<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 September 30, 1999
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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
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 95-2639686
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(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMP I.D. NO)
OR ORGANIZATION)
28720 Roadside Drive. Suite 128, Agoura Hills, California 91301
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(818)735-6622
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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, 1999
- ----------------------------------- ----------------------------------------
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, 1999 and December 31, 1998......................... 3
Consolidated Statements of Operations -
Three Months Ended September 30, 1999 and 1998................... 4
Consolidated Statements of Operations -
Nine Months Ended September 30, 1999 and 1998.................... 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998.................... 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
2
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ITEM I: FINANCIAL STATEMENTS
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
------ ------------- ------------
(Unaudited)
CURRENT ASSETS
Cash $ 27,000 $ 16,000
Accounts receivable, net 418,000 514,000
Prepaid expenses and other deposits 112,000 135,000
------------- ------------
TOTAL CURRENT ASSETS 557,000 665,000
Long-term accounts receivable, net 34,000 79,000
Real estate investments, net 2,952,000 3,134,000
Property, plant and equipment, net 484,000 463,000
------------- ------------
TOTAL ASSETS $ 4,027,000 $ 4,341,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable to stockholders $ 2,853,000 $ 2,529,000
Accounts payable and accrued expenses 1,099,000 1,040,000
Environmental reserve 31,000 121,000
Unearned revenue 48,000 84,000
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TOTAL CURRENT LIABILITIES 4,031,000 3,774,000
LONG TERM LIABILITIES
Notes Payable 70,000 70,000
Environmental Reserve 1,497,000 1,497,000
------------- ------------
TOTAL LONG TERM LIABILITIES 1,567,000 1,567,000
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 (19,210,000) (18,639,000)
------------- ------------
(810,000) (239,000)
Less common stock in treasury,
191,312 shares (at cost) (761,000) (761,000)
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TOTAL STOCKHOLDERS' EQUITY (1,571,000) (1,000,000)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,027,000 $ 4,341,000
============= ============
See notes to consolidated financial statements.
3
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FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUES:
Net revenue $ 620,000 $ 845,000
(Loss) from sale of real estate (22,000) (80,000)
---------- ----------
TOTAL REVENUES 598,000 765,000
COSTS AND EXPENSES:
Cost of operations 434,000 492,000
Selling, general and administrative
expenses 402,000 167,000
Interest expense 73,000 67,000
---------- ----------
TOTAL COSTS AND EXPENSES 909,000 726,000
---------- ----------
NET INCOME(LOSS) $ (311,000) $ 39,000
========== ==========
NET INCOME(LOSS) PER SHARE:
Continuing operations $(.25) $ (.03)
========== ==========
Weighted average number of
common shares outstanding 1,222,905 1,222,905
========== ==========
</TABLE>
See notes to consolidated financial statements
4
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FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Net Revenues $1,969,000 $2,244,000
(Loss) from sale of real estate (22,000) (80,000)
----------- -----------
TOTAL REVENUES 1,947,000 2,164,000
COSTS AND EXPENSES:
Cost of operations 1,321,000 1,353,000
Selling, general and administrative
expenses 990,000 798,000
Interest expense 207,000 198,000
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TOTAL COST AND EXPENSES 2,518,000 2,349,000
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NET LOSS $ (571,000) $ (185,000)
=========== ===========
NET (LOSS) PER SHARE:
Continuing operations $ (0.47) $ (0.15)
=========== ===========
Weighted average number of
common shares outstanding 1,222,905 1,222,905
=========== ===========
</TABLE>
5
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FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Profit (Loss) $(571,000) $(185,000)
----------- -----------
Adjustments to reconcile net loss to net
cash used in non-operating activities:
Loss on sale of real estate investment (22,000) 80,000
Write down of real estate investments 343,000
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 24,000 24,000
Changes in operating assets and liabilities:
Short and long-term accounts
receivable, net 140,000 118,000
Prepaid expenses and deposits 24,000 12,000
Accounts payable and accrued expenses 59,000 (120,000)
Notes payable write down
Unearned revenue (36,000) 30,000
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TOTAL ADJUSTMENTS 532,000 144,000
----------- -----------
Net cash used in
operating activities (39,000) (41,000)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Equipment purchases (45,000) (39,000)
Environmental reserve paydown (90,000)
Payments for real estate improvements (161,000) (35,000)
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Net cash provided by
investing activities (296,000) (74,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt borrowings 374,000 101,000
Proceeds from sale of real estate 22,000 103,000
Repayment of borrowings (50,000) (99,000)
----------- -----------
Net cash provided or (used in)
financing activities 346,000 105,000
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NET DECREASE IN CASH AND CASH
EQUIVALENTS (11,000) (10,000)
CASH, BEGINNING OF PERIOD 16,000 73,000
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CASH, END OF PERIOD $ 27,000 $ 63,000
=========== ===========
</TABLE>
6
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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, 1999, the results of
operations and changes in cash flow for the nine months then ended.
NOTE 2: Revenues from continued operations for the nine months ended September
30, 1999 totaled $1,969,000 compared to $2,244,000 for 1998.
Operating loss results for 1999 were $571,000 as compared to $185,000
in 1998.
NOTE 3: The results of operations for the nine months ended September 30, 1999
and 1998 are not necessarily indicative of results to be expected for
the full year.
7
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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
- ---------------------------
During the quarter ended September 30, 1999, operating revenues from Specialized
Health Services decreased by $173,000 when compared to the same period in 1998.
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 finance marketing and expansion
of the health care services or a purchaser for this subsidiary.
Real Estate
- -----------
The real estate operating loss during the quarter ended September 30, 1999 was
$233,000 when compared to a loss of $165,000 for the same period in 1998. Real
estate losses continue as the company incurs carrying costs and improvements
required to sell the properties.
In the third quarter, the Company sold a 10 Acre parcel for $321,000.
The undeveloped real estate market in Southern California is showing signs of
improvement. The Company is actively advertising the undeveloped real estate for
sale.
The Los Angeles County Regional Planning Commission which governs real estate
development has announced that they will have public hearings to review a plan
to down zone undeveloped land in the Santa Monica Mountains. The effect of this
plan is not clear yet.
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 Seattle Hospital and outpatient treatment programs reported a net operating
loss of $14,000 for the nine months ended September 30, 1999 compared to a
$135,000 profit for the same period in 1998. Management believes these results
will continue as the Company goes through the
8
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transition from third party reimbursement to direct payment from patients. Debt
secured by the Seattle Hospital in the amount of $800,000 has been extended
until August 1, 2000.
The Company continues to incur legal expenses and has an obligation in 1999 to
contribute to the Chatham Brothers toxic waste cleanup lawsuit.
Real Estate and Corporate overhead continue to produce losses which the
operating business is unable to absorb. The sale of real estate may require
further expenditure to prepare the land for sale, which would be financed
through borrowings. The sale of real estate 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.
9
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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. 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 December 31,
1998, the Company had paid over $500,000 into the PRP group and had a
cash call contribution payable of $75,091,000. In addition, they carried
accrued short-term and long-term liabilities of $31,000 and $1,497,000
respectively. In September 1999 the Company made A $20,000 payment to
the PRP Group.
The company is in dispute with its 1988 licensee over the trademark
"Classics Illustraded". 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. In the licensee agreement the Company
notified the licensee that the license would have to investigate the
international trademark involving " Classics Illustraded." Management
does not foresee any significant risk in connection with the case.
The Company is named as a defendant in a sexual harassment case
involving two of its employees at one of the outpatient clinics. The
case was previously decided in the Company's favor but this was set
aside in the appeals court decision. The case is being retried in court
at this time. Management does not believe there to be any merit to the
case and does not foresee any significant risk. All costs to date have
been paid by the Company's Insurance.
10
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ITEM 5: Other Information
-----------------
Related Party Transactions
In 1999, Michael Frawley, Chairman of the Board, loaned the Corporation
funds to meet short term borrowings and operating expenses. The loans
were secured by the Company's real estate. The following loans were
made:
July 9/th/, 1999 $40,000.00
July 26/th/ 1999 15,000.00
August 13/th/ 1999 35,000.00
September 3/rd/ 1999 24,000.00
On August 31/st/, 1999, the Company sold a 10 acre parcel of land to an
unrelated party for $321,000. As part of that transaction secured loans
on the property were paid off. P. Joseph Frawley, MD, brother of the
Chairman , received $60,862,and Gerardine Frawley mother of the
Chairman, received $105,242.
ITEM 6: Exhibits and Reports on Form 8-K
--------------------------------
No reports on form 8-K were filed during the quarter ended September 30,
1999.
Exhibit 27 -Financial Data Schedule
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: November 22, 1999 By: /s/ Michael P. Frawley
----------------------------- ------------------------------
Michael P. Frawley, President
Authorized Officer and Chief
financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 27,000
<SECURITIES> 0
<RECEIVABLES> 1,019,000
<ALLOWANCES> 567,000
<INVENTORY> 57,000
<CURRENT-ASSETS> 56,000
<PP&E> 4,627,000
<DEPRECIATION> 1,192,000
<TOTAL-ASSETS> 4,027,000
<CURRENT-LIABILITIES> 5,598,000
<BONDS> 0
0
0
<COMMON> 1,414,000
<OTHER-SE> (2,985,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,027,000
<SALES> 1,947,000
<TOTAL-REVENUES> 1,947,000
<CGS> 1,321,000
<TOTAL-COSTS> 1,321,000
<OTHER-EXPENSES> 990,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 207,000
<INCOME-PRETAX> (571,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (571,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (571,000)
<EPS-BASIC> (0.47)
<EPS-DILUTED> 0
</TABLE>
