRENT ASSETS 681,000 580,000
Long-term accounts receivable, net 0 95,000
Real estate investments, net 1,724,000 1,723,000
Property, plant and equipment, net 444,000 451,000
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TOTAL ASSETS $ 2,849,000 $ 2,849,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
Notes payable to stockholders $ 3,303,000 $ 3,277,000
Accounts payable and accrued expenses 1,298,000 1,230,000
Environmental reserve 78,000 78,000
Note Payable 70,000 70,000
Unearned revenue 93,000 30,000
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TOTAL CURRENT LIABILITIES 4,842,000 4,685,000
LONG TERM LIABILITIES
Environmental reserve 1,424,000 1,424,000
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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 (21,056,000) (20,899,000)
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(2,656,000) (2,499,000)
Less common stock in treasury,
191,312 shares (at cost) (761,000) (761,000)
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TOTAL STOCKHOLDERS' EQUITY (3,417,000) (3,260,000)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,849,000 $ 2,849,000
============ ============
See notes to consolidated financial statements
3
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
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2001 2000
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REVENUES:
Net revenues $ 665,000 $ 796,000
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COSTS AND EXPENSES:
Cost of operations 492,000 426,000
Selling, general and administrative
expenses 246,000 288,000
Interest expense 84,000 77,000
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TOTAL COSTS AND EXPENSES 822,000 791,000
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NET (LOSS)/INCOME $ (157,000) $ 5,000
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NET (LOSS)/INCOME PER SHARE:
Continuing operations $ (.13) $ .004
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(.13) .004
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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 STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss)/Income $(157,000) $ 5,000
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Adjustments to reconcile net (Loss)/Income to net cash used in operating
activities:
Depreciation 8,000 7,000
Changes in operating assets and liabilities:
Short- and long-term accounts
receivable, net (32,000) (76,000)
Prepaid expenses and deposits 24,000 8,000
Accounts payable and accrued expenses 68,000 9,000
Unearned revenue 63,000 22,000
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TOTAL ADJUSTMENTS 131,000 (30,000)
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Net cash used in operating activities (26,000) (25,000)
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CASH FLOW FROM INVESTING ACTIVITIES:
Equipment purchases 0 0
Refunds received on real estate 0 (21,000)
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Net cash used in investing activities 0 (21,000)
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CASH FLOWS FROM FINANCING ACTIVITES:
Short-term debt borrowings 26,000 54,000
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Net cash provided by financing activities 26,000 54,000
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NET DECREASE IN CASH AND CASH
EQUIVALENTS 0 8,000
CASH, BEGINNING OF PERIOD 54,000 29,000
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CASH, END OF PERIOD $ 54,000 $ 37,000
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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 March 31, 2001, the results of
operations and changes in cash flow for the three months then ended.
NOTE 2: The results of operations for the three months ended March 31, 2001
and 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 March 31, 2001, operating revenues were $668,260, which
compared to revenue of the same period in 2000 of $780,060, resulted in a
$111,800 decrease. In 2001, the health care operation loss was approximately
$32,000 as compared to a $134,000 profit in 2000. The first quarter operating
results are not necessarily an indication of the future quarters operating
results. 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 currently is seeking an investor to fund marketing and expansion of
the health care services or a purchaser for this subsidiary. No assurance can be
made that an investor or purchaser will be found.
Real Estate
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The real estate operating loss during the quarter ended March 31, 2001 was
approximately $93,000 as compared to a loss of $77,000 for the same period in
2000. Real estate losses continue as the Company incurs carrying costs and
improvements required to sell the property.
The undeveloped real estate market in Southern California is showing signs of
improvement. The Company is actively advertising the undeveloped real estate for
sale.
Los Angeles County Regional Planning Commission, which governs real estate
development, recently had public hearings to review a plan to further restrict
development of land in the Santa Monica Mountains. 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.
7
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 Seattle Hospital and outpatient treatment program reported approximately a
$32,000 loss for the three months ended March 31, 2001 compared to a $134,000
profit for the three months ended March 31, 2000. Management expects that cash
flow will further tighten as the Company continues to experience a transition
from third party reimbursement to direct payment from patients. Debt secured by
the Seattle Hospital in the amount of $1,022,000 was due December 31, 2000. This
date has been informally extended.
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 and selling real estate. The sale of real estate may
require further expenditures to prepare the land for sale which would be
financed through borrowings. 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. The limited resources available to the
Company will be directed at revitalization of the health care business and the
continued reduction of non-producing assets, as the Company seeks to find a
buyer or investor for the health care business.
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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
PRPs for the purpose of negotiating with the DTSC and for undertaking
remediation of the site. 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 December 31, 2000, the Company had paid
over $570,000 into the PRP group and had a cash call contribution
payable of $131,000. In addition, the Company 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 First Quarter 2001, Frances Swanson Trustee of the Frawley
Family Trust, loaned the Corporation funds to meet short-term
operating expenses. The loans were secured by the Company's real
estate. The following loans were made:
February 23rd, 2001 $21,000.00
March 25/th/, 2001 4,657.17
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ITEM 6: Exhibits and Reports on Form 8-K
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None
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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: September 26, 2001 By: s/ Michael P. Frawley
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Michael P. Frawley
(Authorized Officer and CEO
and Chairman of the Board)
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