<PAGE>
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 ACT OF 1934
For the quarterly period ended June 30, 1996
--------------------------------------------
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
----------------------------
FRAWLEY CORPORATION
- ---------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 95-2639686
- ---------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
(I.R.S. EMP I.D. NO)
15760 Ventura Boulevard, Suite 1201, Encino, California 91436
- ---------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
- --
(818)382-3682
- ---------------------------------------------------------------------------
(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_____
-----
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 June 30, 1996
- -------------------------------- ----------------------------------------
Common stock, par value $1 1,222,905
Total Number of Pages 12
-----
<PAGE>
FRAWLEY CORPORATION AND SUBSIDIARIES
INDEX
[CAPTION]
<TABLE>
<S> <C>
PART I: FINANCIAL INFORMATION PAGE NO.
Item 1: Financial Statements
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995...............................3
Consolidated Statements of Operations -
Three Months Ended June 30, 1996 and 1995.........................4
Consolidated Statements of Operations -
Six Months Ended June 30, 1996 and 1995...........................5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995...........................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........................................11
Item 6: Exhibits and Reports on Form 8-K.........................11
SIGNATURES.............................................................12
</TABLE>
2
<PAGE>
ITEM I: FINANCIAL STATEMENTS
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
------ ----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 109,000 $ 470,000
Accounts receivable, net 580,000 613,000
Note receivable 547,000 547,000
Prepaid expenses and other deposits 198,000 184,000
Other assets 0 150,000
----------- -----------
TOTAL CURRENT ASSETS 1,434,000 1,964,000
Long-term accounts receivable, net 164,000 138,000
Long-term notes receivable 215,000 215,000
Real estate investments, net 3,305,000 3,407,000
Property, plant and equipment, net 533,000 603,000
----------- -----------
TOTAL ASSETS $ 5,651,000 $ 6,327,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable to stockholders $ 1,336,000 $ 1,261,000
Accounts payable and accrued expenses 1,972,000 2,451,000
Unearned revenue 108,000 148,000
Notes payable 696,000 696,000
----------- -----------
TOTAL CURRENT LIABILITIES 4,112,000 4,556,000
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 (16,100,000) (15,868,000)
----------- -----------
2,300,000 2,532,000
Less common stock in treasury,
191,312 shares (at cost) (761,000) (761,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,539,000 1,771,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,651,000 $ 6,327,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1996 1995
-----------------------
<S> <C> <C>
REVENUES:
Net revenues $ 721,000 $ 860,000
---------- ----------
COSTS AND EXPENSES:
Cost of operations 484,000 503,000
Selling, general and administrative
expenses 251,000 536,000
Interest expense 67,000 93,000
---------- ----------
TOTAL COSTS AND EXPENSES 802,000 1,132,000
---------- ----------
LOSS FROM CONTINUING OPERATIONS (81,000) (272,000)
DISCONTINUED OPERATIONS:
Loss from discontinued operations (16,000)
---------- ----------
NET LOSS $ (81,000) $ (288,000)
========== ==========
NET LOSS PER SHARE:
Continuing operations $ (.07) $ (.22)
Discontinued operations (.01)
---------- ----------
(.07) (.23)
========== ==========
Weighted average number of
common shares outstanding 1,222,905 1,222,905
========== ==========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1996 1995
-------------------------
<S> <C> <C>
REVENUES:
Net Revenues $1,464,000 $1,700,000
Loss on sale of real estate
investment (52,000)
---------- ----------
TOTAL REVENUES 1,464,000 1,648,000
COSTS AND EXPENSES:
Cost of operations 946,000 991,000
Selling, general and administrative
expenses 609,000 1,061,000
Interest expense 141,000 183,000
---------- ----------
TOTAL COST AND EXPENSES 1,696,000 2,235,000
---------- ----------
Loss from continuing operations (232,000) (587,000)
Income from discontinued operations 63,000
---------- ----------
NET LOSS $ (232,000) (524,000)
========== ==========
NET (LOSS) INCOME PER SHARE:
Continuing operations $ (0.19) $ (0.48)
Discontinued operations 0.05
---------- ----------
(0.19) (0.43)
========== ==========
Weighted average number of
common shares outstanding 1,222,905 1,222,905
========== ==========
</TABLE>
5
<PAGE>
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(232,000) $(524,000)
--------- ---------
Adjustments to reconcile net loss to net
cash used in non-operating activities:
Loss on sale of real estate investment 52,000
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 78,000 105,000
Changes in operating assets and liabilities:
Short- and long-term accounts
receivable, net 7,000 288,000
Prepaid expenses and deposits (14,000) (64,000)
Other assets 150,000
Accounts payable and accrued expenses (480,000) (90,000)
Unearned revenue (40,000) (595,000)
--------- ---------
TOTAL ADJUSTMENTS (299,000) (304,000)
--------- ---------
Net cash used in
operating activities (531,000) (828,000)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Equipment purchases (8,000) (3,000)
Proceeds from sale of real estate investment 285,000
Payments for real estate investments (51,000) (115,000)
Refunds received on real estate 153,000
--------- ---------
Net cash provided by
investing activities 94,000 167,000
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITES:
Short-term debt borrowings 76,000 144,000
Repayment of borrowings (193,000)
--------- ---------
Net cash provided or used by
financing activities 76,000 (49,000)
--------- ---------
Net cash used for continuing operations (361,000) (710,000)
--------- ---------
Net cash provided by discontinued operations 500,000
--------- ---------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (361,000) (210,000)
CASH, BEGINNING OF PERIOD 470,000 245,000
--------- ---------
CASH, END OF PERIOD $109,000 $35,000
========= =========
</TABLE>
6
<PAGE>
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 June 30, 1996, the results of
operations and changes in cash flow for the six months then ended.
NOTE 2: Revenues from discontinued operations for the six months ended June
30, 1995 totaled $988,000.
NOTE 3: The results of operations for the six months ended June 30, 1996 and
1995 are not necessarily indicative of results to be expected for the
full year.
7
<PAGE>
FRAWLEY CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Specialized Health Services
- ---------------------------
During the quarter ended June 30, 1996, operating revenues from Specialized
Health Services remained constant when compared to the same period in 1995. 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, expanding the program through unit
operation and outpatient treatment programs.
Revenues from stop smoking centers remained constant for the three months ended
June 30, 1996 when compared to the same period in 1995. The Company is competing
with less expensive programs and the success of the treatment does not appear to
be a factor. The non-prescription access, to stop-smoking patches and gum
products provides individuals with another option in selecting a program.
The Company is seeking to expand the business through the development of
programs which meet the Company's standard of treatment and is also price
competitive.
Schick will continue to offer educational material regarding the addiction cycle
and chemical dependency and to popularize aversion treatment methodology.
Real Estate
- -----------
The real estate operating loss during the quarter ended June 30, 1996 was
$73,000 as compared to a loss of $464,000 for the same period in 1995. Real
estate losses result from lack of sales, carrying costs, improvements required
to sell the property and litigation cost.
The undeveloped real estate market in Southern California is showing signs of
improvement. The Company is actively advertising the undeveloped real estate for
sale. Management is confident the real estate market will continue to improve
along with overall economic conditions in Southern California.
8
<PAGE>
Liquidity and Capital Resources
- -------------------------------
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 Company's operating losses have decreased significantly as revenue has
stabilized and operating subsidiaries previously posting large losses, have been
sold. The Company anticipates further reductions in Corporate overhead as excess
office space is subleased and less expensive space is leased.
The Seattle Hospital and outpatient treatment program reported a $90,000 profit
for the three months ended June 30, 1996 compared to a $56,000 profit for the
three months ended June 30, 1995. Management believes the positive results will
continue.
The Company has retired some debt obligations but continues to struggle to
service remaining debt. Debt secured by the Seattle Hospital in the amount of
$680,000 was due July 1, 1996. A sixty-day extension was given by the lender.
The Company is confident alternative financing will be obtained during the
extension period. If replacement financing is not secured the Company could face
penalties on the existing loan.
The Company continues to incur legal expenses and has an obligation in 1996 to
contribute $180,000 to the Chatham Brothers toxic waste cleanup lawsuit. The
Company intends that the contribution will be funded from real estate sales or
loans. Real estate improvements have increased the cash shortage as the Company
must borrow in order to pay for the improvements.
The Company has retired some debt obligations but continues to struggle to
service remaining debt.
The settlement of certain legal matters has removed cash requirements to support
litigation which was generally funded by loans.
The Company plans to raise needed capital by forming alliances with other health
care providers 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 improve the
marketability of the property.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
-----------------
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. During 1995,
the State of California adjusted the estimated cost of remediation. Soil
remediation is estimated at $2,000,000 with the Company's participation
at 3.8% or $76,000. Water clean up is estimated at $6,000,000 with the
Company's share at 5.67% or $340,000. The Company has recorded a
liability for its estimated share of the assessments, net of insurance
recovery, in the accompanying financial statements. These amounts are
estimates and in 1996, the PRPs will finalize a new contract with the
DTSC on total cost of remediation. The Company is also liable for its
share of site study costs and in connection with such costs, the Company
paid into the PRP group $38,000 in 1993, $271,000 in 1994 and has an
unfunded cash call contribution of $90,000 in 1995 and an estimated
contribution in 1996 of $93,000. The Company continues to incur legal
cost for representation in this matter.
In June 1989, the Company filed a lawsuit in the Los Angeles County
Superior Court, Frawley Corporation vs. Harold Spinner, etc. et al,
--------------------------------------------------
which involves the rights to the proceeds from the sale of certain
property once allegedly owned by the Company and Mr. Spinner. In
November 1989, Harold Spinner cross-complained against the Company and
individuals, and in January 1990, Harold Spinner amended the cross-
complaint. The Spinners seek approximately $4.4 million in damages and
punitive damages based on fraud. On July 8, 1990, the Company amended
its complaint against Mr. Spinner, seeking an accounting of the purchase
price and carrying costs, as well as adding a claim of fraud. In 1993,
the matter was set for trial on two occasions and was continued at each
date. On October 7, 1993, Harold Spinner filed personal bankruptcy and
listed his claim against the Company at $1 million. The filing of
bankruptcy causes an automatic stay of the state court proceedings. Mr.
Spinner has been discharged from bankruptcy. The Company filed a motion
to have the case dismissed and a hearing was held August 23, 1995
whereby an order dismissing the complaint was signed by the court and
entered on September 6, 1994. Mr. Spinner filed an appeal on October 29,
1995. Due to court congestion it generally takes 18 months to two years
from the time notice of appeal is filed to the issuance of written
decision. The Company expects the appeal court to uphold the original
decision for dismissal.
10
<PAGE>
ITEM 5: Other Information
-----------------
None
ITEM 6: Exhibits and Reports on Form 8-K
--------------------------------
Exhibits
--------
27 Financial Data Schedule
No reports on form 8-K were filed during the quarter ended
June 30, 1996.
11
<PAGE>
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
---------------------------------------
(REGISTRANT)
Date: August 13, 1996 By: /s/ Betty R. Hurn
--------------------------- ---------------------------------
(Authorized Officer and Chief
Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 109,000
<SECURITIES> 0
<RECEIVABLES> 2,118,000
<ALLOWANCES> 612,000
<INVENTORY> 60,000
<CURRENT-ASSETS> 138,000
<PP&E> 6,088,000
<DEPRECIATION> 2,250,000
<TOTAL-ASSETS> 5,651,000
<CURRENT-LIABILITIES> 4,112,000
<BONDS> 0
0
0
<COMMON> 1,414,000
<OTHER-SE> 125,000
<TOTAL-LIABILITY-AND-EQUITY> 5,651,000
<SALES> 1,464,000
<TOTAL-REVENUES> 1,464,000
<CGS> 946,000
<TOTAL-COSTS> 946,000
<OTHER-EXPENSES> 609,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141,000
<INCOME-PRETAX> (232,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (232,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (232,000)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> 0
</TABLE>
